FROM FIELD
TO PLATE
ANNUAL REPORT 2019
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MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report Appendices Welcome to Magnit
Our main purpose is to provide safe, nutritious, affordable food and products
to make the lives of millions of our customers better. We have a strong culture
of continuing operational improvement and focus on delivering exceptional quality
and customer service. Magnit takes a long-term approach to investment and
is committed to increasing shareholder value through sound commercial, responsible
and sustainable business decisions that deliver steady growth in earnings
and dividends.
For more information about strategy,
vision and mission, please see page 42.
TABLE OF CONTENTS
Strategic Report
14 Who we are
18 Chairman’s Statement
20 CEO’s Statement
26 What Sets Us Apart
36 Market Overview
42 Our Strategy
46 Our Business Model
48 Operational Review
70 Financial Review
76 Principal Risks and Uncertainties
80 Sustainable Development
Appendices
135 Appendix 1. Report on Complying
with the Principles and
Recommendations of the Corporate
Governance Code
156 Appendix 2. Major Transactions
157 Appendix 3. Related Party
Transactions
158 Appendix 4. Financial Statements
244 Appendix 5. Management
Statement of Responsibility
Сorporate Governance Report
84 Corporate Governance Framework
245 Glossary
247 About the Report
249 Contact Information
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report Appendices We produce
environmentally
friendly products
Magnit is proud of its own production
facilities and adheres to the principles
of continuous high-quality production.
We put a lot of effort into responsibly sourcing
the food our customers choose for their families.
Magnit’s own production facilities are located in 6 regions across
the country, where we have built modern greenhouses and industrial
complexes. We bear responsibility for offering the best products
to every customer within the area of our operations.
‒ We try our best to minimise the environmental impact from
our operations by using more sustainable trucks and speeding up
the delivery process
‒ We monitor the journey each product makes to reach the shelf
and implement quality control at every step of the product’s journey
‒ We cooperate with local suppliers, create jobs and organise
trainings for employees to ensure that local communities benefit
from what we do
For more information about our own
production, please see page 65.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report We control our
production chain
at every step
One of our most important goals is to become
a vital assistant to every family every single day.
In a compact supermarket or in a convenience
store near home, we want our customers to
always leave satisfied.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report Our logistics system plays
an important role in meeting
the needs of our customers
Logistics is about optimising the product
flow from receipt of goods to warehousing
and picking, to delivery to stores and customers.
Efficient logistics create conditions for
favourable and profitable growth.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report We enhance quality control
and freshness throughout
the supply chain
Our experts control all the links of the Magnit
food production chain. That is why we confidently
bear personal responsibility to each customer
for the quality and environmental friendliness
of our production.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report We have launched
a cross-format loyalty card
with a points system and three
loyalty levels
The cross-format loyalty programme is an integral
part of our developing ecosystem and one of
the key tools for effective communication with
different customer audiences.
The key feature of the Magnit loyalty programme is
the opportunity to collect and spend bonus points
across all our store formats.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report We deliver freshness
and natural products
to your table
At Magnit we believe all the people want to
see high-quality foods at their kitchen tables.
Consumers’ expectations of the food retail
sector are growing every year and we comply
with them to the fullest extent.
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OUR MISSION AND VALUES
Our values are a basis for our mission: to become
the store of choice for every Russian family.
Magnit is a unique company
within Russian retail.
We operate a multi-format model,
which includes convenience
stores and supermarkets,
drogeries and pharmacies. As the
only vertically integrated retailer,
Magnit operates 15 agricultural
and food production units in
various parts of Russia. These
production facilities are central
to ensuring the supply of high
quality produce for our private
label (PL) range and play a vital
role in enabling the Company’s
sourcing of local and sustainable
products. Our greenhouses,
including a mushroom complex,
are among the largest in Eastern
Europe.
Magnit is also one of the leading
logistics operators in the country.
We own 38 distribution centers across
Russia and our 5,656 trucks make us
one of the largest fleet owners
in Europe.
Magnit was founded in Krasnodar,
in the South of Russia, in 1994.
In 25 years, we have developed from
a small regional private company,
to one of the most renowned food
retailers in Russia, serving nearly 13 mln
customers daily. Magnit went public
in 2006 and is traded on both the
Moscow and London Stock Exchanges
(MGNT). According to audited IFRS
results for the 2019 financial year,
Magnit’s revenue amounted to
RUB 1,368.7 bln, while EBITDA (IAS 17)
reached RUB 83.1 bln.
Magnit has a credit rating issued by
Standard & Poor’s of “BB”, Stable
outlook.
Magnit is a leading Russian retailer.
We operate 20,725 stores in 3,742 cities
and townships across the country
and employ more than 300,000 people.
The scale of our operations means that
we are the largest retailer in Russia.
Store of choice for
every Russian
family
1.
Caring
for customers
We build long-lasting
connections with our
customers.
Our personnel easily
relate to customers,
because they also
shop in Magnit
2.
Stronger
together
We achieve our
goals through joint
concerted actions,
incorporating
the views of our
employees
3.
Achieving
results
4.
Taking
responsibility
We always achieve
our goals and strive
to do so in the most
efficient manner
We know what we
stand for and we take
responsibility for our
decisions
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Highlights of the Year
In 2019 Magnit celebrated its 25th anniversary.
The year was marked by a host of changes at the Company:
we improved our corporate governance system, introduced
new store concepts and revamped existing stores.
What we
achieved
Operations
Securities
Corporate Governance
‒ IIntroduced new brand architecture
for Magnit family of stores
‒ Developed CVP for each format
‒ Launched a unified brand for all stores in our
family under the slogan "Let's bring families
together!"
‒ Completed a buyback programme
‒ Jan Dunning elected
launched in 2018
as President and then as CEO
‒ Announced dividends
for 9M 2018 and FY2018 totalling
RUB 31 bn
‒ Extended and strenghtened
the Management Board
‒ AGM elected a new Board
‒ ACRA assigned a credit rating
of Directors
‒ Improved organisational structure,
giving regions greater decision-making
autonomy
‒ Established KPI system, aligned with
the Company’s goals
‒ Established foundation for category
management function
‒ Reviewed assortment for each format
‒ Developed private label and own production
strategies
‒ Launched a multi-format loyalty programme
and introduced first co-brand projects
(e.g. Tinkoff, Pochtabank)
‒ Piloted online deliveries in Moscow
and Krasnodar.
‒ Developed Sustainability
Strategy and a number of other
sustainability initiatives were
launched.
of AA (RU) to PJSC Magnit and its
securities, with a Stable outlook
‒ Issued five exchange bond series
with a total nominal volume
of RUB 50 bln. ACRA Rating
Agency assigned a credit rating
of AA(RU) to each of these bond
issues
‒ S&P Global Ratings has affirmed
the rating of Magnit at BB, Stable
outlook.
1.7
Total amount of waste,
mln tonnes
0.4
Total amount
of recycled waste,
mln tonnes
20,7251
Total number of stores
14,622
Convenience stores
5,630
Drogeries
473
Supermarkets
7,238
Selling space,
thous. sq. m
0.9
CO2 emissions,
mln tonnes
308,432
Employees
5,656
Trucks
38
Distribution centres
1,686
Warehouse space,
thous. sq. m
15
Agricultural & food
production units
13
Private labels,
> 500 SKUs
RUB 1,368.7
Revenue, bln
6.1%
EBITDA margin (IAS 17)
10.6%
Revenue growth
RUB 58.6
CAPEX (IAS17), bln
RUB 312.0
Gross profit, bln
1.3%
Net income margin (IAS 17)
(1) Does not include pharmacies.
RUB 31.0
Dividends announced
for 2018, bln
3,742
Cities & townships
with stores
4,690
Tickets, mln
20 mln
Number of active
loyalty cardholders
58%
Penetration in sales
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Dear shareholders,
In 2019 Magnit celebrated its 25th anniversary,
giving us a chance to reflect on the Company’s
many achievements and present some recent
successful developments.
Since its founding, Magnit has grown to
become one of the most recognised brands in
Russia and one of the country’s largest retail
and food production businesses. Our industry
is continuously evolving and we strive to be
at the forefront of the best retail practices.
Recent developments in the retail industry
along with changing market trends have
created new challenges and opportunities
for the Company. We now intend to capitalise
on every strength Magnit has accumulated
throughout its history while building a
business fit for the future.
2019 proved to be a milestone year for
Magnit, as the Company made a number
of significant achievements, overcame
difficulties and implemented brand new
solutions. We put considerable effort into
enhancing the efficiency of our operations,
improving our corporate governance and
streamlining our balanced approach to
the organizational structure. A year after
initiating this transformation, we have seen
positive results in our operations, including
encouraging trends in our LFL indicators.
Our ultimate goal is to make Magnit a value-
for-money store, providing high-quality
products at affordable prices. The business
transformation remains on track, and we have
made good progress in improving
the Company’s operations. In 2019 we
implemented new policies and processes
which will guide our actions and enable
the execution of our Strategy. Meanwhile,
we continued to adhere closely to our top
priorities – fulfilling our customers’ needs,
building on our numerous competitive
advantages and creating a solid foundation
for Magnit’s future development.
During the prior year, a relatively strained
macroeconomic environment in Russia
produced challenging conditions for both
retailers and consumers. However, the retail
market is still consolidating and showing modest
growth. We are attentive to the changing
habits of retail customers who are increasingly
demanding better quality produce and more
engaging experiences but remain price sensitive.
Customers are increasingly looking for fresh
and responsibly sourced produce,
and we are meeting their needs through
our focus on our own production facilities,
collaborations with local producers and our
carefully crafted assortments.
The changes in our business are already
visible to our customers. In 2019 Magnit
introduced a new unified brand architecture
for its stores, strengthening our corporate
identity and improving customer retention.
All retail formats, including convenience
stores, supermarkets, drogeries and
pharmacies now share the same design
and are linked together by our cross-format
loyalty programme.
We are extending our loyalty-based approach
to our human resource policy, which
is particularly important given the pace
of Magnit’s transformation. We know that our
entire team across the country is at the heart
of the Company’s success, so developing
and retaining our employees remains one of
our top priorities.
In line with our operational transformation,
we have continued to align our corporate
governance system with international best
practices. A new position of President was
established with the appointment
of Jan Dunning, who brought a wealth
of experience and valuable expertise to the
role, before taking the lead as CEO. We also
strengthened and expanded our Board
of Directors to nine members. The
Committees of the Board are now Chaired
only by independent non-executive directors
and consist mainly of independent directors.
We also strengthened the Management
Board by appointing five new managers
to strategic positions, including a new
Human Resource Director and Chief
Investment Officer. Another element of
our improved corporate governance system
is a KPI system, which seeks to align the
current motivation of employees at all levels.
We fully recognise the various impacts
that Magnit has on a range of different
stakeholders and we use this knowledge
to develop our approach to social
responsibility. In 2020 we look forward to
adopting important policies on sustainable
development issues and introducing
a new Sustainability Strategy.
I would like to thank my fellow members of the
Board of Directors for their continual support
and efficient performance which has made
an important contribution to the implementation
of Magnit’s Strategy.
I would also like to extend my gratitude to
the Management Board. Each of its members
plays a vital role in the execution of our
complex transformation process. Our new
CEO, Jan Dunning, has made an immediate
impact and I would like to thank him for joining
our team with the will to lead the evolution
of Magnit and for sharing his vision with us.
The results we have achieved in 2019 would
have been impossible without the contribution
of each of Magnit’s employees, a big family
which unites over 300 thousand people across
Russia. Their enthusiasm and professionalism
allow us to deliver the high standards of service
and keen customer focus that is at the core of
our strategy. They have also shown flexibility
and a readiness to adapt to meet the inevitable
challenges of our business transformation and
I sincerely appreciate their tireless efforts over
the last year.
Finally, I would like to express our gratitude
to all of Magnit’s shareholders for their ongoing
support and for sharing our belief in Magnit.
I am confident that we will make great progress
in 2020, successfully implementing the
Company’s transformation, achieving the goals
we have set ourselves and delivering value for
our shareholders. If all of us at Magnit remain
focused on working as one united team to
develop our competitive advantages, I am
confident that we will attain every objective.
Charles Ryan
Chairman of the Board of Directors
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CEO’s Statement
Dear colleagues,
It was an honour to become part of the Magnit
team in 2019, and a privilege to be given
responsibility for driving the transformation
of the Company into an innovative modern
retailer.
Our strategic vision for Magnit places our
customers at the heart of our organisation and
seeks to capture synergies from one umbrella
brand across multiple Magnit formats. We are
fully committed to fulfilling customer needs
via the implementation and adjustment of
our customer value proposition. We intend
to maintain and build upon the Company’s
differentiating strengths including our own
production capabilities, our wide geographical
coverage and one of the largest supply chain
networks in the country.
Our focus is on fixing and improving the
processes of our core business, while
continuing to enhance cross-functional
cooperation to ensure effective decision-
making. With this we will invest in developing
our human capital, private label offering
and direct imports, and we will upgrade and
modernize our IT infrastructure to optimise
business processes.
We will also incorporate the use of big data
and digital technologies across our business
to drive efficiency and create future growth
opportunities.
Performance
2019 was an exciting and challenging year
from a macro perspective and in terms of the
operating environment. The retail industry
was insufficiently stimulated by inflation as
disposable incomes remained under pressure.
Competition during the year remained intense
given high promotional levels.
During the year we opened 2,841 new
stores, including 1,630 convenience stores,
9 supermarkets and 1,202 drogeries, with
12.7% growth of selling space. More than
2,300 stores were redesigned.
Like-for-like indicators remain the pivotal
measure of the Company’s development. LFL
sales growth turned positive in 2019 after 3
consecutive years of decline and stood at
0.4%, with 2.8% average ticket growth and
2.3% traffic decline.
Magnit’s revenue grew by 10.6% to RUB
1,368.7 bln. EBITDA margin came in below our
expectations at 6.1%, mainly driven by stronger
promo intensity in the industry, the active roll
out of the cross format loyalty programme and
several one-off effects.
Our aim is profitable growth, combined with efficiency gains
in all areas and business processes, resulting in higher returns
and value creation for stakeholders.
Convenience stores remain the driver of our
business, generating around 77% of our retail
sales. In 2019, we redesigned 1,615 stores and
opened a flagship store in Kazan which set the
standard for the comfortable and enjoyable
shopping experience we aim to offer. In the
past year we also piloted new Magnit Evening
and Magnit City formats, which are showing
promising initial results.
We undertook a review of our supermarket
business, including analysis of the design,
product layout and assortment in stores of this
format. Following this review, we launched the
first newly renovated superstore in Krasnodar,
fully equipped with innovative solutions for
the best customer experience. We are looking
forward to rolling out those solutions in other
stores in this segment.
Magnit Cosmetic is performing very well,
delivering some of the best results in the
industry, with positive LFL traffic of 3.1%
and strong 20.5% net retail sales growth.
We opened 1,202 new stores in 2019
and started to serve the drogerie segment
via SIA Group distribution centres. We will
continue to pursue expansion in 2020, while
constantly updating and modernising the
existing business.
Pharmacies are our most recently established
format and provide a complementary offering
to our existing stores and help to drive
increased traffic. We also note synergies with
drogerie format derived while processing and
delivery of non-food items.
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(continued)
Strategic priorities in action
We have repositioned Magnit in 2019,
refining our mission and management
approach. Our aim is to become recognised
as the retailer providing the “best quality at
an affordable price”. To achieve this, we have
strengthened our regional management teams
and conducted an extensive review of our
communications, developed our category
management functions and upgraded
our organisational structure. Magnit also
continues to develop its own production
capabilities, as part of our unique approach to
freshness of our fruits and vegetables.
In 2019, Magnit continued the implementation
of its Strategy, aimed at improving operating
efficiency and process optimisation, coupled
with a customer centric approach
to decision making. In the meantime, we
reviewed our expansion priorities and our
approach to capital allocation, increasing ROIC
requirements across all projects.
In line with our customer centric strategy,
in 2019 we enhanced our value proposition
and significantly improved the shopping
experience. New store designs were rolled
out, our service level was significantly
improved and our assortment was expanded.
The major component of our enhanced CVP is
the development of our private label offering.
In 2019 we reassessed our private label
brands versus customers’ expectations and
launched key private labels such as “My Price”
and “Magnit Freshness”.
We plan to promote 26 of our private label
brands, across all price categories, in order
to raise customer recognition and loyalty and
to grow the category’s share of our revenues
to 20%.
Another key priority is to build an omnichannel
ecosystem, implementing cutting-edge digital
technology. In 2019, we took a major step
towards this goal with the deployment of
our multi-format loyalty programme, across
our entire area of operations. The loyalty
programme encompasses the whole family
of Magnit stores and will very soon allow us
to upgrade the level of personalisation we
provide for our customers.
Sustaining our status as the largest Russian
employer and one of the leading companies
in the retail industry is impossible without
a committed approach to sustainable
development. We strive to act responsibly
for all our stakeholders, including local
communities, our customers and suppliers,
coordinating our approach with the help of our
recently developed Sustainability Strategy.
Magnit aims to be a modern and progressive
employer, supporting our employees who
are making a vital contribution to building
the Company. In 2019, we adopted a new
Employee Value Proposition and plan to
further expand opportunities for development
and education for our employees.
Outlook
Throughout 2019 we continued building on
Magnit’s strategic advantages working to unlock
the Company’s huge potential and create a
platform for our future success.
The transformation of our vision and
organisational processes has already created
a strong basis for sustainable growth. We will
continue to develop as a modern
customer-oriented retailer, acting responsibly
to deliver value for all our stakeholders.
In 2020, we will focus on improving our
efficiency and capitalising on our strengths
such as our multi-format approach and own
production capabilities.
We will continue refining our CVP and
improving assortment in our stores to drive
Magnit’s development. Meanwhile, we are not
implementing aggressive expansion policies and
instead are being guided by feedback from our
customers and concentrating on quality.
In the current circumstances of sluggish
economic growth, weak consumer demand and
a shrinking population the level of competition
among retailers will inevitably remain intense.
We will strive to stay ahead of our competition,
adopting and developing the latest technologies
and techniques to gain better customer insight
and quickly tailor our offering to their needs.
I would like to thank the
Board of Directors for their
trust and support and restate
my commitment to delivering
value to our shareholders,
employees, partners and
Russian consumers. I am
confident that despite the
many challenges facing us,
we will continue the successful
implementation of our
strategy and sustain the
positive momentum in our
operational results.
Jan Dunning
Chief Executive Officer
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Magnit At a Glance
The leading food
retailer
The largest food
importer
A multi-format
retail chain
The only vertically
integrated retailer
A reliable and
stable partner
A nationwide supply
chain network
The largest
private employer
The store
of choice
in Russia by number of
stores and geographical
coverage
in Russia
with a unique cross
format loyalty
programme
which operates 15
agricultural and food
production units across
Russia
for national
producers and
foreign companies
One of the largest logistics
operators in the country
in Russia
for millions of
customers
Key Figures
Number of Stores
Cities & Townships with Stores
Tickets, mln
Number of Employees
Number of Suppliers
Revenue, RUB bln
Revenue Growth, %
Gross Margin, %
Adjusted EBITDA Margin (IAS 17)1, %
Net Income Margin (IAS 17), %
CAPEX (IAS 17), RUB bln
Net Debt/EBITDA (IAS 17)
Total Dividends Announced, RUB bln
CO2 Emissions, mln tonnes
Total Amount of Waste, mln tonnes
Total Amount of Recycled Waste, mln tonnes
2017
16,350
2,709
4,041
276,290
5,900
1,143
6.4
25.3
8.0
3.1
75
1.2
24.7
0.8
0.9
0.4
2018
18,399
2,976
4,370
2019
20,725
3,742
4,690
295,882
308,432
5,900
1,237
8.2
23.9
7.2
2.7
54
1.5
31.0
0.8
1.1
0.4
6,021
1,369
10.6
22.8
6.8
1.3
59
2.1
15.02
0.9
1.7
0.4
Key Subsidiaries of the Company
The Magnit Group consists
of 43 companies, including
PJSC Magnit and its subsidiaries:
‒ LLC Alcotrading
‒ JSC Tander
‒ LLC Tandem
‒ LLC Retail Import.
For full list of Magnit Group Companies
please see in Appendix 4.
PJSC MAGNIT
LLC Alkotrading
JSC Tander
LLC Tandem
LLC Retail Import
100%
100%
100%
100%
Our History
1994
1998
2001
2006
2008
2010
2011
2013
2018
For detailed history see
magnit.com/en/
about-company/history/
Company founded
as a household
cleaning products
and cosmetics
distributor
First grocery
store opened
in Krasnodar
Magnit holding
company
established
IPO on RTS
and Moscow
Exchange, raising
approximately
USD 370 mln
SPO on London
Stock Exchange,
raising almost
USD 500 mln
First drogerie store
launched
Expansion
of operations
to include the
production
of vegetables
Magnit becomes
the largest retailer
in Russia
New Board
of Directors and
new Management
team introduced,
following a change
in the shareholder
structure
Adjusted for the accident at Voronezh DC, changes in the management structure, passive stock sell-оff and consulting fees.
(1)
(2) Dividends announced on PJSC Magnit shares following the results for the first 9 months of 2019.
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ONE BRAND – MULTIPLE FORMATS
Magnit operates a multi-format business model that aims
to meet all major customer requirements and be the favorite
retail chain for Russian customers.
All our formats operate under a single brand, sharing consistent standards of quality
and service and a common loyalty programme. We call this integrated concept
“One Brand – Multi-Formats”. Multiple formats allow us to capitalise on synergies,
utilise our differentiated proposition and increase overall customer loyalty across
the Family of Magnit stores. Meanwhile, our One Brand helps us remain
front of mind among our customers and creates strong recognition
among all audiences. This highly customer-centric approach
underpins cross format promotional campaigns, our unified
loyalty programme and unique cross category private
label assortment based on our own high-quality
production capabilities.
CONVENIENCE STORES
SUPERMARKETS
Magnit Convenience
A convenient store for everyday shopping with a large
assortment of the most demanded food products
and non-food goods at attractive prices is the most
popular format. Here, customers can quickly buy
fresh dairy products, fruits and vegetables, bread,
dry foods, flour and confectionery products,
or household cleaning products. Stores are located
both in cities and in remote localities, which makes
Magnit the largest and the most accessible retail
chain in Russia in terms of geographical coverage.
Convenience stores also include small pilot stores
such as Magnit City and Magnit Evening.
Magnit City
A small store with a cozy interior and a café, where
visitors can grab a bite, take away any of the
ready-to-eat offerings, or make other small
purchases, as well as charge their smartphone
and connect to Wi-Fi.
Magnit Evening
This format has a diverse assortment of alcoholic
and low-alcohol drinks with a wide selection of local
producers, private labels and imported products.
Additional assortment consists of basic food products
from fresh and ultra-fresh categories, snacks,
confections as well as staple non-food commodities.
Magnit Family Supermarkets
These classic supermarkets with larger assortment
than in the Convenience stores, are located
at a walking distance in residential and business
areas, as well as shopping malls. This format implies
increased attention to the customer’s comfort
and pleasant shopping atmosphere, while keeping
the attractive prices through the whole assortment.
Superstores
Compact city hypermarkets are modern and high-
tech stores for the whole family located within the
city. Such stores have broader assortment in all
categories of products, including Magnit’s private
labels, focus on fresh and ultra-fresh products, offer
useful services, have dedicated kids and healthy
lifestyle departments, and boast their own cafés
and culinary products prepared in the store.
Magnit Cash&Carry
The Cash&Carry format is geared towards private
customers and small enterprises who are interested
in bulk purchases at low prices. The Company started
development of the Cash&Carry format in 2017.
14,622
Stores
4,952
Selling space,
thous. sq. m
RUB 1,020.4
Revenue, bln
473
Stores
948
Selling space,
thous. sq. m
RUB 200.1
Revenue, bln
DROGERIE
OTHER FORMATS
The drogerie format pertains to stores with
non-food assortment launched by the Company
in 2010. Assortment of a cosmetics store includes
mass-market make-up products and personal
care items, including private labels, household
cleaning products, perfumes, hygiene products, and
household items. These stores are located next to
home or office, thus being very convenient for daily
shopping.
5,630
Stores
1,302
Selling space,
thous. sq. m
RUB 109.7
Revenue, bln
Magnit Pharmacy
This modern pharmacy format was launched by the
Company in 2017. Among its advantages are affordable
prices, easy navigation, convenient and open display
and personnel who can help with choosing the right
product. Apart from pharmaceuticals, the assortment
also includes items such as medical cosmetics, family
products, beauty and personal hygiene articles,
baby food, medical products, and seasonal offerings.
Pharmacies are usually located inside or next to
convenience, supermarkets, and cosmetics stores.
Ultra-small format stores include stores with basic
assortment in the Russian post offices including
remote areas with the population of less than 3,000
citizens, and stores with basic food and non-food
products at petrol stations.
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(continued)
The Customer is
Our Top Priority
Magnit is fundamentally committed
to fulfilling customer needs. At the core
of the Company’s strategy are the demands
of our customers. Our vision is to set a new
standard for affordable retail fulfilling the
everyday needs of Russian families. To do
so we work relentlessly to improve customer
service and sharpen our focus on the most
important requirements of consumers.
We ensure that the most in-demand products
are available on our shelves, while monitoring
the freshness and quality of our produce,
and maintaining our leadership in price.
In 2019, Magnit launched its new loyalty programme, which has been
designed with all of the best features currently available in the market.
A key differentiator of the programme is its multi-format coverage:
all our store formats benefit from the same programme. With this unified
loyalty programme we can make our proposition even more attractive to
consumers. It sets us apart from our competitors and enables us
to achieve a profound understanding of our customers’ needs.
In 2019, 33 mln of cards were issued, 60% of them were activated.
This has already helped us to better understand our audience, enabling
us to adjust our supply to their demands and above all to increase
freshness.
20 mln
active loyalty
cardholders
58%
penetration in sales
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(continued)
CENTRAL
VOLGA
SOUTHERN
NORTH
WEST
URALS
SIBERIA
NORTH
CAUCASUS
Convenience
Stores
4,238
3,968
2,130
1,566
1,442
875
403
14,622
Supermarkets
90
126
125
35
54
24
19
Drogerie Stores
1,466
1,463
1,049
502
639
316
195
Distribution
Centres
10
10
8
3
3
3
1
473
5,630
38
We Are
Everywhere
Magnit is the number one Russian retailer in terms of
proximity to customers and geographical coverage. Our
stores are located in 3,742 cities and townships in the
Russian Federation. The stores cover an enormous area
that stretches west to east from Bryansk to Krasnoyarsk
and north to south from Murmansk to Vladikavkaz.
Most stores are located in the Southern, North Caucasus,
Central, and Volga Federal Districts. Roughly two-thirds
of the Company’s stores are located in cities with a
population of less than 500,000 people. We also operate
in townships with population of 3,000 people.
In 2019 we started to upgrade our functional expertise. As one of our key priorities,
we focused on creating category management teams. We decentralised the
organisation into 8 multi-format districts to speed up decision-making and develop
a deeper understanding of communities and consumers using functional teams
at a local level. Through this we aim to provide the best local retail offering.
We combine this with our own production capabilities, and high quality private
labels in different price segments to deepen our differentiation from the rest
of the market.
Magnit operates one of the largest supply chain networks in the country. Magnit's
fleet primarily consists of heavy trucks. We plan to increase the proportion of light
trucks in our fleet, while maintaining a total number of vehicles at approximately
the same level. This scale of operations makes Magnit one of Russia’s biggest
employers.
We are widely implementing a digitalisation programme across our supply chain.
New services and technologies, such as pooling and electronic consignment
notes, will significantly improve the efficiency of our logistics, thereby reducing our
carbon footprint and increasing the freshness of our produce on sale. Due to the
centralised logistics system, we managed to effectively handle and optimise our
costs.
3,742
Cities & townships
7
Federal regions
38
Distribution centres
5,656
Vehicles
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report Targets
20%
share of private labels
in sales
26
private labels with
over 2,000 SKUs
What Sets Us Apart
(continued)
We Sell
What We Grow
Magnit’s own production facilities, including our
greenhouses, are unmatched among Russian retailers.
The Company owns cultivated areas and production
facilities in Kuban, one of the most fertile regions of
Russia.
We are the only retailer that can truly control the
entire product journey, from field to plate, and we will
capitalise on this advantage through an offering
of our range of private label products. Through
our own production capabilities we have a unique
opportunity to distinguish the Magnit offering,
especially in fresh categories.
We are planning to increase our focus on the branding of our own production.
The core of our private label offer will be formed by the Magnit Basic,
Magnit Fresh and Magnit Health brands. These provide basic value-for-money
food and pharmaceutical items with the aim of differentiating Magnit from the
competition, increasing customer loyalty and growing the average basket size.
We have revised our private label assortment focusing on 26 most popular and
recognized brands instead of 69 private labels in previous years. Now we focus
on just 26 brands, 7 of which are cross-format.
4
11
agricultural complexes
produce fresh mushrooms
and vegetables
production facilities produce
sweets, cereal, pasta, instant
food, snacks, spices and fish
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(continued)
We Are Building
a Sustainable Future
Magnit is committed to sustainability, and we fully
recognise our obligations as a leading business.
We continuously work to improve the sustainability
of our operations and implement new responsible
initiatives. When making decisions, we seek to
incorporate the interests of all of our stakeholders.
To become truly sustainable, we recognise that we must be a transparent and
efficient organisation. To this end, in 2019 we enhanced our corporate governance
and strengthened both the Board of Directors and Management Board. We also
embedded sustainable development within our internal regulations. We developed
a Sustainability Strategy and are in the process of implementing a number of
policies, including a Climate Change Policy and Policies for Packaging Waste, Own
Brand Packaging and Quality and Food Safety as well as a Responsible Supply
Chain. We have also drafted an extensive Human Rights Policy, Policies on Charity,
Sponsorships and Volunteering, Health and Wellness, etc. The Strategy sets targets to
significantly improve sustainability of Magnit across all areas by 2025. We established
a Sustainability Steering Committee to manage sustainability activities.
Caring for people lies deep within Magnit’s DNA. Throughout our history we have acted
as a socially responsible Company, operating in distant regions with low populations,
providing access to affordable retail services to people that previously had none.
We are striving to increase the share of local products in our assortment, and currently
52% of all the SKUs are locally produced. Local also means better quality of fresh
products. To save up all the best qualities of local fresh we sped up delivery process in
several regions. We launched cross-docking platform to enable delivery of fresh goods
to the stores the same day we got it from supplier.
We have further affirmed our dedication to sustainability by joining The Consumer
Goods Forum – a global organisation, that brings retailers together to promote
sustainable development.
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Macroeconomic
Environment
The market environment in the
Russian retail sector remained
challenging throughout 2019,
for both retailers and consumers.
Despite the low level of
government debt and a budget
surplus, economic growth was
constrained by the significant
slowdown in the global economy
resulting from trade conflict
escalation, and a worsening
investment climate
in Russia.
In 2019, Russia's real GDP grew
by 1.3%, according to Ministry
of Finance of Russia. According
to the Ministry forecasts for 2020,
real GDP growth will accelerate
to 1.7%. Given the planned design
of the federal budget of Russia, the
state plans to stimulate economic
growth through investments in
infrastructure projects.
In 2020, Russia’s Federal
government budget revenues are
expected to reach RUB 20.594
trln, RUB 7.524 trln of it are
expected to come from oil and
gas revenues. Expenditures are
planned in the amount of RUB
19.666 trln. Thus, the Federal
budget surplus of 2020 will
amount to RUB 0.928 trln.
In 2019, an increase in average real
wages (+2.9% Y-o-Y) improved the
dynamic in real disposable income
(RDI) by 0.8% to the highest
level in 6 years. Nevertheless,
RDI continued to be negatively
affected by a number of factors
forcing consumers to save. The
increase in prices for fuel, housing
and communal services, loan
servicing and an increase in taxes
offset the increase in real income.
This effect was exacerbated by the
increase in VAT from January 2019
from 18% to 20%.
2.9%
Average real wage
growth in Russia
in 2019
1.4%
Real growth of food
retail sales in Russia
in 2019
CPI and Food CPI in Russia in 2014-2019, %
CPI, % Y-o-Y
Food CPI, % Y-o-Y
22.4
16.2
18.0
15.7
10.5
7.7
7.3
6.4
8.3
6.9
6.8
6.3
25.0
20.0
15.0
10.0
5.0
0
4.6
3.8
3.4
2.8
3.0
1.6
2.2
0.9
5.8
4.3
5.2
5.0
3.5
3.4
1Q’14 3Q’14 1Q’15 3Q’15 1Q’16 3Q’16 1Q’17 3Q’17 1Q’18 3Q’18 1Q’19 3Q’19 4Q’19
Source: Federal State Statistics Service
Real GDP Growth in Russia in 2012-2020F, %
CCI and Food Retail Sales growth in Russia in 2014-2019, %
3.7
1.8
2.3
1.6
1.3
1.7
–0.2
0.3
4.0
3.0
2.0
1.0
0
–1.0
–2.0
–3.0
15.0
12.0
9.0
6.0
3.0
0
–3.0
–6.0
–9.0
–12.0
Consumer Confidence Index, %
Nominal Food Retail Sales growth, % Y-o-Y
13.1
11.4
10.0
7.0
1.5%
–0.3
–9.6
–7.0
3.6
3.0
3.1
–4.7
–5.0
–2.3
Real Food Retail Sales growth, % Y-o-Y
6.0
2.3
4.4
2.7
2.9
1.1
7.5
6.2
5.5
1.5
0.8
1.6
100
80
60
40
20
0
2012
2013
2014
-2.3
2015
2016
2017
2018
2019
2020F
1Q’14 3Q’14 1Q’15 3Q’15 1Q’16 3Q’16 1Q’17 3Q’17 1Q’18 3Q’18 1Q’19 3Q’19 4Q’19
Source: Ministry of Economy Development of the Russian Federation
Source: Federal State Statistics Service
Real Wages, Real Disposal Income change and Unemployment Rate in Russia
in 2014-2019, %
Food Retail Sales in Russia in 2002-2024F
12.0
9.0
6.0
3.0
0
–3.0
–6.0
–9.0
–12.0
Unemployment, %
Real wages growth, % Y-o-Y
Real disposable income growth, % Y-o-Y
Rusian Food Retail Sales, RUB trln
Food Retail Sales Growth, % Y-o-Y
Food CPI, % EOP
10.2
6.3
1.0
0.0
3.0
3.1
4.6
1.1
1.3
-1.8
4.4
–4.2
1.8
0.6
0.1
–5.6
–9.0
–9.5
3.1
1.2
1.8
0.1
–3.8
-1.0
-0.6
-2.6
+24.3%
CAGR 2002–2008
22.7
23.4
23.8
32.8
+11.2%
CAGR 2009–2015
+5.7%
CAGR 2016–2024F
24.7
23.9
16.5
19.3
12.3
11.0
10.2
9.6
8.7
15.6
9.3
6.1
12.9 13.8
12.8
3.9
11.9
9.4
7.5
7.3
15.4
14.0
11.1
8.4
4.6
2.5
5.0
1.1
4.7
4.3
6.7
2.6
3.6
3.0
5.8
4.0
1.8
2.1
2.6 3.2 3.9 4.9
6.5
7.1
8.0
9.1
10.0 11.1
12.4 13.4 13.8 14.4 15.1
16.1 16.6 17.6
6.9
6.6
6.8
4.0
4.0
4.0
18.8 20.1 21.4
Thanks to a planned increase
in public sector wages,
the Ministry of Economic
Development of Russia expects
RDI growth of 1.5% in 2020.
Such growth should be achieved
mainly due to implementation
of decrees of the President of
Russia on increasing the wages
of state sector employees. The
unemployment rate, which
reached a record low level
of 4.6% in 2019, is forecasted
to decline further to 4.5% in 2020
and 2021.
In 2019, the Consumer Price
Index (CPI) grew by 3.0%, while
Food CPI increased by 2.6%.
According to the Ministry
of Economic Development
of Russian Federation, as the
credit cycle draws to an end and
consumer lending slows, the CPI
growth rate is expected to remain
at 3.0% in 2020 and increase
to 4.0% in 2021-2024. These
forecasts will be used as a basis
for social payments indexation.
The Russian Retail Market
The real growth of food retail
sales in Russia in 2019 was
1.4%1. This level of growth was a
natural consequence of the low
purchasing power and a weak
consumer confidence index (CCI).
The slowdown in the Russian
grocery retail market continued,
in line with the higher maturity of
the sector.
In 2019, the Russian food retail
market was the eighth largest in
the world in terms of revenue,
ahead of countries such as the
Italy, Turkey, Brazil and Poland.
1Q’14 3Q’14 1Q’15 3Q’15 1Q’16 3Q’16 1Q’17 3Q’17 1Q’18 3Q’18 1Q’19 3Q’19 4Q’19
Source: Federal State Statistics Service, Ministry of Economic Development
of Russian Federation
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 010
2 011
2 012
2 013
2 014
2 015
2 016
2 017
2 018
2 019
2 0 2 0 F
2 0 21F
2 0 2 2F
2 0 2 3 F
2 0 2 4 F
Source: Federal State Statistics Service, Ministry of Economic Development
of Russian Federation, Magnit Analysis
(1)
According to Federal State
Statistics Service.
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Market Overview
(continued)
Despite the recent slowdown, the
modern Russian food retail market
has solid potential for further
growth. The share of modern retail
in 2019 in Russia was 70%, behind
the markets of North America
(86%), Australia (82%), Western
Europe (81%) and Eastern Europe
(72%). The Russian retail market
remains underpenetrated.
Despite ongoing consolidation,
the retail market in Russia remains
fragmented with significant
potential for further market share
growth for top players. At the end
of 2019, the share of revenue
of the top 5 retail chains was
36.6%1, up 7.9 pp versus 2018. In
this respect, Russia is still rather
behind developed countries,
where the top 5 players account
for 50% or more of the market.
Over the past few years, leading
Russian retailers have recorded
significant increases in market
shares, primarily due to the rapid
growth of convenience stores.
According to Infoline, among
national chains, the growth was
primarily attributable to Magnit,
X5 Retail Group, Lenta and SPS
Holding (the Red and White)2.
In recent years, one of the major
trends has been an increase in
the number of discounters and
convenience stores while the average
selling space has decreased.
(1)
Euromonitor, 2019.
(2) At the end of 2019, Dixy, Bristol and
SPS Holding (the Red and White)
merged into DKBR Mega Retail
Group Limited, which became
the 3rd largest retailer in Russia
with market share of 5.5%.
Grocery Retail Market in 2019, USD bln
Share of Top-5 Retail Chains by Countries in 2019, %
679.0
1,167.9
USA
USA
China
India
France
Japan
Germany
United Kingdom
Russia
Italy
Turkey
Brazil
Poland
401.5
276.2
275.6
253.1
218.5
190.7
151.2
69.0
66.0
64.0
USA
Germany
Czech Republic
UK
Poland
France
USA
Spain
Italy
Russia
Japan
Turkey
China
India
37.7
36.6
34.0
25.6
8.3
2.3
73.5
71.4
61.4
56.0
53.9
46.3
43.4
Top-10 Retail Chains Market Share
in Russia in 2019, %
0.7 0.7
1.0
0.6
1.1
1.5
2.5
5.7
34.9%
share
of Top-10
11.5
X5 Retail Group
PJSC Magnit
DKRB Mega
Retail Group Limited
Lenta LLC
Auchan Retail
Russia
Metro
Cash and Carry
O’KEY Group
9.6
OOO Element-Trade
TORGSERVICE LLC
OOO Hyperglobus
Source: Infoline, Magnit analysis, 2019
Source: Euromonitor, 2019
Source: Euromonitor, 2019
Share of Modern and Traditional Retail in 2019, %
USA
Magnit Market Share by Revenue in Russia in 2014-2019, %
Nortn America
Modern retail
Traditional retail
Australia
Western Europe
Eastern Europe
Russia
Latin America
Asia-Pacific
14
18
19
28
30
86
82
81
72
70
52
53
48
47
Middle East & Africa
70
30
2019
2018
2017
2016
2015
2014
Source: Euromonitor, 2019
Source: Federal State Statistics Service, Magnit analysis, 2019
Magnit is
#1
in Russia by number of stores
and geographical footprint4
9.6
9.2
8.9
8.9
8.0
7.0
+6.4%
CAGR 2014–2019
#2
in Russia by revenue5
Russian
Food Market
at a Glance
8th
30%
37%
10%
largest in the World
share of Traditional retail in Russia1
share of Top-5 Retail Chains2
sales Growth of Top-10 in 20193
(1) Euromonitor, 2019
(2) Euromonitor, 2019
(3) Infoline, 2019
(4) Federal State Statistics Service, public
disclosures, Magnit analysis, 2019
(5) Infoline, 2019
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(continued)
Key Trends in the Retail Market
Total Selling Space in Russia for modern retail format in 2011-2019, sq. m mln
Among other trends in Russian market in recent years:
Change in consumer
preferences
Despite the slowdown in economic
growth and the continuing trend
towards cheaper goods, consumer
preferences are shifting towards an
assortment that offers:
‒ Quality and fresh products,
especially fruits and vegetables
‒ Unique and local products
‒ Healthy food
‒ Ready-to-eat and ready-to-cook
products.
Change in consumer
behavior
Consumers are becoming
increasingly time poor and prefer
to shop at convenience stores.
At the same time, the online
shopping is gaining momentum,
especially in large cities such as
Moscow and Saint Petersburg.
Increasing competition
Competition is intensifying, thanks
partly to the entry of new players into
the market (e.g. health food stores,
liquor stores and local butcher
shops).
2020
2019
2018
2017
2016
2015
2014
2013
2012
21.9%
11.9%
23.9%
13.1%
25.8%
13.9%
27.6%
15.3%
28.6%
16.6%
30.1%
18.2%
66.2%
26.9
63.0%
25.0
60.3%
23.0
57.0%
20.8
54.7%
18.8
51.7%
16.2
31.1%
18.7%
50.2%
32.3%
19.3%
48.4%
14.1
12.2
0
5.0
10.0
15.0
20.0
25.0
30.0
Hypermarkets
Supermarkets
Convenience stores
Source:
Infoline, Magnit analysis, 2019
We strive to proactively adapt our
business to address market trends
and challenges. This includes
adapting our assortment to the
needs of consumers and improving
our capabilities in the production,
delivery and storage of fresh and
ultra-fresh products to ensure
consistently high quality. Thanks to
our own greenhouses and agricultural
facilities, we are the only retailer in
Russia able to control the quality of
products from field to plate.
We are also strongly focused on
introducing best practices in category
management, expanding the range of
products of our own production, and
strengthening quality control.
We are introducing a CVP for the
different customer formats to align
our business with the latest trends. In
2019 we launched our cross-format
loyalty programme, which allows
us to approach clients individually,
taking all their needs into account. In
addition, we launched e-commerce
projects in Krasnodar and Moscow
during the year.
We strive to offer products at
reasonable prices for price-conscious
customer groups and remain one of
the leaders in sales in this segment.
In particular, since 2018 we have
introduced a system of special
discounts for pensioners.
Aging population
For further detail, see Strategy (p. 42)
and Operational Review (p. 48).
The population of Russia is in
decline, and the proportion of people
receiving state support in various
forms is increasing.
Political factors
‒ Sanctions by the US and the EU
‒ Counter-sanctions
‒ Continuous support of local suppliers and manufacturers by government
‒ Regional protectionism.
Tightening regulatory environment
‒ Tax pressure on suppliers
‒ Trend towards tightening regulation promoting healthy lifestyles.
Growing interest in sustainable
development
‒ Increased interest in sustainable development among customers
‒ Growing attention to responsible waste disposal
‒ Increased attention to relationships with suppliers
‒ High investor expectations.
Other consumer behavior trends
‒ Increasing attention to environmentally friendly components in non-food products
‒ Increased demand for communication
‒ Ongoing digitalisation.
Key Changes in the Regulatory Environment in 2019
Change
Regulatory Document
Effective Date
VAT increase from 18% to 20%
Federal Law of 3 August 2018 No. 303-FZ
1 January 2019
Amended procedure for technical inspection of vehicles
equipped with tachographs
Decree of the Government of the Russian
Federation of 30 August 2019 No. 1276
1 November 2019
Requirement to separate dairy and milk-containing products
from other foods and to label such products as "Products
without milk fat substitutes"
Decree of the Government of the Russian
Federation of 28 January 2019 No. 50
1 July 2019
Lower VAT rate on import and sale of certain fruits and
berries in Russia (including grapes), down from 20% to 10%
Federal Law “On Amendments to Article 164
of Part Two of the Tax Code of the Russian
Federation”
4 January 2020
Extended list of controlled goods to be supplemented by
required veterinary documents
Order of the Ministry of Agriculture of the
Russian Federation of 15 April 2019 No. 193
From 1 July 2019 and
1 November 2019
(in two stages).
The ban imposed on retailers returning unsold goods to
suppliers
Federal Law of 28 November 2018 No. 446-FZ 9 December 2018
New legal regulation of domestic viticulture and winemaking
Federal Law of 27 December 2019 No. 468-FZ 26 June 2020
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Our strategic evolution
In October 2019 Magnit undertook
a regular strategy review where our
focus shifted towards efficiency
– we reconsidered our expansion
priorities and capital allocation
approach. We reviewed our
investment process, in particular
for the stores opening programme,
improved all elements to ensure
an appropriate returns profile and
to maintain a healthy financial
position.
We remain fully committed
to fulfilling customer needs via
the implementation and adjustment
of our CVP. We are focused
on fixing and improving the
end-to-end processes of our
core business, while continuing
to enhance cross-functional
cooperation to ensure effective
decision making.
We will invest in developing our
human capital, private label
offering, direct imports, and we
will upgrade and modernize our IT
infrastructure to optimize business
processes.
OUR VISION
A trusted value-for-money
retailer, providing high-quality
products at affordable prices
and catering to all of the
everyday needs of Russian
families
OUR GOAL
To become the store
of choice for all Russian
families
Magnit’s 2020
strategy is built
around three
pillars
We are taking the first steps
in the development of our
omnichannel concept focused
on new trends and overall
customer journey with all
relevant instruments allowing
to identify customers and
their consumption patterns,
to structure proper advanced
analytics and personalisation,
as well as to enrich our overall
OMNI experience including
different potential ecosystem
elements. To allow this, we
successfully completed the
roll out of our multi-format
loyalty programme in 1Q 2020.
Convenient and Accessible
We address the most important
needs of Russian consumers with
convenient and accessible solutions
through our "family" of Magnit
propositions.
Easy
(layout, navigation)
Quick
(selection, purchase)
Trust
Delicious
Value for money
Everything you
need, always
CONVENIENT
ACCESSIBLE
Fair
(quality, prices)
Reliable
(availability)
Ready-made
solution
1.
Putting
the customer first
Optimising and implementing
our CVP to build trust and
strengthen customer loyalty
I am heard
and listened to
Always good
(service,
assortment, etc.)
2.
Fixing
the basics
Enhancing execution in our
core business to ensure high
operational efficiency including
end-to-end processes
Close by –
in any corner
of the country
Clear
Efficient
3.
Creating a platform
for future growth
Building on our competitive
advantages, while exploiting
and piloting new technology
and trends to drive growth and
efficiency
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(continued)
Strategy Review
in Detail
Our Strategic
Priorities
In October 2019 we updated our approach
to the strategy execution.
We confirmed our commitment to:
‒ Implementing our CVP and functional strategies
for LFL and profitability improvement
‒ Providing a multi-format offering under a
single brand, including a multi-format loyalty
programme
‒ Building capabilities and developing people,
nurturing Magnit’s corporate culture based on
professionalism, team work and respect
‒ Reviewing and improving all end-to-end
processes
‒ Strengthening our private label offering and
direct import initiatives
‒ Enhancing and upgrading our IT and logistics
infrastructure.
We modified our approach in a few development
areas:
‒ Investment process review with a particular
focus on quality to ensure profitable and value
accretive growth
‒ Enhancing our format expertise: creating format
teams responsible for both CVP and operations
‒ Maintaining a healthy leverage position and
continuing cash distribution to shareholders.
We also decided to:
‒ Focus on projects with higher ROIC and overall
material impact while refusing from small and
unprofitable projects
‒ Continue expansion in areas with high certainty
of achieving acceptable returns. We will
continue monitoring the market for attractive
M&A opportunities
‒ Focus on efficiency of our own production
facilities.
Putting the customer first
Our strategy is based on driving fundamental
improvements in our value proposition for
consumers and we have shifted to a customer-
centric approach in our decision making. We are
embedding a focus on customers in Magnit’s DNA,
striving to deeply understand their needs in each
location and adapting our approach to fulfill those
requirements.
We are aiming to enhance customers’ perception of
Magnit, from its historical positioning as the “lowest
price” retailer, to a provider of the “Best Quality at
the Best Price”. We are, therefore, renewing our
business processes to provide better insight and
understanding of consumers and to bring decision-
making closer to the customer.
Based on these insights, we are focused on
improving on-shelf availability, quality and freshness
and plan to invest in our private label, direct import
and local products. At the same time, we will ensure
we maintain a good range of entry price products
to ensure our current loyal customers remain
well catered for. We are also prioritising improved
customer service, by delivering high standards
of employee skills, including friendliness and
approachability.
We are now implementing this well-defined CVP
and will regularly tailor this based on our insights
to meet changing customer needs. Our corporate
culture has been enhanced to encourage open
dialogue and effective cross-functional cooperation
to ensure the CVP is implemented quickly and
efficiently.
To ensure the effective implementation
of our strategy, we are working
on operational and organizational
development, including, among other
initiatives:
Fixing the basics
We are investing in the optimisation of our end-to-end
business processes to improve our operating
efficiency.
We are focused on improving our core business
functions’ execution, including process optimisation,
streamlining cross-functional cooperation,
end-to-end analytics and transparent cross-functional
communication. In the mid-term we also plan to adopt
more effective IT solutions.
Magnit has a wealth of core strengths and
differentiating attributes on which to build upon.
We will maintain these competitive advantages,
including the largest geographical coverage and
supply chain network in the country. Our operating
model is based on over 20 thous. stores in 3.7 thous.
cities and townships; 38 distribution centres;
about 5,7 thous. trucks; and our unique direct import
system and own production facilities. All of these
strengths provide a platform that will enable us to
become the leader in efficiency.
Creating a platform for future growth
Customer engagement via digital channels is
accelerating every year on the back of increasing
penetration of new technologies providing
new opportunities in terms of identifying and
communicating with customers, as well as improving
overall processes. To establish an omnichannel
relationship with our customers – an important part of
our long-term strategy – and to enhance operations,
we are, therefore, building new digital and big data
capabilities as well as strengthening our digital team.
To allow this we successfully completed roll out of our
multi-format loyalty programme in 1Q 2020.
We are also considering making the first steps in
e-commerce in 2020 to serve as foundation for further
potential initiatives.
Our Business
Model
We put an absolute focus on the
customer as the cornerstone of our
operations while capitalising on our
inherent strengths (in particular very
wide geographical coverage and supply
chain capabilities) and progressing with
new development areas.
While our 2018 strategy was focused on
implementing a decentralised multi-format
operating model, the focal point has evolved
to developing format expertise to implement
a format-specific CVP under a single family
brand. Magnit adheres to a decentralised
approach where needed and dictated by
business reasons while keeping the optimal
balance with the centralised approach.
In conducting our operations, we consider the
needs of the communities in which we operate
and the various groups of stakeholders
affected by our decisions. We are proud of the
charitable activities we sponsor within those
communities and our support of the important
causes such as environmental protection.
‒ a customer-centric approach in decision making
‒ format management structure
‒ focus on better service level and on-shelf
availability
‒ improved in-store customer service
‒ better quality control
‒ cross-functional cost optimization
‒ higher forecasting accuracy.
Please see our Business model
on the next spread
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OUR GOAL
To become the store of choice for all Russian families
OUR VISION
A trusted value-for-money retailer, providing high-quality products at affordable prices
and catering to all of the everyday needs of Russian families
Largest supply chain
network in Russia
Multi-format offering
under single brand
Best customer
experience
Supreme quality
of supplies
> 6,000
network of suppliers
52%
local SKUs
7%
direct import supplies (over 700 contracts)
15
own production facilities
Private labels in different price segments
13
private labels
> 500
SKUs
Quality control "from seed to plate"
12
laboratories
>2,500
tests daily
38
distribution centres
7
federal districts
> 5,600
trucks
91%
centralisation ratio
Convenience stores
3,146
locations
14,622
stores
Supermarkets
283
locations
473
stores
Drogerie stores
5,630
stores
1,822
locations
TOTAL
3,742
cities and
townships
New cross-format brand
Unique CVP
Strong focus on fresh
New retail technologies
- Scan&Go
- Face-to-pay
Eco initiatives
> 20,000
stores overall
Cross-format loyalty programme
> 33 mln
loyalty cards issued
60%
cards activated
58%
penetration in sales
Created value for...
CUSTOMERS
Delivering fresh and
high-quality products
#1
Russian retailer in terms
of proximity to customers
and geographical coverage:
3,742 cities and townships,
20,725 stores, 4.7 bln tickets
EMPLOYEES
SUPPLIERS
308,432
employees - largest private
employeer in Russia
52%
of SKUs supplied
by 4,355 local producers
10,686
jobs created
64,323
employees trained
21
business events
for suppliers
COMMUNITIES
RUB 21 mln
allocated for charity
RUB 2 bln
responsible approach
towards environment
GOVERNMENT
RUB 64.1 bln
timely tax allocation
RUB 2.6 bln
investments in joint projects
development (Industrial park)
INVESTORS
11%
sales growth in 2019
RUB 31.0 bln
dividends announced
for 2018
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Operational
Review
In 2019, Magnit achieved significant progress in the
implementation of its strategy, supported by Magnit’s
multi-format proposition. As of December 31st, 2019 there
were 20,725 stores with 2,377 new openings (net).
LFL1 sales growth turned positive in 2019 after three
consecutive years of decline. We rolled out several major
initiatives for our convenience store format, upgraded
our proposition for supermarkets, continued to develop
our pharmacy segment and launched a multi-format
loyalty card.
During 2019 Magnit changed its organisational structure,
made assortment improvements, launched a category
management function, developed a private label strategy
and enhanced logistics and quality control. Although
the effects of these new developments are not yet fully
reflected in the results, the Company is looking to the
future with the growing confidence.
(1) LFL calculation base
includes stores, which
have been opened for 12
months since its first day of
sales. LFL sales growth and
average ticket growth are
calculated based on sales
turnover including VAT.
+9.5%
Y-o-Y increase in
net retail revenue
7,238
total selling space,
thous. sq. m
+2,377
stores opened in 2019
(on net basis)
+12.7%
Y-o-Y increase in total selling
space in 2019
2,341
stores redesigned in 2019
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(continued)
Performance
Among the major macro factors influencing
the Company’s operations were the further
consolidation of the retail industry, increasing
competition and weak consumer environment.
Magnit's net retail revenue reached
RUB 1,332.9 bln in 2019, 9.5% more
than in 2018. Selling space growth
remained double-digit on 12.7%
despite high base and totaled
7,238 thous. sq. m.
During the year we introduced
changes to our assortment,
developed category management
function, implemented measures
to improve on-shelf availability,
launched our loyalty programme and
continued to redesign stores in line
with the new concept.
As a result, after three years of
decline, LFL sales growth for the
full year turned positive supported
by sound trading up effect and
improvements in traffic. We saw
very encouraging trends in the last
quarter of the year with traffic being
the key factor of LFL sales growth.
Importantly, this came as a result of
net inflow of new unique customers
from other chains and increased
visit frequency. Improving LFL traffic
dynamics was recorded across all
formats and turned positive in the
core convenience format for the first
time since Q3 2016.
During the year there were several
one-off factors including an accident
at Voronezh DC and an inventory
sell-off. Passive matrix sell-off in Q3
was a well-considered and necessary
step which allowed to clear up shelf
space for the new assortment and
substantially reduce the share of
passive assortment in the total
number of SKUs. It supported further
implementation of the new customer
value proposition in stores and
reduced complexity of operations
both in the distribution centres and
store network.
Improvement of operating
efficiency of the existing store
base, optimisation of key business
processes and strict cost control
remain our priorities and the
main growth drivers for 2020.
The Company will continue its
organic expansion next year with
higher return requirements aimed
at delivering additional value to our
shareholders.
CONVENIENCE STORES
76.6%
of Magnit net retail sales
for 2019
+8.9%
Y-o-Y increase in amount
of stores
3,6%
LFL average ticket growth in 2019
A convenient store is aimed at
everyday shopping with a large
assortment of the most demanded
food products and non-food goods
at attractive prices. It is the most
well-known and popular format,
accounting for 76.6% of Magnit
net retail sales for 2019. Here
customers can buy fresh dairy
products, fruits and vegetables,
bread and dry foods, flour and
confectionery products, or
household chemicals spending
the minimum time. Stores are
located both in cities and in remote
locations, which makes Magnit the
largest and the most accessible
retail chain in Russia in terms of
geographical coverage.
The revenue for convenience stores
in 2019 reached RUB 1,020.4 bln
and grew by 11.2%. There were
14,622 Magnit convenience stores
in Russia by the end of 2019, 8.9%
more than in 2018, with 1,195
stores opened (on a net basis) on
11.4% growth in selling space and
1,615 stores redesigned in 2019.
LFL sales growth for 2019 was 1.3%,
improved from -2.8% in 2018.
LFL average ticket growth for the
year was 3.6% primarily driven by
continuous trading up effect as a
result of changes in the assortment
made during the year. LFL traffic
remained negative at -2.2%,
although improved from -2.8%
in 2018. Importantly, LFL traffic
in Q4 turned positive for the first
time during the last three years and
stood at 0.2%.
There are two new formats within
Magnit convenience stores, piloted
in 2019. Both formats have been
showing satisfying results.
Magnit City
The pilot format was opened in
Moscow and Krasnodar. It is a
small store with a cozy interior and
a café, where visitors can grab a
bite, take away any of the ready-
to-eat offerings, or make other
small purchases, as well as charge
their smartphone and connect
to Wi-Fi. Magnit City stores are
located in high traffic areas – near
office buildings, universities, parks,
transport junctions, etc.
Magnit Evening
Magnit Evening with the assortment
of nearly 2,500 SKUs represents
another pilot format for the
Company. This format has a
diverse assortment of alcoholic
and low-alcohol drinks with wide
selection of local producers, private
labels and imported products.
Additional assortment consists
of basic food products from fresh
and ultra-fresh categories, snacks,
confections as well as staple
non-food commodities.
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Operational Review
(continued)
MAGNIT COSMETIC
SUPERMARKETS
OTHER FORMATS
1,176 drogeries
opened in 2019 (net)
15.0%
of Magnit net retail sales
for 2019
6 supermarkets
opened in 2019 (net)
1,060 pharmacies
opened in 2019 (net)
The drogerie format - Magnit Cosmetic - pertains to
stores with non-food assortment launched by the
Company in 2010 and accounts for 8.2% of Magnit net
retail revenue. Assortment of Magnit Cosmetic includes
mass-market make-up products and personal care
items, including private labels, household cleaning
products, perfumes, hygiene products, and household
items.
There were a record 1,176 new drogeries opened
(on a net basis) in 2019, 60.7% more than a year earlier,
with the total of 5,630 stores by the end of the year,
a growth on 25.8% in selling space. 44% of the new
drogeries were opened jointly with convenience
stores. 721 drogerie stores were redesigned in 2019.
The strong performance strengthened the position
of the Company as a market leader.
In 2019, we also completed the integration of SIA Group
distribution centres with Magnit logistics which allowed
us to serve drogerie stores. It significantly optimised
workload and distribution for the whole supply chain
network while at the same time bringing synergies for
non-food segments.
The revenue reached RUB 109.7 bln with an 20.5%
increase year-on-year. The drogeries segment reached
a record high of 8.7% of Magnit's net retail sales in 4Q
and with the prospects of further growth. Drogeries
have completed the year with all the LFL indicators in
the positive zone: 1.5%, 1.6% and 3.1% for the average
ticket, traffic and sales respectively.
Supermarkets include three sub-formats –
Magnit Family supermarkets, superstores and
Cash&Carry.
The larger formats potential is yet to be
unleashed with the help of a specific approach
and dedicated team established in 2019 to
reload the segment. One of the features in the
format are so-called cubes (mini-stores within
stores) with unique fresh assortment offerings
and an enhanced customer experience.
This initiative indicates the direction and the
“freshness” approach we are pursuing with our
CVP.
Supermarkets account for 15.0% of Magnit's net
retail sales. 6 new stores were opened in 2019
(on a net basis) and 5 redesigned, including
the flagship store in Krasnodar. LFL sales in
2019 declined by 4.6% with LFL traffic at -6.1%.
With the format expertise in place and revised
customer value proposition we look to the future
with enthusiasm.
Magnit Pharmacy
This modern pharmacy format was launched by
the Company in 2017. Among its advantages are
affordable prices, easy navigation, convenient open
display and friendly and professional personnel. The
assortment features medicine, medical cosmetics,
family products, beauty articles, baby food, and
seasonal offerings. Pharmacies are usually located
inside or next to the convenience, supermarkets, and
cosmetics stores.
There were 1,060 pharmacies opened in 2019.
The format proved to be effective and the Company
will continue its expansion in the future.
Ultra-small formats
Ultra-small format stores comprise of the stores
with basic assortment in the Russian post offices,
including remote areas with a population of less
than 3,000 citizens, and stores with basic food and
non-food products at petrol stations.
Magnit Family Supermarkets
The supermarkets with larger assortment than
in the Convenience stores, are located at a
walking distance in bedroom communities and
business areas, as well as shopping malls. This
format is aimed at keeping the attractive prices
through the whole extended assortment.
Superstores
Compact city hypermarkets are modern and
high-tech stores for the whole family located
within the city area. Such stores have broader
assortment in all categories of products,
including Magnit’s private labels, focus on
fresh and ultra-fresh products. The first
renovated superstore was opened in Krasnodar
in November, 2019. The innovations include
carefully tailored proposition of household
goods, wide assortment of products for families
with children, number of locally produced
goods.
Magnit Cash&Carry
The Cash&Carry format is a new format
geared towards private customers and
small enterprises who are interested in bulk
purchases at low prices. The Company started
development of the Cash&Carry format in 2017.
There are around 4,000 SKUs with the focus
on dry food assortment and bulk purchases for
small business. As of end of 2019 there were
23 stores of that format in retail chain.
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(continued)
Improving customer
experience
In line with our strategy, we aim
to deliver the best customer
experience across all market
segments. Magnit is focused on
understanding customer needs
and preferences, and providing
the best shopping experience
and personalised offers, as
well as implementing digital
technologies.
Enhanced customer
experience:
‒ Redesigned stores
‒ Reviewed assortment
‒ Improved layout
‒ Upgraded navigation
‒ Changed communication
‒ Optimised technologies and
processes
‒ Trained personnel.
We expanded training programmes
for our employees and introduced
a new employee value proposition
(EVP) which includes market
level compensation schemes and
improved working conditions.
In February 2019, we presented our
updated brand architecture based on
the concept of creating the unified
family of stores. Since then, Magnit
convenience stores, supermarkets,
drogeries and pharmacies share the
same umbrella brand and the slogan
“Let's bring families together!”.
The new Magnit logo retained
its recognisable color and its
brand name letter "M". The letter
has changed the shape and now
reminds of a pair of hands folded in
a caring gesture. The new Magnit
logo resembles a smartphone icon,
in light of increasing of digitalisaiton.
It will be widely used in the original
system of pictograms, placed on
facades, trade hall signs, private label
packaging and advertising materials.
In 2019, we achieved a significant
improvement in customer experience.
We redesigned our stores with
focus on convenience with one of
the new features including aisles
wide enough for shopping carts and
strollers. We also introduced new
racks and shelves, enhanced layout
and upgraded navigation. Customer
experience also benefited from the
use of new technologies, such as
mobile printers, self-scanning and
digital tags. An added benefit of
continued digitalisation includes
stock management at store level,
which allows us to increase supply
frequency in line with demand levels.
Given the widespread use of
smartphones, internet banking
and digital public services in
Russia, customers also have high
expectations when it comes to
digital technologies in retail, such
as electronic price tags and mobile
applications.
Our flagship stores allow the
customers to enjoy the best of the
modern retail: they are equipped
with unique selfie-pay solution, wi-fi
zones, electronic sommelier and
self-scanning devices. To ensure
the on-shelf availability and comfort
of the customers we use video
monitoring of shelves and queues.
Operating organisational
structure
We upgraded the organisational
structure and developed the
unique multi-format approach
to decentralise our decision
making. In 2019 the Company
introduced format heads
and format management in
regions in order to strengthen
its expertise in each of the
business segments. We
created 8 multi-format regions
to become more flexible and
efficient in decision making and
adjust our value proposition to
our customers’ needs. Head
Office remains responsible
for strategy development,
methodology and serves as a
centre of excellence for regions.
In the regions we have matrix-
based management structure
with administrative and functional
reporting lines. We have format
Operational directors, Chief Finanical
Officer (CFO) and Human Resources
director (HRD) in each region
administratively subordinate
to the Multi-Format Regional Head.
At the same time functionally they
report to the Head Quarter.
In 2019, we established the
Shared Service Centre (SSC) in
Krasnodar. While transferring some
responsibilities to the regions we
centralised the routine tasks which
allow us to increase the speed and
quality of work performed by the
staff and and achieve a significant
decrease in process support costs.
In 2019–2020, the Shared Service
Сentre will take over a number of
functions related to finance and
HR services: accounting and tax
records, contractor interactions and
contractual records, and payroll
management.
In parallel with the transfer of
functions from the districts, the
SSC is working on creating a service
management system that would
incorporate operational efficiency,
quality control, and development of
client relations. In addition to that,
the Company has launched a project
to implement a system enabling
electronic document flow, which
serves as one of the cornerstones for
implementation of the SSC concept
and Magnit’s IT Development
Strategy.
President/CEO
CFO
HRD
COO
Magnit Pharmacy Director
Director of
Operations
(Convenience stores)
Director of
Operations
(Magnit Cosmetic)
Director of
Operations
(Supermarkets)
Director of
Operations
(Magnit Pharmacy)
Region
Multi-Format Regional Head
Functional reporting
Administrative reporting
CFO
HRD
Regional Director
of Operations
(Convenience
stores)
Regional Director
of Operations
(Magnit Cosmetic)
Regional Director
of Operations
(Supermarkets)
Regional Director
of Operations
(Magnit Pharmacy)
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(continued)
Category management
Cooperation with suppliers
Introduction of category
management was a key for the
enhancement of operations
across the whole value chain.
Previously Magnit was a
function-based organisation
with the isolated Logistics,
Procurement and Marketing
departments. Now these
functions have all been united
into the classic model of
category management. The KPI
system for category managers
was also updated to align it with
sales objectives.
In 2019, a new assortment
management system was introduced
with all operations migrated to this
system by year end. This allows for
faster implementation of assortment
changes – down to 4 weeks, from
10 weeks.
In line with the new organisational
structure we will have 8 local teams
of category managers responsible for
local assortments tailored to the needs
of customers each particular region.
Meanwhile, category managers in
the Head Office will be in charge for
federal assortment and its quotes in
the regions unique for every category
group. Similar to operations, the
structure of category management
department is based on a format
approach where format dedicated
Category Managers report to the
Multi-Format Category Head.
In 2019 Magnit launched its Category
Management Academy, which has had
230 graduates to date. The educational
venue provides an opportunity for
further development for various
categories of employees, including line
managers, category managers and
category directors.
Digital contracts with suppliers
Magnit was the first to introduce the
digital contracts with the suppliers in
2019. The verification time has been
dramatically reduced from 40 to
2 minutes. In addition, the Company
uses electronic signature to verify the
contracts. Because Magnit is currently
working with over 6 thous. suppliers,
the fast and convenient process of
document flow is extremely important.
During the four months of the pilot
project 700 suppliers joined the
system. The approach is to save more
than 1 mln of working hours for the next
10 years. Magnit's digital contracting
system received a prize at the Efficient
Consumer Response (ECR) contest as
“The best innovative case”.
Close engagement with our
suppliers allows us to make joint
plans and forecasts, to optimise
procurement volumes, to deliver
the best products at minimum
cost and to achieve better
commercial terms.
To maintain close relationships,
we hold supplier conferences to
share ideas and develop a unified
approach to handling various
issues in retail. In 2019, more
than 350 suppliers took part in
our “On the same wavelength”
conference to discuss the trends
and achievements of the industry.
We share information with
suppliers and partners to foster
close cooperation, especially
during high season and intense
promotional campaigns. Close
communications also give way
to more clear and consistent
planning process for the period
up to three years.
“Implant” project
In the reporting year we launched the
unique “Implant” project. We invite
employees of our major suppliers
to work from our office, so we can
cooperate in close contact and
analyse processes both from internal
and external viewpoints. In 2019, we
piloted this project with Baltika, an
expert in distribution and supply chain
management. Our major partners
Procter & Gamble and Danone
subsequently joined the programme.
New digital platform for media
agencies and brands
At the end of 2019, with technical
support of Microsoft and in
partnership with Aggregion Magnit
launched its digital platform, where
the retail market participants can
monitor and download anonymised
data based on more than a hundred
parameters and several thousand of
goods.
The platform is aimed at the local
and global media agencies and
brands. It will enable monitoring of
the customer journey from the first
mention of the brand to the purchase.
In the future Magnit plans to further
enhance the features of the platform
and add the tools for automated
segmentation and targeting.
The platform will also potentially
be beneficial to customers, who
will receive a more tailored product
proposition.
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Logistics
PJSC Magnit runs one of the
most developed logistics
systems in Russia. It includes
38 distribution centres with
1.7 mln sq. m of warehouse
space, a fleet of more than
5.6 thous. trucks and workforce
of 36 thous. employees.
We started construction
of a distribution centre (DC)
in Novosibirsk in order to increase
the Company’s warehouse capacity
in Siberia. The launch of DC is
planned for the second half of 2020.
In 2019, we achieved significant
improvements in our logistics
management. Despite the fact that
assortment was significantly revised,
service levels were maintained and
shelf availability improved. Overall,
we continued to improve load
planning for distribution centres and
transport, reduced lead times and
mileage and enabled our suppliers to
provide fresher products faster. We
strengthened our logistics by fully
integrating SIA Group distribution
capacities into our pharmacies and
drogeries distribution network. It
provides us with more flexibility and
efficiency in picking and distributing
items of smaller quantities.
In 2019, the Company introduced a
new logistics development strategy
called “The chain of freshness”.
It is based on three pillars:
transparency and cooperation with
suppliers, logistics optimisation and
automation. The strategy covers all
areas of logistics: distribution, transit
and international delivery, distribution
centres, management structure, etc.
Furthermore, Magnit strengthened
its logistics team with leading experts
from the FMCG market.
In line with the new strategy which
implies focus on fresh and ultrafresh
assortment, Magnit has divided its
logistics into several geographical
zones, subject to their proximity to
the DCs.
The Company plans to raise the share
of light trucks in the fleet for the first
and second geographical zones,
while maintaining the total number of
trucks, as light trucks are more useful
and convenient for deliveries within
cities and short distances. We also
increased the share of rented trucks
from 80% to 85% for long distance
routes and brought it to 16% for local
routes.
Magnit approach to delivery by geographical zones
Geographical zone
Daily delivery of fresh
category
Fresh and cross-
docking platforms1
Contactless goods
acceptance at night
Use of leased
transport
< 80 км
> 80 km
High population density
> 80 km
Low population density
Maximum potential
Minimum potential
(1) Cross-docking platform is a transshipment platform used to consolidate incoming products for outgoing destinations. Inbound and
outbound of items is carried out within one day.
Geographical coverage
of Magnit distribution centres1
Overview of the logistics chain
Central Federal District
10 centres
Volga Federal District
10 centres
Southern Federal District
8 centres
Urals Federal District
3 centres
Northwestern
Federal District
3 centres
Siberian Federal District
3 centres
North Caucasian
Federal District
1 centre
516 thous. sq. m
total warehouse
space
470 thous. sq. m
total warehouse
space
313 thous. sq. m
total warehouse
space
143 thous. sq. m
total warehouse
space
119 thous. sq. m
total warehouse
space
84 thous. sq. m
total warehouse
space
40 thous. sq. m
total warehouse
space
(1)
Excluding small pharma warehouses
located in the other regions.
(2)
Excluding pharmacies.
(3) Share of goods delivered to the stores
via distribution centres.
Logistics chain characteristics
2019
2018
2017
Number of stores served
20,725
18,348
16,298
Number of distribution centres
Total warehouse space1, thous. sq. m
Selling space per 1 sq. m of warehouse
space, sq. m.
Number of stores per 1 warehouse2
Sales per 1 sq. m of warehouse space,
RUB thous./sq. m
38
1,686
4.29
545
812
37
37
1,645
1,640
3.91
3.51
496
752
440
697
Centralization ratio3, %
91
89
88
Number of company-owned trucks
5,656
5,897
6,089
Magnit strives to develop local
production and engages with local
suppliers to get the best quality
products on to shelves. We have
more than 6 thous. suppliers, 52% of
which are local.
Procurement practice
PJSC Magnit responsibly chooses
its suppliers and strives to engage
them as stakeholders. The Company
handles the selection of suppliers
and oversees quality control for
deliveries to all Magnit store formats.
When deciding whether to cooperate
with a company, the legal status and
reputation of the potential supplier is
taken into account.
Quality characteristics of our
products are regulated by the laws
of the Russian Federation. Moreover,
for a range of items, including fruits
and vegetables and our private
label products, we apply our own
standards, which exceed government
regulations.
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Trusted goods acceptance
We are testing trusted goods
acceptance, which is aimed at
the best suppliers and allows
for a significant reduction in the
time and workload for the goods
acceptance procedure at the
warehouse, once a supplier has
been provided consistently high
quality products for a long time.
Pooling
In 2018, we launched a new
delivery scheme – pooling. Pooling
entails a consolidated delivery
of goods from different suppliers
to distribution centres using
a transport company. Pooling
allows suppliers to reduce logistics
costs by an average of 10-30%.
250 companies have already
joined the scheme and this
number is growing rapidly.
Cross-docking platforms
Cross-docking platforms are small
warehouses located between
distribution сentres and stores.
Magnit plans to cover local
suppliers with cross-docking
platforms to decrease the costs
of transportation and speed up
the delivery process. Introduction
of the cross-docking approach
in 2019 allowed the Company
to increase sales and reduce
shrinkage in the “fresh” category.
‒ “Pick by voice” is another project
to increase the efficiency of
distribution centres. Previously
employees of the centres received
text instructions via tablet, but
with the implementation of the
new system they will receive
voice instructions via headset.
This guides all of their actions
step-by-step and is expected to
improve labour efficiency.
Magnit also played an active part
in the Mercury1 programme: we
process around 570 mln electronic
veterinary certificates per year, which
is over 1.5 mln certificates per day –
more than any other retail company
in Russia.
Automation
Automation and digitalisation are key
enablers of our logistics development
strategy. In 2019, we launched a
number of projects, including: a
project to monitor availability of
products on shelves - OSA HP, a new
warehouse management system
(WMS), a new system for picking
operations in distributions centres -
“pick by voice”.
‒ OSA HP is an analytical platform
for Magnit and its suppliers, which
gathers and analyses data on
products availability on shelves.
This allows to reduce stock levels
and to timely notify suppliers
about the necessary products.
‒ Warehouse Management
System (WMS) will allow
the control of all operations
in distribution centres: from
application processing to delivery
to stores. The projects will
increase traffic capacity at the
centres. At present, this is being
piloted in one distribution centre.
Marketing
In 2019 we separated the
marketing function from the
commercial function. As a result,
our marketing is now empowered
by format expertise, with different
development strategies for each
format. This structure enables
different formats of Magnit to be
more efficient and closer to their
target audience.
Marketing communications
The ultimate goal of the marketing
function is to provide superior
customer communication and
personalised recommendations
to all our clients. This is possible
through the use of big data analytics
and other modern technologies.
We use a variety of tools to collect
and analyse data regarding customer
purchases, as well as to trace the
impact of our advertising campaigns
on Magnit’s sales and brand
awareness. One of the most powerful
tools which enables us to initiate
personalised marketing campaigns
and gives us deep understanding
of the customers’ preferences
is our multi-format loyalty programme
which encompasses the whole family
of Magnit stores.
Marketing data collection
and analysis at Magnit
Data collection tools
Receipts
Depersonalised data.
Loyalty cards
Personalised data facilitates detailed
Consumer Decision Tree (‘CDT’)
analysis, tailoring of product ranges
and display, communication and
tracking of customer reactions, and
identification of new opportunities.
Digital footprint
Website and mobile application
activities (likes, favorite categories,
responses to offers), various
activities conducted via the Internet.
Data analysis tools
Big data analysis
Smart customer segmentation
(>300 identified segments)
Insight labs in collaboration
with producers
Targeted digital marketing.
Joint consumer panels
with marketing research firms
(Nielsen, GfK)
Analysis of the drivers behind
customer behavior and their
reaction to the changes.
NEW PROJECTS AND TECHNOLOGIES
‒ Joint analytical tools with suppliers. We provide suppliers with sophisticated
analysis for the planning of sales, marketing and logistics via a special portal.
This data is provided at brand level
‒ Joint forecasting based on common data with key suppliers and partners.
The project helps to optimise the entire supply chain by improving the
accuracy of order forecasting so that suppliers can plan their production and
logistics accordingly
‒ Digital marketing platform launched in December 2019. The platform will be
used to identify target groups on various websites, such as VK, Yandex and
Odnoklassniki, Facebook (incl. Instagram) and Google (incl. YouTube), and
to use targeted advertisements to each of these groups based on the chosen
criteria
‒ Forecasting promotion effectiveness based on machine learning. We plan
to develop a unified service to be used for various purposes such as product
reservation, pricing, promotion management, product availability assessment,
modeling etc
‒ Stock level assessment project which will allow us to detect sales deviations
in real time and react accordingly
‒ Joint optimisation of the whole ecosystem with machine learning and advanced
analytics.
FUTURE DEVELOPMENT
In 2020, we will continue to develop our logistics. We will scale our current pilot
projects, such as WMS, OSA HP and others. We will continue to optimise our internal
processes and the scale of operations of our distribution centres, and will open new
cross-docking platforms.
We will continue to pursue our strategy of reducing the amount of heavy trucks in
favour of light trucks and will also continue to grow the share of rental trucks in our
fleet to serve larger cities with parking constraints and allow faster and efficient
delivery.
(1)
Federal state informational system
“Mercury” – automated system for
electronic certification of goods
subject to state veterinary control
in Russian Federation.
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Key marketing campaigns of 2019
Dance in Pepsi style
In July-August 2019, Magnit held a
marketing campaign in collaboration
with Pepsi. The participants were
offered to buy a can of Pepsi in
Magnit, dance with it at the Magnit
store entrance and upload the
video on Instagram or TikTok with
a hashtag #танцуйвстилепепси
(#danceinpepsistyle).
The campaign went viral: internet
users uploaded a total of 108 thous.
videos with the relevant hashtag, and
the number of views totaled 200 mln.
The Instagram video of Anastasia
Ivleeva (a famous YouTube blogger)
which started the campaign, got over
1 mln “like” and “share” reactions.
Her TikTok account, specially created
for the campaign, reached over
558 thous. subscribers. Following
the successful marketing campaign,
Jan Dunning, the President of Magnit,
and Neil Sturrock, the President of
Pepsi in CIS countries, performed
a dance in Pepsi style which was
uploaded on social media.
Skrepyshy
The marketing campaign “Skrepyshy”
was run in August-October 2019.
For each 400 rubles, Magnit
customers got a “Skrepysh”, a bright
small device cartoon character, which
can be used for different purposes,
e.g. as a fixator for earphones,
a keychain or a bookmark. The
collection included 22 unique
characters. In the course of the
campaign, Magnit handed out over
220 mln pcs. of Skrepyshy.
Football promotion
Magnit signed an agreement on a
strategic partnership with Russian
Football Union. The sides agreed
on a joint implementation of various
campaigns aimed at promoting
Russian football. Magnit also became
the official partner of Russian
Football Union and the national
football team.
Royal Küchen frying pans
In May-August 2019, Magnit ran
a marketing campaign, which enabled
customers to get promo stickers
for their purchase which could be
later swapped for a frying pan under
our brand Royal Küchen at a 80%
discount.
Our customers showed
unprecedented interest in the
campaign, so it was extended
to January 2020. In total, almost
5 mln frying pans were sold, and the
demand remains high.
After this successful campaign,
Magnit continued to develop the
Royal Küchen brand and extended its
assortment. We also successfully ran
a similar promotion campaign with
Royal Küchen glasses and tableware
and plan to have more activities
and campaigns, with the option to
accumulate digital promo stickers in
the application.
Loyalty programme
and partnerships
The cross-format loyalty
programme is an integral part of
our developing ecosystem and
one of the key tools for effective
communication with different
customer audiences. It was
successfully piloted between
April and July of 2019 in three
regions (Yaroslavl, Kostroma and
Chelyabinsk). The full launch
across the Magnit footprint
was carried out in August 2019,
covering 7 federal regions of
Russian Federation and 3,742
cities and townships.
The key feature of the Magnit loyalty
programme is the opportunity to
collect and spend bonus points
across all retail chain formats:
convenience stores, supermarkets,
drogeries and pharmacies.
Our award system is one of the
most attractive on the market: when
making a purchase, customers
receive a bonus of 0.5-2% of the
purchase amount. In addition to basic
points, customers also earn personal
points for participation in different
promotions (1 bonus point equals
RUB1, and may also be used to cover
up to 100% of the purchase price).
The Magnit cross-format loyalty
programme proved to be an effective
tool: by the end of initial roll-out
(in February 2020), the number of
issued cards reached 33 mln while
the number of active users exceeded
20 mln. We noted a 3% increase in
purchase frequency from the card
holders. The share of customers
shopping at at least two Magnit
formats increased by 15p.p. to 52%1.
The data collected by the loyalty
programme will provide Magnit
with a deeper understanding of
customer needs. This will enable us
to improve category management,
merchandising, product range
localization and promo offers.
The Company plans to further
improve its loyalty programme to
increase its popularity and enable
users to accumulate bonus points
faster. In 2020, Magnit will develop
targeted offers for customers
through the use of digital tools.
The expanded range of services will
soon be available in the mobile app.
Magnit loyalty programme in figures
33 mln
cards issued
> 20 mln
active loyalty cardholders
52%
customers make purchases in
two or more formats
58%
penetration in sales
(1)
Based on the March 2019–January 2020 statistics from the initially piloted regions.
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CO-BRANDED BANK CARDS
By collaborating with partners from financial
or telecommunication sectors, a retailer might
learn to better understand the customers’
needs and offer complementary services with
the unified loyalty programme.
Magnit develops such collaborations as
part of its loyalty programme. In 2019, the
Company piloted two co-branded bank cards
in collaboration with Pochta Bank (piloted
in Chelyabinsk region, Yaroslavl region,
Kostroma region) and Tinkoff bank.
Over 17.5 thous. cards were issued in the
reporting year.
The programme enables the customer to
obtain regular bonuses for purchases in
family of Magnit stores, and Tinkoff Bank
cards customers – additional bonuses
from transactions in restaurants and at gas
stations. Customers also get welcoming
bonuses in the first month of using the card
and special offers from the issuing banks.
Such co-branded products will give
Magnit the opportunity to increase the
customer loyalty and retail turnover, and get
commission from partnering banks.
Private Label brands
and own production
The development of Magnit’s
new Private Label (PL) range
is central to the Company’s
customer value proposition
(CVP), a core component of our
strategy. In addition to a unique
value for money offering which
is provided by the private label,
we are able to deliver higher
gross margins compared to
branded goods.
In 2019, Magnit updated its
PL product line in response to
evolving consumer preferences.
Accordingly, Magnit reviewed its
main product lines, relaunched
certain brands, adjusted pricing
strategies and upgraded its
product packaging.
Our PL products will be available
across each of Magnit’s price
brackets (low, medium and
high).
One of the first labels launched in
2019 was “Magnit Svezhest” (Magnit
Freshness) which currently brings
together 58 SKUs in the category
of fruits and vegetables, such as
cucumbers, tomatoes, mushrooms,
salads etc. A significant part of
Magnit Freshness range is produced
in Magnit’s greenhouse complexes
in the Krasnodar region. In 2020, we
plan to expand the assortment of
tomatoes, increase the production of
eggplants and green salads, as well
as to explore opportunities of adding
the production of oyster mushrooms.
Amongst others we consider adding
dairy items and meat assortment to
Magnit Freshness.
Magnit is committed to enhancing
the brand awareness of its PL range
and aims to increase the share of PL
in our assortment from 7% to 20%.
Furthermore, we intend to drive sales
growth and address niche consumer
segments with a clearly differentiated
offering.
Low (My Price)
An extensive product range
including essential goods at
attractive prices.
Medium (Magnit)
Includes dairy products, drinks,
dry-food, gastronomy and
household products.
“Magnit Freshness”, launched in
2019, includes vegetables and fruits
High
Includes snacks, canned food,
cheese and products considered
important for a healthy lifestyle.
Was
69 private labels
lack of customer awareness and demand
Now
13 private labels
> 500 SKUs
7% share in sales
Target
26 private labels
including 7 cross-category
private labels
> 2,000 SKUs
20% share in sales
Own production
Underpinning Magnit’s PL range are
the Company’s in-house production
facilities. Magnit operates eleven
industrial and four agricultural
facilities, located in Krasnodar,
Saratov, Ufa, Tver, Lipetsk and
Togliatti regions. The total annual
production capacity amounts to
around 200 thous. tonnes.
Magnit production facilities have
the annual capacity of around
140 thous. tonnes of produce
with 114 production lines. Magnit
produces frozen semi-finished
products, pastas, snacks, cereals
and plently of other food items.
Own production partially meets
the Company’s internal demand in
different product categories.
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All the own production facilities are constantly
monitored online by the modern software to
ensure quality control at all production stages.
Hence, Magnit is able to offer high quality,
fresh and healthy products.
An important aspect of Magnit’s own
production facilities is the ability to grow fresh
vegetables and mushrooms. Accordingly, our
motto is “from field to plate with the speed of
freshness”.
We are proud to be the only Russian food
retailer with its own agricultural facilities three
of which are located in Kuban, the agricultural
centre of Russia, and one in Lipetsk region.
Our greenhouse complex Zelenaya Liniya is
the largest in Russia (by greenhouse surface
area and volume of vegetables produced). The
total area of greenhouses is around 108 ha and
annual production of vegetables of about 70
thous. tonnes.
Across our own production facilities, we recruit
the best specialists and focus on continuous
development and improvement. Our new
products are tested in special laboratories
to ensure quality control throughout the
production process, from raw materials to the
finished product.
Magnit’s production sites operate primarily in
the low-price segment, however, as Magnit’s
PL range develops, the sites will be gradually
reoriented towards the production of food
with higher added value. Thus, the share of
own production in the relevant categories is
expected to increase. Simultaneously, Magnit
is working to develop strategic partnerships
with external suppliers for the PL range by
signing long-term contracts. With regard to the
development of the PL range in the premium
price segment, Magnit expects to explore
opportunities relating to the direct import of
exclusive products.
Lipetsk region
Moskva na Donu LLC
vegetables
Tver region
Tver separate division
tea, snacks
Moscow region
Cheese Slicing Facility Dmitrov
JSC Tander
cheese slicing and packaging
11
production
plants
4
agricultural
facilities
Republic of
Bashkortostan
Ufa separate division
grocery, snacks
114
> 460
manufacturing lines
SKUs
≈200
thous. tonnes of
production
> 4.5
thous. people
employed
Samara region
Togliatti separate division
frozen food
KRASNODAR REGION
Kuban Factory of Bakery Products LLC
Kuban Confectioner LLC
Saratov region
Saratov separate division
grocery, snacks
KRASNODAR REGION
Zelenaya Liniya LLC – Tikhoretsk separate division
Zelenaya Liniya LLC – Plastunovskaya separate division
Zelenaya Liniya LLC – Mushroom complex
Trading Company Plastunovskoe separate division
Trading Company Tikhoretskoe separate division
Trading Company Novotitarovskaya separate division
Cheese Slicing Facility Krasnodar JSC Tander
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SKUs of
Magnit Freshness
regions of presence
of Magnit Freshness
CONFECTIONER OF KUBAN
In 2019, Magnit launched one of the largest
confectionery factories in the country, Konditer Kubani
(Confectioner of Kuban), which has an estimated annual
production capacity of 55,000 tonnes.
The facility is located in the Krasnodar Industrial Park
and has five modern, high-tech production lines. It will
produce chocolate bars and sweets, hard candies, jelly
and fondant sweets, fruit jellies, and chocolate truffles.
Most raw materials used in production are of Russian
origin.
The factory currently produces around 20 confectionery
products covering 60% of the Company’s need in
these categories, and hires approximately 400 people.
Due to the flexibility of Magnit’s production lines,
the assortment of Konditer Kubani will be constantly
updated in response to customer preferences.
Share of own production in
Magnit’s internal demand, %
24
34
Pasta
9
Tomatoes
13
Cucumbers
Salads
Roulade
Mushrooms
Pastry
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87
76
66
25
24
97
67
75
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Information technology
Magnit strives to be one of the
leading digital companies in
Russia. In 2019, we continued
to invest in key IT projects to
improve the efficiency of our
business.
In 2019, the Company adopted
an IT strategy in line with the key
goals and objectives of the overall
corporate strategy:
‒ ensuring stable growth of
the Company and increasing
shareholder value
‒ key pillars of our business
strategy
‒ strategic priorities and
business projects
‒ key metrics: LFL, EBITDA,
average ticket, sales, etc.
The IT strategy includes the following key goals and objectives:
‒ to ensure a high level of resilience
of the organisation and all its
processes
‒ to increase the efficiency of data
processing (implementation of
big data systems and predictive
analytics for handle assortment,
prices and promotions, as well as
to analyse data to increase the
efficiency of the supply chain,
etc.)
‒ technological leadership (the
adoption of effective new
technological solutions such as
artificial intelligence, IoT1, RPA2,
augmented reality, virtual reality,
etc.)
‒ to increase operational efficiency
(increased development speed
due to flexible methodologies, a
product-focused approach and
optimisation of the sourcing model)
‒ to create a digital ecosystem
(development of solutions for
using a service-based approach)
‒ to improve the efficiency of
infrastructure (improving
reliability, security and optimising
the cost of operating equipment)
‒ digital leadership (implementation
of solutions such as mobility and
cloud services, omnichannel,
loyalty programmes, e-commerce,
innovation management,
development of strategic
partnerships, etc).
(1)
The Internet of things (IoT) is a system of interrelated computing devices, mechanical and
digital machines provided with unique identifiers (UIDs) and the ability to transfer data
over a network without requiring human-to-human or human-to-computer interaction.
(2) Robotic Process Automation (RPA) involves the use of specialised software to automate
repeatable and predictable computer-based processes performed by humans.
Supply chain
– Logistics network
optimisation
– WMS (Distribution centre)
– TMS (transport)
– Forecasting &
Replenishment
development
a i n
h
Su p ply c
Legisla
ti
o
C u stomer
r o position
p
n
Understanding of customers
– Analytical centre
– Loyality program
– Single contact centre
Efficiency and stability
– Automation SCP –SRM
(non-commercial procurement)
– Factoring
– ERP implementation
– Implementation of Enterprise
Content Management (ECM)
– Mobile worlplace
P
e
r
f
o
r
a
n
d
s
t
m
a
a
b
n
i
l
i
t
c
e
y
Understa n d i
of custo m e r
g
n
s
Managemen t s y s t e m
e
r
u
t
l
u
c
d
n
People a
Legislation
– Cash registers
(Federal law-54)
– Mercury 2.0
– Drug labeling
– Identification
marking
– Unified state
automated information
system (USAUIS)
Customer proposition
– Pricing management
– Implementation of category
management
People and culture
– HR mobile application
– Accounting for working time
– Distance learning
Management system
– Automation of
KPI management
– Video analytics
2019 was fundamental for us to identify a key vector for ensuring business
continuity, the organic growth of the Company and implementation
of strategic initiatives, improving business performance and the formation
of a plan of changes and transformation aimed at improving all key
performance indicators of the Company.
To manage day-to-day operations
across the largest retail-chain
in Russia, Magnit currently uses
an ERP-system, based on 1C:
Enterprise 8. All operations across
the Group’s stores are recorded
by the main control centre, which
processes collected data and
prepares analytical reports. In
2019, we optimised this system and
aligned it with our new organisational
structure. We reduced the number
of databases, which in turn reduced
the maintenance cost of the system.
We also launched a new information
system project, aligned with the
National catalogue. This will allow
us to reduce the time needed to
introduce new products to shelves.
In 2019, we launched an electronic
document management in our
logistics operations. In our pilot
project, electronic waybills allowed
us to dramatically reduce the time
required for document processing
from 3 days to 3 hours. Magnit is the
first Russian retailer to implement this
solution.
The focus of our IT projects this year
was getting closer to understanding
customer needs and priorities. We
successfully launched our loyalty
programme, which we will continue to
develop through the use of different
technological solutions, e.g. through
face-pay applications. The first
superstore in Kuban which opened
in 2019 was equipped with video
monitoring of queues and shelf space
availability.
Key pilot projects in IT included ‘pick-
by-line’ and ‘pick-by-voice’ solutions,
which increase the efficiency
of warehouse management and
reduce the time spent on the routine
operations, when handling the goods.
One of the major decisions in terms
of IT infrastructure was the transfer
to the SAP system which we plan to
initiate in the first half of 2020.
As the digital core uniting all the
Company’s business processes,
Magnit will use SAP S/4HANA RETAIL,
a high-performance system that will
enable it to maintain end-to-end
stock and financial accounts. Over
the course of the programme, the
chain plans to incorporate over 40
SAP S/4HANA modules. During
the first stage, the system will be
used to automate finance, stock
movement, human resources, and
reporting. SAP Central Finance
will allow consolidation of financial
administration at Magnit’s main
enterprises. Digitisation of personnel
management, based on SAP
HCM, will enhance HR records,
organizational structure, as well
as payroll calculations and related
processes.
Other important decisions from the
point of view of developing goods
distribution, financial accounting, and
personnel automation (in terms of
payroll) was to choose a development
platform for these processes. Magnit
has chosen a solution based on
SAP S / 4HANA RETAIL, which is a
high-performance system aimed at
conducting end-to-end inventory
accounting and financial accounts.
Within the programme, the network
is to include more than
40 SAP S / 4HANA modules.
At the first stage, the system will be
used to automate finances, stock
movements, human resources and
reporting.
In 2019, we signed several important
IT agreements related to strategic
cooperation in the field of information
technology with 1C, and agreements
with Microsoft and other suppliers
on integrated network digitalisation
utilising the latest technological
developments. Magnit also became
a resident of Innopolis – a technology
park created for the development
of information technologies and
innovative high technology.
2019 highlights:
‒ Approvement of IT Strategy of the
Company
‒ Launch of a multi-format loyalty card
‒ The integration of 1C databases
across HR and accounting systems,
leading to lower labor costs
‒ First Russian retailer to launch
electronic waybills
‒ Over 1,600 new suppliers connected
to the Company's electronic
document management system
‒ Magnit certification authority issued
17.8 thousand electronic signature
keys to employees and 3.2 thousand
to customers
‒ A secure cloud infrastructure
deployed in MS Azure, reducing the
time and cost of SSC, EDMS1, Service
Desk and other projects
‒ A separate test IT environment
deployed at retail facilities, which will
allow safe and quick testing of new
sales technologies
‒ Introduction of platform for managing
mobile devices at TanderStore retail
facilities, which will reduce the cost
of device maintenance
‒ Piloting of video analytics systems
(control of goods on a shelf, queue
control) successfully carried out
‒ Successful integration solution
created for processing electronic
veterinary accompanying documents
for the Mercury project
‒ Successful rollout of corporate user
access control system across the
organization’s information systems.
(1)
Electronic document management system
(EDMS) is a software programme that
manages the creation, storage and control
of documents electronically.
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FY 2019 key financial highlights:
FY 2019 Key Financial Results, RUB mln
Financial Review
PJSC Magnit announces its audited
consolidated IFRS results for the year
ending 31 December 20191.
The Company continues to provide
analysis of financial metrics using
a pre-IFRS 16 approach in the
current report in order to support
smooth and transparent transition
to the new reporting standard.
Respective financial data with IFRS 16
implication is also provided for proper
comparison further in the report.
‒ Total revenue increased by 10.6% Y-o-Y to RUB 1,368.7 bln
‒ Net retail sales reached RUB 1,332.9 bln representing 9.5% Y-o-Y
growth
‒ Wholesale revenue increased by 77.4% Y-o-Y to RUB 35.8 bln
primarily driven by distribution of pharmaceutical products
‒ Gross Profit stood at RUB 312.0 bln with a margin of 22.8% (down
114 bps Y-o-Y) on higher shrinkage, lower trading margin and
growing share of low-margin wholesale segment partially offset by
improved commercial terms and an increased share of the high-
margin drogerie format
‒ SG&A expenses as percentage of sales increased by 79 bps to
21.3% on higher depreciation, rental and personnel costs
‒ Reported EBITDA was RUB 83.1 bln with a 6.1% margin, down 117 bps
Y-o-Y. Adjusted EBITDA margin2 was 6.8%
‒ Net income decreased by 49.0% Y-o-Y and stood at RUB 17.1 bln.
Net income margin decreased by 146 bps Y-o-Y to 1.2%;
‒ Capex in 2019 increased by 9.0% to RUB 58.6 bln on the back of the
accelerated redesign and expansion programme
‒ Net cash generated from operating activities decreased by 12.8%
to RUB 56.4 bln as a result of the negative movement of working
capital and higher interest paid
‒ As of 31 December 2019 Net Debt was RUR 175.3 bln compared to
RUB 137.8 bln as of December 31, 2018. The net debt increase was
due to higher gross debt, while the lower cash position related to
unfavourable calendarisation of payment days in the 2019 calendar
year vs 2018
‒ Net Debt to EBITDA ratio was 2.1x.
IMPLICATIONS OF IFRS 16
IFRS 16 balances the presentation of leased assets with owned
assets. With this, rent expenses are replaced with depreciation and
interest payments. The lease capitalised is reduced on straight line
basis but interest is charged on outstanding lease liabilities, thus
interest is higher in the earlier years and decreases over time.
As a result, the impact on net income is highly dependent on
average lease maturity – the higher the maturity of the store,
the lower the interest charges. As Magnit’s leased store base
is relatively young, with an average of 3.5 years, the impact on net
income is high but will decrease significantly going forward.
The share of lease contracts with rental periods of 10 years or over is
around 80%, while the share of contracts with at least half
the duration left is almost 75%.
(1)
EBITDA, Adjusted EBITDA and LFL metrics
are calculated by the Company and are not
audited.
(2) Adjusted for the accident at Voronezh DC,
costs related to the management structure,
inventory sell-off, consulting fees and LTI
expense.
Total revenue
Retail
Wholesale
Gross Profit
Gross Margin, %
SG&A1, % of sales
EBITDA adjusted2
IAS 17
IFRS 16
FY 2019
FY 2018
Change
FY 2019
FY 2018
Change
1,368,705
1,237,015
10.6% 1,368,705
1,237,015
1,332,929
1,216,851
9.5% 1,332,929
1,216,851
35,777
20,164
77.4%
35,777
20,164
311,999
296,074
5.4%
311,999
296,074
10.6%
9.5%
77.4%
5.4%
22.8%
23.9%
-114 bps
22.8%
23.9%
-114 bps
-21.3%
-20.5%
-79 bps
-19.8%
-19.1%
-63 bps
92,974
89,557
3.8%
157,172
144,962
8.4%
EBITDA Margin adjusted
6.8%
7.2%
-45 bps
11.5%
11.7%
-24 bps
EBITDA pre LTI3
85,111
89,557
-5.0%
149,309
144,962
3.0%
EBITDA Margin pre LTI, %
6.2%
7.2%
-102 bps
10.9%
11.7%
-81 bps
EBITDA
EBITDA Margin, %
EBIT
EBIT Margin, %
Net finance costs
FX gain / (loss)
Profit before tax
Taxes
Net Income
83,112
89,557
-7.2%
147,310
144,962
1.6%
6.1%
7.2%
-117 bps
10.8%
11.7%
-96 bps
36,324
53,040
-31.5%
59,216
71,809
-17.5%
2.7%
4.3%
-163 bps
4.3%
5.8%
-148 bps
-15,095
-8,926
69.1%
-47,509
-39,331
20.8%
781
-1,415
-155.2%
873
-1,523
-157.3%
22,010
42,699
-48.5%
12,579
30,954
-59.4%
-4,901
-9,133
-46.3%
17,108
33,566
-49.0%
-3,015
9,564
-6,784
-55.6%
24,170
-60.4%
Net Income Margin, %
1.2%
2.7%
-146 bps
0.7%
2.0%
-126 bps
(1)
Selling, general and administrative expenses.
(2) Adjusted for the accident at Voronezh DC, costs related to the management
structure, inventory sell-off, consulting fees and LTI expense.
(3)
Long-Term Incentive Programme.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report Financial Review
(continued)
Total revenue in FY 2019 increased
by 10.6% and stood at RUB 1,368.7
bln. Net retail sales in FY 2019 grew
by 9.5% Y-o-Y and amounted to RUB
1,332.9 bln, driven by a combination
of 12.7% growth in selling space
(2,377 store additions) and 0.4% LFL
sales growth. Wholesale revenue
in FY 2019 increased by 77.4%
to RUB 35.8 bln, primarily driven
by the increased distribution of
pharmaceutical products. The share
of the wholesale segment increased
from 1.6% in FY 2018 to 2.6% in FY
2019.
Gross Profit in FY 2019 stood at RUB
312.0 bln with a margin of 22.8%.
This was down by 114 bps Y-o-Y due
to higher shrinkage, lower trading
margin and the growing share of
the low-margin wholesale segment,
which was only partially offset by
improved commercial terms and an
increase in share of the high-margin
drogerie format.
Supply-chain costs as a percentage
of sales remained flat Y-o-Y.
Shrinkage increased Y-o-Y, although
it steadily improved every quarter due
to management initiatives related to
renegotiation of quality standards
with suppliers, changes in delivery
schedules and other supply chain
solutions.
The drogerie format reached a record
high share of net retail sales at 8.2%,
compared to 7.5% a year ago, which
had a positive impact on the gross
margin. On the other side, the growth
of this format combined with better
on-shelf availability resulted in higher
inventory level.
‒ Marketing and advertising
expenses decreased by 13 bps
Y-o-Y on the back of more
efficient tactics and tools of promo
campaigns
‒ Taxes other than income tax as a
percentage of sales improved by
7 bps compared to FY 2018, due to
an increased share of rented stores
and abolishment of tax on movable
property since 2019
‒ Packaging and raw materials as
a percentage of sales reduced
by 5 bps driven by improved
purchasing terms and lower
write-offs on the back of limits
optimisation
‒ Other expenses as a percentage
of sales increased by 2 bps in
FY 2019, predominantly due to
insurance costs resulting from
the introduction of an insurance
programme covering the entire
network of stores and distribution
centres.
As a result, operating profit for
the Company in FY 2019 stood at
RUB 36.3 bln, 31.5% lower than a year
ago.
Reported EBITDA was RUB 83.1 bln,
with a 6.1% margin – down 117 bps
Y-o-Y, driven by gross margin
dynamics and increased SG&A
expenses partially offset by higher
Y-o-Y other operating income. LTI
expenses in the reported period stood
at 0.15% of sales – as a result EBITDA
pre-LTI was 6.2%.
SG&A expenses in FY 2019 reached
RUB 291.6 bln and increased as a
percentage of sales by 79 bps Y-o-Y:
‒ Payroll related expenses
increased by 17 bps driven by the
introduction of the LTI programme
representing 0.15% of total sales,
changes in the management
structure, higher FTE per store to
improve the quality of customer
service partially offset by
productivity gains
‒ Rent expenses as a percentage of
sales increased by 24 bps to 4.6%
driven by a growing share of leased
selling space (77.2% in FY 2019
versus 74.5% a year ago), partially
offset by the improvement of lease
terms with landlords resulting in
lower rental costs per sq. m of
selling space
‒ Depreciation of assets was RUB
46.8 bln, 28.1% higher than in FY
2018. Under the new methodology,
the Company has adjusted the
useful life of assets in line with
the period of corresponding
lease agreements. As a result,
the useful life of reconstructions
has been reduced from 30 years
to 10 years and depreciation has
been recalculated accordingly.
Depreciation of assets was
also impacted by a non-cash
impairment provision in the amount
of RUB 1.0 bln as a result of an
impairment test of operating stores
‒ Utilities expenses increased
slightly, up 9 bps on higher
cleaning and electricity costs.
Growth in cleaning expenses
was primarily driven by the
country-wide growth in tariffs,
as well as additional focus on the
important new CVP resulting in
higher standards and frequency
of cleaning. Increase in electricity
costs was related to annual
indexation in July 2019
Selling, general and administrative expenses (SG&A), RUB mln
IAS 17
IFRS 16
2019
2018
Change
2019
2018
Change
Payroll and related taxes
121,677
107,833
12.8%
121,677
107,833
as a % of Sales
Rent
as a % of Sales
8.9%
8.7%
17 bps
63,195
54,152
16.7%
4.6%
4.4%
24 bps
8.9%
982
0.1%
8.7%
551
0.0%
12.8%
17 bps
78.3%
3 bps
Depreciation & amortization
46,788
36,517
28.1%
88,094
73,154
20.4%
as a % of Sales
Utilities
as a % of Sales
Advertising
as a % of Sales
Other expenses
as a % of Sales
Bank services
as a % of Sales
Repair and maintenance
as a % of Sales
3.4%
3.0%
47 bps
6.4%
5.9%
52 bps
24,737
21,274
16.3%
24,737
21,274
16.3%
1.8%
7,715
0.6%
8,723
0.6%
6,516
0.5%
5,748
0.4%
1.7%
9 bps
8,601
-10.3%
0.7%
-13 bps
7,587
15.0%
0.6%
6,059
2 bps
7.5%
0.5%
-1 bps
4,421
30.0%
0.4%
6 bps
1.8%
7,715
0.6%
8,723
0.6%
6,516
0.5%
5,748
0.4%
1.7%
9 bps
8,601
-10.3%
0.7%
-13 bps
7,587
15.0%
0.6%
6,059
2 bps
7.5%
0.5%
-1 bps
4,421
30.0%
0.4%
6 bps
Taxes, other than income tax
3,240
3,804
-14.8%
3,240
3,804
-14.8%
as a % of Sales
Packaging and raw materials
as a % of Sales
Total SG&A
as a % of Sales
SG&A excl D&A
as a % of Sales
0.2%
3,215
0.2%
0.3%
-7 bps
3,531
-8.9%
0.3%
-5 bps
0.2%
3,215
0.2%
0.3%
-7 bps
3,531
-8.9%
0.3%
-5 bps
291,555
253,779
14.9% 270,648
236,815
14.3%
21.3%
20.5%
79 bps
19.8%
19.1%
63 bps
244,767
217,262
12.7% 182,554
163,661
11.5%
17.9%
17.6%
32 bps
13.3%
13.2%
11 bps
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Debt composition and leverage as of 31.12.2019, RUB mln
Financial Review
(continued)
In 2019 the Company recorded
a number of significant one-off
costs, including costs related to an
accident at Voronezh DC, changes in
the management structure, a passive
stock sell-off and consulting fees,
for a total amount of 0.57% of sales.
EBITDA margin adjusted for the above
one-off factors was 6.8% for 2019.
Net finance costs increased by 69.1%
to RUB 15.1 bln compared to FY 2018
(RUB 8.9 bln) due to a combination
of a higher average amount of
borrowings and an increased cost of
debt compared to the previous year.
Assets
Equity
Non-current assets
Inventories
Cash and cash equivalents
Other current assets
FY 2019
FY 20181
697,347
660,523
218,874
182,141
8,901
26,748
23,568
13,805
948,689
883,216
188,533
212,442
119,632
93,736
340,125
309,258
161,631
131,101
64,578
70,837
74,189
65,841
948,689
883,216
Income tax for FY 2019 was RUB 4.9
bln. The effective tax rate was 22.3%
in FY 2019 compared with 21.4% in FY
2018.
As a result, net income in FY 2019
decreased by 49.0% Y-o-Y and stood
at RUB 17.1 bln. Net income margin
decreased by 146 bps Y-o-Y to 1.2%.
Increased share of the drogerie
format, up to 8.2% of net retail sales,
leading to lower stock turnover,
supplier inflation, organic growth of
the Company’s store network (12.7%
selling space growth Y-o-Y), an
improvement in on-shelf availability
across all formats, and assortment
changes in the large formats resulting
in RUB 36.7 bln increase of inventories
to RUB 218.9 bln as of December 31,
2019.
The Company has changed its
accounting policy regarding the
allocation of vendor rebates, as
management believes that the new
approach provides more relevant
information for categories of products
and it aligns to the typical industry
practice and aids comparability.
The Group has retrospectively applied
this methodology, implementing
changes to the allocation of vendor
rebates between closing inventories
and cost of goods sold2.
Long-term borrowings
Other long-term liabilities
Trade and other payables
Short-term borrowings and short-term portion
of long-term borrowings
Other short-term liabilities
Equity and liabilities
Gross debt increased by RUB 19.6
bln and stood at RUB 184.2 bln
as of 31 December 2019, due to
the acceleration of our redesign
programme and store openings,
investments in the buy-back
programme and two dividend
payments within 2019 vs one within
2018. Net debt was RUB 175.3 bln
compared to RUB 137.8 bln as of
December 31, 2018. The main reason
for the increase in leverage was
the growth of gross debt as well
as a lower cash position related to
the unfavourable calendarisation of
payment days in the 2019 calendar
year vs 2018. The Company's debt is
fully RUB denominated, matching its
revenue structure. As of December 31,
2019 65% of the total was long-term
debt. The Net Debt to EBITDA ratio
was 2.1x.
The Company’s cash flows from
operating activities, before changes
in working capital, for FY 2019
decreased by 4.3% or RUB 3.9 bln
and stood at RUB 86.2 bln. The
change in working capital increased
to RUB 12.8 bln from RUB 11.2 bln
in FY 2018 mainly due to higher
inventories as well as an increase of
trade payables days.
Net interest and income tax paid in
FY 2019 increased by RUB 2.9 bln or
20.4% to RUB 17.0 bln. Net interest
expenses increased by 45.7% Y-o-Y
to RUB 14.1 bln in FY 2019 due to
a combination of a larger average
amount of borrowings and a higher
cost of debt compared to the previous
year.
Gross debt
Long term debt
Short term debt
Net debt
Net debt / EBITDA
FY 2019
Share, %
1H 2019
Share, %
FY 2018
Share, %
184,211
119,632
64,578
175,310
2.1x
198,313
164,573
64.9%
120,789
60.9%
93,736
57.0%
35.1%
77,524
39.1%
70,837
43.0%
181,401
2.1x
137,826
1.5x
Cash Flow Statement for FY 2019, RUB mln
Operating cash flows before working capital
changes
IAS 17
IFRS 16
FY 2019
FY 2018
Change
FY 2019
FY 2018
Change
86,208
90,061
-4.3%
148,517
143,620
3.4%
Changes in working capital
-12,796
-11,230
13.9%
-10,911
-12,161
-10.3%
Net Interest and income tax paid
-16,968
-14,093
20.4%
-49,377
-44,499
Net cash from operating activities
56,444
64,737
-12.8%
88,228
86,959
11.0%
1.5%
Net cash used in investing activities
-57,781
-53,208
8.6% -56,323
-50,906
10.6%
Net cash generated / (used) from/(in) financing
activities
-16,510
-3,119
429.4%
-49,752
-27,643
80.0%
Net cash increase / (decrease)
-17,846
8,410
-312.2%
-17,846
8,410
-312.2%
The Group revisited the amount paid
in tax in previous years and amended
its tax declarations with regard to
deductible expenses. Income tax
paid for FY 2019 decreased from
RUB 4.4 bln in FY 2018 to RUB 2.9 bln.
Net cash generated from operating
activities in FY 2019 decreased by
12.8% to RUB 56.4 bln as a result of a
negative movement in working capital
and higher interest paid.
Net cash used in investing activities
predominantly composed of capital
expenditures increased by 8.6%
from RUB 53.2 bln in FY 2018 to RUB
57.8 bln in FY 2019. Capex in 2019
increased by 9.0% or RUB 4.8 bln
and stood at RUB 58.6 bln, due to the
accelerated redesign (2,341 stores
in 2019 vs 1,352 stores in 2018) and
expansion programme (2,841 stores
on gross basis in 2019 vs 2,384 stores
in 2018).
Net cash used in financing activities
increased from RUB 3.1 bln in FY 2018
to RUB 16.5 bln in FY 2019, reflecting
dividend payments in the amount of
RUB 30 bln and a buyback of RUB
5.1 bln, as well as dynamics in the
proceeds from borrowings and the
repayment of loans.
(1)
Inventories, deferred tax and retained earnings have been restated under the new accounting policy described further.
(2) Note 4.1 of the audited financial statements under IFRS.
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and Uncertainties
Risk management at PJSC Magnit
is a part of the comprehensive
internal control and risk
management system. The internal
audit and risk management
policy1 defines the main principles
and overall approach towards the
organisation of risk management,
and also describes key elements
of the risk management process.
Risk management is an ongoing
process conducted on a permanent
basis, due to the continuous nature
of decision-making in this area.
Key elements of risk management:
‒ risk identification
‒ risk assessment
‒ the development and
implementation of risk
management procedures
‒ constant monitoring of risk
status.
(1)
Approved by the decision of the
Board of Directors on 12.12.2019
(minutes w/o # from 13.12.2019).
Main risk management principles
Continuity and integrity
Internal control and risk management
are continuous processes covering
all areas of the Company’s business
activities, at all management levels.
Integration into
organisational processes
The internal control and risk
management system is an integral
part of the Company’s business,
management and corporate culture. It
is integrated into every organisational
process of Magnit, including policy
development, strategic and business
planning, and change management.
Methodological
framework integrity
Segregation of
decision-making levels
Responsibility
The internal control and risk
management system ensures
the methodological integrity and
coherent functioning of Magnit’s
risk management processes.
This includes the establishment of
universal approaches and standards
for the whole Company.
The internal control and risk
management system is an integral
part of the Company’s business,
management and corporate culture. It
is integrated into every organisational
process of Magnit, including policy
development, strategic and business
planning, and change management.
All subjects of internal control and
risk management system, and within
their competence, are responsible
for compliance with risk management
standards and approaches, as well
as for the proper implementation
of controlling procedures in their
respective areas of business activity.
Clear division of duties and
responsibilities between
internal control and risk
management bodies
The responsibilities and powers of the
internal control and risk management
bodies are separated in order to
eliminate or reduce the risk of error
or fraud.
Risk orientation
Balance
The internal control and risk
management system includes risk
analysis and monitoring in each area of
Company’s business activities, while
taking into account the risk/profitability
ratio. Maximum efforts are made to
improve risk management standards
and approaches, particularly regarding
the acceptable level of risk for different
areas of activity. For the sake of
efficiency, control procedures are
imposed upon areas of activity in order
of their importance.
Controlling procedures and risk
management functions must be
equipped with the necessary
resources and authorisation for their
successful execution. Spending on
the implementation and realisation
of controlling procedures must
therefore be adequate to the
assessed potential risk.
Constant development
and adaptation
The internal control and risk
management system is constantly
being improved.
Reasonable certainty
Realisation of risk management
procedures is considered efficient
as long as it allows to reduce the risk
down to acceptable level.
The internal control and risk
management system has three levels –
strategic, operational and controlling.
The Company’s principal managing
bodies comprising of the Board
of Directors, CEO, President and
management committees are involved
in the risk management process at the
strategic and operational level. The
Board of Directors evaluates financial
and non-financial risks, determines risk
appetite, develops a risk management-
oriented corporate culture and
evaluates internal control and risk
management system a minimum of
once per year.
At the control level, the internal audit
department together with the heads
of functional units maintain the
proficiency level of accountable
employees. They monitor their
knowledge and keep track of trends
in international risk management
practices. A database of mandatory
information in risk assessment
and management is maintained
for those employees accountable
for decision-making.
The internal control and risk
management scheme, as well as
more details on the risk management
system, are provided in the
Corporate Governance on page 114.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report Principal Risks and Uncertainties
(continued)
Key risks
The Company defines and ranks the most important risks impacting the business activity. The Company regularly
assesses these risks, develops procedures aimed at the mitigation or prevention of negative impacts, and monitors the
implementation and effectiveness of risk impact procedures.
Risks
Type
of risk
Source
of risk
Impact
Mitigating activities
Risks
Type
of risk
Source
of risk
Impact
Mitigating activities
1
Risk of deterioration of socio-economic and macro conditions
5 Risk of excessive loss of inventory for the following reasons
CVP analysis of the business processes:
‒ adaptation and extension of the product
range
‒ increased attention to the quality of
services and the provision of new
services to retain current and attract
new groups
of customers
‒ inefficiency of logistic processes
‒ goods acceptance processes
‒ storage and accounting of inventories
‒ employees’ fraud and theft
‒ natural disasters (fires, flooding, etc.)
Operational
Internal
EBITDA
‒ modifying the Сompany’s business
processes through the adequate
redistribution of powers and
responsibilities
‒ involving internal security in the
investigation of thefts with the
subsequent initiation of criminal cases
‒ preventing fraudulent actions by
employees through the mechanisms
of the Code of Business Ethics
‒ including costs for the modification
of accounting systems in the budget
‒ increased isolation of Russia and the
Strategic
External
Revenue
LFL
deterioration of macroeconomic factors
(deflation, Ruble devaluation)
‒ deepening sanctions
‒ growing unemployment
‒ decrease in general living standards, with
a corresponding change in consumption
behaviour
‒ increase in tax and non-tax deductions for
households
2
Risk of business transformation
‒ Margin reduction during the transformation
Strategic
of category management (incorrect
pricing, promo, assortment revision, high
purchasing prices, sale of obsolete stock
with a discount)
‒ shortage or loss of qualified personnel
during the transformation of the
organisational structure and incentive
schemes
3
Risk of adverse regulatory changes
Internal
and
external
Strategy
execution
‒ сollegial decision making
‒ hiring external consultants to speed up
the process
‒ incentive programmes (STI, LTI)
Revenue
EBITDA
‒ requirements for limiting trade margins
‒ restrictions on the maximum market share
‒ pension reform consequences
‒ additional tax burden and costs due to
changes in legislation
‒ EGAIS (alcohol registration system), PLATON
(road transportation payments), technical
regulations
‒ changing rules for licensing and obtaining
permits
Regulatory
External
Market
share
Revenue
EBITDA
‒ monitoring changes in legislation
by specialists
‒ participation of experts in the discussion
of legislative innovations
‒ adaptation of business processes
for obtaining the necessary licenses
and permits, technical documents
4 Risk of increased competition
‒ increase in price pressure
‒ traffic outflow
‒ decrease in sales per sq. m
Strategic
External
Revenue
LFL
‒ monitoring competitors’ actions
‒ utilising marketing tools, conducting
promotions
‒ increasing the attractiveness of existing
stores through reconstruction and
remodelling
‒ evaluation of the attractiveness and
potential of the proposed store openings
using GIS-analysis (Geographic
Information Systems) technologies
6 Risk of making poor investment decisions
‒ return on investment of new stores and
reconstructions is below the WACC1
‒ the growth of number of unprofitable stores
‒ excess CAPEX per object (excess
requirements, excessive standards,
low-quality construction and installation
works)
Strategic
Internal
and
external
CAPEX
‒ collective decision-making on
EBITDA
ROIC
investment projects
‒ standardisation of norms and models
through Investment Policy
‒ use of GIS-analysis technologies
‒ introduction of tender procedures
‒ budget control of expenses for the
implementation of the investment
programme
‒ post-investment analysis
7
Risks associated with IT infrastructure
‒ discrepancy between the existing
Operational
Internal
Revenue
‒ development of a detailed plan for
infrastructure capacity and Company
requirements necessary to support
business processes, both existing and
planned (IT, contractors, personnel,
logistics)
‒ the inability of IT systems to ensure
business continuity
‒ Insufficient IT capabilities to provide high-
quality, relevant and objective information
for the business
‒ risks related to IT security systems
EBITDA
priority IT investments
‒ collective decision-making on
investments in IT infrastructure
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(1) WACC (weighted average cost of capital) - the rate that a company is expected to pay on average to all its security holders to finance its assets.
MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report
Sustainable
Development
Approach
Sustainability Strategy
Magnit is a leading Russian
retailer with over 20 thous.
stores in 3,742 cities and
townships in Russia. We have
millions of daily touchpoints with
our stakeholders: customers,
employees, suppliers, authorities
and of course investors.
Therefore, it makes an enormous
difference how we operate and
conduct our business.
We have always strived to operate
as a responsible corporate citizen
and conduct our operations in
a sustainable way. To enhance
and systemise this approach to
levels expected of a company of
our size and influence in society,
in 2019 we started developing
a comprehensive Sustainability
strategy, which will allow us to
improve on these issues and
measure ourselves in a more
efficient way against the best
industry standards.
Our new strategy is firmly based on the 10 principles
of the UN Global Compact and the 17 UN Sustainable
Development Goals, as well as stakeholder expectations
which we surveyed extensively in 2019.
We have set ourselves an ambitious goal of embedding
sustainability into every aspect of the business and its
processes, having it motivate our employees and inspire
our customers, help us develop the communities where
we operate and set an example for the industry.
We have drafted and are now implementing a whole new
set of policies and statements that govern our sustainability
approach, each of which regulates the procedures for
Magnit’s interaction with stakeholders within a specific
subject area. The new documents include a Climate
Change Policy and Policies for Packaging Waste, Own
Brand Packaging and Quality and Food Safety as well
as Responsible Supply Chain. Employees are a crucial
stakeholder group. With this in mind we have drafted
an extensive Human Rights Policy encompassing a wide
range of important areas such as diversity, discrimination,
forced or child labour, harassment, trade unions, working
hours, wages and health and safety. For our relationships
with customers and local communities, we now have new
policies on Charity,Sponsorships and Volunteering as well
as Health and Wellness.
The Sustainability Strategy including our
commitments for 2025 will be announced
in May 2020.
“Our society faces many challenges:
economic, social and environmental.
The best way we can meet these
challenges is by operating in
a responsible and sustainable manner.
The world is changing and we have
to change with it”.
Charles Ryan
Chairman of the Board of Directors of Magnit
We have set ourselves
5 key Ambitions that will
guide our work, goals
and commitments
1.
2.
3.
4.
We want to be the
leader in environmental
impact reduction in the
Russian retail industry
We want to make a
positive impact on
the quality of life of
all Russian people
We want to be the
number 1 employer
in the Russian retail
industry
We strive towards
a 100% responsible
supply chain
5.
We want to have best
in class Corporate
Governance in
the Russian retail
industry
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report
Sustainable Development
(continued)
Partnerships
We look forward to building a vast
network of partners from all our
stakeholder groups. Much more
will be achieved with effective
partnering, than with any entity
working in isolation, in achieving
the ambitious goals we have set.
There is still a lot to do to build the
necessary infrastructure, both
legislative and physical, to make
sustainable activities possible in
Russia, and we look forward to
working closely with the various
federal, regional and municipal
authorities on this front. We
have already launched several
partnerships with our largest
suppliers in areas such as plastic
waste and battery collection and
are looking to expand these and
other cooperation initiatives on
food waste and healthy product
offerings.
We have started to actively
cooperate with various
international industry associations
and multinational collaboration
efforts on sustainability such
as the Global Consumer Goods
Forum or the UN Global Compact.
Managing sustainability
at Magnit
The sustainability work is
monitored by the Board of
Directors with regular reporting to
the Strategy and Capital Markets
Committees as well as the whole
Board of Directors.
We have established a Sustainability
Steering Committee, which is
headed by our CEO, Jan Dunning
and has all key business area heads
represented. This Committee will
coordinate Magnit’s sustainability
activities including the interaction
with stakeholders, and will make
recommendations on the strategic
direction for improving long term
business sustainability in response
to social, environmental, resource
and energy challenges. The
Committee reports to the Board of
Directors. Under the supervision of
this Committee there are 18 working
groups building a sustainable
business model in all areas of our
operations; retail, production,
sourcing and logistics and closely
matching the various streams of our
five focus areas.
“I want to have sustainability in
the DNA of our business, for every
employee to be motivated and
inspired by it. Now there is a perfect
opportunity to do it as we are
transforming our business into
a modern retailer fit for the future”.
Jan Dunning
CEO of Magnit
FOCUS AREAS
Based on extensive peer analysis
as well as determining where we
can have the most impact, we have
identified 5 different focus areas
for our work, each with multiple
working streams and commitments
we will undertake to achieve by 2025.
The focus areas are:
Environment
This focus area includes streams for
CO2 reduction, packaging waste, food
waste as well as energy and water
usage. As we have already been
quite active in CO2, energy and water
usage reduction for some years, we
are continuing these in full but we
will now put an extra emphasis on
the packaging waste and food waste
initiatives.
Sustainable Sourcing
Sustainable sourcing includes
streams for procurement of
products and raw materials from
responsible sources, being best in
local sourcing, food and non-food
safety as well as being responsible in
our own agricultural and production
processes as well as with private
label third party producers.
Employees
The main themes in this area are
providing a fair, safe and rewarding
workplace to each one of our 308
thous. employees, as well as actively
developing and managing the talent
we have in-house
Local Communities
The main emphasis in the near
term is on corporate volunteering
and emergency help. Other
streams include developing
local communities, partnerships,
responsible marketing and charity.
Health and Wellness
Promoting healthy lifestyles through
nutrition and sports is the main
theme of this focus area which
includes making available health
related products and services.
Sustainability Report 2019
We have also decided to publish our first Sustainability
Report this year, in addition to this Annual Report.
It will contain all relevant non-financial results for 2019,
the baseline for all relevant KPIs, as well as measures
we intend to take to achieve our commitments stated
in our Sustainability Strategy.
The Sustainability Report will be published
in May 2020.
We strive not to duplicate information so below we have
included, in this Annual Report only, the measurable
data required by Russian legislation. The much more
comprehensive data set will be in our Sustainability
Report.
Fuel consumption for transportation was reduced as a result of improved fuel efficiency
and the optimisation of fuel consumption rates
Fuel consumption by the Group’s enterprises in 2016–2019, L
2016
2017
2018
2019
Fuel types
Diesel fuel
Gasoline
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
187,424,202
15,615,499
0
0
165,931,088
15,976,296
0
0
162,401,920
12,008,559
0
0
162,291,251
11,454,317
0
0
Fuel consumption by the Group’s enterprises in 2016–2019, RUB mln
2016
2017
2018
2019
Fuel types
Diesel fuel
Gasoline
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
5,982.7
540.6
0
0
5,930.9
577.4
0
0
6,906.5
447.9
0
0
7,468.8
477.2
0
0
The decline in energy consumption has been reached by the implementation
of the energy-efficiency measures
Energy consumption by the Group’s enterprises in 2016–2019
2016
2017
2018
2019
Type of energy
resource
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
Thermal energy, GCal
1,017,938
608
971,213
634
1,233,970
464
630,187
378
Electricity, kWh
2,496,087,912
480,659
2,606,902,834
280,769
2,317,611,650
217,864
2,304,517,304 238,980
Natural gas, m3
183,777,157
73,856
182,699,112
36,983
203,422,886
24,942
237,266,923
13,808
Energy expenditures by the Group’s enterprises in 2016–2019, RUB mln
Type of energy
resource
Thermal energy
Electricity
Natural gas
2016
2017
2018
2019
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
All companies
of the Group
PJSC
Magnit
1,441.4
11,357.2
1,042.6
0.9
2.2
0.4
1,444.0
12,878.1
1,088.3
0.9
1.4
0.2
1,926.4
11,935.7
1,272.3
0.7
1.1
0.2
1,033.0
12,651.8
1,632.4
0.6
1.3
0.1
PJSC Magnit did not use or consume other types of energy resources other than those indicated in the table in the reporting year.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesStrategic Report
Corporate Governance
Framework
Chairman’s
Review
PJSC Magnit has an efficient corporate governance
framework that complies with Russian laws, the Rules
of the Moscow Exchange and the London Stock
Exchange rules, as well as international best practices.
The Company continuously enhances its corporate
governance and ensures the protection of shareholders
and other stakeholder rights.
Governance, management and control at the Company
are divided between the shareholders (via General
Meeting of Shareholders), the Board of Directors,
the Collective Executive Body (the Management Board)
and the Sole Executive Bodies (the President and
the Chief Executive Officer) pursuant to applicable
Russian corporate law, Magnit’s Articles of Association
and internal policies.
Dear shareholders,
Welcome to the Corporate Governance
Report for 2019, which I am pleased
to present on behalf of the Board.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesCorporate Governance Report Composition of
the Board of Directors
and the Management Board
Name
Nationality
Tenure, years
Competence of the Board of Directors
Diversity
Charles Ryan
James Simmons
Timothy Demchenko
USA
USA
UK
Jan Dunning
Netherlands
Florian Jansen
Walter Koch
Evgeny Kuznetsov
Alexey Makhnev1
Alexander Vinokurov
Germany
Germany
Russia
Russia
Russia
2
2
2
1
1
1
1
2
1
7
8
6
4
4
2
IT
Strategy
Investments
Audit & Risk
management
Retail &
Marketing
Economy &
Finance
Chairman’s Statement on Magnit’s Corporate Governance
(continued)
We strive to follow the highest
standards and align our corporate
governance system with international
best practices. We already comply with
most of the recommendations of the
Russian Corporate Governance Code
and endeavour to comply with the UK
Corporate Governance Code. Over the
past two years we have made significant
progress in achieving these goals and
further improvements are planned.
In addition to refreshing our Board
of Directors, in 2019 we also took
the opportunity to strengthen the
composition of our Management
Board. This resulted in the
appointment of five new managers
to some of the Company’s strategic
positions. The selection process
was conducted in line with Magnit’s
belief in the principles of diversity and
inclusion.
To centralise decision making across
the Group’s core operations, decision-
making powers were transferred from
JSC Tander to PJSC Magnit.
In 2019, we also significantly
enhanced our transparency and
disclosure levels across our website
and key information materials.
The Board of Directors considers the
interests of both internal and external
stakeholders when making decisions.
The Company’s management regularly
meets with investors, suppliers and
manufacturers. In 2019 a large-
scale stakeholder survey was also
conducted, and the results were
taken into account when developing
a new communication strategy for
the Company. This year the Board
undertook an internal effectiveness
review, which confirmed that
its policies and practices were
appropriate for the Company’s scale
and the nature of its operations, while
properly accounting for the needs and
interests of the Group’s stakeholders.
At Magnit, we are committed to
the highest standards of corporate
governance, in line with international
best practices.
In the reporting year, we continued
to improve the framework of our
Corporate Governance system.
The Code of PJSC Magnit, which
regulates the terms for transactions
involving financial instruments, was
adopted and several amendments
were made to the Company’s
Articles of Association. The efficient
operation of the Committees of
the Board of Directors permitted,
among other things, the adoption of
a revised Strategy and updated KPIs,
and supported the refining of our
remuneration principles.
We continued to implement a long-
term incentive programme for key
executives and top managers. The
programme encourages managers to
meet and exceed their individual and
corporate KPI targets.
2019 was a transformative year for
Magnit, facilitated by the Company’s
management team and the recently
strengthened Board of Directors.
At the start of the year, a new position
of President was established with the
appointment of Jan Dunning, who has
a remarkable track record spanning
20 years in the retail industry. His main
responsibilities as President are the
development and implementation of
the strategy.
As of 2019, the Board of Directors
of Magnit consists of nine members
(versus seven in 2018), which we
believe is more appropriate for the size
and the scale of Magnit’s operations.
During the year, we also extended
the Board’s powers, by granting it the
right to exercise operating control over
significant affiliated companies and
define the list of such companies.
We believe that, as a result of the
changes to the composition of our Board
of Directors, we have improved the
balance of skills and experience needed
for our board to remain effective.
In addition, the Committees of the
Board of Directors are now headed
only by independent non-executive
directors and consist mostly of
independent directors, which not
only conforms to international best
practices, but also reiterates the
Company’s aspirations for greater
transparency and accuracy in the
strategic decision-making process.
Our goal is to build on our compliance with
the Russian Corporate Governance Code,
by endeavouring to also comply with the UK
Corporate Governance Code. During 2019, we made
significant progress towards these goals and we plan
to deliver further improvements in 2020.
Charles Ryan
Chairman of the Board of Directors
(1) Mr. Makhnev previously was a member of the Board of Directors from 25 June 2009 to 5 June 2015.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesCorporate Governance Report Board of Directors
Charles Ryan
Chairman of the Board of Directors
AGE
52*
CITIZENSHIP
USA
EDUCATION
1989 - Harvard University (Bachelor of Arts, Faculty of Arts and
Sciences, Public Administration)
CURRENT EMPLOYMENT
2008 - Present – Chairman of the Board of Directors, UFG Asset
Management
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2004 - present – Director, UFG Investors LP
2005 - present – Member of the Board of Directors, PGI Plc
2006 - present – Member of the Advisory Council, U.S. – Russia
Business Council
2007 - present – Co-Founder and Principal Partner, Almaz
Capital Partners
2008 - present – Member of the Advisory Council, Capital
Group International
2009 - present – Member of the Board of Directors, Trans-
Siberian Gold plc
2011 - present – Member of the Board of Directors, World
Affairs Council Philadelphia
2011 - present – Member of the Board of Directors and
Chairman of the Audit Committee, Yandex N.V.
2012 - present – Member of the Advisory Board, Harvard
University Global Advisory Council
2013 - present – Co-Founder and Member of the Board of
Directors, Liberty Energy Trust
2014 - present – Member of the Board of Directors, Jensen
Management I Limited
2016 - present – Member of the Board of Directors, Acumatica
2016 - present – Member of the Management Board, Northstar
Industries, LLC
2018 - present – Member of the Board of Directors,
Ozon Holding LLC
2018 - present – Member of the Board of Directors, Acronis
2018 - present – Chairman of the Board of Directors,
PJSC Magnit
EXPERIENCE
Charles Ryan’s distinguished financial career combines
top level expertise and deep knowledge of both Russian
and international markets. Mr. Ryan began his professional
career in 1989 with CS First Boston, where he was
a Financial Analyst. From 1991 to 1994, Mr. Ryan was
an Associate and Principal Banker with the European
Bank for Reconstruction and Development in London,
where he played a crucial role in the city of St. Petersburg’s
privatisation programme for industry and real estate.
In 1994, Mr. Ryan co-founded the United Financial Group,
an independent investment bank in Moscow. United
Financial Group was a founding member of such key market
institutions as RTS (now part of the Moscow Exchange) and
Investor Protection Association. UFG Asset Management
was founded as part of the United Financial Group in 1996.
In 2005, when Deutsche Bank acquired 100% of UFG’s
investment banking business, Charles Ryan was appointed
as the Chief Country Officer and CEO of the Deutsche Bank
Group in Russia. He stepped down as the CEO
of Deutsche Bank in Russia in September 2008 and
in October 2008 became the Chairman of UFG Asset
Management. In addition to his role as the Chairman,
Mr. Ryan is also responsible for the overall management
of UFG’s private equity business.
James Simmons
Deputy Chairman
AGE
41
CITIZENSHIP
USA
EDUCATION
2000 – Princeton University (Bachelor of Science in
Engineering)
2007 – Harvard Business School (MBA)
CURRENT EMPLOYMENT
2015 – present – Managing Partner, Mazovia Capital
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2015 – present – Member of the Board of Directors, ClearCheck
Global Holdings
2015 – present – Member of the Board of Directors, Mazovia Capital
2017 – present – Chairman of the Board of Directors, Digital Care
2018 – present – Deputy Chairman of the Board of Directors,
PJSC Magnit1
EXPERIENCE
Mr. Simmons is a managing partner at Mazovia Capital, a private
investment group active in financial services, software, real
estate and venture capital. Mr. Simmons serves as Chairman
of Digital Care, a leading European provider of value-added
services for consumer electronics devices. He also serves
on the Board of ClearCheck Global Holdings, an automotive
software business present in Latin America and Europe.
Prior to joining Mazovia Capital, Mr. Simmons worked for
15 years in private equity and investment banking in Russia,
Europe and the U.S. Mr. Simmons holds a B.S.E. from Princeton
University, where he graduated magna cum laude, and earned
an MBA from Harvard Business School, where he was a Baker
Scholar.
*
The age of all members of the Board of Directors and the Management Board further in the Report is presented as of 31 December 2019.
(1)
Since 17 July 2019. Prior to that a Member of the Board of Directors.
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Board of Directors
(continued)
Tim Demchenko
Member of the Board of Directors
AGE
46
CITIZENSHIP
UK
EDUCATION
1999 – London Business School (Master of Finance)
2016 – Harvard Business School (Executive Education)
CURRENT EMPLOYMENT
2008 – present - Global Head of Private Equity and Special
Situations, VTB Capital Plc.
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2018 – present – Member of the Board of Directors,
PJSC Magnit
EXPERIENCE
Tim has over 20 years of private equity and corporate
investment experience across multiple European markets and
Russia. In 2008, Tim founded VTB Capital’s Private Equity
and Special Situations business. As the Head and Managing
Director of the business Tim has developed investment
strategy and built an international investment team based both
in London and Moscow. The business has invested over
USD 2 bln of capital jointly with international co-investors, and
achieved successful portfolio exits, including sales to strategic
investors and IPO on the LSE and NYSE, with an average
internal rate of return exceeding 40%.
Tim has lead VTB Capital private equity’s investment in the
Russian hypermarket chain Lenta and served as the Chairman
of the Board from the initial investment until 2010 and as a
member of the Board until Lenta’s IPO on the LSE in 2014.
Prior to joining VTB Capital, Tim was responsible for the launch
of Deutsche Bank’s Private Equity business in Russia and CIS.
Previously Mr. Demchenko worked for global multinational
corporations (IBM and Siemens) as a senior executive based
in London where he managed multiple large scale corporate
investment projects. Prior to that, Tim served as an investment
officer at TD Capital private equity based in London and
focused on investments in the TMT sector across Europe and
the US.
Jan Dunning
Member of the Board of Directors,
Chairman of the Management Board,
President and CEO
AGE
60
CITIZENSHIP
Netherlands
EDUCATION
1983 – University of Groningen (Bachelor’s Degree)
1989 – University of Amsterdam (Bachelor of History)
2007 – London Business School (Executive Programme)
2008 – INSEAD (Marketing Programme)
CURRENT EMPLOYMENT
2019 – present – Chairman of the Management Board,
President and Chief Executive Officer, PJSC Magnit
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2019 – present – Member of the Board of Directors, PJSC Magnit
EXPERIENCE
Jan Dunning was Operations Director of Metro Cash & Carry
Russia and then General Manager of Metro Cash & Carry Ukraine.
Jan’s previous experience also includes three years as General
Manager of the Lukas Klamer wholesale business, a subsidiary
of the Metro Group in the Netherlands, and over ten years with
Aldi North. Over the last 25 years, he has worked in a broad
range of retail functions including leadership roles in operations,
development, sales, marketing, purchasing and finance.
In 2011-2018, Jan worked as a Chief Executive Officer of Lenta.
In January 2019, Jan Dunning was appointed the President
of Magnit and joined Magnit Management Board. In May 2019,
Mr. Dunning was elected a Member of Magnit Board of Directors.
In June 2019, Jan Dunning assumed the role of the Chief Executive
Officer of Magnit.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital (percentage
of the Company’s ordinary shares): 0.103775%.*
Information about transactions to acquire/dispose of
the Company’s shares concluded over the reporting period:
Date
Transaction type
21.05.2019
05.06.2019
Acquisition
Acquisition
Transaction
volume, (pc.)
82,355
23,404
*
Hereinafter, information on participatory
interest in the Company’s charter capital
(percentage of the Company’s ordinary
shares) is given as of 31 December 2019.
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(continued)
Florian Jansen
Member of the Board of Directors
AGE
38
CITIZENSHIP
Germany
EDUCATION
2006 – University of Witten/Herdecke, Witten, Germany
(Business & Economics, Diploma (Master equivalent)
2010 – London School of Economics, London (Dual MPA,
Economic and Public Policy)
2010 – Columbia University, New York City (Dual MPA,
Economic and Public Policy)
CURRENT EMPLOYMENT
2011 – present – Chief Executive Officer, Kupishoes OOO
2015 – present – Chief Executive Officer, Brillant 2102. GmbH
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2016 – present – Member of the Board of Directors,
OOO Novaya Meditsina
2019 – present – Member of the Board of Directors,
PJSC Magnit
EXPERIENCE
Florian Jansen is the co-founder and the CEO of Lamoda
Group, which is a part of a public company Global Fashion
Group. Lamoda is a leading technology online platform and
fashion and lifestyle retailer, offering more than 3,000 brands
to more than 10 mln customers in Russia and the CIS.
The company employs more than 7,100 people including
employees of a modern automated warehouse complex,
its own delivery service and a large-scale technology centre.
Prior to taking the lead in Lamoda Group, Florian Jansen
worked at McKinsey & Company for several years. Florian
holds Master’s degrees from the German University of Witten
/ Herdecke, the London School of Economics and Columbia
University, New York. He is interested in startups such as
DOC+, FoodFox (now Yandex.Eats), Manifest or Exclaim,
and continues to serve as an independent technology investor.
Walter Koch
Member of the Board of Directors
AGE
57
CITIZENSHIP
Germany
EDUCATION
1988 – University for applied Sciences, Aalen, Germany
(Precision engineering)
2000 – INSEAD (Management education)
CURRENT EMPLOYMENT
2010 – present - Owner, Senior Advisor, Twinsuccess –
Restructuring & Change Management
2012 – present - Chief Executive Officer, Master-tees GmbH
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2019 – present – Member of the Board of Directors,
PJSC Magnit
EXPERIENCE
Starting from 1999, Walter Koch obtained senior positions with
the largest European home appliances manufacturers such as
AEG and Electrolux, being in charge of Logistics, SCM and After
Sales Service.
During 2007 to 2010 Mr. Koch served as Executive
Vice-President and COO of Sanitec Corporation
(Helsinki, Finland). From 2011 to 2016 he held the position
of an Independent Director on the Board of PJSC Mvideo
in Russia.
Presently Mr. Koch owns and operates an independent
consulting firm and in May 2019 he got elected as an
Independent Director of PJSC Magnit.
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(continued)
Evgeny Kuznetsov
Member of the Board of Directors
AGE
50
CITIZENSHIP
Russia
EDUCATION
1991 – Barnaul Pedagogical Institute (Foreign Languages)
1996 – University of Oregon (MBA in Finance)
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2019 – present – Member of the Board of Directors,
PJSC Magnit
EXPERIENCE
For 20 years Evgeny Kuznetsov served as a Partner and
Portfolio Manager at Genesis Investment Management, LLP,
a London-based institutional fund manager specializing
in Emerging Markets. Evgeny joined Genesis in 1996
as an investment analyst and over the following twenty years
conducted research and made portfolio investments in various
countries and regions, including Russia, Eastern Europe, Asia
and Latin America.
Alexey Makhnev
Member of the Board of Directors
AGE
43
CITIZENSHIP
Russia
EDUCATION
1998 – Saint Petersburg State University of Economics and
Finance (Economics)
2001 – Saint Petersburg State University of Economics and
Finance (Ph.D.)
CURRENT EMPLOYMENT
2009 – present – Vice Chairman, VTB Capital
2018 – present – Advisor to the First Deputy President
and Chairman of the Management Board,
Senior Vice President
VTB Bank PJSC
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2015 – present - Member of the Board of Directors,
LSR Group PJSC
2017 – present – Member of the Board of Directors,
Mvideo PJSC
2018 – present – Member of the Board of Directors,
VTB Real Estate LLC
2018 – present – Member of the Board of Directors,
PJSC Magnit
EXPERIENCE
Mr. Makhnev has almost two decades of expertise and
experience with the Russian consumer and retail sector.
In 2006, Mr. Makhnev was a lead member of the Deutsche Bank
investment banking team that conducted Magnit IPO.
For six years from 2009 to 2015 Mr. Makhnev served on
Magnit’s Board of Directors as an independent director.
Over the past 18 years, Mr. Makhnev has worked on a large
number of consumer and retail transactions in Russia and
the CIS. Almost all Russian listed companies are among
Mr. Makhnev’s clients including but not limited to Magnit, Lenta,
Okey, Dixy, Mvideo, LSR, Etalon, PIK, and Rusagro.
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(continued)
Management Board
Alexander Vinokurov
Member of the Board of Directors
AGE
37
CITIZENSHIP
Russia
EDUCATION
2004 – University of Cambridge (Bachelor and Master
of Economics)
CURRENT EMPLOYMENT
2017 – present – President, Marathon Group LLC
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2019 – present – Member of the Board of Directors,
PJSC Magnit
EXPERIENCE
In 2004, Alexander graduated with honors from the Faculty
of Economics of the University of Cambridge. He received a BA
and a MA in economics.
Later that year he began his career with the investment banking
division of Morgan Stanley (London).
In 2006, Alexander returned to Russia as Vice-President of TPG
Capital, co-founding the company’s Russian office.
In 2011, Alexander assumed the post of President of Summa
Group, which has significant investments in port and rail
logistics, engineering, construction, telecommunications,
oil and gas, oil trading and agriculture.
In 2014, Alexander Vinokurov became CEO of A1, Alfa Group’s
investment arm specialising in the acquisition of the assets
that are undervalued due to challenging economic situations.
On 15 May 2017, Alexander left his post as President of A1
to join Marathon Group.
With the exception of Jan Dunning, all members of the
Board of Directors had not participated in the authorized
capital of PJSC Magnit, had not owned ordinary shares of
PJSC Magnit, and had not made transactions with ordinary
shares of PJSC Magnit for the reporting year 2019.
Jan Dunning
Member of the Board of Directors,
Chairman of the Management Board,
President and CEO
AGE
60
EDUCATION
1983 – University of Groningen (Bachelor’s Degree)
1989 – University of Amsterdam (Bachelor of History)
2007 – London Business School (Executive Programme)
2008 – INSEAD (Marketing Programme)
CURRENT EMPLOYMENT
2019 – present – Chairman of the Management Board,
President and Chief Executive Officer, PJSC Magnit
CURRENT MEMBERSHIP IN THE BOARD OF DIRECTORS
2019 – present – Member of the Board of Directors, PJSC Magnit
EXPERIENCE
Jan Dunning was Operations Director of Metro Cash & Carry
Russia and then General Manager of Metro Cash & Carry Ukraine.
Jan’s previous experience also includes three years as General
Manager of the Lukas Klamer wholesale business, a subsidiary
of the Metro Group in the Netherlands, and over ten years with
Aldi North. Over the last 25 years, he has worked in a broad
range of retail functions including leadership roles in operations,
development, sales, marketing, purchasing and finance.
In 2011-2018, Jan worked as a Chief Executive Officer of Lenta.
In January 2019, Jan Dunning was appointed the President
of Magnit and joined Magnit Management Board. In May 2019,
Mr. Dunning was elected a Member of Magnit Board of Directors.
In June 2019, Jan Dunning assumed the role of the Chief
Executive Officer of Magnit.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.103775%.
Information about transactions to acquire/dispose
of the Company’s shares concluded over the reporting period:
Date
Transaction type
21.05.2019
05.06.2019
Acquisition
Acquisition
Transaction
volume, (pc.)
82,355
23,404
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Management Board
(continued)
Anna Bobrova
Member of the Management Board,
HR Director
AGE
44
EDUCATION
2000 – Lomonosov Moscow State University (Psychology)
EXPERIENCE
Anna has almost 20 years of experience in HR and has
successfully implemented projects aimed at development
and performance enhancement of line staff and
management, increase of service level in stores, as well
as built and managed modern IT systems in employee
management of the retail sector.
Prior to Magnit, in 2003 – 2009 Ms. Bobrova worked in the
HR department of Metro, from 2011 to 2013 was the Director
of HR and Organizational Development at X5 Retail Group.
Anna Bobrova held managerial positions in HR in JSC SIA
International Ltd (2015 – 2019), Rimera Group (2013 – 2015)
and Rosatom (2009 - 2011).
In August 2019 assumed the position of HR Director. Anna was
appointed a member of the Management Board of PJSC Magnit
on 10 September 2019.
SHAREHOLDING INFORMATION
Does not own any interest in PJSC Magnit’s charter capital,
does not own PJSC Magnit’s ordinary shares and did not
conclude any transactions with PJSC Magnit’s ordinary
shares during the reporting period.
Andrey Bodrov
Member of the Management Board,
Chief Investment and Strategy Officer
AGE
37
EDUCATION
2003 – MGIMO University of Moscow (Bachelor of
International Relations)
2005 – MGIMO University of Moscow (Master of Law)
EXPERIENCE
Andrey Bodrov worked for many leading International and
Russian financial institutions including Morgan Stanley,
Deutsche Bank, VTB Capital and Renaissance Capital
with a primary focus on the Retail & Consumer sectors.
During his over ten years investment banking career
Andrey was involved in many landmark transactions in the
Russian market (including M&A, capital markets, advisory,
structured finance etc.).
Prior to joining Magnit, Andrey worked as a Mergers &
Acquisitions Director in Lenta since February 2016.
From September 2019 until present Mr. Bodrov occupies
a position of the Chief Investment and Strategy Officer.
Andrey Bodrov is responsible for Magnit’s investments,
strategy, capital allocation and M&A. Andrey Bodrov was
elected as a Member of the Management Board of
PJSC Magnit on 13 December 2019.
SHAREHOLDING INFORMATION
Does not own any interest in PJSC Magnit’s charter capital,
does not own PJSC Magnit’s ordinary shares and did not
conclude any transactions with PJSC Magnit’s ordinary
shares during the reporting period.
Maria Dei
Member of the Management Board,
Supply Chain Director
AGE
36
Ruslan Ismailov
Member of the Management Board,
Retail Chain Director
AGE
42
EDUCATION
2005 – All-Russian State Tax Academy of the Ministry of
Taxation and Fees of the Russian Federation (Economics)
EDUCATION
1998 – Moscow University of Consumer Cooperation
(International Economics)
EXPERIENCE
From 2008 to 2016 Ms. Dei occupied different managerial
positions of supply and sales planning departments in such
companies as Unilever Rus LLC, CAMPARI RUS LLC, Bacardi
Rus LLC.
From 2017 to 2018 Ms. Dei served as Operational Planning
Director in Central Office of Pyaterochka store network (X5
Retail Group).
Maria Dei joined Magnit in June 2018 and currently occupies
a position of a Supply Chain Director and a Member of the
Management Board of PJSC Magnit.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.001617%.
Information about transactions to acquire/dispose
of the Company’s shares concluded over the reporting period:
Date
Transaction type
Transaction
volume, (pc.)
24.05.2019
Acquisition
1,648
EXPERIENCE
Ruslan Ismailov joined Magnit as the Retail Chain Director on
27 May 2019. On 4 June 2019, he was appointed a Member
of the Management Board.
Mr. Ismailov has over 15 years of experience in managing
consumer companies.
He started his career in 2003 in Metro Cash&Carry retail
chain, worked his way from a department manager to a
hypermarket director. In 2009, Ruslan Ismailov held the
position of the Deputy Chief Executive Officer of Mosmart
multi-format retail chain. Prior to joining our company,
Ruslan worked as a divisional director and headed the
Supermarket format for four years.
SHAREHOLDING INFORMATION
Does not own any interest in PJSC Magnit’s charter capital,
does not own PJSC Magnit’s ordinary shares and did not
conclude any transactions with PJSC Magnit’s ordinary
shares during the reporting period.
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(continued)
Evgeny Melnikov
Member of the Management Board,
IT Director
AGE
39
Elena Milinova
Member of the Management Board,
Chief Financial Officer
AGE
43
EDUCATION
2002 – Krasnodar Military Institute (Information Protection
Organization and Technology)
EXPERIENCE
In 2007-2019, Evgeny made his way from a specialist to the
Director of Information Security in Magnit. In 2018, headed the
IT and Information Security Directorate. On 17 October 2018,
Evgeny was appointed a member of the Management Board
of PJSC Magnit.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.001617%.
Information about transactions to acquire/dispose
of the Company’s shares concluded over the reporting period:
Date
Transaction type
Transaction
volume, (pc.)
24.05.2019
Acquisition
1,648
EDUCATION
2000 – International Academy of Business and Banking
(Economics)
2002 – Association of Certified Accountants (ACCA), London
(Certified Accountant)
EXPERIENCE
In 2000-2004, Elena Milinova worked at the Russian office
of PricewaterhouseCoopers, an international audit company,
in 2004-2007 she was employed by Geotransgaz and Sollers ST.
In 2007-2014, Elena Milinova headed the financial unit of KAMAZ
PJSC as the Deputy CEO for Economics and Finance and Member
of the Group's Board. In 2014-2016, she worked as the Chief
Financial Officer in Х5 Retail Group.
In August 2017, Elena Milinova became a Financial Director
of the Mega Farm pharmacy chain (member of Marathon Group),
and in December, she was appointed the Director for Economy and
Finance of Marathon Group.
From April 2018 until present occupies a position of the Chief
Financial Officer of PJSC Magnit. Elena was appointed a Member
of the Management Board of PJSC Magnit on 22 June 2018.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.007068%.
Information about transactions to acquire/dispose
of the Company’s shares concluded over the reporting period:
Date
Transaction type
Transaction
volume, (pc.)
Vladimir Sorokin
Member of the Management Board,
Deputy CEO – Commercial Director
AGE
48
EDUCATION
1994 – St. Petersburg State University of Trade and
Economics (Engineering)
2006 – Higher School of Economics (Finance)
EXPERIENCE
From 1994 to 2000, Vladimir Sorokin worked in Gillette,
having passed the way from the sales manager to the Sales
Director of the European part of Russia and Belarus.
In 2000-2003, he continued working in the FMCG sector
as the Sales Director of Sun Interbrew.
From 2003 to 2011, he headed the business unit of the
SK AlfaStrakhovanie, he was the CEO of AlfaStrakhovanie –
Life. In 2010-2012, Mr. Sorokin worked as the CEO
of OJSC Masshtab. In 2013, he joined X5 Retail Group
as the Deputy Commercial Director. In June of the same
year, he became the Category Management Director of
Pyaterochka Retail Chain. From September 2014 to June
2018, he was the Head of CJSC TD Perekrestok.
On 15 January 2019, Vladimir joined Magnit Management
team as a Deputy Chief Executive Officer – Commercial
Director, and a member of the Management Board
of PJSC Magnit.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.018135%.
Information about transactions to acquire/dispose
of the Company’s shares concluded over the reporting period:
Date
Transaction type
Transaction
volume, (pc.)
28.05.2019
Acquisition
6,593
24.05.2019
Acquisition
16,482
Jyrki Talvitie
Member of the Management Board,
Director for Strategic Communications
AGE
53
EDUCATION
1991 – Helsinki University (Master of Law)
2002 – London Business School (Executive MBA)
EXPERIENCE
Jyrki Talvitie held managerial positions in some of the largest
Western banks: Bank of New York, Nordea Bank and BNP
Paribas. Over the past 20 years he focused on the Russian and
ex-CIS markets. From 2003 to 2005, Jyrki was responsible
for the International Business of Uralsib Financial Corporation.
During the period of 2005-2010 he headed the Russian office
of East Capital investment company. From 2010 to 2014,
he held a position of Senior Vice President at VTB Bank
and was responsible for Investor Relations. In 2014-2016,
Mr. Talvitie was responsible for strategic communications
at the Russian Direct Investment Fund. In 2016-2018, he
continued working in relations with strategic partners and
investors area in Sberbank as Vice President. Since 2018,
he has been a member of the Supervisory Board of Georgia
Capital.
Jyrki joined Magnit in February 2019 as a Director for Strategic
Communications and a Member of the Management Board.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.000469%.
Information about transactions to acquire/dispose
of the Company’s shares concluded over the reporting period:
Date
Transaction type
Transaction
volume, (pc.)
05.06.2019
Acquisition
478
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(continued)
Anton Zavalkovsky
Member of the Management Board,
Real Estate Director
AGE
49
EDUCATION
1997 – State Academy of Consumer Goods and Services
(Economics, Accounting and Auditing)
2018 – Autonomous non-profit organization for continuing
professional education “INTERCON-INTELLECT Russian
Union of Auditors Training Сentre”
(CPE ANCO “Intercon-Intellect ATC RUA”),
Moscow (Crisis Management).
EXPERIENCE
Mr. Anton Zavalkovsky joined Magnit as Director for Real
Estate Management and Non Commercial Purchases in July
2019. On 18 July 2019, he was appointed a member of the
Management Board.
In 2018-2019, Mr. Zavalkovsky occupied a position
of the Managing director in OJSC Baikal Pulp and Paper
Mill. In 2016-2017, he held a position of an Advisor in
LLC VTB DC. In 2012-2015, Anton Zavalkovsky was elected
as the Chief Executive Officer of Investlesprom.
In 2010-2011, Anton worked in Lenta LLC as Deputy Chief
Executive Officer. From 2011 to 2012, he was transferred
to a position of the First Deputy Chief Executive Officer.
SHAREHOLDING INFORMATION
Does not own any interest in PJSC Magnit’s charter capital,
does not own PJSC Magnit’s ordinary shares and did not
conclude any transactions with PJSC Magnit’s ordinary
shares during the reporting period.
Elena Zhavoronkova
Member of the Management Board,
Chief Legal Officer
AGE
49
EDUCATION
2002 – Moscow State Law Academy (Law)
EXPERIENCE
Elena Zhavoronkova joined Magnit in June 2018 as a Director
for Legal Affairs and Corporate Governance. On 22 June 2018,
she was appointed a Member of the Management Board.
Previously, she served as a Vice President for Legal Affairs
in PJSC Polyus. In 2010-2014, Elena Zhavoronkova held a
similar position in Evraz. From 2008 to 2010 Ms. Zhavoronkova
headed the legal department in United Industrial Corporation.
In 2000-2008, worked her way from legal consultant to the
Head of Legal Department in TMK.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.003089%.
Information about transactions to acquire/dispose of
the Company’s shares concluded over the reporting period:
Date
Transaction type
Transaction
volume, (pc.)
28.05.2019
Acquisition
1,648
Structure of Corporate
Governance Bodies
PJSC Magnit has built robust systems
of corporate governance and internal
controls on its financial and economic
activities.
The Company’s highest decision-
making body is the General Meeting.
The Board of Directors is elected by
shareholders at the General Meeting and is
accountable to them. It provides strategic
oversight and monitors the activities of
the executive bodies: the CEO (Chairman of
the Management Board), President and the
Management Board. The position of President
was first introduced in 2019.
The executive bodies handle the day-to-day
management of the Company and perform
tasks assigned by the shareholders and the
Board of Directors.
There are four committees under the
Board of Directors:
‒ the Audit Committee
‒ the Strategy Committee
‒ the HR and Remuneration Committee
‒ the Capital Markets Committee.
The Internal Audit Department analyses
and evaluates the risk management and
internal control systems, as well as corporate
governance.
The Corporate Governance Department
performs the functions of the Corporate
Secretary, ensures the efficient operation
of the remaining corporate governance
bodies and is responsible for all necessary
disclosures.
In 2019, the Audit Commission was abolished
after the corresponding amendments to the
Articles of Association, as it duplicated the
functionality of the Internal Audit Department
and the Audit Committee. This was approved
in December 2019, at an EGM which made
the necessary amendments to the Articles of
Association of the Company.
General Meeting
Board of Directors
Audit
Committee
Human Resources
and Renumeration
Committee
Capital Markets
Committee
Strategy
Committee
Sole Executive
Bodies
Collective
Executive Body
CEO
President
Management Board
Corporate Governance Department
Internal Audit Department
Audit Commission*
Election, establishment
Accountability
Administrative subordination.
Department Director is appointed
by the Board of Directors
*
Existed until the end of 2019.
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Regulations
Magnit maintains its corporate
governance framework in line
with the following regulations:
‒ Russian laws
‒ relevant United Kingdom laws
‒ relevant European Union laws
‒ Moscow Exchange listing rules
‒ London Stock Exchange listing
rules
‒ Corporate Governance Code
recommended by the Bank of
Russia1.
Magnit is continuously improving
the level of its compliance with
the Corporate Governance Code
and systematically benchmarks its
compliance against other public
companies.
The Company’s activities are governed by its Articles of Association of
21 June 2018 (with amendments as of 31 May 2019 and 25 December 2019)
and internal regulations2, including:
Document
Regulations on the Committees of the Board of
Directors
Effective date
18 July 2019
Code of PJSC Magnit On Terms and Conditions of
Transactions with Financial Instruments
25 June 2019
Regulations on the Board of Directors
Regulations on the Sole Executive Bodies
(President and CEO)
Regulations on the Collective Executive Body
(Management Board)
Code of Business Ethics
Regulations on Internal Audit
06 December 2018
(with amendments
as of 31 May 2019)
31 May 2019
31 May 2019
24 March 2019
31 October 2018
Regulations on the General Shareholders Meeting 21 June 2018
List of Insider Information
Regulations on the Corporate Governance
Department
26 February 2018
30 May 2016
Regulations on the Dividend Policy
30 May 2016
Internal Control and Risk Management Policy
13 December 2019
Anti-Bribery and Corruption Policy
25 February 2014
Regulations on the Information Policy
06 September 2012
Anti-alcohol and Anti-drug Policy
Safe Use of Vehicles Policy
Fire Safety Policy
Occupational Safety Policy
Environmental Protection and Industrial Safety
Policy
01 January 2020
01 January 2020
01 January 2020
01 January 2020
01 January 2020
(1)
(2)
For report on compliance with the principles and recommendations
of the Code see Appendix 1.
For more details, see the website of the Company magnit.com/en/disclosure/
internal-regulations/.
Compliance with the principles and recommendations of the Corporate Governance Code1
Corporate governance principles
Shareholder rights and
equal conditions for
shareholders to exercise
their rights
Board of Directors
Corporate Secretary
Remuneration system for
members of the Board
of Directors and senior
Company executives
Risk Management and
Internal Control System
Corporate disclosure
Significant corporate
actions
TOTAL GRADE
2016
Number of
principles
recommended
by the Code
d
e
i
l
p
m
o
C
h
t
i
w
d
e
i
l
p
m
o
c
y
l
l
a
i
t
r
a
P
d
e
i
l
p
m
o
c
h
t
i
w
h
t
i
w
t
o
N
d
e
i
l
p
m
o
C
h
t
i
w
2017
d
e
i
l
p
m
o
c
y
l
l
a
i
t
r
a
P
2018
2019
d
e
i
l
p
m
o
c
h
t
i
w
d
e
i
l
p
m
o
C
h
t
i
w
d
e
i
l
p
m
o
c
y
l
l
a
i
t
r
a
P
d
e
i
l
p
m
o
c
h
t
i
w
h
t
i
w
t
o
N
d
e
i
l
p
m
o
C
h
t
i
w
h
t
i
w
t
o
N
d
e
i
l
p
m
o
c
y
l
l
a
i
t
r
a
P
d
e
i
l
p
m
o
c
h
t
i
w
h
t
i
w
t
o
N
13
8
2
3
9
2
2
9
2
2
8
2
3
36
2
10
6
7
5
79
-
30
2
7
6
4
3
4
0
2
0
3
2
2
0
1
0
0
0
31
2
7
6
4
3
3
0
2
0
3
2
60
13
6
62
12
2
0
1
0
0
0
5
33
2
7
6
4
3
1
0
3
0
3
2
2
0
0
0
0
0
33
2
8
6
4
3
1
0
2
0
3
2
64
11
4
64
10
2
0
0
0
0
0
5
76%
78%
81%
81%
(1)
Statistics provided are based on a report on compliance with the principles and recommendations of the CGC, prepared on the basis
of Recommendation Letter No. IN-06-52/8 from the Bank of Russia, dated 17 February 2016.
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Corporate Governance
Framework Development
General Meeting
of Shareholders
PJSC Magnit continues
to steadily develop its
corporate governance
system. By improving its
corporate governance system
PJSC Magnit aims to reassure
its shareholders and investors
that the Company scrupulously
implements its strategy and
management decisions.
In 2019, the Company continued to improve its corporate governance
framework. The key changes include:
‒ the deadline for shareholders
‒ the authority of the Board
submitting proposals for inclusion
on the agenda of the annual
General Meeting of Shareholders
or to nominate candidates to the
Board of Directors of the Company
was extended
‒ due to the existence of an internal
audit function, the structure of the
Company’s internal control bodies
has been optimised by excluding
from PJSC Magnit’s Articles
of Association the provisions
on the Audit Commission
‒ Magnit Group’s corporate
governance framework was
improved:
‒ PJSC Magnit became the
single executive body
of the JSC Tander in order
to centralize decision making
for Magnit Group
‒ the position of the President
of PJSC Magnit was
introduced, as the sole
executive body along with
the position of CEO.
The President is responsible
for the development and
execution of Magnit Group’s
strategy
of Directors to manage Magnit
Group was expanded, due
to decisions made regarding
significant controlled companies
‒ the Code of PJSC Magnit
on the Terms and Conditions
of Transactions with Financial
Instruments was approved
‒ amendments were made
to the internal regulations of the
Company, specifying certain
issues regarding the activities
of the Board of Directors and the
executive bodies of PJSC Magnit;
provisions were specified on the
rights of the members of the Board
of Directors to receive information
and reports on the activity
of controlled companies; and
provisions were introduced related
to the establishment of the post
of President of PJSC Magnit
‒ adoption of the Sustainability
Strategy and long-term goals
for sustainable development
‒ the development of a Climate
Change Policy
‒ the development of a Packaging
Waste Policy
‒ the development of a Responsible
‒ the Management Board was
Supply Chain Policy
expanded
‒ the development of an Own Brand
Packaging Policy.
A long term incentive programme
was launched for members of the
Company’s executive bodies and
other key executives in the Magnit
Group. The incentives include shares
of PJSC Magnit. The programme was
approved by the Board of Directors
on 25 September 2018.
Most of these changes correspond
to Corporate Governance Code
recommendations.
In 2020, the Company plans
to increase its focus on sustainable
development. To this end, policies
will be developed that affect both
corporate governance and the
activities of the Company, including:
‒ a Quality and Food Safety Policy
‒ a Human Rights Policy
‒ a Charity, Sponsorship and
Volunteer Policy
‒ a Health and Wellness Policy.
The General Meeting is
the highest decision-making
body of the Company.
Shareholders of PJSC Magnit
may significantly affect
the Company’s business by
participating in the General
Meeting of Shareholders.
The key capabilities of the General
Meeting of Shareholders include:
‒ the approval of the Annual Report
and accounting statements
‒ the distribution of profits,
including dividend payments,
‒ the election of the Board of
Directors
‒ approval of major and related
party transactions.
The procedure for the General
Meeting aims to ensure the
observance of the shareholder rights
and meets all the relevant laws and
regulations of the Russian Federation
and the applicable legislation of the
United Kingdom of Great Britain and
Northern Ireland and the European
Union.
Shareholders of PJSC Magnit held two
General Meetings in 2019: one annual
General Meeting (AGM) and one
extraordinary General Meeting (EGM).
General Meeting resolutions
General Meeting
Quorum, %
Key resolutions
AGM, 30 May 20191
75.24
‒ Approval of annual report and annual financial report for year 2018;
‒ Approval of the distribution of profit (including the payment
(declaration) of dividends) based on the 2018 results
‒ Payment of remuneration and compensation of expenses to members
of the Audit Commission
‒ Election of members of the Board of Directors* and members of
the Audit Commission
‒ Amendments to the Articles of Association and to the Regulations
on the Board of directors
‒ Approval of a new edition of the Regulations on the collective
executive body (Management Board) and Regulations on the sole
executive bodies (President and CEO).
EGM, 24 December 20192
70.40
‒ Payment of dividends on PJSC Magnit shares following the results
for the first 9 months of 2019
‒ Approval of the amendments to the Articles of Association of
PJSC Magnit.
*
In 2019, the Board of Directors left: Paul Foley, Gregor Movat, Alexander Prysyazhnyuk.
(1)
(2)
ir.magnit.com/en/shareholder-center/agm-egm-voting/annual_2019/.
ir.magnit.com/en/shareholder-center/agm-egm-voting/extraordinary_2019/.
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Board of Directors
Board of Directors
Responsibilities
The Board of Directors of
PJSC Magnit manages the activities
of the Company, defines strategic
goals and implements effective
management practices and also elects
the CEO and President. The main
objective of the Board of Directors is
to increase the value of the business.
When making decisions, the Board
of Directors takes into account the
interests of all shareholders and other
stakeholders.
Introduction and training
of members of the Board
of Directors
When newly elected, members of the
Magnit Board of Directors undergo
an induction programme, which
includes:
‒ meetings with members of the
Management Board and the
Company’s senior executives
‒ an introduction to the Company’s
history, strategy, corporate
governance system, risk
management and internal control
systems, the distribution
of responsibilities between the
Company’s executive bodies, and
the work of the Board of Directors
‒ familiarisation with the Company’s
documents: the latest annual
reports, the minutes of annual and
extraordinary General Meetings
of Shareholders, the minutes of
meetings of the Board of Directors,
and other relevant information
about the Company’s activities.
Composition of the Board
of Directors
The Board of Directors includes nine
members, of whom five are independent.
The current composition of the Board
of Directors is based on the principle
of diversity and inclusiveness and has
all the necessary competencies for the
effective management of the Company.
Members of the Board of Directors
all have impeccable professional and
personal reputations.
‒ The performance of the Chairman
of the Board of Directors, including:
‒ the overall management of the
The current Board of Directors is
balanced in terms of the status of
directors, their age, nationality,
nomination by shareholders, and
skillset. Its composition corresponds
well with the sector specifics and
scale of Magnit’s business operations
and objectives.
The Board of Directors’
activities in 2019
In the reporting year, the Board
of Directors held 18 meetings and
considered 109 issues. The key
issues related to changes in the
corporate governance system and
the implementation of the long-term
incentive programme.
Performance evaluation
of the Board of Directors
In 2019 and 2020, the HR and
Remuneration Committee of the Board
of Directors conducted a performance
evaluation of the current Board of
Directors.
The Committee evaluated:
‒ The work of the Board of Directors,
including:
‒ the suitability of the structure
of the Board of Directors for the
functions it performs
‒ the qualitative composition of the
Board of Directors
‒ the internal dynamics (working
process) of the Board of Directors
‒ the performance of the
Company’s Secretary
‒ the performance of the Board
of Directors in executing its key
responsibilities.
Board of Directors
‒ the development the Board of
Directors as the governance body
of the Company
‒ the management of the meetings
of the Board of Directors
‒ interacting with the Company’s
Management Board
‒ engaging with the Company’s
shareholders and investors
‒ their personal qualities
‒ their management skills
‒ their communication skills
‒ their quality of execution in the
role of the Chairman of the Board
of Directors
‒ their quality of execution in the
role of a member of the Board of
Directors
‒ their professional skills.
‒ The work of the Committees of the
Board of Directors, including:
‒ the suitability of the structure of
the Committees to the functions
they perform
‒ the qualitative composition of the
Committee
‒ the internal dynamics (processes)
of the Committee
‒ the performance of the
Committee in its main functions
‒ holding of meetings of the Committee.
‒ The conformity of independent
members of the Board of Directors,
to the independent director criteria
as defined by the Regulations on the
PJSC Magnit Board of Directors, the
Corporate Governance Code, and the
Listing Rules of PJSC Moscow Exchange.
Motivation system of the Board of
Directors members was analysed.
The audit confirmed that the
performance of the current
composition of the Board of Directors
is at a level corresponding to the
specifics and scope of the Company,
the needs of the Company and the
interests of shareholders.
Committees of
the Board of Directors
In 2019, four Committees
of the Board of Directors were
in operation:
‒ the Audit Committee
‒ the Strategy Committee
‒ the HR and Remuneration
Committee
‒ the Capital Markets
Committee.
The Committees are formed from among
the members of the Board of Directors,
who are elected based on their relevant
professional experience and knowledge.
When electing members of the
Committees (including the chairmen
of the Committees), the following
aspects must be taken into
consideration: the education
and professional training of the
candidates, their work experience within
the Committee’s area of activity, their
document handling skills, as well as
other necessary proficiencies and
experience.
The Regulations on the Committees
of the Board of Directors of PJSC Magnit
regulates the composition and activities
of the Committees.
In 2019, committees held 12 in-person
meetings. Attendance at meetings
by committee members was 100%.
The work of the committees goes
beyond formal meetings, due to
the fact that the Company is at the stage
of large-scale transformation.
The Committees constantly interacts
with management in order to increase
the efficiency of cooperation between
the executive bodies of the Company
and the Board of Directors.
Committee members (as of 31.12.2019)
Name
Status
Audit Committee
Strategy
Committee
HR and
Remuneration
Committee
Capital Markets
Committee
Florian Jansen
Independent Non-Executive Director
Chairman
Walter Koch
Independent Non-Executive Director
Jan Dunning
Executive Director
Evgeny Kuznetsov
Independent Non-Executive Director
Chairman
Chairman
James Simmons
Independent Non-Executive Director
Chairman
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(continued)
Audit Committee
Strategy Committee
HR and Remuneration
Committee
Capital Markets
Committee
Key functions:
‒ verification and monitoring of financial
statements’ integrity
‒ verification of the internal control and risk
management systems
‒ monitoring the effectiveness of internal audits;
‒ monitoring relations with the external auditor.
Key functions:
‒ strategic and investment planning
‒ identification of priority focus areas
‒ endorsement and verification of the business
plan and budget.
Key functions:
‒ development and monitoring of the remuneration
policy (including long- and short-term incentives)
‒ endorsement and monitoring of senior
management appointments (CEO-1/CEO-2 levels)
‒ development of the talent management strategy
‒ annual evaluation of the Board of Directors and
management performance.
Key functions:
‒ development and strengthening of corporate
governance systems
‒ preparation, development and introduction
of IR strategies
‒ evaluation of the dividend policy and
recommendations for the Board of Directors.
4
formal meetings
in 2019
100%
meeting
attendance
in 2019
2
formal meetings
in 2019
100%
meeting
attendance
in 2019
3
formal meetings
in 2019
100%
meeting
attendance
in 2019
3
formal meeting
in 2019
100%
meeting
attendance
in 2019
Key results:
In the reporting year, the Audit Committee reviewed the
results of evaluating the effectiveness of the internal
control and risk management system of PJSC Magnit
and its subsidiaries and the results of the work of the
structural unit conducting the internal audit for the
reporting year (including reviewing and recommending
to the Board of Directors for approval an action plan
of such structural unit for 2020). The Committee
also recommended to the Board of Directors the
approval of the new version of the Policy in the field of
internal control and risk management of PJSC Magnit
(approved by the decision of the Board of Directors
on 12.12.2019).
Key results:
In the reporting year, the Strategy Committee
reviewed the plan for opening stores and the budget
for 2020, issues of the strategy of own production
and own brands, CVP, IT and other key areas
of activity.
Key results:
In the reporting year, the HR and Remuneration
Committee assessed the compliance of the members
of the Board of Directors in terms of the availability
of the necessary experience, knowledge, compliance
with the independence criteria, as well as the
assessment of candidates for the Management
Board of the Company, examined issues related
to short-term and long-term incentive programmes for
management and key employees of the Company.
Key results:
In the reporting year, the Capital Markets Committee
reviewed and recommended to the Board
of Directors for approval the Regulation
on the committees of the Board of Directors
in a new edition; addressed issues on
communication strategies and ESG initiatives.
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Executive Bodies
The Corporate Secretary
function and responsibilities
are performed by the Corporate
Governance Department.
The main objective of the
Department is to maintain
effective communication with
the shareholders, coordinate the
Company's actions to protect
rights and interests of the
shareholders and ensure the
effective operation of the Board
of Directors.
This approach is consistent with
the recommendations of the
Russian Corporate Governance
Code and the Moscow Exchange
Listing Rules.
The Department is headed
by the Corporate Governance
Director, who is an officer of the
Company.
Ekaterina Kister
Corporate Governance Director
AGE
41*
EDUCATION
2000 – Kuban State University (Faculty of Law)
EXPIRIENCE
Joined PJSC Magnit in 2016, from JSC Tander where she worked for 11 years.
SHAREHOLDING INFORMATION
Participatory interest in the Company’s charter capital (percentage of the Company’s
ordinary shares): 0.000917%.
The main functions of the Corporate Governance Department are:
‒ to participate in improving the
Company's corporate governance
system and practices
‒ to participate in preparing for, and
conducting, general meetings of
shareholders
‒ to support the work of the Board
of Directors and its committees
‒ to participate in implementing
the Сompany’s disclosure policy
and ensure safekeeping of the
Сompany’s documents
‒ to ensure interaction between the
Сompany and its shareholders
and participate in preventing
corporate conflicts
‒ to ensure interaction between
the Сompany and regulatory
authorities, organisers of trading
activity, the registrar and other
professional participants of the
securities market within the remit
of the Corporate Governance
Department
‒ to immediately inform the Board
of Directors of any breaches
of laws and the Company's
‒ by-laws, where ensuring
compliance with such laws
and by-laws is the responsibility
of the Corporate Governance
Department
‒ to ensure that the procedures
established by laws and the
Company's by-laws to protect the
shareholders’ rights and legitimate
interests are put into practice and
oversee their implementation.
On 27 May 2016 (minutes of
30.05.2016), PJSC Magnit’s Board
of Directors approved a resolution
related to internal rules governing its
Corporate Governance Department
and appointed Ekaterina Kister to the
position of Corporate Governance
Director.
Management Board
Sole Executive Bodies: President and CEO
The Management Board is the collective executive
body of PJSC Magnit, which, along with sole executive
bodies, manages its day-to-day activities.
The Management Board reports to the General Meeting
of Shareholders and the Board of Directors.
The Management Board acts in accordance with the
Russian legislation, the Articles of Association, and the
Management Board Regulations.
The Management Board is headed by the Chairman
of the Management Board, who is also the CEO of the
Company.
The President of the Сompany is a member of the
Management Board by virtue of his position and, in
case of absence of the Chief Executive Officer, shall
hold the position of Chairman of the Management
Board.
The Board of Directors determines and annually reviews
the composition of the Management Board. Board
members can be elected an unlimited number of times.
Further details regarding the powers of the
Management Board can be found in the Company’s
Articles of Association and Management Board
Regulations.
The current activities of the Company are managed
by two sole executive bodies of the Company: the
President and the CEO, acting independently of each
other.
If only the President or only the CEO remains in the
Company, then all the functions of the sole executive
bodies are transferred to him.
There is a high degree of overlap between the roles of
President and CEO. The President is responsible for
the development and implementation of the Company’s
strategy.
Sole executive bodies are elected separately by the
Board of Directors for a three-year term and can be
elected an unlimited number of times.
On 31 May 2019, the Board of Directors appointed
Jan Dunning as the President of the Company, and
on 26 June 2019 also as the CEO.
For biographies of Management Board members, please
see Management Board сomposition on page 97.
For biography of Jan Dunning, please see Management
Board сomposition on page 97.
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*
As of 31.12.2019.
MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesCorporate Governance Report
Internal Control and
Risk Management System
The internal control and risk management system of
Magnit is responsible for:
‒ ensuring the efficiency and productivity of the
Company’s activities and the safeguarding of its assets
‒ complying with the requirements of all applicable
legislation and in-house policies and procedures,
including when engaging in business operations and
maintaining accounting records
‒ ensuring the reliability and timeliness of financial and
other reporting.
The key regulating document is the Regulations on
internal control and risk management, updated in 2019
(decision of the Board of Directors from 12 December
2019, minutes of 13.12.2019).
The internal control and risk management system
consists of three levels, each playing its part in the
process of elaborating, approving and applying
corresponding measures and evaluating the system:
Structure of the Company’s internal control bodies
Administrative subordination
Functional subordination
Strategic
Level
Audit Committee of
the Board of Directors
Board of Directors
‒ approving the strategic framework for the
establishment and operation of the internal control
and risk management system
‒ integration of the internal control and risk
management system into the Company’s
organisational processes, including the drafting of
policies, and the process of managing changes
‒ Identifying perceptions of the internal control and
risk management system among employees.
Operational
Level
CEO, President
and Management
Board
‒ organisation of the operation and continuous
monitoring of the effectiveness of the internal
control and risk management system.
Control
Level
Heads of units,
employees
Internal Audit
Department
‒ implementation of control procedures and risk
management measures, monitoring of their
effectiveness.
The internal control system is
based on the principles of the
COSO concept recommended by
the Corporate Governance Code.
According to the COSO model,
the Company creates a controlled
environment including the risk
assessment system, implements
control procedures and assesses
their efficiency and monitors
changes in the organisational
structure and business processes.
The communication between
the participants in the internal
control and risk management
system, as well as the decision
making in corresponding areas, is
implemented via the Company’s
information systems. The relevant
information is defined, recorded
and transmitted in such form to
enable employees to perform their
functional duties. Meanwhile, the
Company adheres to the principle of
the separation of duties.
The internal control and risk
management system adapts to
changes in the Company’s goals
and internal and external factors, as
well as business processes. The risk
management process is carried out
on an ongoing basis and is cyclical
due to the continuous nature of risk
management decision making.
For further detail on risk management
and principal risks, see chapter
Principal Risks and Uncertainties
on page 76.
Internal Audit Department
The Internal Audit Department is
designed to support the Board
of Directors and the executive
bodies in enhancing management
efficiency and improving financial
and operational performance.
The main tasks of the Department
include conducting systematic and
consistent analyses, assessing risk
management and internal control
systems, as well as the corporate
governance system.
The Internal Audit Department is
administratively subordinate to the
CEO and functionally subordinate to
the Board of Directors.
The key document regulating
the activity of the Internal Audit
Department is the Regulations on
Internal Audit at PJSC Magnit where
the main responsibilities of the
department are defined as:
‒ supporting the Company’s
business units and employees,
management, the Audit
Committee of the Board of
Directors and the Board of
Directors by conducting audits,
analyses and evaluations,
providing consultations and
drafting recommendations to
improve the Company’s internal
control and risk management
system and its business
processes
‒ assistance in the timely
identification and analysis of
risks that affect the reliability
of financial and management
information, the safeguarding
of assets, compliance with
legislation and in-house policies
and procedures, the execution of
financial and business plans and
the efficient use of resources.
Responsibilities of the Internal Audit
Department include:
‒ preparing the annual internal audit
plan based on defined risk appetite
and conducting corresponding internal
audits
‒ tracking major changes within the
Company in order to update the audit
plan, identify risk areas and inform
management
‒ preparing and conducting training
on internal control to maintain
the qualifications of department
employees
‒ providing support for the development
of the internal control and risk
management system
‒ providing a monitoring system to
implement the recommendations of
the Internal Audit Department and
monitor their execution
‒ assisting in the selection of external
auditors and consultants as well
as preparing and presenting the
results for review by the Company’s
management and Audit Committee
‒ interacting with external auditors and
consultants on matters concerning
internal audit, the provision of audit-
related services, and consulting
services
‒ preparing monthly, quarterly and
annual reports on the results of the
Department’s work and regularly
submitting them to the Company’s
management, Board of Directors, and
Audit Committee to discuss results and
recommendations. Timely notifying
the Audit Committee and Board
of Directors about any disputes or
difficulties that arise in the process of
implementing the internal audit plan
‒ preparing information for the
Company’s management, Audit
Committee, or Board of Directors
based on special requests (including
unscheduled performance evaluations
and recommendations on ways to
improve individual components of the
internal control and risk management
system).
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(continued)
The Director of the Internal Audit
Department regularly reports to the
Chairman of the Audit Committee
and takes part in meetings of the
Audit Committee. At the Committee
meetings, results of internal audits
are presented and the efficiency
of internal audits is discussed.
In 2019, 19 internal audits were
conducted, resulting in development
and authorisation of 115 measures.
Of these, 9 measures were executed
in 2019, and the rest will be
implemented from the beginning
of 2020.
In 2020, the Company plans
to conduct courses, training
programmes and seminars aimed
at professional development of the
Department’s employees.
Efficiency assessment
In 2019, an efficiency assessment
of the internal audit and risk
management system of PJSC Magnit
and its affiliates was conducted by the
Internal Audit Department.
The assessment was completed
through an analysis of all aspects of
internal control and risk management
processes: the internal (control)
environment, objective setting,
event identification, risk assessment,
risk response, means of control,
information, communications, and
monitoring.
The assessment highlighted the
parameters of internal control and risk
management process and identified
the current state of the parameters,
describing the effectiveness of
organisation and functioning of the
internal control and risk management
system.
According to the assessment, the
current level of organisation and
functioning of the internal control and
risk management system was deemed
well-established and in line with the
Company’s needs.
External audit
To verify and confirm the reliability of its
annual financial statements, each year
the Company hires a professional audit
organisation that has no connection
to the Company or its shareholders
through ownership interests, chosen
from among the major international
audit companies.
The Company’s auditor is approved by
the General Meeting of Shareholders
based on a proposal from the Board
of Directors. The Audit Committee
conducts a preliminary assessment
of the audit firm candidates.
IFRS Auditor
Ernst & Young Limited Liability
Company (TIN 7709383532), legal
address: Russian Federation, Moscow,
77 Sadovnicheskaya Embankment,
building 1, a member of Self-regulatory
Organization of Auditors
"The Commonwealth” (AAC SRO)
(Ernst & young LLC is included in
the control copy of the register of
auditors and audit organizations
with the registration number ORNZ
12006020327) and one of the global
leaders in the provision
of professional services, was approved
at the AGM held on 30 May, 2019 as the
auditor of the Company’s consolidated
financial statements prepared
in accordance with International
Financial Reporting Standards.
Ernst & Young LLC is part of
Ernst & Young Global Limited.
Ernst & Young Global Limited has
received international recognition and
numerous awards for its high quality of
services and unique corporate culture.
The auditor audited the 2019
consolidated financial statements of
PJSC Magnit and its subsidiaries in
accordance with IFRS in the reporting
year.
The auditor’s remuneration paid for
the audit and review of PJSC Magnit
financial statements amounted
to RUB 56.8 mln (excluding VAT).
In addition, the auditor provided
non-audit services to PJSC Magnit
in the amount of RUB 122.5 mln
(excluding VAT) during the reporting
year, including calculation of the
weighted average share price for
Long-term incentive programme (LTI),
consultation on the launch of
a common service centre, consulting
on the development of a Sustainability
Strategy and the publication of the
ESG report, and other services.
RAS Audit
The audit firm Faber Lex Limited
Liability Company, location: Krasnodar,
144/2 Krasnykh Partizan Street, was
approved at the AGM held on May 30,
2019 as the auditor of the Company’s
accounting (financial) statements for
2019 prepared in accordance with
Russian Accounting Standards.
AF Faber Lex LLC is a member of the
Russian Union of Auditors (Association)
Self-Regulatory Organisation of
Auditors (RUA SRO) with the main
registration number entry (ORNZ)
10203002910.
Based on the results of the
PJSC Magnit audit, the auditor
expressed an opinion on the true
and fair reflection of the Company’s
financial position in the accounting
(financial) statements.
The auditor’s remuneration paid
by the Group in the reported period
amounted to RUB 6.6 mln (excluding
VAT), including the payment of RUB
865 thous. (excluding VAT) to PJSC
Magnit.
AF Faber Lex LLC did not provide
non-audit services to the Group during
the reporting year.
Audit Commission
Until December 2019, the Company
had the Audit Commission as
a permanent elected internal control
body, accountable to the General
Meeting.
The main task of the Audit Commission
was to oversee the Company’s financial
and business operations and to verify
compliance with legislative and other
acts governing the Company’s activities
and the legality of transactions.
The Audit Commission was abolished in
2019 as it duplicated the functionality
of the Internal Audit Department and
the Audit Committee.
Ethics and Anti-corruption
PJSC Magnit adheres to the
principle of zero tolerance of
corruption.
The anti-corruption system
regulates the management
of regulatory and reputation
risks, protects the Company
from corruption, and develops
corporate culture and corporate
governance practices.
The Company has an Anti-Corruption
Policy1, also in 2019, the Company
adopted an updated Code of
Conduct2. All company employees
are required to comply with ethical
standards of conduct and corporate
standards, including:
‒ to not give or extort bribes
‒ maintain a positive reputation of
the Company
‒ avoid conflicts of interest.
The Company has created a safe
environment that allows internal
and external parties to report any
corruption or ethical violations,
as well as to propose measures to
improve control mechanisms. The
Company has a hotline on ethics
and anti-corruption. Information on
utilising this hotline is located in the
section Ethics and Anti-Corruption on
the Company's website4.
The Company monitors compliance
with anti-corruption procedures. All
violations of employees are analysed,
and result in disciplinary measures up
to and including dismissal.
In 2019, the list of corporate anti-
corruption measures was expanded:
‒ The executives of the Company
were obliged to declare a conflict
of interest when applying for a job,
when transferring to higher posts
and annually
‒ New distance learning courses
on anti-corruption and business
ethics were developed;
familiarisation with these materials
is monitored
‒ For executives, face-to-face
events were conducted to explain
the provisions of the Code of
Business Ethics and the Anti-
Corruption Policy
‒ The topic of inadmissibility of
violations in the field of combating
corruption was covered and
actively promoted in internal
communications.
The high level of transparency of
PJSC Magnit is recognised by external
experts. Accordingly to the latest
available research by Transparency
International3, the Company achieved
the first place in transparency ranking
of the largest Russian companies by
revenue.
The Company guarantees that
persons who provide information
via the indicated communication
channels shall be provided anonymity
and protection against any form
of pressure (including dismissal,
prosecution or other types of
discrimination).
In 2019, 1,384 appeals were received
through this communication channel,
of which 10% are targeted. Of these,
2.1% contained information about
significant violations. Each case
is checked by the Department of
Economic Security. Based on the
audit results, management decisions
are made while reporting on the
results of inspections is provided to
the management of the Company.
The work of the ethics and anti-
corruption hotline is regularly
reviewed by the Audit Committee and
the Board of Directors.
Confidential Hotline for Employees,
Buyers, Contractors and Partners:
‒ telephone number
8 (800) 600-04-77
‒ email: ethics@magnit.ru
‒ the form for submitting appeals
via the corporate website:
magnit.com/en/anti-corruption/.
(1)
Approved by the Board of Directors 25.02.2014 (minutes of 25.02.2014),
magnit.com/en/disclosure/internal-regulations/.
(2) Approved by the Board of Directors 21.03.2019 (minutes of 24.03.2019),
magnit.com/en/disclosure/internal-regulations/.
(3)
transparency.org.ru/special/trac2018russia/docs/report-en.pdf.
(4) magnit.com/en/anti-corruption/.
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Remuneration Report
PJSC Magnit believes that
information transparency is
the basis for interaction with
stakeholders.
The Company has adopted
an Information Policy. The main
principles of disclosure are
regularity, efficiency, reliability
and balance.
The Company’s information policy is
implemented by executive bodies.
The Capital Market Committee
of the Board of Directors gives
recommendations on improving
disclosure. In 2019, the Committee
revised the scope and quality of
the disclosed data. As a result, the
Company updated its information
materials, revised the format of press
releases, and began to develop a new
corporate website.
The following documents are
published on the official website of
the Company:
‒ Articles of Association and
internal documents
‒ information on the structure of
equity
‒ information on governing bodies;
‒ information about the auditor and
registrar
‒ other required information.
The Company maintains an IR website
with a regularly updated investor
calendar, dividend history for the
past five years, key performance
indicators, contact details, and other
relevant information.
In addition, the Company discloses
information via the Interfax disclosure
server e-disclosure.ru/portal/
company.aspx?id=7671.
PJSC Magnit regularly holds
presentations and meetings between
members of the executive bodies and
other key managers of the Company
and investors and analysts.
The Company also offers visits
to its stores, production facilities
and agricultural complexes.
Representatives of the Company
participate in investor conferences,
both in Russia and abroad. For any
current issues, investors can contact
internal IR specialists.
Another important disclosure channel
is the annual report. In 2019 the
Company significantly increased
the level of disclosure in the Annual
Report and in 2020 the Company
will release its first GRI Sustainability
Report.
Types of messages disclosed in 2019
Type of disclosure
On bond issues
On agendas and resolutions by the issuer’s governance bodies
On reporting disclosures of various types (quarterly reports, lists of affiliated persons, annual reports,
consolidated financial statements, annual accounting statements)
Acquisition of the issuer's own shares by its subordinate organisation
On the change in the share of members of management bodies in the issuer's authorised capital
On yields accrued and paid on issue-grade securities
Performance
Other
TOTAL
Quantity
46
47
16
73
16
12
6
13
229
Director’s Remuneration
In 2019, the directors’
remuneration policy was regulated
by the Regulations on the Board of
Directors of PJSC Magnit1.
According to these Regulations,
Directors are entitled to the
following types of remuneration
for the membership in the Board
of Directors within the reported
period:
‒ base remuneration
‒ additional remuneration.
Remuneration paid to members
of the Board of Directors in 2019:
RUB 129,976,767.702.
The structure of the annual remuneration of members
of the Board of Directors
Position
Basic
Additional
Compensation of expenses related to:
Chairman of
the Board of
Directors
Chairman
of the Audit
Committee
Chairman of
the Strategy
Committee
Chairman of
the Capital
Markets
Committee
Chairman of
the HR and
Remuneration
Committee
150,000
Euro
200,000
Euro
150,000
Euro
100,000
Euro
150,000
Euro
100,000
Euro
150,000
Euro
100,000
Euro
150,000
Euro
75,000
Euro
‒ travel to and from the venue
of the meeting of the Board of
Directors, as well as being at the
venue of the meeting
‒ participation in the meeting
of the Board of Directors
by telephone, use of a
teleconference system, sending
a written opinion, absentee
voting
‒ execution of the functions
of a member of the Board
of Directors
‒ recruitment of consultants and
experts and obtaining opinions
on the activities of the Board of
Directors.
Up to EUR 50,000* per year
*
the issue of compensation for expenses exceeding EUR 50,000 is considered at
the General Meeting of Shareholders.
(1)
Regulations were approved at
the EGM on 5 December 2018
(minutes of 6 December 2018),
with amendments approved at the
AGM on 30 May 2019 (minutes of
31 May 2019).
(2) Does not include remuneration for
the performance of the functions
of the sole executive body paid to a
person that performed the function
of the sole executive body in the
specified period and at the same
time was a member of the Board of
Directors.
Remuneration paid for the reporting year, RUB
2%
31%
RUB 129,976,767.70
Total
86,911,030.35
Basic remuneration
40,853,405.63
Additional remuneration
2,212,331.72
Compensation of expenses
67%
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The structure of the annual remuneration of the CEO and the President
(continued)
Remuneration of the sole
executive bodies (CEO
and President)
In 2019, the policy of remuneration
and compensation of expenses
of the CEO and the President was
regulated by two documents:
‒ the Regulations on the Chief
Executive Officer (general
director)1
‒ the Regulations on Sole Executive
Bodies (the President and
the Chief Executive Officer)2.
In accordance with these Regulations,
the amount of remuneration of
the CEO and the President is set in
their employment contracts.
Remuneration of members
of the Management Board
In 2019, the policy of remuneration
and compensation of expenses to
members of the Management Board
was regulated by two versions of
the Regulations on the collective
executive body (Management Board):
‒ edition approved by the AGM
on 21 June 2018 (minutes of
21 June 2018)
‒ edition approved by the AGM
on 30 May 2019 (minutes of
31 May 2019).
The article relating to remuneration
did not change in these editions.
Remuneration paid to members of
the collective executive body in 2019:
RUB 1,518,529,230.50.
(1)
Regulations were approved at the AGM
on 24.06.2010 (minutes of 28.06.2010).
(2) Regulations were approved at the AGM
on 30.05.2019 (minutes of 31.05.2019).
(3)
Includes remuneration of the President
of PJSC Magnit Jan Dunning for the
period during which the President did
not have the status of the sole executive
body.
The structure of the annual remuneration of the CEO and the President
Base salary
Bonus
LTI
Compensation
of expenses
According to
the terms of the
employment
contract
The motivation
programme sets the
maximum value
of the bonus equal to
the annual salary.
The constituent parts
are paid depending
on the fulfilment
of the Company’s
and personal KPIs
The remuneration
amount depends
on the Group’s
financial results, time
worked during the
programme, as well
as the responsibility
of the employee for
achieving the result.
‒ VHI policy for
an employee and
family members
(partner and
children)
‒ accident insurance
‒ business trips
‒ communication
‒ transport
‒ rental housing.
The structure of the annual remuneration of members of the Management Board
PJSC Magnit
JSC Tander
Base salary
Bonus
LTI
According
to the terms
of the
employment
contract
Remuneration
for the
employment
at PJSC Magnit
The motivation
programme sets
the maximum value
of the bonus equal
to the annual salary.
The constituent
parts are paid
depending on the
fulfilment of the
Company’s and
personal KPIs
The
remuneration
amount
depends on
the Group’s
financial
results, time
worked during
the programme,
as well as the
responsibility
of the employee
for achieving
the result.
Compensation
of expenses
‒ VHI policy for
an employee
and family
members
(partner and
children)
‒ accident
insurance
‒ business trips
‒ communication
‒ transport
‒ rental housing.
In accordance with his employment contract, Jan Dunning received a signing bonus
and the fixed rights for 164,710 of ordinary shares to be transferred to him within
the period of three years, subject to continued work in the Company. Share-based
payment is deferred, and involves 82,355 of shares transferred on 21 May 2019.
Remuneration of members of the Management Board, total, RUB
Base salary
Bonus3
All companies
of the Group
PJSC Magnit
344,216,534.78
62,568,031.27
1,160,270,130.50
1,180,579,891.13
Compensation of expenses
14,042,565.22
–
TOTAL
1,518,529,230.50
1,243,147,922.40
KPI
LTI
In 2019, the following corporate
indicators were set:
‒ Revenue
‒ LFL sales growth
‒ EBITDA
‒ NPS
‒ Net Income1.
The Board of Directors establishes
and approves the list and weight
of corporate KPIs at the beginning
of the year.
The weight ratio between corporate
and individual KPIs for CEО-1 level
is approved by the Board of Directors.
In addition to the short-term incentive
scheme, the Group has a long-term
incentive programme. The programme
objectives are:
‒ motivation of participants
to increase the share price
of the Company
‒ motivation of participants for
the cumulative growth of the
consolidated EBITDA of the Group
in the amount of at least 10%
CAGR relative to 2018
‒ retention of highly skilled
employees
‒ increasing the attractiveness of
the Company for new employees.
The programme started in 2018 and
will last 7 years. The first allocation of
shares occurred in 2019 according to
the results of 2018, the last allocation
will occur in 2025 according to the
results of 2022.
In total, the programme will use no
more than 3,510,638 shares of the
Company.
An agreement is concluded with each
programme participant, under the
conditions of which the maximum
number of shares that a participant can
receive is indicated. The right to receive
shares of the option-based part arises
if the market share price is more than
RUB 4,700 per share. Payments are
made if the target EBITDA is reached
and the terms of the contract are met.
Programme structure
Order
Conditions
Share-based part
participants receive part of the shares.
Option-based part
participants receive the right to redeem part of the shares.
Shares are provided in annual tranches based
on the results of the year, each representing 20%
of the total shareholder part. Shares are delivered
in three stages within the period of 7 years: 1/3
at the end of the first year + 1/3 in the following
year + 1/3 in two years.
The repurchase of shares is based on the results
of each year and takes place in three stages within
the period of 7 years: 1/3 based on the results
of the first year + 1/3 the following year + 1/3 in two
years.
Growth of the share price of the Company on the
option price exercise date.
The Group’s consolidated EBITDA growth of 10% CAGR compared with the EBITDA for the year ended
31.12.2018. The programme participant continues to work in the Group on the exercise date of the option.
LTI remuneration
Name
Jan Dunning
Vladimir Sorokin
Maria Dei
Elena Zhavoronkova
Evgeny Melnikov
Elena Milinova
Jyrki Talvitie
Position
Chairman of the Management Board
President
CEO
Deputy Chief Executive Officer
Commercial Director
Supply Chain Director
Chief Legal Officer
IT Director
Chief Financial Officer
Director for Strategic Communications
Other employees of the Company
Employees who left the Company in 2019
Based on the results of 2018, 31 employees received 76,306 shares
in total. In addition, 28,952 shares were transferred to employees
who left the Company in 2019.
(1) Only for CEO and CFO.
Shares
23,404
16,482
1,648
1,648
1,648
6,593
478
24,405
28,952
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All companies
of the Group
PJSC Magnit
Total payments to the
Total payments to the
members of the collective
members of the collective
executive body, RUB
executive body, RUB
Base salary
Bonus3
TOTAL
Compensation of expenses
205,338,880.56
1,158,414,224.04
6,066,498.56
1,369,819,603.16
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Investor Engagement
Authorised and issued
share capital
As of 31 December 2019, the
authorised capital of
Public Joint-Stock Company Magnit
amounted to RUB 1,019,113.55 and
consisted of 101,911,355 ordinary
registered uncertified shares1 with a
par value of RUB 0.01 each.
In addition to its outstanding shares,
the Company had the right to place
98,938,645 ordinary registered
shares with a par value of RUB 0.01
each (declared shares).
As of 31 December 2019, 28 entities
were registered in the share register,
including 25 individuals, one
nominal holder (National Settlement
Depositary) and two other legal
entities.
As of 31 December 2019, PJSC Magnit
does not hold any treasury shares.
As of 31 December 2019, JSC
Tander, owned by the Company
owned 4,361,272 voting shares in
Structure of share capital as at the end of 20192
3
25
Legal entities
Individuals
2.95%
Total number
of registered
entities: 28
97.05%
PJSC Magnit, which amounts to
4.28% of the total number of ordinary
registered shares, which were
acquired in 2018-2019 in order to
implement its LTI programme.
As at the 31 December 2019, no
other organisations controlled by the
Company owned voting shares in
PJSC Magnit.
The Company has both an ordinary
share listing on the Moscow Exchange
(MOEX) and a GDR listing on the
London Stock Exchange (LSE).
In accordance with the listing rules
of PJSC Moscow Exchange as of
31 December 2019, the share of the
free-float in the Company’s shares
was 71,00%3. As at the end of 2019,
Magnit’s market capitalisation was
RUB 365.6 bln4 on MOEX and
USD 6,142.71 mln5 on the LSE.
Significant changes in the share capital structure in 20196
Prior to date of change
After date of change
Date of
change
Title
Ownership
type
Number of
shares
Share of
authorised
capital, %
Number of
shares
Share of
authorised
capital, %
05.02.2019 VTB Capital plc.
Direct
1,379
0.00135
7,800,000
7.65371
05.02.2019 VTB Infrastructure Investments LLC
Direct
7,868,427
7.72085
68,427
0.06714
(1)
State registration number: 1-01-60525-P of 4.03.2004.
(2) Shareholding structure is provided in accordance with the list of shareholders registered in the register of PJSC Magnit shareholders
as of 31.12.2019.
(3) The share of the free-float is determined based on an analysis of the share capital ownership structure, and by deducting the number
of shares which are not in the free-float from the total number of the Issuer’s shares.
(4) Capitalisation in RUB is calculated using the following formula: number of shares outstanding x share price as at the end of 2019.
(5) Capitalisation in USD is calculated using the following formula: 5 x number of shares outstanding x GDR price as at the end of 2019.
(6)
Information is provided based on notifications received by PJSC Magnit from the indicated entities in accordance with the article 30 of the Federal
Law No. 39-FZ “On the securities market” as of 22.04.1996.
Breakdown of free-float*
by geography
13.8%
19.2%
10.3%
As at the end
of 2018
22.6%
34.1%
Authorised and issued share capital history
24 April
2006
The Company completed the process of an initial public offering
in the Russian Trading System (RTS) and on the Moscow Interbank
Currency Exchange (MICEX).
13 February
2008
PJSC Magnit announced a secondary share placement.
11,300,000 shares were offered for additional issuance, including
shares placed with pre-emptive rights for existing shareholders as
well as previously placed shares owned by the selling shareholder.
22 April
2008
Global Depositary Receipts (GDR) commenced conditional trading
on the London Stock Exchange (LSE). Later in April Magnit’s GDRs
were included in the official list of the UK Listing Authority.
17.8%
21.8%
2 September
2009
PJSC Magnit announced another public offering of 11,154,918
ordinary shares. The offering price was USD 65 per ordinary share
and USD 13 per GDR.
9.4%
As at the end
of 2019
19.3%
31.8%
6 October
2011
The Board of Directors of PJSC Magnit decided to increase
the authorised capital by issuing 10,813,516 additional shares.
The public placement was completed on 15 December 2011.
15 November
2017
The Board of Directors of PJSC Magnit decided to increase
the authorised capital by issuing 7,350,000 additional shares.
The public placement was completed on 15 January 2018.
Russian Federation
USA and Canada
United Kingdom
European Union
Rest of the World
*
Institutional investors
Source: Shareholder
Identification report
21 August
2018
The Board of Directors of PJSC Magnit approved the total amount
of funds allocated for share buybacks as follows (taking into
account the changes approved by the Board on the
4th of October, 2018):
‒ up to RUB 16,500,000,000 – for LTI programme
‒ up to RUB 5,700,000,000 – as payment for transactions
related to acquisition of SIA Group.
The programme was launched on 5 September 2018 and
completed on 1 March 2019.
28 November
2018
JSC Tander concluded an agreement with Serengate Advisors
Limited under which the latter received 1,513,601 shares,
which amounted to 1.485213% of the total number of shares
of PJSC Magnit, as payment for the transaction related
to the acquisition of SIA Group.
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(continued)
Listing of shares on
the Moscow Exchange
The Company’s shares
have been trading on the
Moscow Exchange (MGNT)
since 24 April 2006 (ticker
MGNT) and are included in
the first quotation list.
Magnit shares are included
in the following indices on
Moscow Exchange: Stock
Subindex, MOEX Index,
MOEX Index 10, Blue Chip
Index, Broad Market Index,
Consumer Sector Index /
Consumer Sector Index,
RTS Consumer Sector
Index, RTS Index, and
Broad Market RTS Index.
Share trading on the Moscow Exchange in 2019
4,400
4,200
4,000
3,800
3,600
3,400
3,200
3,000
Trading volume, RUB bln
Ordinary share price, RUB
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Source: Moscow Exchange
GDR listing
Share price and trading volume on the Moscow Exchange in Q1-Q4 2019
The Company’s global
depositary receipts (GDR)
have traded on the main
market of the London
Stock Exchange (MGNT)
since 22 April 2008. One
share represents five
depositary receipts. As of
31 December 2019, 27.78%
of the Company’s total
shares were listed on the
London Stock Exchange in
the form of GDRs.
Share price, RUB
Volume1, RUB mln
Period
Min
Max
As at end
of period
Period
total
Daily
average
Daily
median
Market capitalisation at
end of period, RUB bln
Q1
Q2
Q3
Q4
3,576.0 4,300.0 3,640.0 75,878.2 1,264.6 952.6
3,496.0 3,865.0 3,735.0
59,177.9
954.5 886.6
3,520.5 3,935.0 3,587.0 55,561.3
854.8
747.4
3,136.5 3,559.5 3,449.0 60,489.4
945.1
832.1
Source: Thomson Reuters
GDR quotes on London Stock Exchange in 2019
Trading volume, USD mln
GDR price, USD
17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
Jan-19
Feb-19 Mar-19
Apr-19 May-19
Jun-19
Jul-19
Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Source: London Stock Exchange
371.0
380.6
365.6
351.5
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Indices
Magnit is included in a broad number
of different indices. More information
is provided by the following key ETF
groups:
VanEck
vaneck.com
SPDR
ssgafunds.com
Vanguard
investor.vanguard.com
MSCI
msci.com
iShares
ishares.com
Columbia Threadneedle Investments
columbiathreadneedleus.com
MOEX and RTS
moex.com/ru/index/IMOEX
Analyst coverage
and consensus forecasts
As of the 31 December 2019,
15 investment banks produced equity
research on Magnit compared to
13 in 2018. Two new banks initiated
coverage, namely HSBC and
Raiffeisenbank.
(1) Сalculations are based on daily
trading volumes in currency, which are
calculated as the daily trading volume
in securities multiplied
by the closing price.
GDR price and trading volume on LSE in Q1-Q4 2019
GDR price1, USD
Volume2, USD mln
Period
Min
Max
As at end
of period
Period
total
Daily
average
Daily
median
Market
capitalisation
at end of
period,
USD mln
Q1
Q2
Q3
Q4
12.94
15.95
14.10
536.8
13.35
15.20
14.58
401.6
12.57
15.32
13.07
296.3
10.90
12.93
12.06
245.9
8.52
6.58
4.6
3.8
7.6
6.0
4.1
3.5
7,184.8
7,426.8
6,657.4
6,142.7
Source: Thomson Reuters
Bank
Analyst
Phone
E-mail
Alfa Bank
Evgeniy Kipnis
+7 495 795 37 13
ekipnis@alfabank.ru
Aton
Victor Dima
+7 495 213 03 44
victor.dima@aton.ru
Bank of America
Merrill Lynch
BCS
Citi
Ilya Ogorodnikov
+7 495 662 60 73
ilya.ogorodnikov@baml.com
Dmitry Skryabin
+7 495 213 15 09
dskryabin@bcsgm.com
Alastair Birkby
+44 20 7986 51 80
alastair.birkby@citi.com
Gazprombank
Marat Ibragimov
+7 495 980 41 87 marat.ibragimov@gazprombank.ru
Goldman Sachs Maxim Nekrasov
+7 495 645 40 13
maxim.nekrasov@gs.com
HSBC
Bulent Yurdagul
+90 212 376 46 12
bulentyurdagul@hsbc.com.tr
JP Morgan
Elena Jouronova
+7 495 967 38 88
elena.jouronova@jpmorgan.com
Raiffeisen
Egor Makeev
+7 495 221 98 51
egor.makeev@raiffeisen.ru
Renaissance
Capital
Sberbank CIB
Kirill Panarin
+7 499 956 42 16
kpanarin@rencap.com
Mikhail
Krasnoperov
+7 495 933 98 38
mikhail_krasnoperov@
sberbank-cib.ru
SOVA Capital
Artur Galimov
+7 495 223 23 23
artur.galimov@sovacapital.com
UBS
Ulyana
Lenvalskaya
+7 495 648 20 93
ulyana.lenvalskaya@ubs.com
Wood &
Company
Lukasz Wachelko
+48 22 222 15 60
lukasz.wachelko@wood.com
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Year’s Highlights
16.01.2019
Jan Dunning Appointment
as Member of the
Management Board
15.03.2019
FY 2018 Audited Financial Results
26.06.2019
Jan Dunning Appointment
as CEO
07.02.2019
4Q/12M 2018 Trading Update
and Financial Highlights
30.04.2019
1Q 2019 Trading Update
and Financial Highlights
20.08.2019
1H 2019 Reviewed Financial Results
29.10.2019
3Q/9M 2019 Trading Update
and Financial Highlights
25.07.2019
2Q/6M 2019 Trading Update
and Financial Highlights
14.06.2019
2018 Dividend Record Date
(the closure of register)
4,600
4,400
4,200
4,000
3,800
3,600
3,200
Corporate news
Audited/Reviewed Financial Results
Trading update and Financail Highlights
Dividend Record Date
3,000
Trading volume, RUB bln
Ordinary share price, RUB
January’19
February’19
March’19
April’19
May’19
June’19
July’19
August’19
September’19
October’19
November’19
December’19
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Analyst recommendations and average target price of local shares
80%
60%
40%
20%
0
5,000
4,000
3,000
2,000
1,000
0
jan-19 mar-19 jun-19 sep-19 dec-19 mar-19 jun-19 sep-19 mar-19 jun-19 sep-19 dec-19
Source: Thomson Reuters
Average Target Price, RUB
Company collected
recommendations and consensus
on ordinary shares for 2019
8%
34%
Average share
target price:
RUB 4,064.3
58%
Buy
Hold
Sell
Analyst recommendations and average target price of GDRs
Company collected
recommendations and consensus
on GDRs for 2019
80%
60%
40%
20%
0
16.5
15.5
14.5
13.5
12.5
jan-19 mar-19 jun-19 sep-19 dec-19 mar-19 jun-19 sep-19 mar-19 jun-19 sep-19 dec-19
Source: Thomson Reuters
Average Target Price, USD
7%
29%
Average GDR
target price:
USD 14.9
64%
Buy
Hold
Sell
Consensus for key financial indicators for 2019, RUB bln
Consensus average
Reported
Sales and growth Gross profit and margin EBITDA and margin
Net Income and margin
1,368.1
10.6%
1,368.7
10.6%
317.8
23.2%
312.0
22.8%
87.4
6.4%
83.1
6.1%
21.0
1.5%
17.1
1.3%
Source: Company collected recommendations and consensus for 2019 based on open sources
Bonds
The Company uses bonded loans
as a form of debt financing for its
business, which are primarily raised
by issuing exchange bonds.
In 2019, PJSC Magnit had five
outstanding issues of bonds
(BO-003R-01, BO-003R-02,
BO-003R-03, BO-003R-04,
BO-003R-05) with a total nominal
volume of RUB 50 bln (the volume in
circulation at the end of the reporting
year was RUB 50 bln).
Parameters of the BO-003R-01, BO-003R-02, BO-003R-03, BO-003R-04, BO-003R-05 series bonded loans
of PJSC Magnit
Issue identification
number and
assignment date
Volume of issue,
RUB
4B02-01-60525-P-
003P, 1.02.2019
4B02-02-60525-P-
003P, 21.02.2019
4B02-02-60525-P-
003P, 25.06.2019
4B02-04-60525-P-
003P, 29.10.2019
4B02-05-60525-P-
003P, 23.12.2019
10,000,000,000 (ten bln) 10,000,000,000 (ten bln) 10,000,000,000 (ten bln) 10,000,000,000 (ten bln) 10,000,000,000 (ten bln)
Number of securities
10,000,000 (ten mln)
10,000,000 (ten mln)
10,000,000 (ten mln)
10,000,000 (ten mln)
10,000,000 (ten mln)
Nominal value of
each security, RUB
1,000 (one thousand)
1,000 (one thousand)
1,000 (one thousand)
1,000 (one thousand)
1,000 (one thousand)
Placement price
100% of nominal value
100% of nominal value
100% of nominal value
100% of nominal value
100% of nominal value
Placement date
05.02.2019
26.02.2019
27.06.2019
05.11.2019
26.12.2019
Placement method
public placement
public placement
public placement
public placement
public placement
Maturity date
1092nd day from the
placement date
728th day from the
placement date
546th day from the
placement date
910th day from the
placement date
1092th day from the
placement date
Number of coupons
6
4
3
5
6
ISIN code
RU000A1002U4
RU000A1004G9
RU000A100H02
RU000A100ZS3
RU000A1018X4
Coupon rate
8.70%
8.50 %
7.85%
6.90%
6.60%
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(continued)
Credit ratings
Rating agency
Rating recipient
Rating
Forecast
Date of rating (issued
/ reaffirmed)
Shareholders and investor engagement
In 2019, leading rating agencies
assigned credit ratings to the
Company. S&P affirmed its rating
of the Company and ACRA assigned
a new rating.
Standard&
Poors
ACRA
BB
Stable
23.12.2019
AA (RU)
Stable
23.09.2019
Issuer at
international
scale
Issuer at
national scale
Bonds
BО-003R-01,
BО-003R-02,
BО-003R-03
BO-003R-04
AA (RU)
BO-003R-05
AA (RU)
Dividends paid in 2008-2019
Total divivends paid, RUB bln
Dividend yield, % at the end of period
-
-
-
05.11.2019
25.12.2019
8.6%
Dividends
The key objective of the Company’s
dividend policy is to provide increasing
shareholder returns and ensure
further growth of the Company’s
capitalisation. The dividend policy
is also focused on optimising the
balance between retained profit and
shareholder returns.
Regulations on the dividend policy of
PJSC Magnit (new edition) of 27 May
2016 (minutes of 30.05.2016) (magnit.
com/en/shareholders-and-investors/
dividends/)
The core principles underpinning
Magnit’s dividend policy are as
follows:
‒ Transparency: identifying and
disclosing information about the
duties and responsibilities of the
parties involved in carrying out
the dividend policy, including
the procedure and conditions
for deciding on the payment and
amount of dividends
‒ Timeliness: establishing time
limits for dividend payments
‒ Justifiability: the decision on
the payment and the amount of
dividends may only be made if
the Company achieves a positive
financial result taking into
account development plans and
investment programmes
‒ Fairness: equal rights for
shareholders in acquiring
information about the decisions
on payment, size and procedures
for payment of dividends
‒ Consistency: strict implementation
of the procedures and principles
of the dividend policy
‒ Progression: continuous
improvement of the dividend
policy in line with the evolution
of the Company’s strategic goals
‒ Sustainability: commitment to
ensuring a stable level of dividend
payments.
0.3%
0.7%
0.8%
0.2%
3.7%
34.3
2.8%
29.4
2.5%
4.0%
4.3%
31.0
26.3
24.7
15.0
1.7%
7.7
1.5%
12.8
1.3
0.1
0.0
0.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 9M 2019
Dividend per share, RUB
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 9M 2019
1.46
14.82
6.57
22.93
81.35
135.21 362.94 310.47
278.13
251.01 304.16
147.19
A dividend payment in the amount
of RUB 166.78 on the ordinary
registered shares of PJSC Magnit in
relation to the 2018 financial results
was approved by the Annual General
Meeting of Shareholders on 30 May
2019 (minutes dated 31 May, 2019).
The Extraordinary General Meeting
of Shareholders on 24 December
2019 (minutes dated 25 December
2019) approved the payment of
an interim dividend on the ordinary
registered shares of PJSC Magnit,
based on the results of the first nine
months of 2019 in the amount
of RUB 147.19.
The list of the most frequently asked
questions by investors and analysts is
presented below:
‒ LFL indicators and their dynamics
‒ Sales density indicators
‒ CVP implementation including
assortment, redesign programme,
loyalty programme, organisational
model, etc.
‒ Changes in strategy
‒ Innovations and improvements
within the Company
‒ Expansion plans and M&A
opportunities
‒ Sustainability of margins
‒ Working capital improvement
‒ LTI programme
‒ Management KPIs
‒ Management Board changes.
During the reporting year, the
Company continued to improve its
investor relations approach:
‒ The Company significantly
enhanced the Annual Report and
made progress towards issuing a
separate Sustainability Report
‒ Conference calls are now held
solely in English
‒ Transcripts of the calls are
regularly published on the
Company’s website
‒ The composition and structure of
press releases, presentations and
databook has been enhanced
‒ Official documents, policies and
regulations have been translated
into English and published on the
website
‒ The Company has started to
compile its’ consensus of analyst
forecasts and recommendations
based on public reports.
Magnit pays due attention to the
attractiveness of its investment
proposition and constantly seeks to
increase the level of openness and
transparency of its activities. The
Company is interested in attracting
new and retaining existing investors
and maintains a constant dialogue
with the investment community.
The Company uses various formats
of interaction, including distributing
press releases announcing
operational and financial results;
organising conference calls, face-
to-face meetings; conducting
road shows and site visits; and
participating in investment
conferences and other events.
In the first quarter of 2019, the Board
of Directors approved a new Investor
Relations strategy as part of the
Group’s Communication strategy.
4 conference calls and 6 publications
regarding the financial and operating
results were conducted by senior
management in 2019.
The Company’s management held
two roadshows and together with the
IR team participated in 30 different
investors’ events covering 243
institutional investors in 2019.
IR department activity, 2019
6
Financial
and operational
results releases
4
Conference
calls
2
Roadshows
30
Number of investor events
(e.g. conferences, consumer days,
tours, forums, etc), where Magnit
participated
243
Number
of institutional
investors
covered
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Shareholder and Investor Engagement
(continued)
Investor calendar 2019-2020
FY 2018
Unaudited Results
and Conference Call
Krasnodar
NDR Roadshow
NDR Roadshow
London
San-Francisco, New York,
Boston
FY 2018 Audited
Financial Results
Krasnodar
1H 2019 Reviewed
Financial Results
UBS Russia Investor
Days
HSBC GEMs
Investor Forum
UBS Russia Investor
Days
Krasnodar
Stockholm
London
Frankfurt
FEBRUARY 07, 2019
FEBRUARY 19 –
FEBRUARY 22, 2019
MARCH 5 –
MARCH 7, 2019
MARCH 15, 2019
AUGUST 20, 2019
AUGUST 30, 2019
SEPTEMBER 3, 2019
SEPTEMBER 2, 2019
Goldman Sachs 2nd
CEEMEA Consumer
and Retail Day
London
APRIL 4, 2019
Goldman Sachs
CEEMEA Corporate
Days
UBS EMEA Investor
Day in Singapore
Singapore
Frankfurt
APRIL 8 –
APRIL 9, 2019
APRIL 10 –
APRIL 11, 2019
Morgan Stanley
EEMEA Conference
London
JP Morgan Global
Consumer and Retail
Conference
BAML Russia
Consumer Trip
Moscow
MAY 14, 2019
London
MAY 15 –
MAY 16, 2019
1Q 2019 Trading
Update and Financial
Highlights and
Conference Call
Krasnodar
APRIL 30, 2019
J.P. Morgan Russian
Internet and Consumer
Investor Tour
Moscow
Goldman Sachs
Global Retailing
Conference
New York
Citi`s GEM
Conference
New York
Moscow Exchange
Forum 2019
New York
J.P. Morgan`s
CEEMEA Consumer
Tour in Russia
Moscow
SEPTEMBER 4, 2019
SEPTEMBER 5, 2019
OCTOBER 3 –
OCTOBER 4, 2019
OCTOBER 4, 2019
Moscow Exchange
Forum 2019
London
Goldman Sachs
CEEMEA Corporate
Days
Singapore
3Q/9M 2019 Trading
Update and Financial
Highlights and
Conference Call
Krasnodar
HSBC Global
Investment Forum
New York
NOVEMBER 5 –
NOVEMBER 6, 2019
MAY 16, 2019
MAY 22, 2019
OCTOBER 16, 2019
OCTOBER 23, 2019
OCTOBER 29, 2019
Aton Consumer Day
Alfa Consumer Trip
BAML Miami GEM
Moscow
Moscow
Miami
Sberbank CIB
“The Inside Track”
Moscow
MAY 24, 2019
MAY 27 –
MAY 29, 2019
MAY 28 –
MAY 31, 2019
JUNE 4 –
JUNE 5, 2019
Goldman Sachs
CEEMEA 1x1
Conference
London
NOVEMBER 11 –
NOVEMBER 12, 2019
Jefferies West
Coast Consumer
Conference
San Francisco
NOVEMBER 13, 2019
VTB Capital
“Russia Calling”
Moscow
UBS Global Emerging
Markets One-on-One
Conference
New York
NOVEMBER 20 –
NOVEMBER 22, 2019
DECEMBER 3 –
DECEMBER 4, 2019
HSBC GEMs
Conference
New York
JUNE 10 –
JUNE 12, 2019
UBS LATEMEA One
on One Conference
2019
RenCap Russia&CIS
Investor Conference
Moscow
London
JUNE 18 –
JUNE 19, 2019
JUNE 24 –
JUNE 26, 2019
2Q/1H 2019 Trading
Update and Financial
Highlights and
Conference Call
Krasnodar
JULY 25, 2019
Wood`s Winter
Wonderland – EME
Conference
Prague
4Q/12M 2019 Trading
Update and Financial
Highlights and
Conference Call
London
FY 2019 Audited
Financial Results
Krasnodar
1Q 2020 Trading
Update and Financial
Highlights and
Conference Call
Krasnodar
DECEMBER 4, 2019
FEBRUARY 06, 2020
MARCH 16, 2020
APRIL 29, 2020
Magnit Corporate Events
Events 2019
Events 2020
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2Q/6M 2020 Trading
Update and Financial
Highlights and
Conference Call
Krasnodar
JULY 30, 2020
1H 2020 Reviewed
Financial Results
Krasnodar
3Q/9M 2020 Trading
Update and Financial
Highlights and
Conference Call
Krasnodar
AUGUST 20, 2020
OCTOBER 29, 2020
MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesCorporate Governance Report Appendices
to the Annual Report
Appendix 1
Report on Complying with the Principles and
Recommendations of the Corporate Governance Code
Appendix 2
Major Transactions
Appendix 3
Related Party Transactions
Appendix 4
Financial Statements
Appendix 5
Management Statement of Responsibility
135
156
157
158
244
Report on Complying
with the Principles and
Recommendations of the
Corporate Governance Code
The Board of Directors confirms that the data provided in this report contains complete and reliable information on
the Company's compliance with the principles and recommendations of the Corporate Governance Code (hereinafter
referred to as the "Code") for 2019.
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
The company shall ensure fair and equitable treatment of all shareholders in exercising their corporate
governance rights.
No
1.1
1.1.1
The company ensures the most
favourable conditions for its
shareholders to participate in
the general meeting, develop
an informed position on agenda
items of the general meeting,
coordinate their actions, and
voice their opinions on items
considered.
1.1.2
The procedure for giving notice
of, and providing relevant
materials for, the general
meeting enables shareholders
to properly prepare for attending
the general meeting.
Full
Full
1. The company’s internal document
approved by the general meeting
of shareholders governing the
procedures to hold general meetings
of shareholders is publicly available.
2. The company provides accessible
means of communication with
the company, such as a hotline,
e-mail, or online forum, to enable
shareholders to express their opinion
and send questions on the agenda in
preparation for the general meeting.
The company performed the above
actions in advance of each general
meeting held in the reporting period.
1. The notice of an upcoming general
meeting of shareholders is posted
(published) online at least 30 days
prior to the date of the general
meeting.
2. The notice of an upcoming meeting
indicates the location of the meeting
and the documents required for
admission.
3. Shareholders were given access
to the information on who proposed
the agenda items and who proposed
nominees to the company’s board of
directors and the revision committee.
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Report on Complying with the Principles and Recommendations
of the Corporate Governance Code
(continued)
Corporate governance
principles
Compliance criteria
No
1.1.3
Compliance
status
Full
Reasons for non-compliance
In preparing for, and holding
of, the general meeting,
shareholders were able to
receive clear and timely
information on the meeting
and related materials, put
questions to the company’s
executive bodies and the board
of directors, and to communicate
with each other.
1.1.4
There were no unjustified
difficulties preventing
shareholders from exercising
their right to request that a
general meeting be convened,
to propose nominees to the
company’s governing bodies,
and to make proposals for the
agenda of the general meeting.
1. In the reporting period,
shareholders were given
an opportunity to put questions to
members of executive bodies and
members of the board of directors in
advance of, and during, the annual
general meeting.
2. The position of the board of
directors (including dissenting
opinions entered in the minutes) on
each item on the agenda of general
meetings held
in the reporting period was included in
the materials for the general meeting
of shareholders.
3. The company gave duly authorised
shareholders access to the list of
persons entitled to participate in the
general meeting, as from the date
when such list was received by the
company, for all general meetings
held in the reporting period.
1. In the reporting period,
shareholders had an opportunity to
make proposals for the agenda of the
annual general meeting for at least 60
days after the end of the respective
calendar year.
2. In the reporting period, the
company did not reject any proposals
for the agenda or nominees to the
company’s governing bodies due to
misprints or other insignificant flaws in
the shareholder’s proposal.
Partial
1.1.5
Each shareholder was able
to freely exercise their voting
right in the simplest and most
convenient way.
No
1. An internal document (internal
policy) of the company contains
provisions stipulating that
every participant in the general
meeting may, before the end of the
respective meeting, request a copy
of the ballot filled in by them and
certified by the counting commission.
Criterion 1 is not complied with.
The annual general shareholders
meeting for 2018 considered the issue
of increasing the deadline to submit
proposals to the agenda of the annual
general meeting to up to 60 and 45
days in accordance with proposals from
shareholders and the Board of Directors.
The shareholders decided to increase this
period to 45 days, considering it sufficient
to make proposals regarding the agenda
of the annual general meeting.
During the reporting period, there were no
instances in which shareholders would not
have had enough time to submit proposals
within this period.
Nevertheless, in the event of the receipt
of relevant proposal from shareholders,
the matter of extending this period to 60
days will be submitted for review again
within the statutory time period.
The matter of whether these provisions
can and need to be included in the
Company's internal documents is
expected to be considered before the
annual general shareholders meeting for
2020.
The registrar JSC Novy Registrator
performs the functions of the ballot
committee for PJSC Magnit based on
the agreement, the terms of which
do not prevent any of the Company’s
shareholders from requesting a copy of
the completed ballot from the Registrar’s
representatives before the termination
of the meeting. Neither the Company
registrar nor the Company dismissed such
a request at the general shareholders
meeting in 2019.
No
1.1.6
1.2
1.2.1
1.2.2
Corporate governance
principles
Compliance criteria
The procedure for holding a
general meeting set by the
company provides equal
opportunities for all persons
attending the meeting to voice
their opinions and ask questions.
1. During general meetings of
shareholders held in the reporting
period in the form of a meeting (joint
presence of shareholders), sufficient
time was allocated for reports on, and
discussion of, the agenda items.
2. Candidates to the company’s
governing and control bodies were
available to answer questions of
shareholders at the meeting at which
their nominations were put to vote.
3. When passing resolutions on
preparing and holding general
meetings of shareholders, the
board of directors considered using
telecommunication means for remote
access of shareholders to general
meetings in the reporting period.
Compliance
status
Partial
Reasons for non-compliance
Criterion 3 is not complied with.
The Company's management and the
Registrar are discussing the option of
using telecommunication devices to
provide shareholders with remote access
to general meetings.
There are plans to consider the feasibility
and necessity of this practice prior to the
annual general shareholders meeting for
2020.
The Board of Directors did not consider
the issue of providing shareholders with
remote access to take part in general
meetings during the reporting period
because the majority of Company
shareholders (over 97%) are clients of
nominal holders and participate in the
meeting by sending electronic documents
to the registrar containing their expression
of will on the agenda items of the general
meeting.
Shareholders are given equal and fair opportunities to share profits of the company in the form of dividends.
The company has developed and
put in place a transparent and
clear mechanism to determine
the dividend amount and payout
procedure.
The company does not resolve to
pay out dividends if such payout,
while formally compliant with
law, is economically unjustified
and may lead to a false
representation of the company’s
performance.
Full
1. The company has drafted and
disclosed a dividend policy approved
by the board of directors.
2. If the company’s dividend policy
uses reporting figures to determine
the dividend amount, then relevant
provisions of the dividend policy take
into account the consolidated
financial statements.
1. The company’s dividend policy
clearly identifies financial/ economic
circumstances under which the
company shall not pay out dividends.
Full
1.2.3
The company does not allow for
dividend rights of its existing
shareholders to be impaired.
1. In the reporting period, the
company did not take any actions
that would lead to the impairment
of the dividend rights of its existing
shareholders.
Full
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of the Corporate Governance Code
(continued)
No
1.2.4
1.3
1.3.1
Compliance
status
None
Corporate governance
principles
Compliance criteria
The company makes every effort
to prevent its shareholders
profiting from the company
through any means other than
dividends and liquidation value.
1. To prevent its shareholders profiting
from the company through any means
other than dividends and liquidation
value, the company’s internal
documents provide for controls to
timely identify and approve deals
with affiliates (associates) of the
company’s substantial shareholders
(persons entitled to use votes
attached to voting shares) where the
law does not formally recognise such
deals as interested party transactions.
Reasons for non-compliance
At the annual general shareholders
meeting held for 2018, at the proposal of
the shareholders, the matter of charter
amendment was considered in terms
of establishing additional requirements
for the approval of transactions of the
Company or controlled entities with the
affiliates of significant shareholders.
The shareholders did not support such
amendments to the Company charter.
The Company charter specifies a number
of transactions that require consent
(approval) from the Board of Directors (or
the Company’s Management Board) in
cases where the law does not provide for
such requirement. A similar approach is
used in the Company’s subsidiaries.
This measure reduces possible additional
risks associated with the failure to comply
with this recommendation of the Code.
In the event that the relevant proposal is
received from shareholders, the matter of
establishing such control mechanisms in
the internal documents of the Company
will be reviewed again.
The corporate governance system and practices ensure equal conditions for all shareholders owning the same
type (class) of shares, including minority and non-resident shareholders, and their equal treatment by the
company.
The company has created
conditions for fair treatment
of each shareholder by the
company’s governing and control
bodies, including conditions
that rule out abuse by major
shareholders against minority
shareholders.
Full
1. In the reporting period, procedures
for managing potential conflicts
of interest among substantial
shareholders were efficient, while
the board of directors paid due
attention to conflicts, if any, between
shareholders.
1.3.2
The company does not take any
actions that lead or may lead
to artificial redistribution of
corporate control.
1. No quasi-treasury shares were
issued or used to vote in the reporting
period.
None
The current legislation provides for the
right of shareholders to participate in the
management of a joint-stock company
by participating in general shareholder
meetings with the right to vote on all
matters within its competence. The
Company shareholders, including those
controlled by the Company, are not
restricted in the exercise of their rights
established by securities.
Moreover, the actual share of quasi-
treasury shares is extremely small. The
participation of these shares in voting
at general shareholders meetings does
not result in the artificial redistribution of
corporate control in the Company.
No
1.4
1.4
2.1
2.1.1
2.1.2
2.1.3
2.1.4
2.1.5
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
Shareholders are provided with reliable and efficient means of recording their rights to shares and are able to
freely dispose of their shares without any hindrance.
Shareholders are provided with
reliable and efficient means of
recording their rights to shares
and are able to freely dispose
of their shares without any
hindrance.
1. The company’s registrar maintains
the share register in an efficient and
reliable way that meets the needs of
the company and its shareholders.
Full
The board of directors provides strategic management of the company, determines key principles of, and
approaches to, setting up a corporate risk management and internal control system, oversees the activities of
the company’s executive bodies, and performs other key functions.
The board of directors is
responsible for appointing
and dismissing executive bodies,
including due to improper
performance of their duties. The
board of directors also ensures
that the company’s executive
bodies act in accordance
with the company’s approved
development strategy and core
lines of business.
1. The board of directors has the
authority stipulated in the articles of
association to appoint and remove
members of executive bodies and to
set out the terms and conditions of
their contracts.
2. The board of directors reviewed the
report(s) by the sole executive body or
members of the collective executive
body on the implementation
of the company’s strategy.
The board of directors sets
key long-term targets for
the company, assesses and
approves its key performance
indicators and key business
goals, as well as the strategy and
business plans for the company’s
core lines of business.
1. At its meetings in the reporting
period, the board of directors
reviewed strategy implementation and
updates, approval of the company’s
financial and business plan (budget),
as well as criteria and performance
(including interim) of the company’s
strategy and business plans.
The board of directors defines
the company’s principles of, and
approaches to, setting up a risk
management and internal control
system.
The board of directors defines
the company’s policy
on remuneration payable
to, and/or reimbursement
(compensation) of costs incurred
by, members of the board of
directors, executive bodies,
and other key executives of the
company.
1. The board of directors defined
the company’s principles of, and
approaches to, setting up a risk
management and internal control
system.
2. The board of directors assessed
the company’s risk management
and internal control system in the
reporting period.
1. The company has developed and
put in place a remuneration and
reimbursement (compensation) policy
(policies), approved by the board of
directors, for its directors, members
of executive bodies and other key
executives.
2. At its meetings in the reporting
period, the board of directors
discussed matters related to such
policy (policies).
Full
Full
Full
Full
The board of directors plays a
key role in preventing,
identifying, and resolving internal
conflicts between the company’s
bodies, shareholders, and
employees.
Full
1. The board of directors plays a key
role in preventing, identifying, and
resolving internal conflicts.
2. The company has set up
mechanisms to identify transactions
leading to a conflict of interest and to
resolve such conflicts.
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(continued)
Corporate governance
principles
Compliance criteria
Compliance
status
Full
Reasons for non-compliance
No
2.1.6
2.1.7
The board of directors plays
a key role in ensuring that
the company is transparent,
timely and fully discloses its
information, and provides its
shareholders with unhindered
access to the company’s
documents.
The board of directors controls
the company’s corporate
governance practices and plays
a key role in material corporate
events of the company.
1. The board of directors approved
the company’s regulations on the
information policy.
2. The company identified persons
responsible for implementing the
information policy.
1. In the reporting period, the board
of directors reviewed the company’s
corporate governance practices.
Full
2.2
The board of directors is accountable to the company’s shareholders.
2.2.1
Performance of the board of
directors is disclosed and made
available to the shareholders.
2.2.2
The chairman of the board
of directors is available
to communicate with the
company’s shareholders.
Full
1. The company’s annual report for
the reporting period includes the
information on individual attendance
at board of directors and committee
meetings.
2. The annual report discloses key
performance assessment results of
the board of directors in the reporting
period.
1. The company has in place a
transparent procedure enabling its
shareholders to forward questions
and express their position on such
questions to the chairman of the board
of directors.
Full
2.3
2.3.1
2.3.2
The board of directors manages the company in an efficient and professional manner and is capable of making
fair and independent judgements and adopting resolutions in the best interests of the company and its
shareholders.
Only persons of impeccable
business and personal reputation
who have the knowledge,
expertise, and experience
required to make decisions
within the authority of the board
of directors and essential
to perform its functions
in an efficient way are elected
to the board of directors.
The company’s directors are
elected via a transparent
procedure that enables
shareholders to obtain
information on nominees
sufficient to judge on their
personal and professional
qualities.
Full
Full
1. The procedure for assessing the
board of directors’ performance
established in the company includes,
inter alia, assessment of directors’
professional qualifications.
2. In the reporting period, the board
of directors (or its nomination
committee) assessed nominees to
the board of directors for required
experience, expertise, business
reputation, absence of conflicts of
interest, etc.
1. Whenever the agenda of the general
meeting of shareholders included
election of the board of directors, the
company provided to shareholders
the biographical details of all
nominees to the board of directors,
the results of their assessment carried
out by the board of directors (or its
nomination committee), and the
information on whether the nominee
meets the independence criteria set
forth in Recommendations 102 - 107
of the Code, as well as the nominees’
written consent to be elected to the
board of directors.
No
2.3.3
2.3.4
Corporate governance
principles
Compliance criteria
The board of directors has
a balanced composition, in
terms of directors’ qualifications,
experience, expertise, and
business skills, and it has the
trust of shareholders.
1. As part of the assessment of the
board of directors’ performance
carried out in the reporting period,
the board of directors reviewed
its requirements for professional
qualifications, experience, and
business skills.
Compliance
status
Full
Reasons for non-compliance
The company has a sufficient
number of directors to organise
the board of directors’ activities
in the most efficient way,
including the ability to set
up committees of the board
of directors and enable the
company’s substantial minority
shareholders to elect a nominee
to the board of directors for
whom they vote.
Full
1. As part of assessment of the board
of directors’ performance carried out
in the reporting period, the board
of directors considered whether
the number of directors met the
company’s needs and shareholders’
interests.
2.4
The board of directors includes a sufficient number of independent directors.
2.4.1
2.4.2
An independent director is a
person who is sufficiently
professional, experienced,
and independent to develop
their own position, and capable
of making unbiased judgements
in good faith, free of influence
by the company’s executive
bodies, individual groups
of shareholders, or other
stakeholders. It should be noted
that a nominee (elected director)
who is related to the company,
its substantial shareholder,
substantial counterparty, or
competitor of the company, or
is related to the government,
may not be considered as
independent under normal
circumstances.
The company assesses
compliance of nominees to the
board of directors and reviews
compliance of independent
directors with independence
criteria on a regular basis. In
such assessment, substance
should prevail over form.
1. In the reporting period, all
independent directors met all
independence criteria set out in
Recommendations 102-107 of the
Code, or were deemed independent by
resolution of the board of directors.
Full
Full
1. In the reporting period, the board
of directors (or its nomination
committee) made a judgement on the
independence of each nominee to the
board of directors and provided its
opinion to shareholders.
2. In the reporting period, the board
of directors (or its nomination
committee) reviewed, at least once,
the independence of each incumbent
director listed by the company as
independent directors in its annual
report.
3. The company has in place
procedures defining the actions to be
taken by directors if they cease to be
independent, including the obligation
to timely notify the board of directors
thereof.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices Report on Complying with the Principles and Recommendations
of the Corporate Governance Code
(continued)
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
Independent directors make
up at least one third of elected
directors.
1. Independent directors make up at
least one third of directors.
Full
Independent directors play a
key role in preventing internal
conflicts in the company and
in ensuring that the company
performs material corporate
actions.
1. Independent directors (with no
conflicts of interest) run a preliminary
assessment of material corporate
actions implying a potential conflict of
interest and submit the results to the
board of directors.
Full
The chairman of the board of directors ensures that the board of directors discharges its duties in the most
efficient way.
No
2.6
2.6.1
No
2.4.3
2.4.4
2.5
2.5.1
2.5.2
2.5.3
The board of directors is chaired
by an independent director, or
a senior independent director
supervising the activities of
other independent directors and
interacting with the chairman
of the board of directors is
chosen from among the elected
independent directors.
1. The board of directors is chaired by
an independent director, or a senior
independent director is appointed from
among the independent directors.
2. The role, rights, and duties of the
chairman of the board of directors
(and, if applicable, of the senior
independent director) are duly set out
in the company’s internal documents.
Full
The chairman of the board of
directors maintains a constructive
environment at meetings, enables
free discussion of agenda items,
and supervises the execution of
resolutions passed by the board of
directors.
1. Performance of the chairman of the
board of directors was assessed as
part of assessment of the board of
directors’ performance in the reporting
period.
Full
The chairman of the board
of directors takes all steps
necessary or the timely provision
to directors of information
required to pass resolutions on
agenda items.
1. The company’s internal documents
set out the duty of the chairman of
the board of directors to take all steps
necessary for the timely provision to
directors of materials for the agenda of
a board meeting.
Full
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
Directors act reasonably and in good faith in the best interests of the company and its shareholders, on a fully
informed basis and with due care and diligence.
Directors pass resolutions on
a fully informed basis, with no
conflict of interest, subject
to equal treatment of the
company’s shareholders, and
assuming normal business risks.
Partial
1. The company’s internal documents
stipulate that a director should notify
the board of directors of any existing
conflict of interest as to any agenda
item of a meeting of the board of
directors or its committee, prior to
discussing the relevant agenda item.
2. The company’s internal documents
stipulate that a director should abstain
from voting on any item in connection
with which they have a conflict of
interest.
3. The company has in place a
procedure enabling the board of
directors to get professional advice on
matters within its remit at the expense
of the company.
Criterion 1 is not complied with.
The fact that the obligation of the members
of the Board of Directors to provide
notification about conflicts of interest
before discussion of the relevant agenda
item begins is not formally documented and
does not result in such information being
concealed.
The chairman of the Board of Directors
requests information about the existence
of any conflicts of interest and reports
them to the Board of Directors prior to the
discussion of the relevant agenda item.
In addition, at the annual general
shareholders meeting for 2018, it was
decided to amend the Regulation on the
Board of Directors of the Company, which
establishes the obligation imposed on
the members of the Board of Directors
to regularly fill out an independent
director questionnaire compiled by the
Company, including all matters that
require consideration in assessing their
independence for the purposes of the
applicable law and listing rules, in order to
eliminate conflicts of interest and reduce
the risks related to non-compliance with
this criterion.
The matter of whether these provisions can
and need to be included in the Company's
internal documents is expected to be
considered at or before the annual general
shareholders meeting for 2020.
Full
Full
2.6.2
The rights and duties of
directors are clearly stated and
incorporated in the company’s
internal documents.
1. The company has adopted and
published an internal document that
clearly defines the rights and duties of
directors.
2.6.3
Directors have sufficient time to
perform their duties.
1. Individual attendance at board and
committee meetings, as well as time
devoted to preparation for attending
meetings, was recorded as part of the
procedure for assessing the board of
directors in the reporting period.
2. Under the company’s internal
documents, directors notify the
board of directors of their intentions
to be elected to governing bodies of
other entities (apart from the entities
controlled by, or affiliated to, the
company), and of their election to
such bodies.
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of the Corporate Governance Code
(continued)
No
2.6.4
2.7
2.7.1
2.7.2
2.7.3
2.7.4
Compliance
status
Full
Reasons for non-compliance
Corporate governance
principles
Compliance criteria
All directors have equal access
to the company’s documents
and information. Newly elected
directors are furnished with
sufficient information about the
company and performance of
the board of directors as soon as
possible.
1. Under the company’s internal
documents, directors are entitled
to access documents and request
information on the company and its
controlled entities, while executive
bodies of the company should
furnish all relevant information and
documents.
2. The company has in place a
formalised induction programme for
newly elected members
of the board of directors.
Meetings of the board of directors, preparation for such meetings, and participation of directors ensure
efficient performance by the board of directors.
Meetings of the board of
directors are held as needed,
taking into account the scale
of operations and goals of the
company at a particular time.
1. The board of directors held at least
six meetings in the reporting year.
Full
The company’s internal
regulations formalize a
procedure for arranging and
holding meetings of the board of
directors, enabling members of
the board of directors to properly
prepare for such meetings.
Full
1. The company has an approved
internal document that describes the
procedure for arranging and holding
meetings of the board of directors
and stipulates, in particular, that the
notice of the meeting is to be given, as
a rule, at least five days prior to such
meeting.
The format of the meeting of the
board of directors is determined
taking into account the
importance of its agenda items.
The most important matters are
dealt with at meetings of the
board of directors held in person.
1. The company’s charter or internal
document provides for the most
important matters (as per the list set
out in Recommendation 168 of the
Code) to be passed at meetings of the
board of directors held in person.
None
Resolutions on most important
matters relating to the
company’s operations are
passed at a meeting of the
board of directors by a qualified
majority or by a majority of all
elected directors.
Full
1. The company’s charter provides
for resolutions on the most important
matters set out in Recommendation
170 of the Code to be passed at a
meeting of the board of directors by
a qualified majority of at least three
quarters or by a majority of all elected
directors.
The matter of whether these provisions
can and need to be included in the
Company's internal documents is
expected to be considered at or before
the annual general shareholders meeting
for 2020.
Moreover, the Company has established
the practice of considering the most
important issues at in-person meetings of
the Board of Directors.
No
2.8
2.8.1
2.8.2
2.8.3
2.8.4
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
The board of directors sets up committees for preliminary consideration of the most important matters
related to the company’s activities.
Full
Full
Full
1. The board of directors set up an
audit committee comprised solely of
independent directors.
2. The company’s internal documents
set out the tasks of the audit
committee, including those listed in
Recommendation 172 of the Code.
3. At least one member of the
audit committee represented by an
independent director has experience
and knowledge of preparing,
analysing, assessing, and auditing
accounting (financial) statements.
4. In the reporting period, meetings of
the audit committee were held at least
once a quarter.
1. The board of directors set up a
remuneration committee comprised
solely of independent directors.
2. The remuneration committee is
headed by an independent director
who is not the chairman of the board
of directors.
3. The company’s internal documents
set out the tasks of the remuneration
committee, including those listed in
Recommendation 180 of the Code.
1. The board of directors has
established a nomination committee
(or its tasks listed in Recommendation
186 of the Code are fulfilled by
another committee) predominantly
comprised of independent directors.
2. The company’s internal
documents set out the tasks of the
nomination committee (or the tasks
of the committee with combined
functions), including those listed in
Recommendation 186 of the Code.
Full
1. In the reporting period, the
company’s board of directors
considered whether the composition
of its committees was in line with the
board’s tasks and the company’s
business goals. Additional committees
were either set up or not deemed
necessary.
An audit committee comprised
of independent directors is set
up to preview matters related
to controlling the company’s
financial and business activities.
To preview matters related
to adopting an efficient and
transparent remuneration
scheme, a remuneration
committee was set up,
comprised of independent
directors and headed by an
independent director who is not
the chairman of the board of
directors.
To preview matters related to
talent management (succession
planning), professional
composition, and efficiency
of the board of directors, a
nomination (appointments and
HR) committee was set up,
predominantly comprised of
independent directors.
Taking into account the
company’s scope of business
and level of risks, the company’s
board of directors made sure that
the composition of its committees
is in line with the company’s
business goals. Additional
committees were either set up or
not deemed necessary (strategy
committee, corporate governance
committee, ethics committee, risk
management committee, budget
committee, health, safety and
environment committee, etc.).
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of the Corporate Governance Code
(continued)
No
2.8.5
2.8.6
2.9
2.9.1
2.9.2
Compliance
status
Full
Reasons for non-compliance
Corporate governance
principles
Compliance criteria
Committees are composed so
as to enable comprehensive
discussions of matters under
preview, taking into account the
diversity of opinions.
1. Committees of the board of
directors are headed
by independent directors.
2. The company’s internal documents
(policies) include provisions
stipulating that persons who are not
members of the audit committee,
the nomination committee, and the
remuneration committee may attend
committee meetings only by invitation
of the chairman of the respective
committee.
Committee chairmen inform
the board of directors and its
chairman on the performance
of their committees on a regular
basis.
1. In the reporting period, committee
chairmen reported to the board of
directors on the performance of
committees on a regular basis.
Full
The board of directors ensures performance assessment of the board of directors, its committees, and
members of the board of directors.
The board of directors’
performance assessment
is aimed at determining the
efficiency of the board of
directors, its committees
and members, consistency
of their work with the company’s
growth requirements, as well
as at bolstering the work of the
board of directors and identifying
areas for improvement.
Performance of the board of
directors, its committees and
members is assessed regularly
at least once a year. An external
advisor is engaged at least once
in three years to conduct an
independent assessment of the
board of directors’ performance.
Full
1. Self-assessment or external
assessment of the board of
directors’ performance carried out
in the reporting period included
performance assessment of
committees, individual directors, and
the board of directors in general.
2. Results of self-assessment or
external assessment of the board of
directors’ performance carried out
in the reporting period were reviewed
at the meeting of the board of
directors held in person.
1. The company engaged an external
advisor to conduct an independent
assessment of the board of directors’
performance at least once over the
last three reporting periods.
None
During the reporting period, the Board of
Directors conducted a self-assessment
of its operations, which showed that the
operational effectiveness of the Board
of Directors fully complies with the
Company’s objectives.
The Company currently sees no need to
hire an external consultant to conduct an
independent assessment, although the
Company does not rule out this option if
the Board of Directors deems the self-
assessment insufficient.
The matter of whether these provisions
can and need to be included in the
corporate governance practice is
expected to be considered before the
annual general shareholders meeting for
2020.
No
3.1
3.1.1
3.1.2
4.1
4.1.1
4.1.2
4.1.3
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
The company’s corporate secretary ensures efficient ongoing interaction with shareholders, coordinate the
company’s efforts to protect shareholder rights and interests and support efficient performance of the board
of directors.
The corporate secretary has
the expertise, experience,
and qualifications sufficient to
perform his/her duties, as well
as an impeccable reputation and
the trust of shareholders.
Full
1. The company has adopted and
published an internal document –
regulations on the corporate
secretary.
2. The biographical data of the
corporate secretary are published
on the corporate website and in the
company’s annual report with the
same level of detail as for members
of the board of directors and the
company’s executives.
The corporate secretary is
sufficiently independent of the
company’s executive bodies and
has the powers and resources
required to perform his/her tasks.
1. The board of directors approves the
appointment, dismissal, and additional
remuneration of the corporate
secretary.
Full
Remuneration payable by the company is sufficient to attract, motivate, and retain people with competencies
and qualifications required by the company. Remuneration payable to directors, executive bodies, and other
key executives of the company is in compliance with the approved remuneration policy of the company.
Full
1. The company has in place
an internal document (internal
documents) – the policy (policies) on
remuneration of members
of the board of directors, executive
bodies, and other key executives,
which clearly defines the approaches
to remuneration of the above persons.
1. In the reporting period, the
remuneration committee considered
the remuneration policy (policies) and
its (their) introduction practices to
provide relevant recommendations to
the board of directors as required.
Full
The amount of remuneration paid
by the company to directors,
executive bodies, and other key
executives creates sufficient
incentives for them to work
efficiently while enabling
the company to engage and
retain competent and qualified
specialists. At the same
time, the company avoids
unnecessarily high remuneration,
as well as unjustifiably large
gaps between remunerations
of the above persons and the
company’s employees.
The company’s remuneration
policy is devised by the
remuneration committee and
approved by the board of
directors. The board of directors,
assisted by the remuneration
committee, ensures control
over the introduction and
implementation of the company’s
remuneration policy, revising and
amending it as required.
The company’s remuneration
policy includes transparent
mechanisms for determining
the amount of remuneration
due to directors, executive
bodies, and other key executives
of the company, and regulates
all types of expenses, benefits,
and privileges provided to such
persons.
1. The company’s remuneration
policy (policies) includes (include)
transparent mechanisms for
determining the amount of
remuneration due to directors,
executive bodies, and other key
executives of the company, and
regulates (regulate) all types of
expenses, benefits, and privileges
provided to such persons.
Full
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of the Corporate Governance Code
(continued)
Corporate governance
principles
Compliance criteria
1. The remuneration policy (policies)
defines (define) the rules for
reimbursement of expenses incurred
by directors, executive bodies, and
other key executives of the company.
The company defines a policy on
reimbursement (compensation)
of expenses detailing a list of
reimbursable expenses and
specifying service levels that
directors, executive bodies,
and other key executives of the
company may claim. Such policy
can make part of the company’s
remuneration policy.
Compliance
status
Full
Reasons for non-compliance
Remuneration system for directors ensures alignment of financial interests of directors with long-term
financial interests of shareholders.
No
4.3
4.3.1
No
4.1.4
4.2
4.2.1
4.2.2
The company pays fixed annual
remuneration to its directors.
The company does not pay
remuneration for attending
particular meetings of the board
of directors or its committees.
The company does not apply any
form of short-term motivation or
additional financial incentive for
its directors.
Long-term ownership of the
company’s shares helps align the
financial interests of directors
with long-term interests of
shareholders to the utmost. At
the same time, the company
does not link the right to dispose
of shares to performance
targets, and directors do not
participate in stock option plans.
1. Fixed annual remuneration was the
only form of monetary remuneration
payable to directors for their service
on the board of directors during the
reporting period.
Full
Full
1. If the company’s internal
document(s) – the remuneration
policy (policies) stipulates (stipulate)
provision of the company’s shares to
members of the board of directors,
clear rules for share ownership by
board members shall be defined and
disclosed, aimed at stimulating long-
term ownership of such shares.
4.2.3
The company does not provide
for any extra payments or
compensations in the event of
early termination of directors’
tenure resulting from the change
of control or any other reasons.
1. The company does not provide for
any extra payments or compensations
in the event of early termination
of directors’ tenure resulting from
the change of control or any other
reasons.
Full
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
The company considers its performance and the personal contribution of each executive to the achievement
of such performance when determining the amount of a fee payable to members of executive bodies and other
key executives of the company.
Remuneration due to members
of executive bodies and other
key executives of the company
is determined in a manner
providing for reasonable and
justified ratio of the fixed and
variable parts of remuneration,
depending on the company’s
results and the employee’s
personal contribution.
Partial
1. In the reporting period, annual
performance results approved by
the board of directors were used to
determine the amount of the variable
part of remuneration due to members
of executive bodies and other key
executives of the company.
2. During the latest assessment of the
remuneration system for members
of executive bodies and other key
executives of the company, the board
of directors (remuneration committee)
made sure that the company applies
efficient ratio of the fixed and variable
parts of remuneration.
3. The company has in place a
procedure that guarantees return
to the company of bonus payments
illegally received by members of
executive bodies and other key
executives of the company.
4.3.2
The company has in place
a long-term incentive programme
for members of executive bodies
and other key executives of the
company with the use of the
company’s shares (options and
other derivative instruments
where the company’s shares are
the underlying asset).
Partial
1. The company has in place a long-
term incentive programme for members
of executive bodies and other key
executives of the company with the
use of the company’s shares (financial
instruments based on the company’s
shares).
2. The long-term incentive programme
for members of executive bodies and
other key executives of the company
implies that the right to dispose of
shares and other financial instruments
used in this programme takes effect at
least three years after such shares or
other financial instruments are granted.
The right to dispose of such shares or
other financial instruments is linked to
the company’s performance targets.
4.3.3
The compensation (golden
parachute) payable by the
company in case of early
termination of powers of members
of executive bodies or key
executives at the company’s
initiative, provided that there have
been no actions in bad faith on
their part, shall not exceed the
double amount of the fixed part of
their annual remuneration.
Full
1. In the reporting period, the
compensation (golden parachute)
payable by the company in case of
early termination of the powers of
executive bodies or key executives
at the company’s initiative, provided
that there have been no actions in bad
faith on their part, did not exceed the
double amount of the fixed part of their
annual remuneration.
Criterion 3 is not complied with.
The recommendations of the Corporate
Governance Code concerning the existence
of a procedure to ensure that bonus
payments wrongfully received by members
of executive bodies and other key officers
are returned to the Company have not yet
been reflected in the Company’s internal
documents.
Moreover, the system of key performance
indicators and practice of setting targets
established in the Company are designed
to eliminate the possibility of excessive
amounts of variable remuneration being
wrongfully charged.
When members of executive bodies
and other key officers of the Company
wrongfully receive bonus payments,
the situation will be settled on a case by
case basis. As of the end of the reporting
year, there were no cases of members of
executive bodies or other key officers of
the Company wrongfully receiving bonus
payments.
However, the matter of whether these Code
provisions can and need to be included
in the Company's internal documents is
expected to be considered before the
annual general shareholders meeting held
in accordance with performance in 2020.
Criterion 2 is not complied with.
The Board of Directors approved the
Long-Term Incentive Plan. The plan is
designed to motivate management to
increase the market capitalisation of the
Company supported by EBITDA growth.
The plan includes remuneration in the
form of shares and options in annual
tranches. Remuneration will depend on
the share price. The plan is designed for
five years. There are no restrictions on
the disposal of shares received under
the plan. However, the matter of whether
these Code provisions can and need to
be reflected in the Long-Term Incentive
Plan is expected to be considered before
the annual general shareholders meeting
for 2020.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
The company has in place an effective risk management and internal control system providing reasonable
assurance in the achievement of the company’s goals.
No
6.1
6.1.1
Report on Complying with the Principles and Recommendations
of the Corporate Governance Code
(continued)
No
5.1
5.1.1
5.1.2
5.1.3
5.1.4
5.2
5.2.1
5.2.2
The company’s board of
directors determined the
principles of, and approaches
to, setting up a risk management
and internal control system at the
company.
1. Functions of different management
bodies and business units of the
company in the risk management and
internal control system are clearly
defined in the company’s internal
documents / relevant policy approved
by the board of directors.
The company’s executive
bodies ensure establishment
and continuous operation of an
efficient risk management and
internal control system at the
company.
1. The company’s executive
bodies ensured the distribution of
functions and powers related to risk
management and internal control
between the heads (managers) of
business units and departments
accountable to them.
The company’s risk management
and internal control system
ensures an objective, fair, and
clear view of the current state
and future prospects of the
company, the integrity and
transparency of the company’s
reporting, as well as reasonable
and acceptable risk exposure.
1. The company has in place an
approved anti-corruption policy.
2. The company established an
accessible method of notifying the
board of directors or the board’s
audit committee of breaches or any
violations of the law, the company’s
internal procedures and code of
ethics.
Full
Full
Full
The company’s board of
directors takes necessary
measures to make sure that the
company’s risk management
and internal control system is
consistent with the principles of,
and approaches to, its setup and
efficient functioning determined
by the board of directors.
Full
1. In the reporting period, the board
of directors or the board’s audit
committee assessed the performance
of the company’s risk management
and internal control system. Key
results of this assessment are included
in the company’s annual report.
The company performs internal audits for regular independent assessment of the reliability and efficiency of
its risk management and internal control system, as well as corporate governance practice.
The company has set up a
separate business unit or
engaged an independent
external organisation to carry
out internal audits. Functional
and administrative reporting
lines of the internal audit unit are
delineated. The internal audit
unit functionally reports to the
board of directors.
1. To perform internal audits, the
company has set up a separate
business unit – internal audit division,
functionally reporting to the board of
directors or to the audit committee,
or engaged an independent external
organisation with the same line of
reporting.
The internal audit division
assesses the performance
of the internal control, risk
management system, and
corporate governance systems.
The company applies generally
accepted standards of internal
audit.
1. In the reporting period, the
performance of the internal control
and risk management system was
assessed as part of the internal audit
procedure.
2. The company applies generally
accepted approaches to internal
control and risk management.
Full
Full
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
The company and its operations are transparent for its shareholders, investors, and other stakeholders.
The company has developed
and implemented an information
policy ensuring efficient
exchange of information by
the company, its shareholders,
investors, and other
stakeholders.
Partial
1. The company’s board of directors
approved an information policy
developed in accordance with the
Code’s recommendations.
2. The board of directors (or one of its
committees) considered the matters
related to the company’s compliance
with its information policy at least once
in the reporting period.
Criterion 1 is not complied with.
The recommendations of the Corporate
Governance Code concerning the
compliance of the Company’s information
policy with the recommendations of the
Code have not yet been reflected in the
Company’s internal documents.
The matter of whether these provisions
can and need to be included in the
Company's internal documents is
expected to be considered before the
annual general shareholders meeting for
2020.
However, the Company ensures the
timely disclosure of complete and
reliable information, including its
financial standings, economic indicators,
and ownership structure, to help the
Company’s shareholders and investors
make informed decisions.
Information is disclosed in accordance
with the requirements of Russian
legislation as well as the applicable laws
of the United Kingdom of Great Britain and
Northern Ireland and the European Union.
6.1.2
The company discloses
information on its corporate
governance system and practice,
including detailed information on
compliance with the principles
and recommendations of the
Code.
Full
1. The company discloses information
on its corporate governance system
and general principles of corporate
governance, including disclosure on
its website.
2. The company discloses information
on the membership of its executive
bodies and board of directors,
independence of directors and their
membership in the board of directors’
committees (as defined by the Code).
3. If the company has a controlling
person, the company publishes a
memorandum of the controlling person
setting out this person’s plans for the
company’s corporate governance.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices Report on Complying with the Principles and Recommendations
of the Corporate Governance Code
(continued)
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
The company makes timely disclosures of complete, updated, and reliable information to allow shareholders
and investors to make informed decisions.
No
6.2
6.2.1
The company discloses
information based on the
principles of regularity,
consistency, and promptness,
as well as availability, reliability,
completeness, and comparability
of disclosed data.
Full
Partial
1. The company’s information policy
sets out approaches to, and criteria
for, identifying information that
can have a material impact on the
company’s evaluation and the price of
its securities, as well as procedures
ensuring timely disclosure of such
information.
2. If the company’s securities are
traded on foreign organised markets,
the company ensured concerted
and equivalent disclosure of material
information in the Russian Federation
and in the said markets in the reporting
year.
3. If foreign shareholders hold a
material portion of the company’s
shares, the relevant information was
disclosed in the reporting period both
in the Russian language and one of the
most widely used foreign languages.
1. In the reporting period, the
company disclosed annual and 6M
financial statements prepared under
the IFRS. The company’s annual
report for the reporting period
included annual financial statements
prepared under the IFRS, along with
the auditor’s report.
2. The company discloses complete
information on its capital structure, as
stated in Recommendation 290 of the
Code, in its annual report and on the
corporate website.
Criterion 2 is not complied with.
The Company has not determined
the procedure for disclosing specific
additional information about the
Company’s capital structure, as specified
by Recommendation 290 of the Code,
namely: statements of the Company’s
executive bodies indicating that the
Company has no information about the
existence of share holdings exceeding
five percent, other than those already
disclosed by the Company, or information
about the acquisition or potential
acquisition by certain shareholders of a
degree of control that is disproportionate
to their participation in the Company’s
authorised capital, including pursuant to
shareholder agreements.
The matter of whether these provisions
can and need to be included in the
Company's internal documents and
corporate governance practice is
expected to be considered before the
annual general shareholders meeting for
2020.
Even though information about the
absence of such knowledge on the part
of the Company is not disclosed as a
statement of the executive bodies, this
does not result in any information being
concealed with regard to the Company’s
capital structure in accordance with
Clause 290 of the Code.
The Company avoids a formal approach
in the disclosure of material information
about its activities.
6.2.2
The company avoids a formalistic
approach to information
disclosure and discloses material
information on its operations,
even if disclosure of such
information is not required by
law.
No
6.2.3
6.3
6.3.1
Corporate governance
principles
Compliance criteria
The company’s annual report,
as one of the most important
tools of its information exchange
with shareholders and other
stakeholders, contains
information enabling assessment
of the company’s annual
performance results.
1. The company’s annual report
contains information on the key
aspects of its operational and financial
performance.
2. The company’s annual report
contains information on the
environmental and social aspects of
the company’s operations.
Compliance
status
Full
Reasons for non-compliance
The company provides information and documents requested by its shareholders in accordance with the
principles of fairness and ease of access.
The company provides
information and documents
requested by its shareholders in
accordance with the principles of
fairness and ease of access.
Partial
1. The company’s information policy
establishes the procedure for
providing shareholders with easy
access to information, including
information on legal entities controlled
by the company, as requested by
shareholders.
The recommendations of the Corporate
Governance Code concerning the
disclosure of information about legal
entities controlled by the Company to
shareholders have not yet been reflected in
the Company’s internal documents.
The matter of whether these provisions can
and need to be included in the Company's
internal documents is expected to be
considered before the annual general
shareholders meeting for 2020.
However, the Company discloses at its
own initiative a large amount of information
about JSC Tander, a significant legal entity it
controls, in addition to information required
to be disclosed by applicable laws.
In practice, such information is easily
available.
6.3.2
When providing information
to shareholders, the company
ensures reasonable balance
between the interests of
particular shareholders and
its own interests consisting in
preserving the confidentiality
of important commercial
information which may materially
affect its competitive edge.
Full
1. In the reporting period, the company
did not refuse shareholders’ requests
for information, or such refusals were
justified.
2. In cases defined by the information
policy, shareholders are warned of the
confidential nature
of the information and undertake to
maintain its confidentiality.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices No
7.2
7.2.1
7.2.2
Report on Complying with the Principles and Recommendations
of the Corporate Governance Code
(continued)
No
7.1
7.1.1
7.1.2
7.1.3
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
Actions that materially affect or may affect the company’s share capital structure and its financial position,
and accordingly the position of its shareholders (‘material corporate actions’) are taken on fair terms ensuring
that the rights and interests of shareholders and other stakeholders are observed.
Criterion 1 is only partially complied with.
Criterion 2 is not complied with.
The list of material corporate actions
and criteria for their determination have
not been formally incorporated in the
Company’s internal documents.
The matter of whether these provisions
can and need to be included in the
Company's internal documents is
expected to be considered before the
annual general shareholders meeting for
2020.
However, the Company’s corporate
governance practices imply that corporate
actions regarded by the Code as
material shall be approved by the Board
of Directors or the general meeting of
shareholders based on a proposal from
the Board of Directors; the position of the
Board of Directors on all agenda items
of the general shareholders meeting,
including items that may be regarded as
material corporate actions, is disclosed to
shareholders as part of preparations for
said general meeting.
Partial
Material corporate actions
include restructuring of the
company, acquisition of 30%
or more of the company’s
voting shares (takeover),
execution by the company of
major transactions, increase
or decrease of the company’s
charter capital, listing or
de-listing of the company’s
shares, as well as other actions
which may lead to material
changes in the rights of
shareholders or violation of their
interests.
The company’s charter
provides for a list (criteria) of
transactions or other actions
classified as material corporate
actions within the authority
of the company’s board of
directors.
1. The company’s charter include a
list of transactions or other actions
classified as material corporate
actions, and their identification
criteria. Resolutions on material
corporate actions are referred to the
jurisdiction of the board of directors.
When execution of such corporate
actions is expressly referred by law to
the jurisdiction of the general meeting
of shareholders, the board of directors
presents relevant recommendations to
shareholders.
2. According to the company’s charter,
material corporate actions include
at least: company reorganisation,
acquisition of 30% or more of the
company’s voting shares (in case
of takeover), entering in major
transactions, increase or decrease of
the company’s charter capital, listing
or delisting of the company’s shares.
Full
Full
1. The company has in place a
procedure enabling independent
directors to express their opinions
on material corporate actions prior to
approval thereof.
1. Due to the specifics of the
company’s operations,
the company’s charter contains less
stringent criteria for material corporate
actions than required by law.
2. All material corporate actions in the
reporting period were duly approved
before they were taken.
The board of directors plays a
key role in passing resolutions
or making recommendations
on material corporate actions,
relying on the opinions of
the company’s independent
directors.
When taking material corporate
actions affecting the rights
and legitimate interests of
shareholders, equal terms and
conditions are guaranteed for
all shareholders; if the statutory
procedure designed to protect
shareholders’ rights proves
insufficient, additional measures
are taken to protect their rights
and legitimate interests. In
doing so, the company is guided
by the corporate governance
principles set forth in the Code,
as well as by formal statutory
requirements.
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
The company takes material corporate actions in such a way as to ensure that shareholders timely receive
complete information about such actions, allowing them to influence such actions and guaranteeing adequate
protection of their rights when taking such actions.
Information about material
corporate actions is disclosed
with explanations of the
grounds, circumstances, and
consequences.
1. In the reporting period, the company
disclosed information about its
material corporate actions in due time
and in detail, including the grounds for,
and timelines of, such actions.
Full
Rules and procedures related to
material corporate actions
taken by the company are set
out in the company’s internal
documents.
Partial
1. The company’s internal documents
set out a procedure for engaging an
independent appraiser to estimate the
value of assets either disposed of or
acquired in a major transaction or an
interested party transaction.
2. The company’s internal documents
set out a procedure for engaging an
independent appraiser to estimate the
value of shares acquired and bought
back by the company.
3. The company’s internal documents
provide
for an expanded list of grounds on
which the company’s directors and
other persons as per the applicable law
are deemed to be interested parties to
the company’s transactions.
Criteria 1 and 2 are only partially complied
with.
The Company’s internal documents
provide for the procedure of engaging
experts to obtain professional advice on
matters considered at meetings of the
Board of Directors without specifying the
purpose of engaging such experts.
Current law stipulates cases of
the mandatory engagement of an
independent appraiser. Moreover,
applicable law does not rule out the option
of engaging an appraiser in any of the
specified cases (determining the value of
property that is disposed of or acquired
in a major transaction or a related party
transaction, or assessment of the cost of
acquisition and redemption of company
shares).
Criterion 3 is not complied with.
The recommendations of the Corporate
Governance Code concerning the
expansion of the list of grounds on
the basis of which members of the
Company’s Board of Directors and other
persons in accordance with the law are
recognised as related parties in Company
transactions have not been reflected in
the Company’s internal documents.
However, after the Code came into effect,
significant changes were made to the
legislation on joint-stock companies
regarding related party transactions. For
example, the scope of related parties was
reduced, the procedure for concluding
related party transactions was simplified,
and the list of transactions to which the
rules on the conclusion of related party
transactions do not apply, despite the
formal existence of vested inerest, was
expanded.
The annual general shareholders
meeting for 2018 considered the matter
of introducing additional controls over
transactions with shareholders holding
more than 10% of voting rights in the
authorised capital of the Company,
however, this proposal was not supported
by the majority of shareholders.
Nevertheless, if the relevant proposal is
received from shareholders, the matter
will be submitted for review again within
the statutory time period.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices Major transactions
Related party transactions
List of transactions concluded in 2019 that are recognized as major transactions in accordance with the Federal Law
“On Joint-Stock Companies”
During the reporting year, there were no transactions that are recognised as related party transactions in accordance
with the legislation of the Russian Federation.
Transaction date
February 27, 2019
Subject of the transaction and other
material terms of the transaction
Gratuitous transfer by the Shareholder PJSC Magnit of a contribution to the
property of the Company JSC Tander.
In order to finance and support the activities of JSC Tander (hereinafter the
“Company”), PJSC Magnit (the “Shareholder”) shall make a contribution
of RUB 50,000,000,000 (fifty billion) to the Company’s property without
compensation, and the Company shall accept this contribution and use it in
its operations. The contribution shall be transferred to the Company within
30 days from the time the Contract is signed by transferring money to the
Company’s payment account. The voluntary contribution to the Company’s
property shall not alter the size of the Shareholder’s stake, increase the
Company’s authorized capital, or alter its nominal stock price.
Parties to the transaction
PJSC Magnit (the "Shareholder"),
JSC Tander (the "Company")
Amount of the transaction in monetary
terms, rubles
50,000,000,000
Size of the transaction as a per-centage
of the book value of the Company's
assets as of the end date of the last
completed reporting period preceding
the date of the transaction, %
38.58
Deadline for performance of obli-
gations under the transaction
30 days from the date of signing the contract
Information about the performance of
the above obligation
Obligations fulfilled
Management body that consented
to the transaction or its subsequent
approval
The Board of Directors of PJSC Magnit gave consent to the transaction on
February 13, 2019 (Minutes dated February 13, 2019)
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices Consolidated Financial
Statements of PJSC Magnit
and its subsidiaries
Independent
Auditor’s Report
Independent auditor’s report
Consolidated statement of financial position
Consolidated statement of comprehensive income
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes to the consolidated financial statements
159
164
166
168
170
172
Opinion
We have audited the consolidated financial statements
of PJSC Magnit and its subsidiaries (the Group), which
comprise the consolidated statement of financial position
as at 31 December 2019, and the consolidated statement
of comprehensive income, consolidated statement
of changes in equity and consolidated statement of cash
flows for 2019, and notes to the consolidated financial
statements, including a summary of significant accounting
policies.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance
in our audit of the consolidated financial statements
of the current period. These matters were addressed
in the context of our audit of the consolidated financial
statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these
matters. For each matter below, our description of how our
audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described
in the Auditor’s responsibilities for the audit
of the consolidated financial statements section of our
report, including in relation to these matters. Accordingly,
our audit included the performance of procedures
designed to respond to our assessment of the risks
of material misstatement of the consolidated financial
statements. The results of our audit procedures,
including the procedures performed to address
the matters below, provide the basis for our audit opinion
on the accompanying consolidated financial statements.
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects,
the consolidated financial position of the Group
as at 31 December 2019 and its consolidated financial
performance and its consolidated cash flows for 2019
in accordance with International Financial Reporting
Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under
those standards are further described in the Auditor’s
responsibilities for the audit of the consolidated financial
statements section of our report. We are independent
of the Group in accordance with the International Ethics
Standards Board for Accountants’ Code of Ethics for
Professional Accountants (including International
Independence Standards) (IESBA Code) together with
the ethical requirements that are relevant to our audit
of the consolidated financial statements in the Russian
Federation, and we have fulfilled our other ethical
responsibilities in accordance with these requirements
and the IESBA Code. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide
a basis for our opinion.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices Independent auditor’s report
(continued)
Key audit matter
How our audit addressed the key audit matter
Key audit matter
How our audit addressed the key audit matter
Recognition of vendors allowances
Impairment testing of goodwill from acquisition of the SIA Group
The Group receives various types of allowances from vendors
in the form of volume discounts and other forms of payments
that effectively reduce the cost of goods purchased from
the vendor. We considered this matter to be of most significance
in our audit because the recognition of vendor allowance
requires judgement from management in the assessment
of the level of fulfilment of the Group’s obligations under
the vendor agreements and because these allowances are
a substantial part of cost of sales and inventories. Information
about accounting policy for vendor allowances is disclosed
in Note 3 to the consolidated financial statements.
Valuation of goods for resale
The Group has significant balance of goods for resale. In
accordance with IAS 2 Inventories, inventories are recorded
at the lower of cost and net realizable value. In estimating
the carrying amount of goods for resale, the Group’s
management uses judgments to estimate the net realizable
value of goods for resale and the amount of handling costs to be
included in the carrying amount of goods for resale. As a result,
we believe that this matter is one of most significance in our
audit. Information on goods for resale is disclosed in Note 12 to
the consolidated financial statements.
We compared a sample of accruals of volume and other rebates,
recorded based on management assumptions, to supporting
documents from vendors and supplier agreements. We also
compared the outstanding allowances receivable to the direct
confirmations from suppliers on a sample basis. We tested
cut-off of vendor allowances recorded during a period shortly
before and after year-end to supporting documents from
vendors.
We assessed the assumptions used by the Group’s management
in the valuation of goods for resale. We assessed the Group’s
methodology in respect of valuation of net realizable value,
analysed the dynamics of goods for resale turnover ratios taking
into consideration seasonality and other applicable factors. We
compared carrying values of goods for resale with subsequent
sales proceeds by certain type of goods. We analysed
individually significant transactions related to inventory items
used and also compared monthly movements of goods for resale
during the period with the historical information and industry
trends, we verified the mathematical accuracy of goods for
resale net realisable value calculation. We assessed the process
of allocation of handling costs to the carrying amount of goods
for resale. We analysed the structure of costs included
in the value of goods for resale. We compared the amount
of costs with supporting documents received from suppliers and
the Group’s internal documents.
Impairment testing of property, plant and equipment and right-of-use assets
Impairment testing for property, plant and equipment and
right-to-use assets was one of the key audit matters because
the balance of property, plant and equipment and right-
to-use assets forms a significant portion of the Group’s assets
at the reporting date, and the process of management’s
assessment of the recoverable amount is complex and requires
significant judgments, including judgements about future cash
flows, capital expenditures and the discount rate.
Information about property, plant and equipment, right-to-use
assets and results of impairment testing is disclosed in Notes 8
and 9 to the consolidated financial statements.
Our audit procedures included an assessment of key
management assumptions used by the Group, including those
in respect of forecasted revenue and operating expenses.
We also analyzed discount rates used by management
of the Group. We engaged our internal valuation experts
in performing these procedures.
We also performed the sensitivity analysis of the impairment
test with respect to changes in the key assumption and
assessed the Group’s disclosures of these assumptions
to which impairment testing is most sensitive, i.e., those that
have the most significant impact on the recoverable amount
of property, plant and equipment and right-of-use assets.
As at 31 December 2019, the balance of goodwill is 26,879,317
thousand rubles, including 25,511,824 thousand rubles related
to acquisition of MF-SIA LLC. As a result of this transaction,
the Group obtained control over the SIA Group.
Impairment testing of goodwill was one of the key audit matters
because assessment of the recoverable amount of goodwill
includes numerous assumptions made by the Group’s
management, including the estimated effect of synergies,
determination of a cash-generation unit for impairment testing
purposes, forecasted revenue and gross margin, long-term
growth rates and discount rates.
Information about goodwill is disclosed in Note 11 to
the consolidated financial statements.
Transition to IFRS 16 Leases
Our audit procedures included an assessment of assumptions
used by the Group and reasonableness of forecasted data.
We assessed the judgment used by management in testing
goodwill for impairment with respect to goodwill allocation
to the relevant cash-generating unit.
We also performed the sensitivity analysis of the impairment test
with respect to changes in the key assumptions and assessed
the Group’s disclosures of those assumptions that have the most
significant impact on the recoverable amount of cash generating
unit to which goodwill is allocated.
Effective 1 January 2019, the Group adopted IFRS 16 Leases.
When adopting the new standard, the Group applied a full
retrospective approach.
The adoption of IFRS 16 was one of the key audit matters
because the effect of transition to the new standard is significant
to the consolidated financial statements, the Group has large
number of lease contracts and significant judgments were made
by the management in assessing initial value of right-to-use
assets and related liabilities with respect to ability to extend
these lease contracts and, thus, determine a lease term.
Information about the adoption of IFRS 16 Leases is disclosed
in Note 4.2 to the consolidated financial statements.
We analyzed the Group’s accounting policy with respect
to IFRS 16.
We analyzed the list of lease agreements to which IFRS 16 is
applied and compared, on a sample basis, data in agreements
with data that were used during the implementation and
application of the transition provisions of IFRS 16.
We analyzed management’s judgments made to determine
the lease term in agreements with extension options.
We tested the mathematical accuracy of calculations
of adjustments at the transition date to IFRS 16.
We analyzed information on the adoption of IFRS 16 disclosed
in the consolidated financial statements.
Other information included in The Annual report
of PJSC Magnit for 2019
Other information consists of the information included
in the Annual Report of PJSC Magnit for 2019 other than
the consolidated financial statements and our auditor’s
report thereon. Management is responsible for the other
information. The Annual Report of PJSC Magnit for 2019 is
expected to be made available to us after the date of this
auditor’s report.
Our opinion on the consolidated financial statements does
not cover the other information and we will not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other
information identified above when it becomes available
and, in doing so, consider whether the other information
is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit
or otherwise appears to be materially misstated.
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(continued)
Responsibilities of management and Board of Directors for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements
in accordance with IFRSs, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic
alternative but to do so.
Board of Directors are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism
throughout the audit. We also:
‒ Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
‒ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Group’s internal control.
‒ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
‒ Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Company’s Group’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures
in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events
or conditions may cause the Group to cease to continue as a going concern.
‒ Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions and events
in a manner that achieves fair presentation.
‒ Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are responsible for
the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with Board of Directors regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide Board of Directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought
to bear on our independence, and where applicable, related safeguards.
From the matters communicated with Board of Directors we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We
describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter
or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report
because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.
The partner in charge of the audit resulting in this independent auditor’s report is А.Y. Grebeniuk.
A.Y. Grebeniuk
Partner
Ernst & Young LLC
16 March 2020
Details of the audited entity
Name: PJSC Magnit
Record made in the State Register of Legal Entities on November 12,
2003, State Registration Number 1032304945947.
Address: Russia 350072, Krasnodar, Solnechnaya street, 15/5.
Details of the auditor
Name: Ernst & Young LLC
Record made in the State Register of Legal Entities on 5
December 2002, State Registration Number 1027739707203.
Address: Russia 115035, Moscow, Sadovnicheskaya naberezhnaya, 77,
building 1.
Ernst & Young LLC is a member of Self-regulatory organization
of auditors Association “Sodruzhestvo”. Ernst & Young LLC is included
in the control copy of the register of auditors and audit organizations,
main registration number 12006020327.
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices PJSC Magnit
Consolidated statement
of financial position
as at 31 December 2019
(In thousands of Russian rubles)
Assets
Non-current assets
Property, plant and equipment
Investment property
Right-of-use assets
Intangible assets
Goodwill
Long-term financial assets
Long-term receivables
Current assets
Inventories
Trade and other receivables
Advances paid
Taxes receivable, excluding income tax
Prepaid expenses
Short-term financial assets
Income tax receivable
Cash and cash equivalents
Notes
31 December 2019
31 December 2018
Restated
(Notes 2)
1 January 2018
Restated
(Notes 2)
8
9
10
11
12
13
14
15
352,985,987
344,837,482
326,661,210
–
–
600,000
313,566,212
286,177,692
266,737,158
3,914,677
1,677,149
26,879,317
26,879,317
314
–
150,552
800,468
1,516,456
1,367,493
350,645
–
697,346,507
660,522,660
597,232,962
218,873,586
182,140,503
156,709,275
13,993,440
5,769,958
1,464,207
656,210
553,697
1,130,420
8,901,298
6,811,318
5,447,803
66,747
522,021
488,996
467,769
26,747,754
1,399,186
4,004,689
598,270
640,440
215,308
1,153,657
18,337,417
251,342,816
222,692,911
183,058,242
Total assets
948,689,323
883,215,571
780,291,204
Equity and liabilities
Equity attributable to the shareholders of the parent
Notes
31 December 2019
31 December 2018
Restated
(Notes 2)
1 January 2018
Restated
(Notes 2)
Share capital
Share premium
Treasury shares
Share-based payments reserve
Retained earnings
Total equity
Non-current liabilities
Long-term loans and borrowings
Long-term lease liabilities
Long-term advances received
Long-term government grants
Deferred tax liabilities
Current liabilities
Trade and other payables
Accrued expenses
Taxes payable, excluding income tax
Dividends payable
Short-term advances received
Contract liabilities
Short-term government grants
Short-term loans and borrowings
Short-term lease liabilities
Total liabilities
Total equity and liabilities
16
16
16
31
21
9
22
29
18
19
20
17
22
21
9
1,020
1,020
1,020
87,379,413
87,257,340
87,635,960
(16,454,110)
(12,051,463)
1,623,268
–
–
–
115,983,222
137,235,129
140,502,834
188,532,813
212,442,026
228,139,814
119,632,362
93,736,140
86,338,130
320,600,953
290,581,189
266,335,407
244,623
3,206,076
408,734
2,975,361
16,073,679
15,292,458
–
1,100,568
13,729,813
459,757,693
402,993,882
367,503,918
161,631,006
131,101,185
17,020,105
4,291,007
13,084,885
4,791,836
14,452,943
13,629,822
696,526
1,056,711
62,857
64,578,456
36,609,206
665,285
1,447,052
62,340
70,837,201
32,160,057
99,142,151
11,574,953
6,283,720
831
562,691
315,696
55,423
40,121,925
26,590,082
300,398,817
267,779,663
184,647,472
760,156,510
670,773,545
552,151,390
948,689,323
883,215,571
780,291,204
The Chief Executive Officer
of PJSC Magnit
J.G. Dunning
The accompanying notes on pages 13-79 are an integral part of these consolidated financial statements.
The accompanying notes on pages 13-79 are an integral part of these consolidated financial statements.
16 March 2020
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices
PJSC Magnit
Consolidated statement
of comprehensive income
for the year ended 31 December 2019
(In thousands of Russian rubles)
Revenue
Cost of sales
Gross profit
Rental and sublease income
Selling expenses
General and administrative expenses
IInterest income
Finance costs
Other income
Other expenses
Foreign exchange gain/(loss)
Profit before tax
Income tax expense
Profit for the year
Total comprehensive income for the year, net of tax
2019
2018
Restated
(Notes 2)
1,368,705,394
1,237,015,457
(1,056,706,053)
(940,941,519)
Notes
23
24
Profit for the year
Attributable to:
311,999,341
296,073,938
Shareholders of the parent
3,143,997
2,942,620
(15,686,379)
(16,069,946)
Total comprehensive income for the year, net of tax
(254,961,673)
(220,744,798)
Attributable to:
272,595
210,316
Shareholders of the parent
Notes
2019
2018
Restated
(Notes 2)
9,564,222
24,170,268
9,564,222
24,170,268
9,564,222
24,170,268
9,564,222
24,170,268
Earnings per share (in RUB per share)
- basic and diluted profit for the year attributable to
the shareholders of the parent
30
97,98
238,96
25
26
27
28
29
30
(47,781,649)
(39,541,807)
16,396,467
(1,676,061)
872,834
10,514,535
(907,548)
(1,523,135)
12,579,472
30,954,175
(3,015,250)
(6,783,907)
9,564,222
9,564,222
24,170,268
24,170,268
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The accompanying notes on pages 172-245 are an integral part of these consolidated financial statements.
16 March 2020
The Chief Executive Officer
of PJSC Magnit
J.G. Dunning
MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices
Notes
2019
2018
Restated
(Notes 2)
12,579,472
30,954,175
Cash generated from operations
Increase in government grants
PJSC Magnit
Consolidated statement of cash flows
for the year ended 31 December 2019
(In thousands of Russian rubles)
Cash flows from operating activities
Profit before income tax
Adjustments for:
Depreciation and impairment of property, plant and equipment and right-
of-use assets
Amortization of intangible assets
Loss from disposal of property, plant and equipment
Loss from disposal of intangible assets
Gain from disposal of investment property
Gain from sales of investments
Accrual/(reversal) of provision for expected credit losses (ECL)
Share-based payments reserve
Gain from cancellation of lease contracts
Foreign exchange (gain)/loss
Finance costs
Investment income
8, 9
10
26
9
27
87,117,847
72,354,587
976,589
358,190
23,164
–
(47,511)
405,773
2,452,342
(1,985,180)
(872,834)
47,781,649
(272,595)
798,926
549,026
10,754
(1,180)
–
(97,118)
–
(1,804,180)
1,523,135
39,541,807
(210,316)
Operating cash flows before working capital changes
148,516,906
143,619,616
Cash flows from financing activities
Proceeds from loans and borrowings
Repayment of loans and borrowings
Dividends paid
Repayment of lease liabilities
Purchase of treasury shares
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
(6,787,427)
(322,155)
(132,870)
(1,397,460)
(134,189)
(1,213,236)
(1,442,228)
511,328
1,145,281
118,695
(36,733,083)
(23,050,790)
31,320,853
10,095,175
3,935,220
(500,829)
(390,341)
511,124
(1,827,166)
1,131,357
Income tax paid
Interest paid
Interest received
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Cash acquired on business combination
Proceeds from sale of property, plant and equipment
Proceeds from sale of investment property
Loans provided
Loans repaid
Proceeds from government grants
Net cash used in investing activities
Cash flows from financing activities
Proceeds from loans and borrowings
Repayment of loans and borrowings
Dividends paid
Repayment of lease liabilities
Purchase of treasury shares
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Notes
22
2019
231,232
2018
Restated
(Notes 2)
1,858,968
8
10
7
22
33
33
17,33
9,33
16
15
15
137,605,857
131,458,124
(2,896,680)
(4,433,235)
(46,732,567)
(40,266,504)
251,870
200,720
88,228,480
86,959,105
(53,911,476)
(50,498,665)
(3,237,281)
–
672,002
–
(539,032)
692,806
–
(957,597)
187,758
1,079,628
601,180
(1,507,414)
166,756
22,742
(56,322,981)
(50,905,612)
695,756,324
600,693,859
(677,163,335)
(572,272,534)
(29,993,007)
(13,808,982)
(33,242,289)
(24,527,812)
(5,109,648)
(17,727,687)
(49,751,955)
(27,643,156)
(17,846,456)
26,747,754
8,901,298
8,410,337
18,337,417
26,747,754
The Chief Executive Officer
of PJSC Magnit
J.G. Dunning
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The accompanying notes on pages 172-245 are an integral part of these consolidated financial statements.
16 March 2020
MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices
PJSC Magnit
Consolidated statement
of changes in equity
for the year ended 31 December 2019
(In thousands of Russian rubles)
Attributable to shareholders of the parent
Attributable to shareholders of the parent
Balance at 1 January 2018
Effect of adoption of IFRS 16 Leases (Note 4.2)
Effect of change in vendor rebates allocation method
(Note 4.1)
Share capital
1,020
–
–
Share premium
87,635,960
–
–
Balance at 1 January 2018 (restated)
1,020
87,635,960
Profit for the year
Total comprehensive income for the year
Dividends declared (Note 17)
Purchase of treasury shares (Note 16)
Business combination (Notes 7)
Balance at 31 December 2018 (restated)
Balance at 1 January 2019
Profit for the year
Total comprehensive income for the year
Dividends declared (Note 17)
Purchase of treasury shares (Note 16)
Share-based payments (Notes 16, 31)
Transfer of rights to equity instruments for share based
payments (Note 16)
–
–
–
–
–
1,020
1,020
–
–
–
–
–
–
Balance at 31 December 2019
1,020
–
–
–
–
(378,620)
87,257,340
87,257,340
–
–
–
–
–
122,073
87,379,413
Treasury shares
Provision for
share-based payments
–
–
–
–
–
–
–
(17,727,687)
5,676,224
(12,051,463)
(12,051,463)
–
–
–
(5,109,648)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,452,342
707,001
(16,454,110)
(829,074)
1,623,268
Retained earnings
171,670,459
(26,771,443)
(4,396,182)
140,502,834
24,170,268
24,170,268
(27,437,973)
–
–
Equity attributable
to shareholders of the parent
259,307,439
(26,771,443)
(4,396,182)
228,139,814
24,170,268
24,170,268
(27,437,973)
(17,727,687)
5,297,604
137,235,129
212,442,026
137,235,129
9,564,222
9,564,222
(30,816,128)
–
–
–
212,442,026
9,564,222
9,564,222
(30,816,128)
(5,109,648)
2,452,342
–
115,983,223
188,532,814
The Chief Executive Officer
of PJSC Magnit
J.G. Dunning
The accompanying notes on pages 172-245 are an integral part of these consolidated financial statements.
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PJSC Magnit
Notes to Consolidated Financial
Statements for the Year
Ended 31 December 2019
(In thousands of Russian rubles)
1. Corporate information
Closed Joint Stock Company Magnit (Magnit) was incorporated in Krasnodar, the Russian Federation, in
November 2003.
In January 2006, Magnit changed its legal form to Open Joint Stock Company Magnit. There was no change
in the principal activities or shareholders as a result of the change to an Open Joint Stock Company. In 2014 Magnit
changed its legal name to Public Joint Stock Company (the Company or PJSC Magnit) in accordance with changes
in legislation.
PJSC Magnit and its subsidiaries (the “Group”) operate in the retail and distribution of consumer goods under the Magnit
name. The Group’s retail operations are operated through convenience stores, cosmetic stores, hypermarkets and other.
All of the Group’s operational activities are conducted in the Russian Federation. The principal operating office
of the Group is situated at 15/5 Solnechnaya Str., 350072, Krasnodar, the Russian Federation.
The principal activities of the Group’s subsidiaries all of which are incorporated in the Russian Federation, and
the effective ownership percentages are as follows:
Company name
JSC Tander
LLC Retail Import
LLC BestTorg
LLC MFK
LLC Selta
Principal activity
Food retail and wholesale
Import operations
Food retail in Moscow and the Moscow region
Other activities
Transportation services for the Group
LLC TK Zelenaya Liniya
Greenhouse complex
LLC Tandem
LLC Alkotrading
LLC ITM
Rent operations
Other operations
IT operations
LLC Logistika Alternativa
Import operations
LLC Zvezda
LLC TD–holding
LLC MagnitEnergo
Assets holder, vehicles maintenance services for
the Group
Production and processing of food for the Group
Buyer of electric power for the Group
Ownership
interest as at 31
December 2019
Ownership
interest as at 31
December 2018
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Company name
Principal activity
LLC Management Company Industrial
Park Krasnodar
Management of production assets
LLC Kuban Confectioner
Production of food for the Group
LLC Kuban Factory of Bakery Products
Production of food for the Group
LLC Volshebnaya svezhest
Production of household chemicals for the Group
LLC Moroznye pripasy
Production of food for the Group
LLC Moskva na Donu
Production of agricultural products for the Group
LLC Magnit Pharma
Pharmaceutical license holder
LLC Magnit IT Lab**
Innovative software product development
LLC TH SIA Group
Pharmaceutical wholesale
LLC MF-SIA
Management activities
JSC SIA International Ltd
Pharmaceutical wholesale
JSC Rink
Production of medical devices
LLC MC SIA Group
Management activities
JSC SIA International – Krasnodar
Commission trade of medicines and medical products
LLC SIA International – Arkhangelsk
Commission trade of medicines and medical products
LLC SIA International – Astrakhan*
Commission trade of medicines and medical products
LLC SIA International – Barnaul*
Commission trade of medicines and medical products
LLC SIA International – Belgorod*
Commission trade of medicines and medical products
LLC SIA International –
Blagoveshchensk*
LLC SIA International – Velikiy
Novgorod*
Commission trade of medicines and medical products
Commission trade of medicines and medical products
LLC SIA International – Vladivostok
Commission trade of medicines and medical products
LLC SIA International – Penza*
Commission trade of medicines and medical products
LLC SIA International – Tambov
Commission trade of medicines and medical products
JSC SIA International – Omsk*
Commission trade of medicines and medical products
LLC SIA International – Vladimir*
Commission trade of medicines and medical products
LLC SIA International – Volgograd
Commission trade of medicines and medical products
LLC SIA International – Voronezh
Commission trade of medicines and medical products
LLC SIA International – Ekaterinburg
Commission trade of medicines and medical products
LLC SIA International – Irkutsk
Commission trade of medicines and medical products
Ownership
interest as at 31
December 2019
Ownership
interest as at 31
December 2018
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
80%
100%
–
–
–
–
–
100%
–
100%
–
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
–
100%
100%
100%
100%
100%
80%
100%
100%
100%
100%
100%
100%
100%
100%
100%
85%
100%
100%
100%
100%
100%
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices 2.
Basis of preparation
Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
Basis of accounting
The Group’s entities maintain their accounting records in Russian rubles (“RUB”) and prepare their statutory financial
statements in accordance with the Regulations on Accounting and Reporting of the Russian Federation. The statutory
financial statements have been adjusted to present these consolidated financial statements in accordance with IFRS.
The consolidated financial statements are presented in Russian rubles and all values are rounded to the nearest
thousand, except when otherwise indicated.
The financial statements have been prepared on a historical cost basis except for the use of fair value as deemed cost
for certain property, plant and equipment as at the date of transition to IFRS, and financial instruments and investment
property at fair value.
The consolidated financial statements provide comparative information in respect of the previous period. The Group
has presented an additional statement of financial position as at 1 January 2018 due to retrospective application
of the accounting policies as a result of adoption of IFRS 16 Leases (Note 4.2) and a changed method of allocating
vendor rebates (Note 4.1).
PJSC Magnit
Notes to consolidated financial statements
for the year ended 31 December 2019 (In thousands of Russian rubles)
(continued)
1.
Corporate information. (continued)
Company name
Principal activity
Ownership
interest as at 31
December 2019
Ownership
interest as at 31
December 2018
LLC SIA International – Kazan
Commission trade of medicines and medical products
100%
LLC SIA International – Kamchatka*
Commission trade of medicines and medical products
LLC SIA International – Kemerovo*
Commission trade of medicines and medical products
LLC SIA International – Kirov*
Commission trade of medicines and medical products
LLC SIA International – Krasnoyarsk
Commission trade of medicines and medical products
LLC SIA International – Murmansk*
Commission trade of medicines and medical products
LLC SIA International – Nizhniy
Novgorod
Commission trade of medicines and medical products
LLC SIA International – Novosibirsk
Commission trade of medicines and medical products
LLC SIA International – Orenburg*
Commission trade of medicines and medical products
LLC SIA International – Perm*
Commission trade of medicines and medical products
LLC SIA International – Rostov-on-Don Commission trade of medicines and medical products
LLC SIA International – Samara
Commission trade of medicines and medical products
LLC SIA International – Saint Petersburg Commission trade of medicines and medical products
LLC SIA International – Saratov*
Commission trade of medicines and medical products
LLC SIA International – Smolensk*
Commission trade of medicines and medical products
LLC SIA International – Stavropol*
Commission trade of medicines and medical products
LLC SIA International – Tula*
Commission trade of medicines and medical products
LLC SIA International – Tyumen*
Commission trade of medicines and medical products
LLC SIA International – Ufa*
Commission trade of medicines and medical products
–
–
–
100%
–
100%
100%
–
–
100%
100%
100%
–
–
–
–
–
–
LLC SIA International – Khabarovsk
Commission trade of medicines and medical products
100%
LLC SIA International – Chelyabinsk*
Commission trade of medicines and medical products
LLC SIA International – Chernozemie*
Commission trade of medicines and medical products
LLC SIA International
– Yuzhno-Sakhalinsk*
Commission trade of medicines and medical products
LLC SIA International – Yaroslavl*
Commission trade of medicines and medical products
–
–
–
–
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
*
**
In 2019 the management of the Group decided to liquidate a number of the SIA Group companies engaged in commission trade
of medicines and medical products. Liquidation of these companies did not have a significant impact on the consolidated financial
statements of the Group and its operations.
On 15 January 2019, the Group established a new company, LLC Magnit IT Lab, to develop innovative software products aiming to address
the current IT challenges faced by the Group.
The consolidated financial statements of the Group for the year ended 31 December 2019 were authorised for release
by the Chief Executive Officer of PJSC Magnit on 16 March 2020.
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Basis of preparation. (continued)
The table below shows the cumulative effect (increase/(decrease)) of the adoption of IFRS 16 (Note 4.2), changes
in the method of allocating vendor rebates (Note 4.1), and final fair values of identifiable assets and liabilities of SIA
Group as at the acquisition date (Note 7) on the consolidated statement of financial position as at 31 December
and 1 January 2018 (increase/(decrease)):
31 December 2018
as previously
reported
Effect of adoption
of IFRS 16
Effect of change
in the vendor rebates
allocation method
Effect of final
fair value
measurement
31 December 2018
as restated
ASSETS
Property, plant and equipment
350 331 456
(4 317 977)
Right-of-use assets
Land lease rights
Intangible assets
Goodwill
Long-term receivables
Deferred tax asset
–
285 969 493
2 196 180
(2 196 180)
3 442 439
(1 765 290)
24 091 508
–
2 687 401
–
–
–
Total non-current assets
382 899 536
277 690 046
Inventory
Trade and other receivables
187 778 882
6 961 003
–
–
Advances paid
5 654 981
(207 178)
–
–
–
–
–
–
–
–
(1 175 997)
344 837 482
208 199
286 177 692
–
–
–
1 677 149
2 787 809
26 879 317
800 468
800 468
(2 687 401)
–
(66 922)
660 522 660
1 January 2018 as
previously reported
Effect of adoption
of IFRS 16
Effect of change
in the vendor rebates
allocation method
1 January 2018 as
restated
Assets
Property, plant and equipment
329,826,903
(3,165,693)
Right-of-use assets
Land lease rights
Intangible assets
–
266,737,158
2,373,022
2,267,960
(2,373,022)
(751,504)
Total non-current assets
336,786,023
260,446,939
–
–
–
–
–
326,661,210
266,737,158
–
1,516,456
597,232,962
Inventory
Advances paid
Total current assets
Total assets
Retained earnings
Equity attributable to the shareholders
of the parent
Liabilities
162,204,502
4,990,444
189,539,224
–
(5,495,227)
156,709,275
(985,755)
(985,755)
–
4,004,689
(5,495,227)
183,058,242
526,325,247
259,461,184
(5,495,227)
780,291,204
171,670,459
(26,771,443)
(4,396,182)
140,502,834
259,307,439
(26,771,443)
(4,396,182)
228,139,814
(5 868 454)
230 075
182 140 503
Long-term lease liabilities
–
266,335,407
–
266,335,407
–
–
(149 685)
6 811 318
–
5 447 803
Deferred tax liabilities
21,521,720
(6,692,862)
(1,099,045)
13,729,813
Total non-current liabilities
108,960,418
259,642,545
(1,099,045)
367,503,918
Total current assets
228 688 153
(207 178)
(5 868 454)
80 390
222 692 911
Short-term lease liabilities
–
26,590,082
611 587 689
277 482 868
(5 868 454)
13 468
883 215 571
Total current liabilities
158,057,390
26,590,082
–
–
26,590,082
184,647,472
Total assets
Retained earnings
Equity attributable
to the shareholders of the parent
Liabilities
178 097 010
(36 167 118)
(4 694 763)
253 303 907
(36 167 118)
(4 694 763)
Long-term lease liabilities
–
290 581 189
–
–
–
–
137 235 129
212 442 026
290 581 189
Total iabilities
267,017,808
286,232,627
(1,099,045)
552,151,390
Total adjustment to equity and
liabilities
Total adjustment to equity
andliabilities
526,325,247
259,461,184
(5,495,227)
780,291,204
526,325,247
259,461,184
(5,495,227)
780,291,204
Deferred tax liabilities
25 550 550
(9 046 636)
(1 173 691)
(37 765)
15 292 458
Total non-current liabilities
122 670 785
281 534 553
(1 173 691)
(37 765)
402 993 882
Trade and other payables
131 173 426
(44 624)
Accrued expenses
13 006 035
–
Short-term lease liabilities
–
32 160 057
Total current liabilities
235 612 997
32 115 433
–
–
–
–
(27 617)
131 101 185
78 850
13 084 885
–
32 160 057
51 233
267 779 663
Total liabilities
358 283 782
313 649 986
(1 173 691)
13 468
670 773 545
Total adjustment
to equity and liabilities
611 587 689
277 482 868
(5 868 454)
13 468
883 215 571
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2.
Basis of preparation. (continued)
The table below shows the cumulative effect (Increase/decrease) of the adoption of IFRS 16 (Note 4.2) and changes
in the method of allocating vendor rebates (Note 4.1) on the consolidated statement of comprehensive income for 2018
(increase/(decrease) for gain and decrease/(increase) for loss):
The table below shows the cumulative effect of the adoption of IFRS 16 (Note 4.2) and changes in the method
of allocating vendor rebates (Note 4.1), and completed fair value measurement of the identifiable assets and liabilities
of SIA Group as at the acquisition date (Note 7) on the consolidated statement of cash flows for 2018:
Cost of sales
Gross profit
2018 as previously
reported
Effect of adoption
of IFRS 16
Effect of change
in the vendor rebates
allocation method
2018 as restated
(940,568,293)
296,447,164
–
–
(373,226)
(940,941,519)
(373,226)
296,073,938
2018 as previously
reported
Effect of adoption
of IFRS 16
Effect of change
in the vendor rebates
allocation method
2018 as restated
Cash flows used in operating activities
Profit before tax
43,071,995
(11,744,594)
(373,226)
30,954,175
General and administrative expenses
(237,709,394)
16,964,596
Finance expenses
Other income
Foreign exchange gain/(loss)
Profit before tax
Income tax expense
Profit for the year
Total comprehensive income for the year,
net of tax, attributable to shareholders
of the parent
Basic and diluted profit for the year
attributable to shareholders of the parent
(9,136,262)
(30,405,545)
8,710,355
(1,415,310)
1,804,180
(107,825)
–
–
–
–
(220,744,798)
(39,541,807)
10,514,535
(1,523,135)
43,071,995
(11,744,594)
(373,226)
30,954,175
(9,207,471)
2,348,919
74,645
(6,783,907)
33,864,524
(9,395,675)
(298,581)
24,170,268
33,864,524
(9,395,675)
(298,581)
24,170,268
334,81
(92,89)
(2,96)
238,96
Depreciation and impairment of property, plant and
equipment and right-of-use assets
35,521,322
36,833,265
Amortization of intangible assets
996,116
(197,190)
Loss from disposal of land lease rights
Loss from disposal of intangible assets
Foreign exchange loss
Finance costs
Gain on lease derecognition
Operating cash flows before working capital
changes
Increase in advances paid
Increase in inventories
25,789
27,278
1,415,310
(25,789)
(16,524)
107,825
9,136,262
30,405,545
–
(1,804,180)
–
–
–
–
–
–
–
72,354,587
798,926
–
10,754
1,523,135
39,541,807
(1,804,180)
90,434,484
53,558,358
(373,226)
143,619,616
(663,651)
(778,577)
–
(1,442,228)
(23,424,016)
–
373,226
(23,050,790)
Increase in trade and other payables
10,247,625
(152,449)
Cash generated from operations
78,830,792
52,627,332
Interest paid
(9,860,959)
(30,405,545)
Net cash from operating activities
64,737,318
22,221,787
Purchase of property, plant and equipment
(51,603,538)
1,104,873
Purchase of intangible assets
Purchase of land lease rights
(2,154,557)
1,196,960
(847)
847
Net cash used in investing activities
(53,208,292)
2,302,680
Repayment of lease liabilities
(3,345)
(24,524,467)
Net cash generated from / (used in) financing
activities
(3,118,689)
(24,524,467)
–
–
–
–
–
–
–
–
–
–
10,095,176
131,458,124
(40,266,504)
86,959,105
(50,498,665)
(957,597)
–
(50,905,612)
(24,527,812)
(27,643,156)
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2.
Basis of preparation. (continued)
Reclassifications
The Group has changed the presentation of certain items of the consolidated statement of comprehensive income
for 2019 and 2018 to present income from operating leases and subleases in the line “Rental and sublease income”, and
reclassified some warehousing and in-house production costs from the line “General and administrative expenses” to
the line “Cost of sales”. The comparative information for the year ended 31 December 2018 was reclassified to conform
to the current year presentation.
Functional currency
The Russian ruble is the functional currency of all the companies within the Group and the currency in which these
consolidated financial statements are presented.
Going concern
In assessing whether the going concern assumption is appropriate for the Group, management considered cash flow
projections for 2020, taking into account Russia’s current economic environment, the financial situation of the Group,
undrawn loan facilities available to it, as well as planned expenditure on opening new stores and maintaining existing
ones.
Management believes that operating cash flows and the available sources of credit are sufficient to meet the Group’s
liabilities during the next year. Thus, these consolidated financial statements have been prepared on a going concern
basis.
3.
Summary of significant accounting policies
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and other entities controlled
by the Company (its subsidiaries). Control is achieved when the Group is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the Group has:
‒ Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities
of the investee);
‒ Exposure, or rights, to variable returns from its involvement with the investee; and
‒ The ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee, including:
‒ The contractual arrangement with the other vote holders of the investee;
‒ Rights arising from other contractual arrangements;
‒ The Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes
to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control
over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses
of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from
the date the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the shareholders of the parent
of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit
balance. The financial statements of subsidiaries are prepared for the same reporting period as those of the parent
company. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies in line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and
cash flows relating to transactions between members of the Group are eliminated in full on consolidation.
If the Group loses control over a subsidiary, it derecognizes the respective assets (including goodwill), liabilities,
non-controlling interests, and other components of equity, and recognizes any resultant gain or loss in profit or loss.
Any investment retained is recognized at fair value.
Business combinations
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any
non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling
interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets.
Acquisition costs are expensed and included in administrative expenses as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts held
by the acquiree.
If the business combination is achieved in stages the acquirer’s previously held equity interest in the acquiree
is remeasured to fair value at the acquisition date through profit or loss or other comprehensive income, as appropriate.
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date.
Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within
equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope
of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognized in the statement
of comprehensive income in accordance with IFRS 9. Other contingent consideration that is not within the scope
of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognized in profit or loss.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount
recognized for non-controlling interests and any previous interest held over the net identifiable assets acquired and
liabilities assumed). If the fair value of the net assets acquired is in excess of the aggregate consideration transferred,
the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and
reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still
results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain
is recognized in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each
of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other
assets or liabilities of the acquire are assigned to those units.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of,
the goodwill associated with the operation disposed of is included in the carrying amount of the operation when
determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based
on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Current versus non-current classification
The Group presents assets and liabilities in statement of financial position based on current/non-current classification.
An asset is current when:
‒ Expected to be realised or intended to be sold or consumed in normal operating cycle;
‒ Held primarily for the purpose of trading;
‒ Expected to be realised within twelve months after the reporting period; or
‒ Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months
after the reporting period.
All other assets are classified as non-current.
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3.
Summary of significant accounting policies. (continued)
A liability is current when:
‒ It is expected to be settled in normal operating cycle;
‒ It is held primarily for the purpose of trading;
‒ It is due to be settled within twelve months after the reporting period; or
‒ There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting
period.
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and liabilities.
Fair value measurement
The Group measures non-financial assets such as investment properties, at fair value at each balance sheet date. Fair
values of financial instruments measured at amortised cost are disclosed in Note 33.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either:
‒ In the principal market for the asset or liability; or
‒ In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use
the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are
available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable
inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:
‒ Level 1 – quoted (unadjusted) market prices in active markets for identical assets or liabilities;
‒ Level 2 – valuation techniques for which the lowest level input that is significant to the fair value measurement
is directly or indirectly observable;
‒ Level 3 – valuation techniques for which the lowest level input that is significant to the fair value measurement
is unobservable.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between Levels in the hierarchy by re-assessing categorization (based on the lowest
level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
External valuers are involved for valuation of investment properties. Selection criteria include market knowledge,
reputation, independence and whether professional standards are maintained.
Revenue from contracts with customers
The Group is engaged in both retail and wholesale activities; goods are sold through a network of own stores and
distribution centres. Revenue is recognized when control of the goods passes to the customer, i.e., sales to retail
customers are recognized at the point of sale in stores and to wholesale customers – at the point of sale in distribution
centres, at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those
goods. Revenue is reduced by the expected amount of returns to which customers are entitled under Russian law
within 14 days of the purchase except for certain categories of goods. The Group uses historical data on the term and
frequency of returns from customers to estimate and recognize provisions for such returns at the time of sale. Because
the level of returns has been steady for several years, it is highly probable that no significant changes in cumulative
revenue recognized will occur. The validity of this assumption and the estimated amount of returns are reassessed
at each reporting date.
Customer loyalty program
For the purpose of promoting sales and building customer loyalty, the Group establishes promotion programs to allow
customers accumulate loyalty points and exchange them for goods specially purchased for promotions. The loyalty
program gives rise to a separate performance obligation because it provides a material right to the customer. The Group
allocates a portion of the transaction price to the loyalty points awarded to the customer based on their relative stand-
alone selling price and recognizes that portion as a contract liability until the points are redeemed by the customer.
Revenue is recognized when the customer redeems their loyalty points against goods. The relative stand-alone selling
price of the loyalty points is estimated based on the probability that the customer will redeem their points. The Group
updates, on a quarterly basis, its estimate of the number of loyalty points that will be redeemed, and the adjusted
balance of contract liabilities is charged against revenue.
Expenses related to loyalty programs in respect of goods specially purchased for promotions, are recognized in selling
expenses and classified as advertising expenses.
Revenue from advertising services
Revenue from advertising services is recognized in the reporting period when the services are provided. The Group
classifies such revenue within other operating income and recognizes it over the period, as a customer receives
the services and obtains benefit from them at the same point of time. The Group recognizes revenue as a proportion
of provided services to total services per contract.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses,
if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-
term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment
are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives.
Historical cost information was not available in relation to buildings purchased prior to transition to IFRS
(1 January 2004). Therefore, management used valuations performed by independent professional appraisers
to establish the fair value as at the date of transition to IFRS, and used that value as the deemed cost at that date.
Cost includes major expenditure for improvements which extend the useful lives of the assets or increase their revenue-
generating capacity. Repairs and maintenance are charged to the consolidated statement of comprehensive income
as incurred.
Depreciation is charged so as to write off the cost of assets, other than land and properties under construction, over
their estimated useful lives, using the straight-line method. The depreciation method applied to an asset is reviewed
at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption
of the future economic benefits embodied in the asset, the method is changed to reflect the changed pattern on a
perspective basis as a change in an accounting estimate.
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3.
Summary of significant accounting policies (continued)
The estimated useful economic lives of the related assets are as follows:
Buildings
Machinery and equipment
Other fixed assets
Useful life in years
10-50
3-14
3-10
Other fixed assets consist of vehicles and other relatively small groups of fixed assets.
Construction in progress comprises costs directly related to the construction of property, plant and equipment including
an appropriate allocation of directly attributable variable overheads that are incurred in construction. Depreciation
of an asset begins when it is available for use, i.e. when it is in the location and condition necessary for it to be capable
of operating in the manner intended by management. Construction in progress is reviewed regularly to determine
whether its carrying value is recoverable and whether appropriate provision for impairment is made.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognized in the consolidated statement of comprehensive
income.
Government grants
A government grant is recognized when there is reasonable assurance that the entity will comply with the conditions
attaching to it, and that the grant will be received.
If grants are provided to finance specific expenses, government grants are recognized in profit or loss on a systematic
basis over the periods in which the entity recognizes as expenses the related costs for which the grants are intended
to compensate. If grants are provided to finance an asset, government grants are be recognized in profit or loss on a
straight-line basis over the expected useful life of that asset.
The benefit of a government loan at a below-market interest rate is treated as a government grant. The loan
is recognized at fair value. The benefit of the below-market interest rate is measured as the difference between
the initial carrying value of the loan and cash received.
Investment property
Investment property is measured initially at cost, including transaction costs. Subsequent to initial recognition,
investment property is stated at fair value, which reflects market conditions at the reporting date. Gains or losses arising
from changes in the fair values of investment property are included in the consolidated statement of comprehensive
income in the period in which they arise. Fair values are evaluated annually by an accredited external, independent
valuer, applying a valuation model recommended by the International Valuation Standards Committee.
Investment property is derecognized when either it has been disposed of or when the investment property
is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference
between the net disposal proceeds and the carrying amount of the asset is recognized in the consolidated statement
of comprehensive income in the period of derecognition.
Transfers are made to or from investment property only when there is a change in use. For a transfer from investment
property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date
of change in use. If owner-occupied property becomes an investment property, the Group accounts for such property
in accordance with the policy applicable to property, plant and equipment up to the date of change in use.
Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired
in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are
carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles,
excluding capitalized development costs, are not capitalized, and the related expenditure is reflected in profit or loss
in the period in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are
amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible
asset may be impaired.
The following useful lives are used in the calculation of amortization:
Description
Licenses
Software
Trademarks
Other
Useful life in years
1-25
1-25
1-10
1-7
The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed
at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption
of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as
appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets
with finite lives is recognized in the consolidated statement of comprehensive income in the expense category that
is consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually
or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether
the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a
prospective basis.
Any gain or loss arising upon derecognition of the asset (calculated as the difference between the net disposal proceeds
and the carrying amount of the asset) is included in the consolidated statement of comprehensive income.
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3.
Summary of significant accounting policies (continued)
Leases
Group as a lessee
The Group’s leases mainly include lease agreements for land and retail store premises.
The Group has applied a uniform recognition and measurement approach for all leases where it is a lessee, except
for short-term leases and leases of low-value assets. The Group recognizes lease liabilities in relation to its obligation
to make lease payments and right-of-use assets representing the right to use the underlying assets.
Below is a summary of the Group’s accounting policies for lease:
Right-of-use assets
The Group recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset
is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount
of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement
date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognized right-of-use assets are depreciated on a straight-line basis over the shorter
of their estimated useful life and the lease term.
The Group uses the following useful lives:
Buildings
Land
Useful life, years
1-34
1-65
Depreciation of right-of-use assets is charged to profit or loss, except for depreciation of right-to-use assets
representing right to use leased land plots during the construction process necessary to bring the property into
a condition suitable for use in accordance with the objectives of the Group with is included in the carrying value
of assets under construction. Right-of-use assets are tested for impairment.
Lease liabilities
At the commencement date of the lease, the Group recognizes lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed
payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts
expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase
option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease
term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a
rate are recognized as expenses in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date,
the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made.
In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term,
a change in in-substance fixed lease payments or a change in the assessment of an option to purchase the underlying
asset.
Short-term leases
The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e.,
those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase
option). Lease payments on short-term leases are recognized as expense on a straight-line basis over the lease term.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards incidental to ownership of an asset
are classified as operating leases. Rental income arising is accounted for on a straight-line basis over the lease terms
and is included in revenue from lease or sub-lease in the consolidated statement of comprehensive income due to its
operating nature.
Impairment of non-current assets
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine
whether there is any indication that those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where
it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount
of the CGU to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value, using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which estimates of future cash flows have
not been adjusted.
If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying
amount of the asset (CGU) is reduced to its recoverable amount. An impairment loss is recognized immediately
in the consolidated statement of comprehensive income. Where an impairment loss subsequently reverses, the carrying
amount of the asset (CGU) is increased to the revised estimate of its recoverable amount but so that the increased
carrying amount does not exceed the carrying amount that would have been determined had no impairment loss
been recognized for the asset (CGU) in prior years. A reversal of an impairment loss is recognized immediately
in the consolidated statement of comprehensive income.
The following asset has specific characteristics for impairment testing:
Goodwill
Goodwill is tested for impairment annually as at 31 December and when circumstances indicate that the carrying value
may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group
of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an
impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Inventory
Inventory is stated at the lower of cost and net realizable value. Cost comprises the direct cost of goods, transportation,
handling costs and is decreased by the amount of rebates and promotional bonuses received from suppliers, related
to these goods. Cost of goods for resale is calculated using the weighted average method, cost of materials and
supplies is calculated using cost per unit method, cost of fuel and lubricants calculated using the average cost method.
Net realizable value represents the estimated selling price less all estimated costs necessary to make the sale.
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3.
Summary of significant accounting policies. (continued)
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and
a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation
at the reporting date, taking into account the risks and uncertainties surrounding the obligation.
Vendor allowances
The Group receives various types of allowances from vendors in the form of volume discounts (rebates) and other forms
of payments that effectively reduce the cost of goods purchased from the vendor. Volume-related rebates received
from suppliers are recorded as a reduction in the price paid for the products and reduce cost of goods sold in the period
the products are sold.
Income taxes
Income tax expense represents the sum of the tax currently payable and deferred tax. Income taxes are computed
in accordance with Russian law.
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid
to the taxation authorities. The tax currently payable is based on taxable profit for the year. Taxable profit differs
from profit as reported in the consolidated statement of comprehensive income because it excludes items of income
or expense that are taxable or deductible in other years and it further excludes items that are never taxable
or deductible. Current income tax is calculated using tax rates that have been enacted or substantively enacted
by the reporting date.
Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using
the balance sheet liability method.
Deferred tax liabilities are recognized for all taxable temporary differences, except:
‒ Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction
that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor
taxable profit or loss;
‒ In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and
any unused tax losses to the extent that it is probable that taxable profit will be available against which the deductible
temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:
‒ Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss;
‒ In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against which the temporary
differences can be utilized.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which
the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively
enacted by the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that
would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount
of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
Current and deferred taxes are recognized as an expense or income in the consolidated statement of comprehensive
income, except when they relate to items credited or debited outside profit or loss, either in other comprehensive
income or directly in equity, in which case the tax is also either in other comprehensive income or directly in equity, or
where they arise from the initial accounting for a business combination. In the case of a business combination, the tax
effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair
value of the acquiree’s identifiable assets, liabilities and contingent liabilities over cost.
Retirement benefit costs
The operating entities of the Group contribute to the state pension, medical and social insurance funds on behalf of all
its current employees. Any related expenses are recognized in the profit and loss as incurred.
Segment reporting
The Group’s business operations are located in the Russian Federation and relate primarily to retail sales of consumer
goods. Although the Group operates through different types of stores and in various states within the Russian
Federation, the Group’s chief operating decision maker reviews the Group’s operations and allocates resources on an
individual store-by-store basis. The Group has assessed the economic characteristics of the individual stores, including
both convenience stores, cosmetic stores, hypermarkets and others, and determined that the stores have similar
margins, similar products, similar types of customers and similar methods of distributing such products. Therefore,
the Group considers that it only has one reportable segment under IFRS 8. Segment performance is evaluated based
on profit or loss and is measured consistently with profit or loss in the consolidated financial statements.
Seasonality
The Group’s business operations are not influenced by seasonality factors, except for the increase of business activities
before the New Year holidays.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized
as part of the cost of that asset, other borrowing costs are recognized in profit or loss in the period in which they are
incurred. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended
use or sale.
To the extent that the Group borrows funds generally and uses them for the purpose of obtaining a qualifying asset,
the entity determines the amount of borrowing costs eligible for capitalization by applying a capitalization rate
to the expenditures on that asset. The capitalization rate is the weighted average of the borrowing costs applicable
to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for
the purpose of obtaining a qualifying asset.
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3.
Summary of significant accounting policies (continued)
Contract balances
Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group
transfers goods or services to a customer before the customer pays consideration or before payment is due, a contract
asset is recognized for the earned consideration that is conditional.
Trade and other receivables
A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage
of time is required before payment of the consideration is due).
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Group has received
consideration (or an amount of consideration is due) from the customer.
If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability
is recognized when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognized
as revenue when the Group performs under the contract.
Share-based payments
Certain employees (senior executives) of the Group receive remuneration in the form of share-based payments.
Employees render services as consideration for equity instruments (equity-settled transactions).
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using
an appropriate valuation model. That cost is recognized in employee benefits expense, together with a corresponding
increase in equity (Share-based payments reserve), over the period in which the service and, where applicable,
the performance conditions are fulfilled (the vesting period).
The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the Group’s best estimate of the number of equity instruments
that will ultimately vest. The expense or credit in the consolidated statement of comprehensive income for a period
represents the movement in cumulative expense recognized as at the beginning and end of that period.
Service and non-market performance conditions are not taken into account when determining the grant date fair value
of awards, but the likelihood of the conditions being met is assessed as part of the Group’s best estimate of the number
of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair
value. Any other conditions attached to an award, but without an associated service requirement, are considered to be
non-vesting conditions.
Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless
there are also service and/or performance conditions.
No expense is recognized for awards that do not ultimately vest because non-market performance and/or service
conditions have not been met. Where awards include a market or non-vesting condition, the transactions are treated
as vested irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance
and/or service conditions are satisfied.
When the terms of an equity-settled award are modified, the minimum expense recognized is the grant date fair value
of the unmodified award, provided the original vesting terms of the award are met. An additional expense, measured
as at the date of modification, is recognized for any modification that increases the total fair value of the share-based
payment transaction, or is otherwise beneficial to the employee. Where an award is cancelled by the entity or by
the counterparty, any remaining element of the fair value of the award is expensed immediately through profit or loss.
For the measurement of the fair value of equity-settled transactions with employees, the Group uses a Monte-Carlo
simulation model for the Share Option Plan.
Financial assets
General
At initial recognition, the Group classifies all of its financial assets based on the business model for managing the assets
and the asset’s contractual terms, measured at either: amortised cost; fair value through other comprehensive income
(FVOCI); or fair value through profit or loss (FVPL).
With the exception of receivables that do not contain a significant financing component or for which the Group
has applied the practical expedient, the Group initially measures a financial asset at its fair value plus, in the case
of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain
a significant financing component or for which the Group has applied the practical expedient are measured
at the transaction price.
The Group only measures loans given and receivables at amortised cost if both of the following conditions are met:
‒ The financial asset is held within a business model with the objective to hold financial assets in order to collect
contractual cash flows.
‒ The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments
of principal and interest on the principal amount outstanding (SPPI).
The details of these conditions are outlined below.
Business model assessment
The Group determines its business model at the level that best reflects how it manages groups of financial assets
to achieve its business objective.
The Group’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated
portfolios and is based on observable factors such as:
‒ How the performance of the business model and the financial assets held within that business model are evaluated
and reported to the entity’s key management personnel;
‒ The risks that affect the performance of the business model (and the financial assets held within that business
model) and, in particular, the way those risks are managed;
‒ How managers of the business are compensated (for example, whether the compensation is based on the fair value
of the assets managed or on the contractual cash flows collected);
‒ The expected frequency, value and timing of sales are also important aspects of the Group’s assessment.
The business model assessment is based on reasonably expected scenarios without taking “worst case” or “stress
case” scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Group’s
original expectations, the Group does not change the classification of the remaining financial assets held in that
business model, but incorporates such information when assessing newly originated or newly purchased financial
assets going forward.
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3.
Summary of significant accounting policies (continued)
The solely payment of principal and interest test (SPPI test)
As a second step of its classification process the Group assesses the contractual terms of financial asset to identify
whether they meet the SPPI test.
‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition and
may change over the life of the financial asset (for example, if there are repayments of principal or amortisation
of the premium/discount).
The most significant elements of interest within a lending arrangement are typically the consideration for the time value
of money and credit risk. To make the SPPI assessment, the Group applies judgement and considers relevant factors
such as the currency in which the financial asset is denominated, and the period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual
cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely
payments of principal and interest on the amount outstanding. In such cases, the financial asset is required to be
measured at FVPL.
Cash and cash equivalents
Cash and short-term deposits in the consolidated statement of financial position comprise cash at banks and on hand
and short-term deposits with a maturity of three months or less.
For all financial instruments measured at amortised cost and debt financial assets, interest income is recorded using
the effective interest rate method. Interest income is recognized in the consolidated statement of comprehensive
income.
Impairment of financial assets
The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value
through profit or loss.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate.
The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are
integral to the contractual terms.
ECLs are recognized in two stages. For financial exposures for which there has not been a significant increase in credit
risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within
the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase
in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life
of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade and other receivables and contract assets, the Group applies a simplified approach in calculating ECLs.
Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime
ECLs at each reporting date. The Group has established a provision matrix that is based on its historical credit loss
experience, adjusted for forward-looking factors specific to the debtors and the economic environment.
The Group’s cash and cash equivalents have been assigned low credit risk based on the external credit ratings of major
banks and financial institutions.
Derecognition of financial assets and liabilities
A financial asset is removed from the consolidated statement of financial position when:
‒ The rights to receive cash flows from the asset have expired;
‒ The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay
the received cash flows in full without material delay to a third party under a “pass-through” arrangement; and
‒ Either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither
transferred nor retained substantially all the risks and rewards of the asset but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained all of the risks and rewards of the asset, nor transferred control
of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower
of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required
to repay.
Financial liabilities and equity instruments issued by the Group
Treasury shares
If the Group reacquires its own equity instruments, those instruments (treasury shares) are recognized as a deduction
to equity at cost, being the consideration paid to reacquire the shares. No gain or loss is recognized in profit
or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. On disposal the cost
of treasury shares is written off using weighted average method. Any difference between the carrying amount and
the consideration, if reissued, is recognized in the share premium.
Treasury shares carry no voting rights and pay no dividend. Treasury shares are used to settle share-based payments
during the period.
Share premium
Share premium represents the difference between the fair value of consideration received and nominal value
of the issued shares. Share premium also includes a difference between the carrying amount of treasury shares and fair
value of consideration transferred in business combination.
Earnings per share
Earnings per share have been determined using the weighted average number of the Group’s shares outstanding during
the 12 months ended 31 December 2019 and 2018.
Classification as debt or equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance
of the contractual arrangement.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its
liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Financial liabilities
Financial liabilities of the Group, including borrowings and trade and other payables, are initially measured at fair value,
net of transaction costs, and subsequently measured at amortised cost using the effective interest rate method.
Derecognition of financial liabilities
The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled
or they expire.
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Summary of significant accounting policies (continued)
Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the consolidated statement
of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an
intention to settle on a net basis, to realise the assets and settle the liabilities simultaneously. The right to offset should
not be caused by a future event and should be legally enforceable in all the following cases:
‒ operating activity;
‒ default;
‒ insolvency or bankruptcy of the Group or any of counterparties.
Fair value of financial instruments
The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference
to quoted market prices or dealer price quotations (bid price for long positions and ask price for short positions), without
any deduction for transaction costs.
For financial instruments not traded in an active market, the fair value is determined using appropriate valuation
techniques. Such techniques may include using recent arm’s length market transactions; reference to the current fair
value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.
4.1.
Change in the method of allocating vendor rebates
Following changes in its strategy aimed to improve operating efficiency in 2019 the Group enhanced its inventory
management system as well as business processes that allow the Group among other to manage and perform analysis
of inventories on a more detailed basis and align it with the new operating and strategic goals of the Group. As part
of these changes the Group also changed its methodology of vendor rebates allocation as management believes that
the new approach provides more relevant information by categories of products and it aligns to the industry practice
and aids comparability. The Group has applied changes of vendor rebates allocation between closing inventories and
cost of goods sold methodology retrospectively.
The tables below summarise the impact of applying the new method on the comparatives included in the consolidated
financial statements as at and for the year ended 31 December 2019:
Impact on the consolidated statement of financial position (increase/(decrease) per line item):
Current assets
Inventories
Total current assets
Total assets
Equity and liabilities
Retained earnings
Total equity
Non-current liabilities
Deferred tax liabilities
Total non-current liabilities
Total equity and liabilities
31 December 2018
1 January 2018
(5,868,454)
(5,495,227)
(5,868,454)
(5,495,227)
(5,868,454)
(5,495,227)
(4,694,763)
(4,396,182)
(4,694,763)
(4,396,182)
(1,173,691)
(1,099,045)
(1,173,691)
(1,099,045)
(5,868,454)
(5,495,227)
Impact on the consolidated statement of comprehensive income for the year ended 31 December 2018 (increase/
(decrease) in income, decrease/(increase) in expenses):
Cost of sales
Gross profit
Profit before tax
Income tax expense
Profit for the year
Total comprehensive income for the year, net of tax
Total comprehensive income for the year, net of tax, attributable to shareholders of the parent
Basic and diluted earnings for the year attributable to shareholders of the parent
2018
(373,226)
(373,226)
(373,226)
74,645
(298,581)
(298,581)
(298,581)
(2.96)
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The impact of adoption of IFRS 16 on the consolidated statement of financial position as at 31 December 2018 is
presented below (increase/(decrease) per line item):
4.1.
Change in the method of allocating vendor rebates (continued)
Impact on the consolidated statement of cash flows for the year ended 31 December 2018:
Cash flows from operating activities
Profit before tax
Cash flows from operating activities before changes in working capital
Increase in inventory
Cash generated from operations
2018
(373,226)
(373,226)
373,226
–
Assets
Property, plant and equipment
Right-of-use assets
Land lease rights
Intangible assets
Advances paid
4.2.
New and amended standards and interpretations
Except for the changes mentioned above and adoption of new standards and interpretations effective
as at 1 January 2019, as described below, the accounting policies adopted in the preparation of the consolidated
financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial
statements for the year ended 31 December 2018. The Group has not early adopted any other standards, interpretations
or amendments that have been issued but are not yet effective.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement
Contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure
of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting
for finance leases under IAS 17.
The Group adopted IFRS 16 using the full retrospective method of adoption. This approach requires that the figures
for each affected equity component at the beginning of the earliest of the prior periods presented and any other
comparatives disclosed for each of the prior periods presented should be adjusted retrospectively as if the standard had
always been applied.
In accordance with the full retrospective method, the Group applied IFRS 16 at the date of initial application, as if it had
been applied since the commencement dates of the existing leases. The comparative information contained in these
consolidated financial statements, has been restated accordingly.
The Group elected to use the following practical expedients permitted in the standard:
‒ For all types of underlying assets, each lease component and any related components that are not a lease will
be accounted for as one lease component.
‒ Lease payments under contracts with lease term of not more than 12 months in relation to all types of underlying
assets, with the exception of land and buildings, will, as before, be recognized as expenses in the consolidated
statement of comprehensive income on a straight-line basis over the lease term.
Equity attributable to shareholders of the parent company
Retained earnings
Total equity
Liabilities
Long-term lease liabilities
Deferred tax liabilities
Trade and other payables
Short-term lease liabilities
Total liabilities
Total equity and liabilities
31 December 2018
1 January 2018
(4,317,977)
(3,165,693)
285,969,493
266,737,158
(2,196,180)
(2,373,022)
(1,765,290)
(207,178)
(751,504)
(985,755)
277 482 868
259 461 184
(36,167,118)
(26,771,443)
(36,167,118)
(26,771,443)
290,581,189
266,335,407
(9,046,636)
(6,692,862)
(44,624)
–
32,160,057
26,590,082
313,649,986
286,232,627
277,482,868
259,461,184
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Purchase of intangible assets (decrease)
Purchase of land lease rights (decrease)
Net cash used in investing activities (decrease)
Repayment of lease liabilities (increase)
Net cash used in financing activities (increase)
2018
1,196,960
847
2,302,680
(24,524,467)
(24,524,467)
The Group changed presentation of deferred tax assets recognized as a result of the first adoption of IFRS 16 as at 31
December 2018 compared to previously issued interim condensed consolidated financial statements for the six-month
period ended 30 June 2019, and presented deferred tax asset of RUB 9,046,636 thousand on a net basis with deferred
tax liability as at 31 December 2018.
Effect of first adoption of IFRS 16
The Group’s lease agreements are mainly represented by lease agreements for retail store facilities. Prior to adopting
IFRS 16, the Group (as lessee) classified each of its leases at the inception as an operating lease. In case of operating
leases, lease payments were capitalized until the retail outlet was opened, and were subsequently recognized on a
straight-line basis over the lease term as lease expenses in the consolidated statement of comprehensive income. All
prepaid and accrued lease payments were recognized, respectively, as “Advances paid” and “Trade and other payables”.
Upon adoption of IFRS 16, the Group has adopted a uniform approach for all leases where it is a lessee, except for short-
term leases and leases of low-value assets. The Group recognized lease liabilities to make lease payments and right-
of-use assets representing the right to use the underlying assets.
In accordance with the full retrospective method of adoption, the Group applied IFRS 16 at the date of initial application
as if it had already been effective at the commencement date of existing lease contracts.
4.2.
New and amended standards and interpretations (continued)
The impact of adoption of IFRS 16 on the consolidated statement of comprehensive income for 2018 is presented below:
General and administrative expenses (decrease)
Finance costs (increase)
Gain on lease cancellation/reduction
Foreign exchange gain (loss)
Profit before tax (decrease)
Income tax expense (decrease)
Profit (decrease)
2018
16,964,596
(30,405,545)
1,804,180
(107,825)
(11,744,594)
2,348,919
(9,395,675)
Total comprehensive income for the year, net of tax, attributable to shareholders of the parent (decrease)
(9,395,675)
Basic and diluted profit for the year attributable to shareholders of the parent (decrease)
(92,89)
The impact of adoption of IFRS 16 on the consolidated statement of cash flows for 2018 is presented below:
Cash flows from operating activities
Profit before tax (decrease)
Adjustments for:
2018
(11,744,594)
Depreciation and impairment of property, plant and equipment and right-of-use assets (increase)
36,833,265
Amortization of intangible assets (decrease)
Loss from disposal of land lease rights (decrease)
Loss from disposal of intangible assets (decrease)
Foreign exchange loss (increase)
Finance costs (increase)
Gain on lease derecognition (increase)
Operating cash flows before working capital changes (increase)
Decrease in advances paid (decrease)
Increase in trade and other payables (increase)
Cash generated from operations (increase)
Interest paid (increase)
Net cash from operating activities (increase)
Purchase of property, plant and equipment (decrease)
(197,190)
(25,789)
(16,524)
107,825
30,405,545
(1,804,180)
53,558,358
(778,577)
(152,449)
52,627,332
(30,405,545)
22,221,787
1,104,873
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4.2.
New and amended standards and interpretat (continued)
As at 31 December 2018 (1 January 2018):
‒ Right-of-use assets of RUB 285,969,493 thousand (RUB 266,737,158 thousand) were recognized separately.
‒ Lease liabilities of RUB 322,741,246 (RUB 292,925,489 thousand) were recognized and included in “Long-term lease
liabilities” and “Short-term lease liabilities”.
‒ Advances paid of RUB 207,178 thousand (RUB 985,755 thousand) and trade and other payables of RUB 44,624
thousand (RUB 0 thousand) related to previously recognized advances and accruals under operating leases were
derecognized.
‒ Deferred tax liabilities were reduced by RUB 9,046,636 thousand (RUB 6,692,862 thousand) to reflect the impact
of changes in assets and liabilities on deferred taxes.
‒ The net effect of these adjustments of RUB 36,167,118 thousand (RUB 26,771,443 thousand) was charged to retained
earnings.
Year ended 31 December 2018:
‒ Depreciation and amortization expense increased in aggregate by RUB 36,636,075 thousand because
of depreciation of recognized additional right-of-use assets, net of decrease in the carrying amount of “Property,
plant and equipment” and “Intangible assets”.
‒ Rent and utility expenses in “General and administrative expenses” related to leases previously classified
as operating leases decreased by RUB 53,600,671 thousand.
‒ Finance costs increased by RUB 30,405,545 thousand due to recognition of interest expense on additional lease
liabilities.
‒ Other income increased by RUB 1,804,180 thousand due to cancelation of previously recognized operational lease
liabilities.
‒ Income tax expense decreased by RUB 2,348,919 thousand as a result of the tax effect of the above changes
in income and expenses.
‒ Net cash from operating activities increased by RUB 22,221,787 thousand, net cash used in investing activities
decreased by RUB 2,302,680 thousand and net cash used in finance activities increased by RUB 24,524,467
thousand, reflecting payments of the principal amount, recognized lease liabilities and lease interest.
IFRIC 23 Uncertainty over Income Tax Treatment
The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects
the application of IAS 12 Income Taxes. It does not apply to taxes or levies outside the scope of IAS 12, nor does
it specifically include requirements relating to interest and penalties associated with uncertain tax treatments.
The Interpretation specifically addresses the following:
‒ Whether an entity considers uncertain tax treatments separately;
‒ The assumptions an entity makes about the examination of tax treatments by taxation authorities;
‒ How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates;
‒ How an entity considers changes in facts and circumstances.
An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more
other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed.
The Group applies significant judgement in identifying uncertainties over income tax treatments, particularly those
relating to transfer pricing. The Company’s and the subsidiaries’ tax filings in different jurisdictions include deductions
related to transfer pricing, and the taxation authorities may challenge those tax treatments. The Group determined,
based on its tax compliance and transfer pricing study, that it is probable that its tax treatments (including those for
the subsidiaries) will be accepted by the taxation authorities.
The interpretation had no impact on the consolidated financial statements of the Group.
Amendments to IFRS 9 Prepayment Features with Negative Compensation
Under IFRS 9, a debt instrument can be measured at amortised cost or at fair value through other comprehensive
income, provided that the contractual cash flows are ‘solely payments of principal and interest on the principal amount
outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for that classification.
The amendments to IFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an event or circumstance
that causes the early termination of the contract and irrespective of which party pays or receives reasonable
compensation for the early termination of the contract. These amendments had no impact on the consolidated financial
statements of the Group.
Amendments to IAS 19 Plan Amendment, Curtailment or Settlement
The amendments to IAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during
a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during
the annual reporting period, an entity is required to determine the current service cost for the remainder of the period
after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined
benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event.
An entity is also required to determine the net interest for the remainder of the period after the plan amendment,
curtailment or settlement using the net defined benefit liability (asset) reflecting the benefits offered under the plan and
the plan assets after that event, and the discount rate used to remeasure that net defined benefit liability (asset).
These amendments had no impact on the consolidated financial statements of the Group.
Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures
The amendments clarify that an entity applies IFRS 9 to long-term interests in an associate or joint venture to which
the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture
(long-term interests). This clarification is relevant because it implies that the expected credit loss model in IFRS 9
applies to such long-term interests.
The amendments also clarified that, in applying IFRS 9, an entity does not take account of any losses of the associate
or joint venture, or any impairment losses on the net investment, recognized as adjustments to the net investment
in the associate or joint venture that arise from applying IAS 28 Investments in Associates and Joint Ventures.
These amendments had no impact on the consolidated financial statements of the Group.
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4.2.
New and amended standards and interpretat (continued)
4.3.
Standards issued but not yet effective
Annual improvements, 2015-2017 cycle
IFRS 3 Business Combinations
The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies
the requirements for a business combination achieved in stages, including remeasuring previously held interests
in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously
held interest in the joint operation. These amendments had no impact on the consolidated financial statements
of the Group, as the Group does not engage in such transactions.
IFRS 11 Joint Arrangements
A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint
operation in which the activity of the joint operation constitutes a business as defined in IFRS 3. The amendments
clarify that the previously held interests in that joint operation are not remeasured. These amendments had no impact
on the consolidated financial statements of the Group, as the Group does not engage in transactions in which it obtains
joint control.
IAS 12 Income Taxes
The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions
or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income
tax consequences of dividends in profit or loss, other comprehensive income or equity according to where it originally
recognized those past transactions or events.
When an entity first applies those amendments, it applies them to the income tax consequences of dividends
recognized on or after the beginning of the earliest comparative period.
As the current policy of the Group complies with the requirements of the amendments, their application had no impact
on the consolidated financial statements of the Group.
IAS 23 Borrowing Costs
The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop
a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are
complete.
The entity applies the amendments to borrowing costs incurred on or after the beginning of the annual reporting period
in which the entity first applies those amendments.
As the current policy of the Group complies with the requirements of the amendments, their application had no impact
on the consolidated financial statements of the Group.
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance
of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards
and interpretations, if applicable, when they become effective.
IFRS 17 Insurance Contracts
In May 2017, the IASB issued IFRS 17 Insurance Contracts (IFRS 17), a comprehensive new accounting standard for
insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will
replace IFRS 4 Insurance Contracts that was issued in 2005.
IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless
of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary
participation features.
A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance
contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely
based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance
contracts, covering all relevant accounting aspects.
The core of IFRS 17 is the general model, supplemented by:
‒ A specific adaptation for contracts with direct participation features (the variable fee approach);
‒ A simplified approach (the premium allocation approach) mainly for short-duration contracts.
I
FRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required. Early
application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17.
This standard is not applicable to the Group.
Amendments to IFRS 3: Definition of a Business
The IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine
whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for
a business, remove the assessment of whether market participants are capable of replacing any missing elements, add
guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and
of outputs, and introduce an optional fair value concentration test.
An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning
of the first annual reporting period beginning on or after 1 January 2020. Accordingly, an entity is not required to review
such transactions occurred in earlier periods. Early application is permitted and must be disclosed.
Since the amendments apply prospectively to transactions or other events that occur on or after the date of first
application, the Group will not be affected by these amendments on the date of transition.
Amendments to IAS 1 and IAS 8: Definition of Material
In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and
to clarify certain aspects of the definition. The new definition states that, ‘Information is material if omitting, misstating
or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial
statements make on the basis of those financial statements, which provide financial information about a specific
reporting entity’.
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Standards issued but not yet effective (continued)
5.
Significant accounting judgements and estimates
The amendments clarify that materiality depends on the nature or magnitude of information, or both. An entity needs
to assess whether the information, either individually or in combination with other information, is material in the context
of the financial statements.
In the application of the Group’s accounting policies, management is required to make judgments, estimates and
assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical experience and other factors that are considered
to be relevant. Actual results may differ from these estimates.
The amendments must be applied prospectively and are effective for annual reporting periods beginning on or
after 1 January 2020. Early application is permitted and must be disclosed. The amendments to the definition of material
are not expected to have a significant impact on the Group’s consolidated financial statements.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and future periods.
Interest Rate Benchmark Reform: Amendments to IFRS 9, IAS 39 and IFRS 7
The amendments will affect entities that apply the hedge accounting requirements of IFRS 9 or IAS 39 to hedging
relationships affected by the interest rate benchmark reform.
‒ The amendments modify specific hedge accounting requirements, so that entities would apply those requirements
assuming that the interest rate benchmark is not altered as a result of the interest rate benchmark reform.
‒ The changes will mandatorily apply to all hedging relationships carrying interest rate risk that are affected
by the Reform.
‒ The amendments are not intended to provide relief from any consequences arising from the Reform. If a hedging
relationship no longer meets the requirements for hedge accounting for reasons other than those specified
by the amended standards, then discontinuation of hedge accounting is still required.
The amendments apply prospectively and are effective for annual reporting periods beginning on or
after 1 January 2020, with earlier application permitted. The amendments are applied retrospectively to those hedging
relationships that existed at the beginning of the reporting period in which an entity first applies the amendments
or were designated thereafter, and to the gain or loss recognized in other comprehensive income that existed
at the beginning of the reporting period in which an entity first applies the amendments. Specific disclosures are
required for the effect of the amendments on the entity’s hedging relationships.
The Group is evaluating the impact of the amendments on its consolidated financial statements.
IAS 1 Presentation of Financial Statement (the amendments) to specify the requirements for classifying liabilities
as current or non-current.
The International Accounting Standards Board (IASB or the Board) issued amendments to paragraphs 69 to 76 of IAS 1
Presentation of Financial Statements (the amendments) to specify the requirements for classifying liabilities as current
or non-current. The amendments clarify:
‒ What is meant by a right to defer settlement
‒ That a right to defer must exist at the end of reporting period
‒ That classification is unaffected the likelihood that an entity will exercise its deferral right
‒ That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of liability
not impact its classification
The amendments are effective for annual reporting periods beginning on or after 1 January 2022 (early application
is permitted). The amendments to the definition of material are not expected to have a significant impact on the Group’s
consolidated financial statements.
Judgements
Lease term for contracts with a renewal option
The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an
option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate
the lease, if it is reasonably certain not to be exercised.
Under some of its leases, the Group has the option to lease the assets for an additional term, generally of one to ten
years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew.
That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After
the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances
that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change
in business strategy).
Interest rate of additional sources of funding
The Group determines lease liabilities by discounting lease payments and applying interest rate implicit in lease
contracts. If the rate cannot be readily determined, the Group applies the interest rate of additional sources of funding
adjusted by specific lease conditions which the Group will pay:
‒ under conditions similar to lease conditions;
‒ in the amount equal to the right-in-use asset;
‒ in comparable market conditions.
Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date,
that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Group based its assumptions and estimates on parameters available
when the consolidated financial statements were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or circumstances arising that are beyond the control
of the Group. Such changes are reflected in the assumptions when they occur.
Valuation of inventory
Management reviews inventory balances to determine if the inventories can be sold at a price equal to or greater
than their carrying amount plus costs to sell. The review also identifies slow-moving inventories that are written-off
if obsolete or during physical inventory counts.
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5.
Significant accounting judgements and estimates (continued)
Impairment of assets
The Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets
are impaired. Impairment exists when the carrying amount of an asset or cash-generating unit exceeds its recoverable
amount, which is the higher of its fair value less costs to sell and its value in use. In making the assessment for
impairment, assets that do not generate independent cash flows are allocated to an appropriate cash-generating unit.
Management necessarily applies judgment in allocating assets that do not generate independent cash flows
to appropriate cash-generating units and also in estimating the timing and value of underlying cash flows within
the value in use calculation. In determining the value in use, future cash flows are estimated for each store based
on cash flow projections using the latest budget information available.
The discounted cash flow model requires numerous estimates and assumptions regarding the future rates of market
growth, market demand for the products and future return on sales.
Due to their subjective nature, these estimates will likely differ from actual future results of operations and cash flows,
and it is possible that these differences could be material.
Fair value measurement of financial instruments
When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot
be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including
the discounted cash flow model. The inputs to these models are taken from observable markets where possible,
but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include
considerations of inputs such as liquidity risk, credit risk and volatility.
Useful lives of property, plant and equipment, including leasehold improvements
The Group’s property, plant and equipment are depreciated using the straight-line method over their estimated useful
lives, which are determined based on the Group management’s business plans and estimates related to those assets.
The Group’s management periodically reviews the appropriateness of the useful economic lives. The review is based
on the current condition of the assets, the estimated period during which they will continue to bring economic benefits
to the Group, historical information on similar assets and industry trends.
As a result of such analysis, the Group’s management decided to change the useful lives of certain groups of property,
plant and equipment. Thus, the useful life for own buildings has increased from 30 to 50 years. The useful lives for most
types of leasehold improvements made by the Group to rented stores changed from 30 to 10 years, aligning them with
the terms of leases, the frequency of revision of extension options, planned rebranding and overhauls in accordance
with changes in the Group’s strategy. As a result of the change in the above useful lives, depreciation charges across
the Buildings and Structures category for 2019 increased by RUB 3,335,129 thousand. The change will also affect future
periods.
Taxation
The Group is subject to income tax and other taxes. Significant judgment is required in determining the liability for
income tax and other taxes due to the complexity of the Russian tax legislation. There are many transactions and
calculations for which the ultimate tax position determination is uncertain.
The Group recognizes liabilities for anticipated tax audit issues based on estimates of whether it is probable that
additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially
recorded, such differences will impact the amount of tax and tax provisions in the period in which such determination
is made.
Expected credit losses for trade and other receivables and contract assets
The Group uses a provision matrix to calculate expected credit losses (ECL) for trade receivables and contract assets.
The provision rates are based on days past due for groupings of various customer segments that have similar loss
patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms
of credit insurance).
The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix
to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic
conditions (i.e., gross domestic product) are expected to deteriorate over the next year, which can lead to an increased
number of defaults in the food manufacturing sector, the historical default rates are adjusted. At every reporting date,
the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
Expected credit losses for trade and other receivables and contract assets
The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable
information that is available at the reporting date about past events, current conditions and forecasts of future
economic conditions. Past events that caused credit losses and forecasts of future economic conditions also may not
be representative for actual default of a customer in future.
6.
Balances and transactions with related parties
The Group enters into transactions with related parties in the ordinary course of business. The Group purchases food
products, materials for construction and equipment from related parties, provides and receives loans and acquires
construction services. Related parties of the Group are represented by the shareholders that have significant influence
over the Group, and counterparties that are affiliated with the Group through key management (other related parties).
Bank VTB PJSC and VTB Capital JSC represent the related parties being shareholders of the group and having
significant influence of the Group. Transactions with related parties are made on terms not necessarily available to third
parties.
Related party balances as at 31 December 2019 and 2018 consisted of the following:
Loans payable (Note 21)
Other payables (Note 18)
Advances received
Other receivables
Short-term loans given
Long-term financial assets
Advances paid (Note 14)
Shareholders
Other related parties
31 December 2019
31 December 2018
31 December 2019
31 December 2018
33,200,000
28,200,000
94,502
3,585
1,834
–
–
–
2,633
1,967
190
–
–
–
–
58
–
–
247,761
–
–
–
93,288
298
24,933
181,196
50,000
24,364
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6.
Balances and transactions with related parties (continued)
7. Business combinations
The Group’s transactions with related parties for the years ended at 31 December 2019 and 2018 consisted
of the following:
Acquisition of MF-SIA LLC
On 27 November 2018, the Group acquired 100% of shares of MF-SIA LLC, and obtained control over the SIA group
of companies (SIA Group). All legal entities of the SIA Group are based in the Russian Federation and are non-listed.
Shareholders
Other related parties
2019
2018
2019
2018
The SIA Group specialises in wholesale purchases and resale of pharmaceuticals and medical supplies. The Group has
licenses to perform pharmaceutical activities and contracts with many major manufacturers of pharmaceutical products
and medical goods in Russia and globally.
Loans received
Repayment of loans received
Interest expense
Other expense
Investment income
Repayment of loans given
Rent and utilities income
Other income
Purchases of inventory
Loans given
Purchase of property, plant and equipment
Purchase of intangible assets
Rent expense
Wholesale revenue
No guarantees have been given or received.
5,218,552
28,200,000
2,784,279
2,565,727
42,995
14,611
15,202
26,632
19,809
-
–
–
–
27,368
–
898,389
898,389
45,599
17,117
16,542
15,931
8,052
–
–
–
–
–
–
–
–
–
–
30,228
278,721
73
–
911,273
236,780
171,232
45,248
2,683
–
1,333,881
1,169,174
71,473
109,053
9,024
67,595
30,909
819,223
3,608,331
125,857
117,922
38,777
16,709
68
No significant expense has been recognized in the period for expected credit losses on amounts due from related
parties.
The Group entered into a number of agreements with related parties to obtain long-term loans of up to RUB 60,000,000
thousand maturing up to May 2023.
Short-term compensation to the Group’s management and Board of Directors in 2019 totaled RUB 2,067,900 thousand
(2018: RUB 908,822 thousand). Compensation to management consisted of contractual remuneration, social
contributions and payments to members of the Board of Directors. In addition, share-based payments were awarded
to key management personnel of the Group for 2019, relevant information is disclosed in Note 31.
The Group acquired SIA Group with the purpose of developing logistic capacities and improving performance of Magnit
Cosmetic and Magnit Pharmacy stores by using the acquired companies’ expertise in pharmacy retail, their existing
portfolio of direct contracts with pharmaceuticals manufacturers, and licensed and automated warehouse logistics.
Assets acquired and liabilities assumed
The assets and liabilities of the SIA Group recognized in the consolidated financial statements as at 31 December 2018
were presented based on a provisional assessment of their fair values, as the Group had not finalized the valuation
and allocation of the purchase price by the date of issue of the consolidated financial statements for the year ended 31
December 2018. Also, the Group has not finalized the fair value assessment of some assets (including deferred tax
assets) and liabilities (contingent liabilities and provisions), as the Group has not received all comprehensive information
about the facts and circumstances as at the valuation date.
In October 2019, the Group finalised an independent valuation of the property and intangible assets owned by the SIA
Group, as well as trade receivables, inventories, deferred tax assets, contingent liabilities and provisions. The Group
concluded that the deferred tax asset of RUB 2,649,636 thousand previously recognized in the 2018 financial
statements in the provisional fair value assessment of the SIA Group’s assets and liabilities is not recoverable. The fair
value of the property, plant and equipment at the date of acquisition was RUB 4,766,411 thousand, i.e., RUB 1,175,996
thousand above the provisional estimate.
Comparative information for 2018 was restated to reflect the adjustments to the provisional estimate and purchase price
allocation. As a result, the recognized goodwill increased by RUB 2,787,809 thousand. The adjusted amount of goodwill
on acquisition is therefore RUB 25,511,824 thousand.
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7.
Business combinations (continued)
The adjusted fair value of assets and liabilities of the SIA Group at the acquisition date is as follows:
Assets
Property, plant and equipment (Note 8)
Right-of-use assets (Note 9)
Intangible assets (Note 10)
Long-term receivables
Deferred tax assets (Note 28)
Inventory
Trade and other receivables
Cash and cash equivalents
Taxes receivable
Advances paid
Liabilities
Short-term loans and borrowings
Trade and other payables
Accrued expenses
Taxes payable
Total identifiable net liabilities at fair value
Goodwill arising on acquisition (Note 11)
Consideration transferred on acquisition
Final fair value estimate
recognized on acquisition
Provisional fair value
estimate recognized
on acquisition
4,766,411
208,199
12,776
800,468
–
2,380,439
4,101,778
187,758
712,732
886
5,942,408
–
12,776
–
2,649,636
2,150,364
4,251,463
187,758
712,732
886
Adjustments
(1,175,997)
208,199
–
800,468,
(2,649,636)
230,075
(149,685)
–
–
–
13,171,447
15,908,023
(2,736,576)
11,691,781
20,359,795
999,045
335,045
33,385,666
(20,214,220)
25,511,824
5,297,604
11,691,781
20,387,412
920,195
335,045
33,334,433
(17,426,411)
22,724,015
5,297,604
–
(27,617)
78,850
–
51,233
(2,787,809)
2,787,809
–
The carrying value of amount of trade receivables is RUB 4,902,246 thousand. The fair value of trade receivables
approximates their carrying value. Trade receivables are not impaired, and it is expected that the full contractual
amounts will be collected.
The goodwill of RUB 25,511,824 thousand is attributable to expected synergies arising from the acquisition. The entire
amount of goodwill is allocated the cash generating unit, which includes Group activities within Magnit Cosmetic and
Magnit Pharmacy formats, including the related stores and warehouses. The recognized goodwill is not expected to be
tax-deductible partly or in full.
From the date of acquisition, SIA Group contributed RUB 2,009,308 thousand of revenue and RUB 150,723 thousand
to profit before tax from continuing operations of the Group.
Before the business combination the SIA Group did not prepare financial statements under the IFRS accounting policy
of the Group, therefore the assessment of the impact on revenue and profit before tax of the Group as if the combination
had taken place at the beginning of the year is practically impossible.
The Group purchased 1,513,601 own ordinary shares and transferred them as purchase consideration for 100% of
shares of SIA Group. The fair value of the shares is calculated by reference to their quoted price. Under the business
combination the fair value of the consideration was calculated as the multiplication of the quantity of equity instruments
to be transferred under the contract and the share price of one voting non-documentary registered share in the share
capital of PJSC Magnit based on market quotes at the date of acquisition of MF-SIA LLC. The value of one share
at the date of acquisition was RUB 3,500. The fair value of the consideration given was RUB 5,297,604 thousand.
The Group transferred its own shares as the consideration for acquisition of MF-SIA LLC.
Transaction costs of RUB 259,504 thousand were included in administrative expenses in the consolidated statement
of comprehensive income for 2018.
Cash and cash equivalents of the SIA Group at the acquisition date are included in cash flows from investing activities
in the consolidated statement of cash flows for the year ended 31 December 2018.
8.
Property, plant and equipment
Property, plant and equipment as at 31 December 2019 consisted of the following:
Land
Buildings
Machinery and
equipment
Other assets
Assets under
construction
Total
Cost
At 1 January 2019
14,004,240
294,355,010
114,262,265
43,165,668
23,156,927
488,944,110
Additions
Capitalization
Disposals
19,019
–
22,869,304
1,723,433
30,024,652,
54,636,408
–
40,690,438
–
–
(40,690,438)
–
(9,683)
(7,967,388)
(5,886,738)
(2,623,593)
(162,049)
(16,649,451)
At 31 December 2019
14,013,576
327,078,060
131,244,831
42,265,508
12,329,092
526,931,067
Accumulated depreciation
and impairment
At 1 January 2019
Charge for the period
Impairment
Disposals
At 31 December 2019
Net book value
–
–
–
–
–
(50,803,350)
(71,203,070)
(22,100,208)
(21,212,009)
(17,760,147)
(4,934,458)
–
–
(144,106,628)
(43,906,614)
(1,264,805)
(21,144)
(947)
(264,200)
(1,551,096)
7,820,139
5,230,515
2,568,604
–
15,619,258
(65,460,025)
(83,753,846)
(24,467,009)
(264,200)
(173,945,080)
At 1 January 2019
14,004,240
243,551,660
43,059,195
21,065,460
23,156,927
344,837,482
At 31 December 2019
14,013,576
261,618,035
47,490,985
17,798,499
12,064,892,
352,985,987
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8.
Property, plant and equipment (continued)
Property, plant and equipment as at 31 December 2018 consisted of the following:
Land
Buildings
Machinery and
equipment
Other assets
Assets under
construction
Total
Cost
At 1 January 2018
(as reported)
16,040,282
267,229,195
104,253,052
40,221,686
21,650,557
449,394,772
Adjustment (Note 4.2)
(1,991,026)
(1,201,622)
–
–
(5,166)
(3,197,814)
Cost (as restated)
14,049,256
266,027,573
104,253,052
40,221,686
21,645,391
446,196,958
Additions
49,661
153,250
14,693,139
5,446,876
30,155,739
50,498,665
Acquisition of subsidiary
(Note 7)
Capitalization
Disposals
412,694
3,967,287
217,909
67,108
101,413
4,766,411
–
28,419,534
–
–
(28,419,534)
–
(507,371)
(4,212,634)
(4,901,835)
(2,570,002)
(326,082)
(12,517,924)
At 31 December 2018
14,004,240
294,355,010
114,262,265
43,165,668
23,156,927
488,944,110
Accumulated depreciation
and impairment
At 1 January 2018 (as
reported)
Adjustment (Note 4.2)
Accumulated depreciation
(as restated)
Charge for the year
Impairment for the year
Disposals
At 31 December 2018
Net book value
–
–
–
–
–
–
–
(40,344,375)
(60,350,243)
(18,873,251)
32,121
–
–
(40,312,254)
(60,350,243)
(18,873,251)
(14,965,758)
(15,176,110)
(5,318,282)
–
–
–
4,474,662
4,323,283
2,091,325
(50,803,350)
(71,203,070)
(22,100,208)
–
–
–
–
–
–
–
(119,567,869)
32,121
(119,535,748)
(35,460,150)
–
10,889,270
(144,106,628)
At 1 January 2018
14,049,256
225,715,319
43,902,809
21,348,435
21,645,391
326,661,210
At 31 December 2018
14,004,240
243,551,660
43,059,195
21,065,460
23,156,927
344,837,482
In 2019, the weighted average capitalization rate on borrowed funds was 8.10% per annum (2018: 7.81%). The information
on interest expenses included in the cost of qualifying assets is disclosed in Note 27.
Impairment Property, plant and equipment and Right-of-use assets
Based on observed external evidence of impairment of non-current assets, except for goodwill, as at 31 December 2019,
the Group made a conclusion on the unfavourable market and economic conditions in the market where the Group
operated.
The Group tested the non-current assets with signs of impairment, including property and equipment and right-of-use
assets, for impairment. Based on the impairment testing, the Group recognized impairment losses of kRUB 1,458,360
for the tested assets, including impairment of property and equipment and right-of-use assets in the amount
of kRUB 1,038,962 and kRUB 419,399, respectively, in the consolidated statement of comprehensive income for the year
ended 2019.
In addition, the Group recognized losses from impairment of property and equipment resulting from a fire at the Group’s
distribution center in Voronezh and agricultural assets in the amount of kRUB 512,134 in the consolidated statement
of comprehensive income for the year ended 31 December 2019.
Group approach for impairment testing
Impairment test was carried out in the context of independent cash generating units (CGU). Such units for the Group are
each individual stores.
In determining units that generate substantially independent cash management of the Group considered a number
of factors, including how it controls performance of CGUs, how it make decisions about liquidation of assets
or continuance of CGU operations.
The Group compared recoverable amount of an individual CGU with its carrying amount for the purpose of impairment
test. The recoverable amount is measured as higher of its fair value less costs of disposal and its value in use.
From practical point of view, the Group does not disclose impairment by individual CGU due to significant volume
of information.
Main assumptions
Future cash flows are based on the current budgets and forecasts for 10 years period approved by the management
along with terminal value of forecasted free cash flows that are expected to be generated beyond the forecast period.
One the main assumption applied in the model of expected cash flows is increase of revenue by 3.7%.
Cash flow forecasts for capital expenditure are based on past experience and include ongoing capital expenditure
required to maintain the level of economic benefits from CGU in its current position.
Pre-tax discount rate represents the Group’s pre-tax weighted average cost of capital which is then adjusted to reflect
the risks specific to the respective assets and is equal to 10.74%.
The Group’s management believes that all of its estimates are reasonable and consistent with how the Group manages
its assets and operations and reflect management’s best knowledge.
Sensitivity analysis
The result of applying discounted cash flows model reflects expectations about possible variations in the amount and
timing of future cash flows. If the revised estimated discount rate consistently applied to the discounted cash flows had
been 0.5% higher than management’s estimates, the impairment of non-current assets would increase by RUB 163,704.
If the revised estimated discount rate consistently applied to the discounted cash flows had been 0.5% lower than
management’s estimates, the impairment of non-current assets would decrease by RUB 189,785. If the revenue rate
of growth had been 0.5% lower than management’s estimates, the impairment of non-current assets would decrease
by RUB 84,645.
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9.
Lease
Group as leassor
Right-of-use assets and lease liabilities
The carrying amounts of the Group’s right-of-use assets and their movements during the period is presented below:
As at 1 January 2019
281,326,403
4,851,289
286,177,692
Right-of-use assets
Buildings
Land
Total
Additions
Derecognition
Depreciation charge
Impairment charge (Note 8)
As at 31 December 2019
As at 1 January 2018
Additions
Business combinations (Note 7)
Derecognition
Depreciation charge
Impairment charge (Note 8)
As at 31 December 2018
77,216,535
(7,772,693)
(41,740,978)
(419,399)
472,138
(142,391)
(224,692)
–
77,688,673
(7,915,084)
(41,965,670)
(419,399)
308,609,868
4,956,344
313,566,212
Right-of-use assets
Buildings
262,039,719
61, 915,266
–
(5,906,506)
(36,722,076)
Land
Total
4,697,439
266,737,158
175,752
208,199
(57,740)
62,091,018
208,199
(5,964,246)
(172,361)
(36,894,437)
–
–
–
281,326,403
4,851,289
286,177,692
In 2019 depreciation of a right-of-use assets in the amount of RUB 724,932 thousand were capitalized to the value
of property, plant and equipment.
The carrying amounts of the Group’s lease liabilities and their movements during the period is presented below:
At 1 January
Increase in lease liabilities
Repayment of lease
Interest accrued
Interest paid
Lease derecognition
Foreign exchange (gain)/loss
At 31 December
Short-term liabilities
Long-term liabilities
Total
Short-term liabilities
Long-term liabilities
Total
31 December 2019
31 December 2018
(Restated)
322,741,247
292,925,489
77, 703,737
62, 004,170
(33,242,289)
(24,527,812)
32,414,202
30,405,545
(32,414,202)
(30,405,545)
(9, 900,264)
(7, 768,426)
(92,272)
107,825
357,210,159
322,741,246
Year of maturity
2020
2021-2069
Weighted
average effective
interest rate, %
9.08
8.94
Year of maturity
2019
2020-2069
Weighted
average effective
interest rate, %
9.54
9.41
31 December 2019
36,609,206
320,600,953
357,210,159
31 December 2018
32,160,057
290,581,189
322,741,246
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9.
Lease (continued)
Amounts recognized in profit or loss are presented below:
Depreciation and impairment of property, plant and equipment
Interest expense on the lease
Foreign exchange (loss)/gain
Gain on lease derecognition
31 December 2019
31 December 2018
(Restated)
41,660,136
36,894,437
32,414,202
30,405,545
(92,271)
107,825
(1,985,180)
(1,804,180)
Lease expenses related to short-term lease (included to General and administrative
expenses)
249,969
335,792
Lease expenses related to lease of low-value assets (included to General and
administrative expenses)
Variable lease payments (included to General and administrative expenses)
103,472
628,765
33,401
215,162
72,979,093
66,187,982
10.
Intangible assets
As at 31 December 2019, intangible assets consisted of the following:
Licenses
Lease rights
Software
Trademarks
Other
Total
As at 31 December 2018, intangible assets consisted of the following:
Licenses
Lease rights
Software
Trademarks
Other
Total
Cost
At 1 January 2018
(as reported)
266,432
838,516
2,383,011
29,706
113,238
3,630,903
Adjustment (Note 4.2)
–
(838,516)
–
–
–
(838,516)
Cost (as restated)
266,432
–
83,765
(67,651)
282,546
–
–
–
–
–
2,383,011
29,706
113,238
2,792,387
12,776
792,353
(551,544)
–
2,130
(115)
–
12,776
79,349
957,597
(70,570)
(689,880)
2,636,596
31,721
122,017
3,072,880
Adjustment (Note 4.2)
–
87,012
–
–
–
87,012
(134,425)
(87,012)
(1,081,804)
(2,963)
(56,739)
(1,362,943)
Business combination
(Note 7)
Additions
Disposals
At 31 December 2018
Accumulated amortisation
and impairment
At 1 January 2018 (as
reported)
Accumulated amortisation
(as restated)
Charge for the year
Disposals
(134,425)
(62,161)
58,025
–
–
–
–
–
–
(1,081,804)
(2,963)
(56,739)
(1,275,931)
(666,968)
(3,090)
(66,707)
(798,926)
551,544
115
69,442
679,126
(1,197,228)
(5,938)
(54,004)
(1,395,731)
1,301,207
1,439,368
26,743
25,783
56,499
1,516,456
68,013
1,677,149
Cost
At 1 January 2019
Additions
Disposals
At 31 December 2019
Accumulated amortisation
and impairment
At 1 January 2019
Charge for the year
Disposals
282,546
300,305
(78,970)
503,881
(138,561)
(88,854)
66,469
At 31 December 2019
(160,946)
Net book value
At 1 January 2019
At 31 December 2019
143,985
342,935
–
–
–
–
–
–
–
–
–
–
2,636,596
31,721
122,017
3,072,880
At 31 December 2018
(138,561)
2,890,995
(905,579)
871
–
45,110
3,237,281
(67,754)
(1,052,303)
4,622,012
32,592
99,373
5,257,858
Net book value
At 1 January 2018
At 31 December 2018
132,007
143,985
(1,197,228)
(5,938)
(54,004)
(1,395,731)
Amortization expense is included in general and administrative expenses (Note 27).
(825,120)
(3,252)
(59,363)
(976,589)
896,514
–
66,156
1,029,139
(1,125,834)
(9,190)
(47,211)
(1,343,181)
1,439,368
3,496,178
25,783
23,402
68,013
1,677,149
52,162
3,914,677
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11.
Goodwill
Goodwill as at 31 December 2019 and 2018 consisted of the following:
Goodwill as at beginning of the year
Goodwill impairment
Goodwill as at the end of the year
Goodwill as at beginning of the year
Goodwill arising on acquisition, at acquisition date (Note 7)
SIA acquisition adjustment (Note 7)
Goodwill impairment
Goodwill as at the end of the year
2019
26,879,317
–
26,879,317
2018
1,367,493
22,724,015
2 787 809
–
26,879,317
Carrying amount of goodwill allocated to each of the cash generated units:
Stores Magnit Cosmetic and Magnit Pharmacy formats
Manufactury company TD Holding LLC
Total
As at 31
December 2019
As at 31
December 2018
25,511,824
25,511,824
1,367,493
1,367,493
26,879,317
26,879,317
Stores Magnit Cosmetic and Magnit Pharmacy formats CGU
The Group also performed an annual impairment test on goodwill related to the acquisition of SIA Group as of 31
December 2019 and 2018. In assessing whether the goodwill has been impaired, the current value of CGU, comprising
Magnit Cosmetic and Magnit Pharmacy formats, to which the goodwill had been allocated in full was compared with its
estimated value in use.
For the purposes of annual impairment testing of goodwill from the acquisition of the SIA Group as of the acquisition
date, the value in use of the generating unit was determined using a discounted cash flow model. Future cash flows
were calculated based on forecast of operating cash flows, approved by the management of the Group, taking into
account inflation 2.8-3.2% (2018: 5%), expected synergies from acquisition, existing long-term contracts with suppliers
of pharmaceutical and medical goods, as well as other macroeconomic assumptions.
Future cash flows were determined based on the forecast of free cash flows for six years subject to the effect of their
terminal value.
The discount rate was determined based on the weighted average cost of capital of the Group and amounted to 10.74%
(2018: 16%). As a result of the analysis, there is headroom and management did not identify an impairment for this CGU.
Key assumptions used in value in use calculations and sensitivity to changes in assumptions
The calculation of value in use for the acquisition of the SIA Group business is most sensitive to the following
assumptions:
‒ Gross margin;
‒ Discount rate;
‒ Revenue growth.
Gross margin
The gross margin included in the forecast of Group’s activities in the cash-generating unit comprising the Magnit
Cosmetic and Magnit Pharmacy formats, including related stores and warehouses, is in the range from 43.8% to 44.6%
(2018: from 33.2% to 40.6%), in accordance with the approved strategic development plan and expected increased
efficiency of sales. A decrease in buyer demand may lead to a decrease in gross margin. A decrease in gross margin
by 5% would result in a decrease in expected operating cash flows but would not cause an impairment loss.
Discount rate
The discount rate calculation is based on the specific circumstances applicable to the Group and is derived from
its weighted average cost of capital (WACC). The WACC takes into account both debt and equity. The cost of equity
is derived from the expected return on investment by the Group’s investors. The cost of debt is based on the interest-
bearing borrowings the Group is obliged to service. Adjustments to the discount rate are made to factor in the specific
amount and timing of the future tax flows in order to reflect a pre-tax discount rate.
An increase in the pre-tax discount rate to 13.74% (i.e. + 3%) would reduce the expected discounted cash flows but
would not cause an impairment loss.
Revenue growth
One of the most significant assumptions used in the testing model is revenue growth for the forecast period, being
in the range from 11.1% to 28%. The forecast is based on Group’s activities in the cash-generating unit comprising
the Magnit Cosmetic and Magnit Pharmacy formats, including related stores and warehouses. The Group forecast
of the expected volume of sales is based on the approved strategic development plan for the forecast period, as well
as indicators of the expected consumer price index. The expected consumer price index is 2.8-3.2% (2018: 5%).
A decrease in customer demand may lead to a decline in sales. A decrease in revenue by 5% would result in a decrease
in expected operating cash flows but would not cause any impairment loss.
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11.
Goodwill (continued)
13.
Trade and other receivables
Manufactory company TD-holding LLC
The Group performed its annual impairment test on goodwill related to the acquisition of
TD-holding LLC as of 31 December 2019 and 2018. In assessing whether the goodwill has been impaired, the current
value of cash generating unit was compared with its estimated value in use.
Value in use was determined using a discounted cash flow model. Future cash flows were calculated based on forecast
of operating cash flows for ten years approved by the management of the Group, taking into account inflation 3.3%
(2018: 5%), demand for goods produced by TD-holding LLC, as well as other macroeconomic assumptions. The discount
rate was determined based on the weighted average cost of capital of the Group and amounted to 10.74% (2018: 16%).
The impairment test did not reveal any impairment of goodwill.
The Group’s management believes that all of its estimates are reasonable and consistent with the internal reporting and
reflect management’s best knowledge.
12.
Inventory
Inventory as at 31 December 2019 and 2018 consisted of the following:
Goods for resale (at lower of cost and net realisable value)
208,653,823
172,454,333
2019
2018
Materials and supplies
10,219,763
9,686,170
218,873,586
182,140,503
Materials and supplies are represented by spare parts, packaging materials and other materials used in hypermarkets,
stores and warehouses, as well as semi-finished goods of own production.
The Group accounted for the write down of inventories to their net realisable value within cost of sales
in the consolidated statement of comprehensive income for the year ended 31 December 2019 in the amount
of RUB 358,375 thousand (31 December 2018: RUB 1,287,546 thousand). These amounts are included in “Cost of sales”.
Trade and other receivables as at 31 December 2019 and 2018 consisted of the following:
Trade receivables – third parties
Other receivables – third parties
Other receivables – related parties (Note 6)
Expected credit losses
2019
2018
8,782,045
6,272,129
1,834
4,093,128
3,349,862
25,123
(1,062,568)
(656,795)
13,993,440
6,811,318
Other receivables mainly relate to vendor allowances.
Trade receivables are non-interest bearing and are generally repaid on a short-term basis within 90 days.
Trade receivables are mainly represented by accounts receivable from customers of the SIA Group, which was acquired
in November 2018. At the date of acquisition, the Group estimated the fair value of accounts receivable and recognized
it as identifiable asset (Note 7).
The Group uses a provision matrix to calculate expected credit losses (ECL) for trade receivables and contract assets.
The provision rates are based on days past due for groupings of various customer segments that have similar loss
patterns (i.e., by geography, product type, customer type and rating, and coverage by letters of credit and other forms
of credit insurance).
The provision matrix is initially based on the Group’s historical observed default rates. The Group will calibrate the matrix
to adjust the historical credit loss experience with forward-looking information. For instance, if forecast economic
conditions (i.e., gross domestic product) are expected to deteriorate over the next year, which can lead to an increased
number of defaults in the food manufacturing sector, the historical default rates are adjusted. At every reporting date,
the historical observed default rates are updated and changes in the forward-looking estimates are analysed.
The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable
information that is available at the reporting date about past events, current conditions and forecasts of future economic
conditions.
Set out below is the information about the credit risk exposure on the Group’s trade and other receivables as at 31
December 2019:
2019
ECL rate
Current
0.1-1.5%
3-5%
Carrying amount before ECL
12,482,031
1,251,200
ECL
25,024
37,536
Overdue
<90 days
Overdue
90-180 days
Overdue
180-360 days
Overdue
>360 days
Total
10-20%
168,101
33,620
50%
100%
376,577
188,289
778,099
15,056,008
778,099
1,062,568
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13.
Trade and other receivables (continued)
15.
Cash and cash equivalents
Set below is ageing analysis of trade and other receivables as at 31 December 2018:
2018
ECL rate
Current
0.1-1.5%
Overdue
<90 days
Overdue
90-180 days
Overdue
180-360 days
Overdue
>360 days
Total
3-5%
10-20%
50%
100%
Carrying amount before ECL
5,950,478
662,920
216,945
115,020
522,750
7,468,113
ECL
12,200
20,946
43,389
57,510
522,750
656,795
Set out below is the movement in the allowance for expected credit losses:
As at 1 January
Accrual of provision for expected credit losses
Release
As at 31 December
14.
Advances paid
Advances paid as at 31 December 2019 and 2018 consisted of the following:
Advances to third party suppliers
Advances for customs duties
Other advances
Advances to related party suppliers (Note 6)
2019
(656,795)
(505,958)
100,185
2018
(753,913)
(177,508)
274,626
(1,062,568)
(656,795)
2019
2018
4,904,086
4,666,315
751,668
114,204
–
710,629
46,495
24,364
5,769,958
5,447,803
Cash and cash equivalents as at 31 December 2019 and 2018 consisted of the following:
Cash on hand, in RUB
Cash in banks, in RUB
Cash in banks, in foreign currency
Cash in transit, in RUB
Cash placed on accounts with minimum account balance, in RUB
Deposits in foreign currency
2019
2,262,150
452,565
5,456
4,981,127
1,200,000
–
2018
2,255,279
4,795,522
20,765
8,746,776
9,540,000
1,389,412
8,901,298
26,747,754
Cash in transit represents cash collected by banks from the Group’s stores and not deposited in bank accounts and
bank card payments being processed as at 31 December 2019 and 2018.
As at 31 December 2019, cash of RUB 1,200,000 thousand was placed on accounts with minimum account balance
maturing in January 2020. Interest accrued as at 31 December 2019 was immaterial.
As at 31 December 2018, cash of RUB 1,389,412 thousand was placed in US dollar deposits, and cash of RUB 9,540,000
thousand in rubles was placed on accounts with minimum account balance maturing in January 2019. Interest accrued
as at 31 December 2018 was immaterial.
16.
Share capital, share premium and treasury shares
Authorized share capital (ordinary shares with a par value
of RUB 0.01)
Issued and fully paid share capital (par value of RUB 0.01 each)
Share premium at 1 January
Sale of treasury shares
Transfer of rights to equity instruments under share-based payments program
(Note 31)
Share premium at 31 December
2019 No.
(‘000)
200 850
200,850
101,911
2018 No.
(‘000)
200 850
200,850
101,911
2019
2018
87,257,340
87,635,960
–
(378,620)
122,073
–
87,379,413
87,257,340
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16.
Share capital, share premium and treasury shares (continued)
17.
Dividends declared
Balance of shares outstanding at beginning of financial year
Sale of treasury shares
Purchase of treasury shares
Transfer of treasury shares under share-based payments program (Note 31)
Transfer of treasury shares under employment contract with the Chief Executive
(Note 31)
2019 No.
(‘000)
98,665
–
(1,302)
105
82
2018 No.
(‘000)
101,911
1,514
(4,760)
–
–
Balance of shares outstanding at the end of financial year
97,550
98,665
In 2019, the Group declared dividends to shareholders relating to 2018 and the 9 months of 2019.
Dividends declared for 2018 (RUB 166.78 per share)
Dividends declared for 9 months 2019 (RUB 147.19 per share)
In 2018, the Group declared dividends to shareholders relating to 2017 and the 9 months of 2018.
In 2018, the Group transferred 1,513,601 treasury shares as consideration for acquiring a business (Note 7).
Dividends declared for 9 months 2018 (RUB 137.38 per share)
Dividends declared for 2017 (RUB 135.5 per share)
2019
16,370,754
14,445,374
2018
13,808,989
13,628,984
The fair value of the consideration transferred was RUB 5,297,604 thousand. The difference between the fair value
of the shares and their carrying amount was recorded as a decrease in share premium in the amount of RUB 378,620
thousand.
In 2018, the Group purchased 4,760,089 own ordinary shares at the open market for RUB 17,727,687 thousand.
In 2019, the Group purchased 1,302,397 own ordinary shares at the open market for RUB 5,109,648 thousand.
In 2019, the Group transferred 105,258 treasury shares to key management personnel as compensation under the Long-
term management incentive program (Note 31). The fair value of the compensation was RUB 432,634 thousand.
The difference of RUB 35,979 thousand between the carrying amount of the treasury shares and the fair value
of compensation granted under the long-term incentive program was recognized as share premium.
In 2019, the Group transferred 82,355 treasury shares to the Group’ Chief Executive under his employment contract
(Note 31). The fair value of the consideration transferred was RUB 396,440 thousand. The difference of RUB 86,094
thousand between the carrying amount of the treasury shares and the fair value of consideration transferred was
recognized as share premium.
In 2019, the Group paid dividends of RUB 29,993,007 thousand (2018: RUB 13,808,982 thousand).
As at 31 December 2019, dividends payable totaled RUB 14,452,943 thousand (31 December 2018: RUB 13,629,822
thousand). Dividends payable as at 31 December 2019 were paid in January 2020.
18.
Trade and other payables
Trade and other payables as at 31 December 2019 and 2018 consisted of the following:
Trade payables to third parties
Other payables to third parties
Other payables to related parties (Note 6)
31 December 2019
31 December 2018
140,630,829
122,585,005
20,905,617
8,420,259
94,560
95,921
161,631,006
131,101,185
Average trade payables turnover was 45 days in 2019 and 41 days in 2018. Interest may be charged on the outstanding
balance based on market rates in accordance with individual agreements with vendors, however no significant amounts
of interest were charged to the Group during the years presented. The Group has financial risk management policies
in place to help ensure that all payables are paid within the credit timeframe.
Trade and other payables denominated in foreign currencies (mainly US dollars and euros) as of 31 December 2019
totaled RUB 7,258,346 thousand, including RUB 5,785,691 thousand in USD and RUB 1,472,655 thousand in EUR (31
December 2018: RUB 6,659,643 thousand, including RUB 5,041,053 thousand in USD and RUB 1,618,590 thousand
in EUR).
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19.
Accrued expenses
21.
Loans and borrowings
Accrued expenses as at 31 December 2019 and 2018 consisted of the following:
Long-term and short-term loans and borrowings as at 31 December 2019 and 2018 consisted of the following:
Accrued salaries and wages
Other accrued expenses
20.
Taxes payable
Taxes payables as at 31 December 2019 and 2018 consisted of the following:
31 December 2019
31 December 2018
8,124,514
8,895,591
7,235,456
5,849,429
17,020,105
13,084,885
Year of maturity
Effective
interest rate
31 December
2019
Effective
interest rate
31 December
2018
Long-term loans and borrowings
Unsecured bonds
Unsecured bank loans
Unsecured bank loans from related
parties
Less: current portion of long-term
borrowings and loans
Total long-term borrowings and loans
2021-2022
2021-2027
7.72%
8.11%
40,737,574
–
–
47,817,777
8.57%
65,837,515
2021-2022
8.09%
33,200,000
8.25%
28,200,000
(2,122,989)
119,632,362
(301,375)
93,736,140
Value added tax
Social insurance contributions
Personal income tax
Property tax
Other taxes
31 December 2019
31 December 2018
Short-term loans and borrowings
–
2,378,411
1,171,380
631,732
109,484
763,424
2,105,510
1,100,611
822,291
–
4,291,007
4,791,836
Unsecured bank loans
Unsecured bonds
Unsecured bank loans
Current portion of long-term
borrowings and loans
Total short-term loans and borrowings
2019
2020
2020
–
7.96%
6.75%
–
7.7%
70,535,826
10,001,047
52,454,420
2,122,989
64,578,456
–
–
–
–
301,375
70,837,201
All loans, borrowings and bonds are denominated in Russian rubles. Loans and borrowings were received on fixed rate.
22.
Government grants
At 1 January
Received during the year
Recognized in profit or loss
At 31 December
Short-term
Long-term
2019
2018
3,037,701
1,155,991
614,318
(383,086)
1,967,114
(85,404)
3,268,933
3,037,701
62,857
62,340
3,206,076
2,975,361
The government grants were received to compensate a part of direct costs incurred for the construction and
modernization of property, plant and equipment. The government grants were received in cash and in the form
of benefit from obtaining loans at a below-market interest rate.
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23.
Revenue
25.
Selling expenses
Revenue for the years ended 31 December 2019 and 2018 consisted of the following:
Selling expenses for the years ended 31 December 2019 and 2018 consisted of the following:
Retail
Wholesale
2019
2018
1,332,928,824
1,216,851,273
35,776,570
20,164,184
1,368,705,394
1,237,015,457
Advertising
Packaging and raw materials
Depreciation
2019
2018
7,715,200
3,215,294
4,755,885
8,601,093
3,531,063
3,937,790
15,686,379
16,069,946
Revenue from contracts with customers is represented by the amounts disclosed in the table above and income from
advertising services and sales of packing materials (Note 28) and for the 2019 is RUB 1,378,925,154 thousand (2018:
1,243,118,248 thousand).
26.
General and administrative expenses
General and administrative expenses for the years ended 31 December 2019 and 2018 consisted of the following:
24.
Cost of sales
Cost of sales for the years ended 31 December 2019 and 2018 consisted of the following:
Cost of goods sold
Transportation expenses
2019
2018
1,022,098,438
906,730,547
34,607,615
34,210,972
1,056,706,053
940,941,519
Cost of goods sold is reduced by rebates and promotional bonuses received from suppliers.
Cost of goods sold includes losses due to inventory shortages.
Payroll
Depreciation of right-of-use assets (Note 9)
Depreciation of property, plant and equipment (Note 8)
Payroll-related taxes
Rent and utilities
Bank charges
Repair and maintenance
Taxes other than income tax
Security
Amortisation of intangibles
Provision for unused vacation
In 2019, payroll expenses of RUB 22,108,828 thousand (2018: RUB 22,015,986 thousand) were included in cost of sales.
Accrual/(reversal) of provision for expected credit losses (Note 13)
Other expenses
2019
2018
95,517,926
83,622,350
41,660,137
36,894,437
40,701,825
31,522,360
26,159,360
24,210,938
25,719,454
21,824,472
6,516,095
5,747,572
3,240,165
1,797,235
976,589
681,018
400,437
6,058,852
4,420,757
3,804,346
1,551,342
798,926
600,813
(97,118)
5,843,860
5,532,323
254,961,673
220,744,798
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27.
Finance costs
29.
Income tax
Finance costs for the years ended 31 December 2019 and 2018 consisted of the following:
The Group’s income tax expense for the years ended 31 December 2019 and 2018 is as follows:
Interest on loans and borrowings
Interest on bonds
Interest on lease liabilities
2019
2018
13,359,504
8,955,433
Consolidated statement of comprehensive income
2,037,062
469,054
Current tax
32,414,202
30,405,545
Adjustments in respect of current income tax of previous year
Total interest expense for financial liabilities
47,810,768
39,830,032
Deferred tax
Less: amounts included in the cost of qualifying assets
(29,119)
(288,225)
47,781,649
39,541,807
Income tax expense reported in the consolidated statement
of comprehensive income
2019.
2018
3,302,256
(1,068,227)
781,221
5,300,659
(79,397)
1,562,645
3,015,250
6,783,907
28.
Other income
Other income for the years ended 31 December 2019 and 2018 consisted of the following:
The tax effect of main temporary differences that give rise to deferred tax assets and liabilities as at 31 December 2019
is as follows:
Sales of packing materials
Fines and penalties
Advertising income
Gain from cancellation of lease contracts (Note 9)
Other
2019
3,840,142
3,341,220
6,379,618
1,985,180
850,307
2018
3,702,421
1,759,906
2,400,370
1,804,180
847,658
16,396,467
10,514,535
Recorded
in the consolidated
statement
of comprehensive
income, 2019
At 31 December 2019
At 1 January 2019
Deferred tax assets
Right-of-use assets/lease liabilities
(9,041,780)
(1,873,756)
(10,915,536)
Accrued expenses
Inventory
Trade and other receivables
Advances paid
Deferred expenses and intangible assets
Other
Total deferred tax asset
(338,284)
(831,505)
(128,665)
(254,167)
(163,988)
(544,185)
(496,146)
(131,334)
128,665
122,283
163,988
(834,430)
(962,839)
–
(131,884)
–
285,448
(258,737)
(11,302,574)
(1,800,852)
(13,103,426)
Including offset with deferred tax liability
11,302,574
1,800,852
13,103,426
Net deferred tax asset
Deferred tax liabilities
–
–
–
Property, plant and equipment
25,701,441
2,907,220
28,608,661
Inventory
Trade and other receivables
Other
–
–
893,591
319,556
173,278
(817,981)
319,556
173,278
75,610
Total deferred tax liability
26,595,032
2,582,073
29,177,105
Including offset with deferred tax asset
(11,302,574)
(1,800,852)
(13,103,426)
Net deferred tax liability
15,292,458
781,221
16,073,679
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29.
Income tax (continued)
The tax effect of main temporary differences that give rise to deferred tax assets and liabilities as at 31 December 2018
is as follows:
Recorded
in the consolidated
statement
of comprehensive
income, 2018
At 31 December 2018
At 1 January 2018
Deferred tax assets
Right-of-use assets/lease liabilities
(6,692,861)
(2,348,919)
(9,041,780)
Accrued expenses
Inventory
Trade and other receivables
Advances paid
Deferred expenses and intangible assets
(149,449)
(1,053,737)
(147,479)
(103,410)
(57,140)
(188,835)
222,232
18,814
(150,757)
(106,848)
Other
(308,865)
(235,320)
(338,284)
(831,505)
(128,665)
(254,167)
(163,988)
(544,185)
Total deferred tax assets
(8,512,941)
(2,789,633)
(11,302,574)
Including offset with deferred tax liability
8,512,941
2,789,633
11,302,574
Profit before tax
Theoretical income tax expense at 20%
Adjustments for:
Non-taxable income
2019
2018
12,579,472
30,954,175
(2,515,894)
(6,190,835)
(663,373)
(599,018)
Unrecognized deferred tax assets related to losses carried forward of Group companies
(904,209)
(73,451)
Reversal of income tax liability as a result of filing amended tax returns
1,068,226
79,397
Income tax expense
Effective income tax rate
(3,015,250)
(6,783,907)
23.97%
21.92%
As at 31 December 2019 unrecognized deferred tax assets in respect of previous years losses received by the Group
companies amounted to RUB 3,627,296 thousand. (as of 31 December 2018: RUB 2,723,087 thousand).
In accordance with applicable law the Group did not reflect the deferred tax liability as of 31 December 2019 for
investments in subsidiaries, since it intends to apply a zero tax rate to applicable dividend income in accordance with
applicable law, since participation in the capital of subsidiaries is more than 50% and they are owned by the Group for
more than one year.
–
–
–
30.
Earnings per share
Net deferred tax asset
Deferred tax liabilities
Property, plant and equipment
21,427,892
4,273,549
25,701,441
Earnings per share for the years ended 31 December 2019 and 2018 have been calculated on the basis of the net profit
for the year and the weighted average number of common shares outstanding during the year.
Other
814,862
78,729
893,591
The calculation of earnings per ordinary share for the years ended 31 December 2019 and 2018 is as follows:
Total deferred tax liability
22,242,754
4,352,278
26,595,032
Including offset with deferred tax asset
(8,512,941)
(2,789,633)
(11,302,574)
Net deferred tax liability
13,729,813
1,562,645
15,292,458
The income tax expense for the year is different from that which would be obtained by applying the statutory income
tax rate to the profit before income tax. Below is a reconciliation of theoretical income tax at 20% to the actual expense
recorded in the Group’s consolidated statement of comprehensive income:
Profit for the year attributable to shareholders of the parent
9,564,222
24,170,268
Weighted average number of shares (in thousands of shares)
Basic and diluted earnings per share (in RUB)
97,615
97.98
101,146
238.96
2019
2018
In 2019, the Group granted the right to obtain equity instruments to the Group’s key management personnel (Note 31),
which could potentially have a dilutive effect on future earnings per share. These instruments do not have a material
effect on diluted earnings per share for 2019.
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31.
Share-based payments
Long-term incentive program for key management personnel
In 2018, the Group approved a long-term incentive program for its key management. Contracts with the participants
in the share-based payment program were concluded on 29 December 2018, which is the grant date for the rights
under the program. The service period under the program in 2018 was 1 day, therefore the costs of the program were
immaterial for disclosure. In accordance with the program, the Group will provide to its key management personnel
the right to receive equity instruments based on the results of their service for 2018, 2019, 2020, 2021, and 2022.
For the purposes of implementing the long-term incentive program for key management personnel, a treasury stock
repurchase program was adopted.
The long-term incentive program for key management personnel of the Group consists of an “option” component and a
“share” component.
Option component
Options providing for the transfer of a variable number of shares depending on the excess of the market value
of the Group’s shares over the strike price.
The date of granting options is the date of conclusion of the contract with the program participants. The exercise
price for options is RUB 4,700 per share. The maximum number of shares that all program participants may purchase
is 1,755,319. The plan provides for five tranches (based on the results for five consecutive years, starting from 2018).
The program participant receives the right to exercise options when all of the following conditions are met:
‒ Excess of the market value of the Group’s shares at the date of calculation over the strike price;
‒ Growth of the Group’s consolidated EBITDA (Profit before interest, taxes, depreciation and amortization) of 10%
CAGR (total comprehensive annual growth rate for calculating interest using the compound interest formula)
compared to EBITDA for the year ended 31 December 2018 (determined based on the audited published
consolidated financial statements of the Group for 2019);
‒ Program participant continues to work in the Group on the exercise date of the option.
For each tranche, deferred execution (transfer of shares) is provided for three years, subject to continuing provision
of services by employees. Each employee under this plan receives 15 options, each giving the right to an estimated
number of shares for three years in five tranches. The total number of shares that employees can acquire depends
on the excess of the market price of the share over the strike price. The higher the market price, the more share
the employee receives. If the market price drops below the strike price, then the right to the shares is cancelled.
Share component
Share-based payment to the participant of the program of a fixed number of shares depending on the fulfillment
of the conditions for achieving the goals of the program.
The date of granting the right is the date of conclusion of the contract with the program participant. The maximum
number of shares that all program participants can purchase cannot exceed 1,755,319. The plan provides for five
tranches (based on the results for five consecutive years, starting from 2018). The program participant receives the right
to shares if all of the following conditions are met:
‒ Group’s consolidated EBITDA growth of 10% CAGR compared to EBITDA for the year ended 31 December 2018
(determined based on the audited published consolidated financial statements of the Group for 2019 containing
information on the EBITDA for 2018 considering retrospective restatement in connection with the application
of IFRS 16 Leases);
‒ A program participant continues to work in the Group on the exercise date of the option.
For each tranche, deferred execution (transfer of shares) is provided for three years, subject to continuing provision
of services by employees. Each employee under this plan receives 15 options, each giving the right to an estimated
number of shares for three years in five tranches.
Assumptions used in determining fair value
To assess the fair value of share-based payments to employees, the Group uses Monte Carlo simulation. In determining
fair value, the Group has used the following assumptions:
Dividend income (%)
Expected average volatility for the period (%)
Average risk-free interest rate for the period (%)
Estimated time for exercise of options (years)
Weighted average share price (RUB)
6
28.78
7.84
7
3,920
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31.
Share-based payments (continued)
32.
Contingencies, commitments and operating risks
Movement for the period
For the 2018 tranche, the dates of transfer of rights are 27 May 2019, 2020 and 2021. For the 2019 tranche, the dates
of transfer of rights are 27 May 2020, 2021 and 2022. The final date of transfer of 100% of the rights under the program
with respect to the remaining tranches is 27 May 2025.
Operating environment
Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market
economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and
the effectiveness of economic, financial and monetary measures undertaken by the government.
For the year ended 31 December 2019, in the consolidated statement of comprehensive income the Group recognized
an expense in respect of share-based payments of RUB 1,892,833 thousand.
As at the reporting date, the management of the Group expects that with respect to all tranches the program targets
will be achieved and the number of shares to be transferred is fixed in the amount of not more than 3,510,638 shares
of the Group.
During the year ended 31 December 2019, the Group transferred 105,258 shares repurchased from shareholders
as part of the program. The fair value of consideration transferred was RUB 432,634 thousand. The difference between
the carrying amount of the treasury shares and the fair value of the consideration transferred under the program
of RUB 35,979 thousand is recorded as share premium. The weighted average price per share at the execution date was
RUB 4,110.
Share-based payments under the employment contract with the Chief Executive Officer of the Group
According to the terms of the employment contract concluded with the Group’s Chief Executive Officer, the Chief
Executive Officer is entitled to the Group’s equity instruments provided that he continues to work in the Group
on the exercise date of the option. The number of shares of the Group to which the rights will be transferred is fixed and
amounts to 164,710 ordinary shares of the Group. Share-based payment is deferred and involves the transfer of shares
during 3 years, including: 50% of fixed number of equity instruments no later than 31 May 2019, 25% no later than 31
March 2020, 25% no later than 31 March 2021, subject to continued work in the Group.
The grant date is considered the date of conclusion of the employment contract with the Chief Executive Officer.
The fair value of the equity instruments transferred is determined at the grant date and does not change until the option
is fully exercised.
During year ended 31 December 2019, the Group transferred 82,355 shares repurchased from shareholders as part
of the fulfillment of obligations under the employment contract concluded with the Group’s Chief Executive Officer.
The fair value of equity instruments provided during the period was RUB 396,440 thousand. The difference between
the carrying amount of the treasury shares and the fair value of the consideration given to the Chief Executive Officer
of RUB 86,094 thousand is recorded as share premium. The weighted average price per share at the execution date was
RUB 4,134.
For the year ended 31 December 2019, in the consolidated statement of comprehensive income, the Group recognized
an expense in respect of share-based payments under the employment contract with the Chief Executive Officer
of RUB 559,509 thousand.
The Russian economy has been negatively impacted by a decline in oil prices and sanctions imposed on Russia
by a number of countries. The ruble interest rates remain high. The combination of the above resulted in reduced
access to capital, a higher cost of capital and uncertainty regarding economic growth, which could negatively affect
the Group’s future financial position, results of operations and business prospects. Management believes it is taking
appropriate measures to support the sustainability of the Group’s business in the current circumstances.
Tax legislation
The Group’s main subsidiaries, from which the Group’s income is derived, operate in Russia. Russian tax, currency
and customs legislation is subject to varying interpretations and changes which can occur frequently. Management
interpretation of such legislation as applied to the transactions and activity of the Group may be challenged
by the relevant regional and federal authorities.
In 2019, further efforts were made to implement mechanisms to counter tax evasion involving low tax jurisdictions and
aggressive tax planning structures. The amendments include, among other things, definitions of beneficial ownership
and tax residency by actual place of business (for legal entities) and the approach to the taxation of controlled foreign
companies in the Russian Federation.
In addition, a concept of tax benefit was introduced for all taxes payable in the Russian Federation, with a focus
on the presence of a business purpose of activities and confirmation of discharge of obligations under agreements
by the parties to these agreements or a party to which these obligations were transferred under a contract or by
law. These amendments significantly modify the framework for determination of unjustified tax benefit obtained by a
taxpayer, and will have a significant impact on established court practice. However, the mechanism of application of this
regulation is yet to be settled, and the respective court practice is not established.
These changes and recent trends in the applying and interpreting certain provisions of Russian tax law indicate that
the tax authorities may take a tougher stance in interpreting legislation and reviewing tax returns. The tax authorities
may thus challenge transactions and accounting methods that they have never challenged before. This may result
in significant amounts of tax charges, penalties and fines being imposed.
It is not possible to determine the amounts of constructive claims or evaluate probability of their negative outcome.
Fiscal periods remain open to review by the tax authorities for a period of three calendar years immediately preceding
the year of review.
Management believes that at 31 December 2019, it had properly construed the relevant legislation, and the probability
that the Group will retain its position with regard to tax, currency and customs law is assessed as high.
As at 31 December 2019 and 2018, the Group accrued no provisions for tax positions.
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Contingencies, commitments and operating risks (continued)
The debt-to-equity ratio as at 31 December 2019 and 2018 was as follows:
Litigation
The Group has been and continues to be the subject of legal proceedings and adjudications from time to time,
neither of which, individually or in aggregate, had a material adverse effect on the Group. Management believes that
the resolution of all business matters will not have a material impact on the Group’s financial position, operating results
and cash flows.
Capital and rent commitments
As at 31 December 2019 and 2018, the Group entered in a number of agreements related to the acquisition of property,
plant and equipment. Capital commitments are presented net of VAT:
Within 1 year
2 to 5 years inclusive
2019
2018
3,793,382
10,211,095
6,968
6,705
Loans and borrowings
Long-term and short-term lease liabilities
Cash and cash equivalents
Net debt
Equity
Net debt-to-equity ratio
2019
2018
184,210,818
164,573,341
357,210,159
322,741,246
(8,901,298)
(26,747,754)
532,519,679
460,566,833
188,532,813
212,442,026
2.82
2.17
Debt is defined as long-term and short-term loans and borrowings. Equity includes all capital and reserves of the Group.
3,800,350
10,217,800
The change in the target net debt-to-equity ratio is due to the changes in the capital structure in 2019.
33.
Financial risk management objectives and policies
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while
maximising the return to stakeholders through the optimisation of debt to equity ratio.
The capital structure of the Group consists of loans and borrowings disclosed in Note 21, cash and cash equivalents
disclosed in Note 15 and equity attributable to shareholders of the parent, comprising issued capital, reserves and
retained earnings as disclosed in Note 16.
Debt-to-equity ratio
Management reviews the Group’s capital structure on an annual basis. As part of this review, management considers
the cost of capital and the risks associated with each class of capital. The Group has a target debt-to-equity ratio
in 2019 of 2.82 (2018: 2.17).
Fair values
Set out below is a comparison by class of the Group’s financial instruments that are recorded in the consolidated
financial statements.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced or liquidation sale.
Carrying amount
2019
2018
Fair value
2019
2018
Long-term loans and borrowings
79,653,488
93,736,140
81,873,746
94,010,140
Bonds
39,978,874
–
40,094,910
-
The fair value of loans from banks is estimated by discounting future cash flows using rates currently available for debt
on similar terms, credit risk and remaining maturities. Long-term loans and borrowings are categorized as Level 2 within
the fair value hierarchy. For quoted bonds (Level 1) the fair value was determined based on quoted market prices. No
transfers occurred between levels in the hierarchy during the reporting period.
As at 31 December 2019 and 2018, the fair value of the Group’s financial instruments, except as described above,
approximates their carrying value.
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33.
Financial risk management objectives and policies (continued)
Set out below are changes in liabilities arising from financing activities:
Proceeds from
loans and
borrowings
Repayment
of loans and
borrowings
Loans acquired
in business
combinations
1 January
Finance costs
Interest paid
31 December
2019
Short-term and
long-term loans and
borrowings
2018
Short-term and
long-term loans and
borrowings
164,573,341
695,756,324
(677,163,335)
–
15,362,852
(14,318,365)
184,210,818
126,460,055
600,693,859
(572,272,534)
10,416,658
9,136,262
(9,860,959)
164,573,341
Information about changes in lease liability are presented in Note 9.
2019
Dividends paid
2018
Dividends paid
As at 1 January
Dividends
declared
Dividends paid
As at 31
December
13,629,822
30,816,128
(29,993,007)
14,452,943
831
27,437,973
(13,808,982)
13,629,822
Foreign currency risk management
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates relates
primarily to the Group’s operating activities (when purchases are denominated in a different currency from the Group’s
functional currency).
As at 31 December 2019 the foreign currency balances were presented by trade and other payables disclosed in Note 18
(as at 31 December 2018: by cash (Note 15) and trade and other payables (Note 18)).
Foreign currency sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in the US dollar and euro exchange
rate, with all other variables held constant. The Group’s exposure to foreign currency changes for all other currencies
is not material.
Foreign currency risk management
The Group manages its foreign currency risk by scheduling payments to foreign suppliers close to the date of transfer
of ownership of goods to the Group.
Change in USD exchange rate
Effect on profit before tax
Change in euro exchange rate
Effect on profit before tax
2019
2018
+13.00%
-11.00%
+14.00%
-14.00%
783,588
(663,036)
708,705
(703,516)
+13.00%
-11.00%
+14.00%
-14.00%
220,460
(186,543)
227,075
(226,246)
Interest rate risk management
The Group is exposed to insignificant interest rate risk as the Group’s entities borrow funds primarily at the fixed rates.
Credit risk management
Credit risk is the risk that a counterparty will not meet its contract obligations on time, leading to a financial loss.
The Group is exposed to credit risk from its operating activities (primarily trade and other receivables) and investing
activities (cash, short-term loans).
In determining the recoverability of trade and other receivables the Group uses a provision matrix to measure expected
credit losses. The provision rates are based on days past due for groupings of various customer segments with similar
loss patterns (i.e., by customer type and rating) and the likelihood of default over a given time horizon. The calculation
reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that
is available at the reporting date about past events, current conditions and forecasts of future economic conditions.
Trade and other receivables
Customer credit risk is managed by the Group by dealing with creditworthy counterparties, who have a good long-
term credit history. The Group’s exposure and the credit ratings of its counterparties are continuously monitored,
and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure
is controlled by counterparty limits that are reviewed and approved by management.
The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties
having similar characteristics. The Group defines counterparties as having similar characteristics if they are related
entities. Concentration of credit risk did not exceed 5% of current assets at any time during the years presented.
Cash and cash equivalents
Credit risk from investing activities is managed by the Group’s treasury department in accordance with the Group’s
policy. Investments of surplus funds are made only with approved counterparties. Cash is placed in financial institutions,
which are considered at time of deposit to have minimal risk of default.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets
as presented in the consolidated statement of financial position.
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33.
Financial risk management objectives and policies (continued)
Offsetting of financial assets and liabilities
The Group offsets its financial assets and financial liabilities when all the conditions for offset are met. The effect
of the offsetting is presented below:
Gross amount
Net amount
Trade and other
receivables
Trade
and other payables
2019
2018
28,340,288
(175,977,854)
19,470,056
(143,759,923)
Amountof offset
14,346,848
12,658,738
Trade and other
receivables
Trade
and other payables
13,993,440
(161,631,006)
6,811,318
(131,101,185)
Weighted
average effective
interest rate, %
Less than
1 month
1-3 month
3 month
to 1 year
1-5 years
More
than 5 years
Total
2018
Trade and other
payables
Repayment of lease
liabilities
Loans and
borrowings
105,452,122
25,649,063
–
–
–
131,101,185
5,187,013
10,247,757
46,946,613
238,616,951
182,899,536
483,897,870
8.14
5,123,937
24,953,099
50,813,588
105,104,729
2,471,011
188,466,364
115,763,072
60,849,919
97,760,201 343,721,680 185,370,547 803,465,419
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the board of directors, which has built a liquidity
risk management framework for management of the Group’s short, medium and long-term funding and liquidity
management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities
and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching the maturity
profiles of financial assets and liabilities.
The following tables summarise the maturity profile of the Group’s financial liabilities based on contractual undiscounted
payments. The table includes both interest and principal cash flows.
The Group has access to financing facilities of RUB 399,561,000 thousand of which RUB 263,940,663 thousand
remained unused at 31 December 2019. The Group expects to meet its other obligations from operating cash flows and
proceeds from maturing financial assets.
34.
Subsequent events
On 5 March 2020, Magnit PJSC placed exchange-traded documentary interest-bearing non-convertible bonds
in the amount of RUB 15 billion maturing in 1,092 days from the date of placement.
Weighted
average effective
interest rate, %
Less than
1 month
1-3 month
3 month
to 1 year
1-5 years
More
than 5 years
Total
The Chinese economy and its development prospects were negatively affected by global trade tension and
the emergence of the Covid-19 coronavirus.
2019
Trade and other
payables
Repayment of lease
liabilities
Loans and
borrowings
127,097,996
34,533,010
–
–
–
161,631,006
5,558,534
11,065,328
50,541,221
254,023,784
195,440,197
516,629,064
7.60
9,376,666
2,474,305
63,637,393
129,767,356
1,186,754
206,442,474
142,033,196
48,072,643
114,178,614
383,791,140
196,626,951 884,702,544
Measures to curb the spread of the virus may affect business operations around the world.
Restrictions on the movement of goods and services may affect the Group’s supply chains.
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Management Statement
of Responsibility
I hereby confirm that:
‒ the financial statements prepared in accordance with International Financial Reporting Standards represent an accurate
and fair reflection of the Company’s assets, liabilities, financial position, profits, and losses as well as those of its
consolidated subsidiaries as a whole; and
‒ the management report includes a fair description of the development and performance of business operations and the
Company’s position as well as that of its consolidated subsidiaries as a whole along with a description of the main risks
and uncertainties they face.
Chairman of the Management Board,
President and CEO
Jan Gezinus Dunning
The Annual Report was preliminary approved by the Board of Directors on April 09, 2020 (minutes w/o No. as of April 10, 2020)
and approved by the annual General shareholders meeting of PJSC «Magnit» held on June 04, 2020 (minutes w/o No. as of
June 05, 2020).
Glossary
Average ticket
CAPEX
a figure calculated by dividing total sales at all stores during the relevant year by the number of tickets in that
year
the money an organisation or corporate entity spends to buy, maintain, or improve its fixed assets, such as
buildings, vehicles, equipment, or land
Consumer Confidence
Index (CCI)
a survey, administered by The Conference Board, which measures how optimistic or pessimistic consumers
are regarding their expected financial situation
Customer Decision Tree
(CDT)
CPI (Consumer Price Index)
a graphical representation of a customer's buying decision process expressed in a tree format
a price index that measures changes in the price level of a weighted average market basket of consumer goods
and services for a certain period of time
Cross-docking
is a transshipment platform used to consolidate incoming products for outgoing destinations.
CSR (Corporate Social
Responsibility)
a responsible attitude in managing a company’s impact on a range of stakeholders: customers, colleagues,
investors, suppliers, the community and the environment
CVP
Drogerie
Customer Value Proposition
a retail store selling beauty, hygiene and household related products as well as certain non-prescription
medications
End-to-end process (E2E
process)
a process which takes a method or service from its beginning to its end, delivering a complete functional
solution
EGAIS
national automated information system for the control of alcohol production and distribution
ERP (Enterprise Resource
Planning)
integrated management of main business processes, often in real time and mediated by specialised software
and technology
EVP
Employer Value Proposition
Fast-moving Consumer
Goods (FMCG)
inexpensive products that people usually buy on a regular basis, such as packaged foods, beverages,
toiletries, over-the-counter drugs, and other consumables
Federal state informational
system “Mercury”
HACCP (Hazard Analysis
and Critical Control Points)
automated system for electronic certification of goods subject to state veterinary control in Russian Federation
a systematic preventative approach to food safety from biological, chemical, and physical hazards in
production processes that can cause the finished product to be unsafe, and designs measurements to reduce
these risks to a safe level
LFL (like–for–like) sales
the method of comparing current year sales figures to prior year’s sales figures excluding the expansion effect
Net debt
a liquidity metric used to determine how well a company can pay all of its debts if they were due immediately
Platon Electronic Toll
Collection (ETC) system
a Russian electronic toll collection system which collects tolls from trucks over 12 tonnes, with the proceedings
going to a federal fund for road maintenance
Private label (PL)
brand owned not by a manufacturer or producer, but by a retailer or supplier, who gets its goods made by a
contract manufacturer under its own label
Real GDP
an inflation-adjusted measure that reflects the value of all goods and services produced by an economy
Real disposal income (RDI)
the post-tax and benefit income available to households after an adjustment has been made for price changes
Return on Investment
Capital (ROIC)
a profitability or performance ratio measuring the percentage return that investors in a company are earning
from their invested capital
Sales density
Selling space
the revenue generated for a given area of sales space, presented as a monetary value per square metre
the area inside stores used to sell products, excluding areas rented out to third parties, own–production areas,
storage areas and the space between store entry and the cash desk line
SKU (stock keeping unit)
a number assigned to a particular product to identify the price, product options and manufacturer of the
merchandise
Sustainable development
development that meets the needs of the present without compromising the ability of future generations to
meet their own needs
Traffic
the number of tickets issued for the period under review
WACC (weighted average
cost of capital)
the rate that a company is expected to pay on average to all its security holders to finance its assets
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The Annual Report of Magnit PJSC for 2019 (also referred to as Magnit or
the Company) was prepared based on the information available to Magnit PJSC
and its subsidiaries (referred to as Magnit) as of December 31, 2019, unless
otherwise implied by the meaning or content of the information provided.
This Annual Report is addressed to a wide range of stakeholders and reflects
the key performance results of Magnit for 2019 in such matters as strategic
and corporate governance as well as financial and operating results.
The Report was prepared in accordance with the regulatory requirements
of the Legislation of the Russian Federation, including the Regulation on
Information Disclosure by Issuers of Equity. Among other things, the following
principles and requirements were used and taken into account during its
preparation:
‒ Securities approved by the Bank of Russia on December 30, 2014
as No. 454-P;
‒ Letter No. 06-52/2463 of the Bank of Russia dated April 10, 2014
“On the Corporate Governance Code”;
‒ the Moscow Exchange;
‒ the London Stock Exchange;
‒ the UK Financial Conduct Authority (FCA);
‒ the Regulation on the Company’s Information Policy.
ABBREVIATIONS
ACRA
AGM
CAGR
CEO
CRM
EBITDA
ESG
FY
GDP
GDR
GHG
H
HR
IFRS
IPO
IR
IT
JSC
KPI
LLC
LSE
LTI
M
M&A
MICEX
MOEX
PJSC
p.p.
Q
RTS
RUB
SPO
Sq.m
STI
VAT
WMS
Y-o-Y
Accounting and Corporate Regulatory Authority
Annual General Meeting
Compound annual growth rate
Chief Executive Officer
Client Relationship Management
Earnings before interest, taxes, depreciation and amortization
Environmental, Social, Governmental
Financial Year
Gross domestic product
Global depositary receipts
Greenhouse gases
Half of the year
Human resources
International Financial Reporting Standards
Initial Public Offering
Investor relations
Information Technologies
Joint Stock Company
Key Performance Indicators
Limited Liability Company
London Stock Exchange
Long-term incentive
Month of the year
Mergers & Acquisitions
Moscow Interbank Currency Exchange
Moscow Exchange
Public Joint Stock Company
Percentage point
Quarter of the year
Russian Trading System
Russian rouble
Secondary public offering
Square metre
Short-term incentive
Value-added tax
Warehouse management system
Year Over Year
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MAGNITAnnual Report 2019MAGNITAnnual Report 2019Strategic ReportCorporate Governance Report AppendicesAppendices
Disclaimer
This Annual Report contains forward-looking
statements that reflect the expectations of the
Company’s management.
Forward-looking statements are not based on
actual circumstances and include all statements
concerning the Company’s intentions,
opinions, or current expectations regarding its
performance, financial position, liquidity, growth
prospects, strategy, and the industry in which
Magnit PJSC operates. By their nature, such
forward-looking statements are characterised
by risks and uncertainties since they relate to
events and depend on circumstances that may
not occur in the future.
Such terms as “assume”, “believe”, “expect”,
“predict”, “intend”, “plan”, “project”, “consider”
and “could” along with other similar expressions
as well as those used in the negative usually
indicate the predictive nature of the statement.
These assumptions contain risks and
uncertainties that are foreseen or not foreseen
by the Company. Thus, future performance
may differ from current expectations, therefore
the recipients of the information presented
in the Annual Report should not base their
assumptions solely on it.
In addition to official information on the
activities of Magnit PJSC, this Annual Report
contains information obtained from third parties
and from sources which Magnit PJSC finds to
be reliable. However, the Company does not
guarantee the accuracy of this information, as
it may be abridged or incomplete. Magnit PJSC
offers no guarantees that the actual results,
scope, or indicators of its performance or
the industry in which the Company operates
will correspond to the results, scope, or
performance indicators clearly expressed or
implied in any forward-looking statements
contained in this Annual Report or elsewhere.
Magnit PJSC is not liable for any losses that any
person may incur due to the fact that the above
person relied on forward-looking statements.
Except as expressly envisaged by applicable
law, the Company assumes no obligation to
distribute or publish any updates or changes
to forward-looking statements reflecting any
changes in expectations or new information
as well as subsequent events, conditions, or
circumstances.
Contact Information
Address
350072, 15/5, Solnechnaya street, Krasnodar, Russian Federation
Investment Relations department
Albert Avetikov
Chief Investor Relations Officer
+7 (861) 210 98 10 (ext. 46200)
avetikov_am@magnit.ru
Dina Chistyak
Director for Investor Relations
Dmitry Kovalenko
Director for Investor Relations
+7 (861) 210 98 10 (ext. 15101)
+7 (861) 210 48 80
dina_chistyak@magnit.ru
dmitry_kovalenko@magnit.ru
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