Vision
A trusted value-for-money retailer,
providing high-quality products
at affordable prices and catering
to all key everyday needs of Russian
families.
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.
Goal
To become the store of choice
for all Russian families.
The basics
We are investing in the optimization
of our end-to-end business processes
to improve our operating efficiency.
Convenience
We address the most important needs
of Russian consumers with convenient
and accessible solutions through
our family of Magnit propositions.
Growth
Customer engagement via digital
channels is accelerating every year
on the back of new technologies
penetration providing new
opportunities in terms of identifying
and communicating with the customers,
as well as improving overall processes.
Note of gratitude
and appreciation
In a challenging 2020, our employees have done a tremendous job,
providing every store with food and serving millions of customers every
day, despite the pandemic. This is the very essence of retail as an industry
and as a service. Thank you for being able to cope with this difficult task
while remaining effective, professional and committed.
We dedicate the pages of Magnit's 2020 Annual Report to all
our employees: cashiers, loaders, drivers and workers in factories.
Thank you for your invaluable work
and for taking care of your customers!
VALUE
CONVENIENCE
growth
Reliability
Y
T
E
F
A
S
F A M I L Y
L O Y A L T Y
TEAM
S
S
E
N
H
S
E
R
F
QUALITY
Strategic Report
Corporate Governance
Appendices
TABLE OF CONTENTS
Strategic Report
Corporate Governance
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8
12
16
38
46
54
56
58
88
94
102
Who We Are
Chairman’s Statement
CEO’s Statement
Magnit at a Glance
Market Overview
Our Strategy
Investment Case
Business model
Operational Review
Financial Review
Risk Management
Sustainable Development
111
Corporate Governance Framework
Appendices
167
188
189
190
260
261
264
264
265
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
Glossary
About the Report
Disclaimer
Contact Information
2020
2
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Magnit operates
a multi-format
business model
that aims to meet all major customer
requirements and be the favorite retail
chain for Russian customers
in 2020
Strategic
Report
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Magnit is one of Russia’s leading
food retail chains and number
one by the number of stores
and geographical coverage.
The Company operates in about
3,800 localities: almost 13 million
customers visit our stores every
day. Magnit utilises a multi-
format model, which includes
convenience and drogerie stores,
supermarkets and pharmacies.
As of December 31, 2020, the Company
had a total of 21,564 stores
in 66 regions of Russia. Magnit's cross-
format loyalty programme covers about
43 million people1.
Magnit is a unique company in the
Russian retail market. Aside from selling
commodities, it operates a private
label (PL) food production business.
The Company manages several plants
for growing vegetables and the
production of dry food and confectionery.
Magnit owns greenhouse and mushroom
complexes, which are amongst
the largest in Russia. The Company’s
logistics infrastructure includes
38 distribution centres and around
4,400 trucks.
Since then, it has evolved into one
of the largest companies in Russia
with headquarters still located
in Krasnodar. In 2006, the Company
had its IPO on the London Stock
Exchange. Magnit's local shares are
traded on the Moscow Exchange
(MOEX: MGNT) and its GDRs on the
London Stock Exchange (LSE: MGNT).
In accordance with the audited IFRS
results for FY 2020, Magnit had revenues
of RUB 1,554 bln and an EBITDA (IFRS 16)
of RUB 178 bln.
Magnit was founded in 1994
in Krasnodar, the Southern region
of Russia, as a small regional company.
Magnit has a credit rating issued
by Standard & Poor's of “BB”, Stable
outlook.
Revenue
EBITDA (IFRS 16)
RUB 1,554 bln
RUB 178 bln
Global
2000
by Forbes
Magnit is included
in the list of the World’s
Largest Public Companies
(Global 2000 by Forbes)
and is one of the Russian
leading private employers.
The Company currently
employs a total of more
than 316,000 employees.
1 Active loyalty cardholders.
2020
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Chairman’s Statement
Dear shareholders,
Magnit remains one of the country’s largest retail and food production
businesses. Over the past year, we strengthened our market leadership
by building on our competitive advantages, anticipating market trends
and transforming our business accordingly.
2020 presented us with extraordinary challenges in terms of both
economic trends and the global pandemic, which exposed every industry,
including retail, to new risks. In addition to protecting the health
and safety of our people, our primary goal was to ensure products
remained available and were safely accessible to all our customers.
To achieve this, we implemented heightened safety measures, created
special programmes to monitor on-shelf stock levels and helped
those who were hit the hardest. In April 2020, to support vulnerable
citizens, the Company announced the launch of its #MagnitZabota
(#MagnitCare) social programme. Since then, we have provided
over 350 thousand food parcels in 24 regions of Russia.
We leveraged our unique business
model featuring a large supply chain,
own production and agricultural
facilities and multi-format umbrella
brand to overcome the challenges
of 2020. As a result, Magnit reported
robust financial and operational results,
with improvements in net profit, sales
volumes across all formats and working
capital cycle. We continued to pursue
our strategic goal of creating a value-
for-money store of choice for Russian
families, while focusing on existing
competitive advantages and creating
a base for Magnit’s future sustainable
growth.
We can see that grocery retail was
among the least affected industries
by the pandemic, as our customers
faced restrictions on their movement,
they increased their spending on
food. Magnit’s investment volumes
declined compared to the previous
year, as the pace of our expansion
slowed and our focus on the redesign
and relaunch of sales in existing stores
increased.
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20202020 Annual Report Chairman’s Statement (continued)
Despite the current economic
environment and high price-sensitivity,
we see consumers seeking high
quality, responsibly sourced and fresh
produce as well as a convenient
and high-tech service. In line with our
strategy of putting customers at the
heart of our decision-making process,
we continued to evolve our business,
developing our own production facilities
and constantly improving consumer
experience. This also led to the launch
of several e-commerce projects, both
independently and in cooperation with
partners. We rolled out a unique cross-
format loyalty programme, piloted new
formats, and progressed in developing
and improving operational efficiency
by launching wide-scale digital
transformation and enhancing
category management.
We continued to pursue our ambitious
task of developing a “best in class”
corporate governance system,
in line with best practice in Russia
and internationally. In 2020 the Board
of Directors engaged an independent
consultant for an external assessment
of the Board of Directors. In terms
of the balance of independent,
non-executive and executive directors,
our Board of Directors complies
with the best market practices.
The consultant noted a high level
of efficiency of the Board of Directors,
as well as involvement of the members
of the Board of Directors in the
Company’s work.
The fact that our Board of Directors
committees are led by independent
non-executive directors and consist
mostly of independent directors
provided a strong foundation
for us to build on.
To further enhance our transparency,
in 2020 we adopted the new edition
of Magnit’s Articles of Association,
which helped us combine all the
changes of the previous years.
As a leading Russian retailer serving
millions of customers across
66 regions daily and employing
over 300,000 people, Magnit
has a significant impact on the
communities in Russia and abroad.
We acknowledge that this position
comes with great responsibility
and remain committed to best
practice in business sustainability.
To focus our efforts, in 2020,
we implemented our Sustainability
Strategy, “Retail with Purpose”,
with commitments up to 2025.
We also created a Sustainability
Steering Committee headed by our
President and CEO Jan Dunning
which consists of 16 working groups
with representatives from all key
units. To oversee the implementation
of our ESG strategy, we appointed
Anna Meleshina to the newly
created role of Director for Corporate
Relations and Sustainability.
Strategic Report
Corporate Governance
Appendices
Furthermore, we joined the UN Global
Compact, a UN-driven worldwide
initiative with over 13,000 companies
working on ESG topics.
I would like to express my sincere
gratitude to Magnit employees,
a family that brings together
more than 300 thousand people
across the country. It is their
dedication, enthusiasm and mutual
support that has enabled us
to provide an uninterrupted service
of the highest standard during
the pandemic. I was particularly
impressed by our employees’ flexibility
and willingness to learn, both of which
are necessary for the smooth
transformation of our business.
I would also like to extend my
gratitude to my fellow members
of the Board whose expertise
and diligent work strongly
contributed to implementation
of Magnit’s strategy throughout
the year. The Management Board,
whose members’ decisions played
a pivotal role in the Company’s
robust transformation process, also
have my respect and deserve praise
for managing the Company adeptly
through a very difficult period.
Finally, I would like to thank our
shareholders for the continued
trust they place in Magnit. I am
proud to say that, despite adverse
conditions, we successfully maintained
continuous and open dialogue
with the investment community
by participating in virtual conferences
and meetings, and by providing
regular updates to the market.
Given our strong track record
and solid reputation, I am confident
that Magnit is well placed to leverage
future opportunities and deliver on its
strategic objectives. Looking forward,
we will remain focused on delivering
value to our shareholders, working as
one team to transform the Company
into the most innovative and efficient
player in Russian retail.
Charles Ryan
Chairman of the Board
of Directors
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Appendices
President and CEO’s
Statement
2020 was an extraordinary year for all of us, presenting both challenges
and opportunities. The COVID-19 pandemic required swift action
in response to the rapidly changing economic environment, consumer
behaviour and regulation. I am delighted to report that Magnit successfully
navigated this turbulent period to deliver robust results, demonstrating our
ability to seize opportunities and create value.
During 2020, we focused on ensuring a continuous supply of products
to meet increased demand, delivering a full range of products at affordable
prices. Despite the pandemic, we launched a record number of new projects,
in line with our strategic goals. Firstly, we improved our retail operations
and processes, increasing both our efficiency and customer experience.
We saw a continuous inflow of new customers, and significant progress
in both customer satisfaction rates and NPS scores. Our organisational
design continued to be enhanced and we commenced our digital
transformation programme. We also made significant progress towards
the commitments made as part of our sustainability strategy.
Performance
In delivering strong operating
and financial results in 2020, we made
steady progress against our three main
strategic priorities.
We focused on the high operating
efficiency of the existing store
base and temporarily decelerated
the expansion of our retail network.
This was in line with our plans to review
our expansion and capital allocation
approach. In total, we opened 839 new
stores1 in 2020, growing net retail
space by 3.6%.
Our sales grew by 13.5%,
to RUB 1,554 bln, mainly driven by the
significant increase in like-for-like sales,
and to a lesser extent by retail space
growth.
Our like-for-like sales grew by 7.4%,
driven by increased spend per visit
on a higher number of items per basket,
a trading up effect, lower promotion
intensity and on-shelf inflation.
Meanwhile, 14.1% growth in the like-
for-like average ticket outstripped
the like-for-like traffic decline of 5.9%.
Improvement in profitability during
the year is reflected in the 97 bps year-
on-year growth in EBITDA margin (IAS 17)
to 7.0%. We also successfully released
RUB 30.5 bln of cash from our working
capital.
Finally, in light of the pandemic, we took
the decision to significantly reduce our
leverage to 1.1x2, which will position
us well for future expansion. As a result,
we nearly doubled ROIC for the business.
1 Number of opened stores net.
2 Net Debt/EBITDA (IAS 17).
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20202020 Annual Report President and CEO’s Statement (continued)
COVID-19 pandemic
The health and safety of our customers
and employees has been our highest
priority. At the same time, it was
crucial to maintain high service levels
to remain the store of choice for our
customers. In response to the pandemic,
we immediately implemented rigorous
health and safety measures in our stores
and distribution centres, which included
disinfection, daily medical examinations
and temperature checks for employees,
intensified cleaning, installation
of protective screens and sanitisers.
The pandemic has affected all parts
of society and we saw it as our
responsibility to support the most
vulnerable. In response, we reached
out to the communities we operate in,
delivering over 350,000 free food parcels,
giving out over 150,000 special cards
with higher level of bonuses to front
line health workers, delivering coffee
to hospitals and encouraging employees
to volunteer to deliver groceries to elderly
and vulnerable people.
Strategic priorities in action
As part of our journey to becoming
a modern, innovative retailer, in 2020
we continued to optimise our key
business processes while maintaining
focus on capital allocation and expansion
priorities.
In line with our strategy, we continued
to put our customers at the centre of our
decision-making process, leveraging
existing competitive advantages
and investing in the optimisation of our
end-to-end business processes to create
opportunities for future growth.
We strive to be recognised as a “value”
retailer that fulfils customer needs
and provides the “best quality for an
affordable price”. To achieve this,
we continued to adjust our customer
value proposition (CVP), develop our
own production facilities and our
private label assortment.
An important driver of Magnit’s
transformation remained the
improvement of our category
management function, which was
introduced in 2019 and further
developed in 2020, when we addressed
several topics, such as developing
a CVP strategy for each format,
format-specific category management
and assortment management.
We try to tailor our CVP to all existing
formats by adapting the logistical,
marketing and operational capacities
of each format. In this context,
we see store clustering as a unique
opportunity to improve the whole
management system of Magnit.
In 2020, we successfully rolled out
our cross-format loyalty programme,
which encompasses all Magnit stores
and provides us with an opportunity
to gain a deeper understanding of our
customers. By the end of the year,
more than half of all purchases were
made using our loyalty card, and the
penetration rate in sales reached 70%.
As part of our value proposition,
we progressed our redesign
programme and introduced several
tools to improve customer experience,
such as fresh and ultra-fresh zones
in our stores, and the new position
of a Quality Attendant supervising
the quality of the products in-store.
We introduced smart sourcing based
on changing consumer patterns,
providing deeper differentiation
versus competitors. Leveraging our
private label portfolio, we expanded
the assortment of our private label
“Magnit Freshness”. As a result,
the revenue from sales of private
label products increased by 54%.
We also continued to develop our
own production capabilities; as
of the end of 2020, Magnit operated
13 production plants and four
agricultural facilities.
The focus on performance involves
the creation of an omnichannel
ecosystem through the use
of cutting-edge digital technologies.
In 2020 we commenced our digital
transformation which will be
powered by widespread use of big
data and advanced analytics, SAP
and e-commerce. The integration
of these tools will impact almost every
business process in Magnit and will be
the key to elevating our operational
performance. We expect the impact
from the Enterprise Resource Planning
(ERP) implementation to reach billions
of rubles, and considering our size,
this may become the largest digital
transformation programme in the
history of Russian retail. In 2020
we also completed the centralisation
of the finance function in the Shared
Service Centre (SSC) in Krasnodar.
Another priority in enhancing
our operational efficiency was
the development of our logistics
system. In 2020 Magnit started to roll
out its Forecasting & Replenishment
system based on AI and machine
learning technologies.
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Corporate Governance
Appendices
By implementing this project, we plan
to significantly increase the transparency
of our operations, and increase
availability of assortment, particularly
for fresh and ultra-fresh categories.
The significant scale of our business
and its impact on society make
sustainability a vital part of our long-
term business strategy. In 2020 Magnit
implemented its sustainability strategy,
“Retail with Purpose”, identifying five
priority areas and, for the first time
in Russian retail, set quantitative
and qualitative targets and criteria
for their implementation by 2025.
Moreover, we joined the UN Global
Compact (UNGC), the world’s largest
corporate sustainability initiative.
During the previous year we launched
several pilots, such as testing LNG
and electric trucks for deliveries
and Green Office project.
Magnit recognises that its employees
make a huge contribution to the
Company’s progress. We ensure our
employees are well compensated,
provide a comprehensive benefits
package and numerous development
opportunities. In 2020 we launched
the Corporate Academy for training
employees of all levels and conducted
the first company-wide employee
engagement survey. The survey had
over 43,000 responses and revealed
overall engagement levels of 84%,
one of the best results among food
retailers. I personally would like to thank
everyone for their dedication during this
challenging year.
Outlook
Magnit is entering 2021 with
a reinforced balance sheet, strong
cash generation and improved working
capital. All this serves as a robust
foundation for faster and profitable
expansion.
Our main purpose remains to provide
safe, nutritious, affordable food
and products to improve the lives
of our customers. In the near future,
we plan to continue our step-by-step
improvements across all business areas
and deliver further profitability gains
aimed at creating additional value
for our shareholders. We plan to resume
our expansion and redesign programme
by opening and renovating more stores
in 2021. This will include developing new
formats, such as Moya Tsena (My Price)
discounters, the wide expansion
of e-commerce projects and a delivery
service. Meanwhile, we plan to continue
refining our CVP, improving the product
range and launching new customer
experience tools in our stores.
Magnit will develop its business
in line with the new sustainability
strategy, seeing all our commitments
as long-term priorities. This includes
increased focus on healthy living
and waste recycling, areas close to our
stakeholders’ hearts. We aim to position
ourselves as an open and proactive
partner for all our stakeholders,
working with our partners, including
industry associations. One of the main
stakeholder groups is our suppliers,
with whom we have several joint
programmes to build upon.
I would like to thank the Board
of Directors and the whole
Magnit team for their consistent
work and contribution to the
process of value creation
for our shareholders, employees,
partners and customers.
I am truly looking forward
to us continuing to lead the way
forward in operational efficiency
and sustainability in our industry
in 2021 and the years ahead.
Jan Dunning
President
and Chief Executive Officer
In 2021 and beyond, we will
focus on improving efficiencies
and capitalising on our strengths.
Throughout our logistics system,
we will implement best practice
concepts, including the Forecasting
and Replenishment system and the
renewal of vehicle fleet. We will
also continue to advance our
loyalty programme to offer deeper
personalisation and emotional
engagement with our customers.
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Magnit at a Glance
Our mission and values
Our values are a basis for our mission:
to become the store of choice for every
Russian family.
Our vision
A trusted value-for-money retailer,
providing high-quality products
at affordable prices and catering to key
everyday needs of Russian families.
Magnit is:
— the leading food retailer in Russia
by number of stores and geographical
coverage
— the largest food importer in the
Russian Federation
— a multi-format retail chain with
a unique cross format loyalty
programme
— the only vertically integrated retailer,
which operates 17 agricultural
and food production units
across Russia
— a reliable and stable partner
for national producers and foreign
companies
— nationwide supply chain network
and one of the largest fleet owners
in Europe
— one of the largest private employers
in Russia
— the store of choice for millions
of customers.
Our key differentiation
points:
Multi-format
model
Key Operational Figures
2018
2019
2020
Number of Stores
18,399
20,725
21,564
Cities & Townships with Stores
Tickets, mln
2,976
4,370
3,742
4,690
3,752
4,641
Number of Employees
295,882
308,432
316,001
Strong regional
coverage and “Best
in local” offering
Own production
and private label
Revenue, RUB, bln
Revenue Growth, %
Gross Margin, %
EBITDA Margin (IAS 17), %
Net Income Margin (IAS 17), %
CAPEX1, RUB, bln
Net Debt/EBITDA (IAS 17)
Total dividends for the respective year, RUB, bln
CO2 Emissions3, mln tonnes
Total Amount4 of Waste, mln tonnes
ESG
Total Amount of Recycled Waste5, thous. tonnes
442
432
IAS 17.
1
2 Dividends announced on PJSC Magnit shares following the results for the first 9 months of 2020, were paid in January 2021.
3 The Company has reviewed its GHG calculation methods and adjusted data for 2018 and 2019.
4 Waste generated by JSC Tander, OJSC Selta, own production enterprises and LLC MC Krasnodar Industrial Park.
6 Waste sent for recycling by JSC Tander, OJSC Selta and own production enterprises.
1,237
8.2
23.9
7.2
2.7
54
1.5
31
2.5
1.1
1,369
10.6
22.8
6.1
1.2
59
2.1
31
2.6
1.7
1,554
13.5
23.5
7.0
2.4
32
1.1
252
2.6
1.2
451
Key Subsidiaries of the Company
The Magnit Group amonth others include PJSC Magnit and its subsidiaries:
LLC Alcotrading, JSC Tander, LLC Tandem, LLC Retail Import.
PJSC MAGNIT
100%
LLC Alkotrading
JSC TANDER
LLC Tandem
LLC Retail Import
For a full list of Magnit Group companies
please see Appendix 4 on p. 190.
Magnit operates a unique
multi-format model, which
includes convenience stores
and supermarkets, drogeries
and pharmacies. Both food
and non-food segments
of Magnit are present online.
It differentiates us as one of the
leading retail chains in Russia. We pay
particular attention to developing
the format expertise that will enable
us to implement a format specific CVP
under a single family brand. Magnit still
adheres to a decentralised approach
where needed and is dictated by key
business drivers whilst maintaining
an optimal balance with the centralised
approach.
In 2020 Magnit continued to cluster
its formats, adjusting them for different
areas and improving management
expertise. The Company built a strong
team of category managers, who will
continue to further expand and improve
Magnit’s commercial activities, with
a broader set of functions and greater
accountability.
Our History
1994
Company founded as a household
cleaning products and cosmetics
distributor.
2008
SPO on London Stock Exchange, raising
almost USD 500 mln.
1998
First grocery store opened in Krasnodar.
2001
Magnit holding company established.
2010
First drogerie store launched.
2011
Expansion of operations to include
the production of vegetables.
2006
IPO on RTS and Moscow Exchange,
raising approximately USD 370 mln.
2013
Magnit becomes the largest retailer
in Russia.
2018
New Board of Directors and new
Management team introduced,
following a change in the shareholder
structure and a launch of the Company’s
transformation.
2020
Magnit launched new large-scale
Digital and Logistics transformation
programmes.
Approved Sustainability Strategy
"Retail with Purpose".
Launched multiple e-commerce
initiatives.
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20202020 Annual Report
Our strategy
Highlights
of the Year
2020 was a challenging yet rewarding
year for Magnit. We remained focused
on what we do the best, providing
the best possible service to our
customers and protecting their health
and safety. We improved the efficiency
of existing business operations, tested
new formats and moved into online,
accelerated our digital transformation
and adopted our Sustainability Strategy.
Our financial performance improved
substantially on the back of industry
leading LFL sales growth, improved
margin and a strong financial position.
We saw positive NPS dynamics
across all formats.
NPS2 dynamics
Convenience
4Q20
4Q 19
26
23
Supermarkets & Superstores
85%
of Russian households
make purchases
in Magnit stores1
–
s
e
i
t
i
r
o
i
r
P
i
c
g
e
t
a
r
t
S
0
2
0
2
i
e
s
m
o
r
p
e
w
t
a
h
w
r
e
v
i
l
e
d
e
W
Improvement of LFL sales growth/sales densities
Margin Regain
4Q20
4Q 19
Drogerie
4Q20
4Q 19
44
41
Improvements of the working capital cycle
51
45
Strong deleveraging and strengthening
of financial position (Net Debt/EBITDA)
ROIC improvement3
1 Consensus GFK and Romir panel analysis.
2 Net Promoter Score.
3 Return on invested capital (ROIC) is a calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments.
Strategic Report
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t
n
e
m
e
v
e
h
c
A
i
9
1
0
2
s
v
0
2
0
2
n
i
on the back of gross margin gains and strict cost control
LFL sales growth of 7.4 % in 2020 vs 0.4% in 2019
97 bps year-on-year EBITDA margin (IAS 17) improvement
RUB 30.5 bln of cash release from the working capital
Net Debt/EBITDA of 1.1 X as of the end of 2020 vs 2.1x as of the end
14.1 % in 2020 vs 7.9% in 2019.
of 2019 with FCF of RUB 85 bln vs RUB (2.2) bln in 2019 based on IAS17
~1.8x year-on-year ROIC improvement for the business
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20202020 Annual Report
Highlights of the Year (continued)
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e
t
a
r
o
p
r
o
C
e
c
n
a
n
r
e
v
o
G
s
e
i
t
i
r
u
c
e
S
s
n
o
i
t
a
r
e
p
O
y
t
i
l
i
i
b
a
n
a
t
s
u
S
— Florian Jansen steps down as a Member of the Board
to become the Deputy CEO – Executive Director
to head the Digital Transformation
— Dividends paid for 9M 2019 and FY2019 totalling
RUB 31.0 bln
— The placement of bonds by Magnit was recognised as
— Magnit extended and strengthened the Management
the best placement by a retailer
Board
— Credit Rating Agency ACRA affirmed the rating
— Adoption of the Sustainability Strategy and a number
of Magnit and its exchange-traded bonds at AA (RU)
of specific policies
— S&P Global Ratings affirmed the rating of Magnit
— Magnit launched a new corporate website
at 'BB', Stable outlook
https://www.magnit.com/en/
— Launched digital transformation powered by SAP
— Magnit started and later expanded piloting discounters
— Magnit expanded testing of Magnit City format
— Twelve startups- finalists of the MGNTech Accelerator
to launch pilots with Magnit
— Magnit launched multiple e-commerce initiatives
covering all formats and customer missions
— Magnit launched virtual store tours
— Magnit started transition to a new Product
Management System
— Magnit began large-scale supply chain
transformation
— 1,292 stores opened (gross) and 385 redesigns
completed in 2020
— Magnit presented Sustainability Strategy and affirmed
"Retail with Purpose"
— Magnit joined the UN Global Compact, an UN driven
worldwide initiative with 13,000+ companies working
on ESG
— Procter & Gamble and Magnit partnered in sustainable
development in Russia
— Magnit, Procter & Gamble, and Dima Bilan1 rolled
out largest non-state network of Reverse Vending
Machines for Plastic Waste Collection
— Magnit launched programme to aid socially vulnerable
citizens
— The first Russian electric heavy-duty truck, MOSKVA,
was handed over to Magnit for trial operations
— Magnit’s comprehensive anti-COVID programme
accounted for RUB 2.8 bln
1 Famous Russian pop singer.
20
21
magnit.com
20202020 Annual Report Strategic Report
Corporate Governance
Appendices
We Are Everywhere
for Our Customers
3,752
Cities & townships
21,564
Stores1
38
Distribution centres
43 mln
Loyal customers
(activated cards)
Magnit is the number one Russian retailer
in terms of the number of stores, proximity
to customers and geographical coverage. Our wide
geographical coverage requires us to be one of the
most advanced in the logistics and supply chain
management to always bring fresh produce to our
customers. Around 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 2020 we opened our new Distribution Centre in Novosibirsk,
with the total area of 40 thous. sq. m adding to our logistical
capabilities in Siberia. We also fully refurbished our Voronezh
Distribution Centre. We introduced the first Russian electric
heavy-duty truck, MOSKVA, for trial operation to make our
operations more environmentally friendly.
One of the milestones of 2020 was the large-scale Supply
Chain transformation we launched at Magnit. The Company
will implement a unified automated forecasting
and replenishment system for all store formats, product
categories, and distribution centres with the help of Relex
Solutions’ platform. This world-class AI-enabled software will
encompass all functions of goods distribution, significantly
increasing transparency of operations and helping flexibly
adapt various processes in line with the Company’s development.
CENTRAL
VOLGA
SOUTHERN
NORTH WEST
URALS
SIBERIA
NORTH CAUCASUS
CENTRAL
VOLGA
5,857
5,701
Convenience
Stores
4,182
3,996
2,243
1,703
1,465
901
421
CENTRAL
VOLGA
SOUTHERN
NORTH
WEST
URALS
SIBERIA
NORTH
CAUCASUS
SOUTHERN
3,548
Supermarkets
87
125
125
37
54
23
19
NORTH WEST
URALS
SIBERIA
NORTH CAUCASUS
2,323
2,211
1,271
653
Drogerie Stores
1,588
1,580
1,180
583
692
347
213
Distribution
Centres
10
10
8
3
3
3
1
2 Convenience stores include Convenience stores, Magnit City, My Price.
3 Supermarkets include Magnit Family supermarkets, superstores.
14,9112
4703
6,183
38
22
23
magnit.com
21,564
Total stores1
1 Does not include pharmacies.
20202020 Annual Report
Strategic Report
Corporate Governance
Appendices
Supply Chain
Efficient and On Time
24
25
magnit.com
20202020 Annual Report We Are Everywhere
for Our Customers (continued)
Magnit operates one of the largest
supply chain networks in the country.
The scale of operations makes Magnit
one of Russia’s biggest employers.
In 2020 Magnit initiated a number
of supply chain projects aimed at fine-
tuning our operations.
Headline Measures
Magnit has launched a continuous
long-term programme of truck fleet
renewal. We sell old cars and procure
low-tonnage trucks and semi-trailers
complying with Euro-5 eco standard.
The renewal of the fleet makes us
more efficient and goes in line with
the approved strategy for sustainable,
environmentally friendly development.
We are also widely implementing
a digitalisation programme across
our supply chain. New services
and technologies 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 optimise our costs.
43 mln
Loyal customers (activated cards1)
70 %
Penetration in sales
17
Production units
4,355
Number of trucks
38
Number of distribution centres
>2,500
Private label SKUs
7,497
thous. sq. m
Selling space
1,707
thous. sq. m
Warehouse space
Strategic Report
Corporate Governance
Appendices
Digital
Transformation
Satisfying our customers’
changing needs is the heart
of everything we do.
Big Data analytics and innovative
solutions we use allow us to continuously
improve customer experience. We aim
to build an ecosystem of complementary
services around the Magnit brand
and a strong omni-channel core.
We took our first steps in large-
scale digital transformation earlier
by rolling out our unique cross-format
loyalty programme which proved
extremely successful. In 2020 Magnit
launched an unmatched 5-year
ERP Transformation Programme
based on SAP solutions which will be
the largest project of its kind in the
Russian retail sector. We will leverage
not only our partners’ expertise, but also
develop relevant internal expertise.
In the reporting year Magnit initiated
development of its super app, which
will use the existing loyalty programme
to bring together online ordering,
payment and credit solutions, lifestyle
and other non-financial customer
services, as well as privileges from its
partners. The first step of implementing
these solutions was the launch
of Magnit Pay payment service which
enables customers to pay for their
purchases in any store, including online.
Components of digital transformation
ERP
Transformation
Big Data
and Advanced Analytics
E-commerce
Ecosystem of complementary services and tools1
Offline
CVP
Existing
core
E-com
CVP
New /
in development
1 Loyalty programme was launched in 1Q 2019.
1 A data management platform (DMP) is a software platform used for collecting and managing data. They allow businesses to identify audience segments,
which can be used to target specific users and contexts in online advertising campaigns.
26
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magnit.com
For more information about Magnit
Super App see next page.
Instant Credit
Magnit Pay
Data-rich DMP
Loyalty programme 2.0
New Magnit Mobile
20202020 Annual Report Digital Transformation (continued)
We also began testing e-commerce
services in the second half of 2020.
Magnit currently runs six online delivery
projects, both independently and in
cooperation with partners. During
the first three months, the pilots’
growth dynamics exceeded original
expectations and showcased the high
potential of this market.
Magnit’s future ecosystem will be in every customer’s pocket
within a single super app
s e r
e of Gross Margin P er U
s
a
e
r
c
n
I
Promo
General promo
Marketing
communication
In-store experience
Product scanner
Mobile Check-out
Augmented Reality
Loyalty
Digital card
Personal promo
Partnerships
V a l u e for Magnit
In
c
r
e
Magnit
Super App
Complimented
by selected single-
purpose apps
Value for Client
a
s
e
o
f
C
l
i
e
n
t
L
i
f
e
t
i
m
e
V
a
l
u
e
Content
Digital Magazine
Thematic clubs
E-com
Express grocery
Regular grocery
E-drogerie
E-pharma
Ecosystem service
Magnit Pay
Magnit Mobile
Strategic Report
Corporate Governance
Appendices
Unique Own Production
Capabilities
Magnit is the only Russian
food retailer with its own food
production capabilities.
The Company currently operates
4 agricultural and 13 food production
sites located across different parts
of the Company in Krasnodar, Moscow,
Saratov, Tver, Samara, Lipetsk regions,
and the Republic of Bashkortostan.
In-house production facilities allow
Magnit to control the quality of food
at all production cycle stages and ensure
the best value for money on the shelf.
Magnit’s in-house facilities produce
goods under the Company’s private
labels, including My Price, Magnit,
and Magnit Freshness. Overall, the food
production plants supply over 450
items to store shelves across the retail
chain, including fresh vegetables
and greens, mushrooms, confectionery,
pasta and flour products, ready-to-
heat food, teas, dry breakfast cereals,
and many others. In 2020 the Group's
own facilities set its new record, having
produced ~310,000 tonnes of products,
a 31% increase in sales year-on-year.
4
Agricultural complexes
166
Production lines
~310 thous. t
Own production
13
Production facilities produce
sweets, cereal, pasta, instant
food, nuts, spices and fish
31%
Growth of revenue
from the own production sales
in 2020 compared to 2019
82
Quality awards in 2020
~6,000
Average number
of orders per day
>40,000
SKUs available across
all services
43 mln
Active loyalty
cardholders
>1,000
Stores in 47 regions
and 72 cities
RUB 2.0 bln
Annualised run-rate
70 %
Penetration
in sales
1 The run rate for Magnit’s online segment based on December sales turnover.
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magnit.com
20202020 Annual Report
Strategic Report
Corporate Governance
Appendices
Unique own production
capabilities
30
31
magnit.com
20202020 Annual Report Strategic Report
Corporate Governance
Appendices
Unique own production
capabilities
32
33
magnit.com
20202020 Annual Report Retail with purpose
Sustainability Strategic Framework
Strategic Report
Corporate Governance
Appendices
The scale of our operations across
the country presents us with great
responsibility in how we conduct our
business. During 2020, we launched
Magnit’s Sustainability Strategic
Framework and set ourselves
an ambitious goal of embedding
sustainability into every aspect of the
business and its processes.
By motivating our employees, inspiring
our customers and helping to develop
the communities in which we operate,
we intend to set an example for the
industry as a whole. We look forward
to building a comprehensive network
of partners, drawing on the wide range
of our stakeholders, in a belief that
effective partnering is key to achieving
the ambitious goals we have set
for ourselves.
Magnit focuses its efforts on five key areas:
reducing environmental impact, creating a responsible
supply chain, taking care of employees, supporting local
communities, and promoting healthy lifestyles.
Environment1
Strategic goals for reducing
environmental impact
by 2025
50%
private labels and own
production packaging
are recyclable, reusable
or compostable
100%
recyclable plastics in own
operations are recovered
and recycled
50%
food waste reduction
30%
reduction in greenhouse gas
emissions
25%
reduction in water and energy
consumption
Sustainable
Sourcing
Strategic goals
for a responsible
supply chain by 2025
100%
responsible sourcing for socially
important categories
100%
responsible own production
and agriculture
+
increase in green packaging
Responsibility
Responsible sourcing
for commercial and non-
commercial purchases
Partnership
Development of partnership
programmes with local
suppliers and farmers
1 All quantitative goals for reducing the indicators are calculated for 1 sq. m of total space.
#1 Retailer with purpose in Russia
100%
Leader
Our ambitions:
in environmental impact
reduction in the industry
responsible supply
chain
#1
Employer
in the industry
Positive
impact on the quality of life
of all people in Russia
Best
in class corporate governance
Our focus areas: Environment
Sustainable Sourcing
Employees
Communities
Health & Wellness
Fair business Environmental
stewardship
Diversity &
inclusion
Responsible
marketing
Partnership
Employees
Strategic goals
for working with
employees by 2025
70%
rate of employee satisfaction
50%
lost time incidents rate
reduction and zero fatalities
40%
maximum turnover rate
Communities
Strategic goals
to support local
communities by 2025
10%
employee volunteers
Community
programmes across Magnit’s
geographic footprint
Health &
Wellness
Strategic goals to
support health and
healthy lifestyle by 2025
Healthy lifestyle
Information about healthy
lifestyle and nutrition is available
to all our consumers
Healthy food
Health related products are
available to all our consumers
34
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magnit.com
20202020 Annual Report
Retail with purpose (continued)
Strategic Report
Corporate Governance
Appendices
y
t
i
l
i
i
b
a
n
a
t
s
u
S
y
t
i
l
i
i
b
a
n
a
t
s
u
S
e
e
t
t
i
m
m
o
C
g
n
i
r
e
e
t
S
9
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-
d
v
o
C
i
o
t
e
s
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o
p
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h
T
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c
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o
G
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In 2020 Magnit adopted its Sustainability Strategy under
the motto “Retail with purpose”. We have millions
of daily touchpoints with our stakeholders: customers,
employees, suppliers, authorities, and investors. It makes
an enormous difference to how we operate and conduct
our business. That is why sustainability in what we do
every day is so important to us.
In 2019 the Board established the Sustainability
Steering Committee which has responsibility for the day
to day coordination of the sustainable development
programme. The Committee is responsible for providing
recommendations on embedding sustainable practices
throughout the business and targeting social,
environmental, resource and energy issues.
Under the supervision of this Committee, there are
16 working groups responsible for creating sustainable
business models for all areas of our operations: retail,
production, sourcing, logistics and human resources
management.
Since the beginning of the pandemic, we stood
at the frontline, making sure we did our best to help all
parties in battling the spread of the virus. The Company
is committed to helping customers and employees and all
those who are impacted by the pandemic. In difficult
conditions, we continue to provide customers in 66 regions
of Russia with all the necessary goods, maintain a high level
of logistics, produce quality products, and implement a set
of security measures.
Magnit has joined the UN Global Compact, the world’s
largest corporate sustainability initiative, including over
13,000 participants from more than 160 countries.
Magnit has committed to implementing and promoting
its ten principles in support of human rights, labour rights,
the environment and anti-corruption. Magnit has already
begun taking meaningful strategic actions to advance
societal goals and shape a more sustainable future with
the launch earlier this year of its pioneering five-year Retail
with Purpose sustainability strategy.
For more information, please see
Sustainable Development on page. 102.
For more information, please see
Strategic report on page. 104.
For more information, please see
Measures Against COVID-19 on page. 68.
For more information, please see
Strategic report on page. 105.
36
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magnit.com
20202020 Annual Report
Market
Overview
The market environment in the
Russian retail sector remained
challenging throughout 2020,
for both retailers and consumers.
However, despite the overall
economic decline both globally
and across Russia as a result
of the COVID-19 pandemic,
food retail was one of the least
affected sectors. Moreover,
the leading players in modern
retail, especially focused on the
formats of convenience stores,
were able to significantly increase
their sales and strengthen their
position in the market.
Macroeconomic Environment
In 2020, Russia's real GDP fell by 3.1%
due to the economic slowdown amid
restrictions related to the COVID-19
pandemic. According to the Ministry
of Economic Development forecasts
for 2021, real GDP will grow by 3.3%.
Similar to 2020, in 2021 the state plans
to stimulate the recovery of economic
growth through assistance for the
most affected sectors and investments
in a number of projects.
In 2020, large-scale measures were
taken to support various demographics,
including families with children,
pensioners and the unemployed.
In particular, in the middle of the
year, monthly payments were
introduced (which is about half of the
regional subsistence level, or average
RUB 5.5 thous. per child per month)
for low-income families with children
aged 3-7 years.
3.3%
Forecasted real GDP
growth in Russia
for 2021
3.0%
Forecasted RDI growth
in Russia for 2021
Real GDP Change in Russia in 2012-2021F, YoY, %
3.7 1.8 -0.2 -2.3 0.3 1.6 2.3 1.3 -3.1 3.3
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021F
Source: Federal State Statistics Service, Ministry of Economy Development of the Russian Federation
Real Wages, Real Disposable Income change
and Unemployment Rate in Russia in 2014-2020, %
4.4 0.6 -9.0 -9.5 -0.6 1.2 1.8 3.1 10.8 6.3 1.3 3.0 6.2 1.8 2.2
10
5
0
-5
-10
Strategic Report
Corporate Governance
Appendices
Russian Food Market at a Glance
14%
sales growth
of Top-10 in 2020
22%
share of traditional
retail in Russia
34%
share of top-5
Retail Chains
8th
largest
in the world
At the same time, payments for children
under 3 years of age (RUB 11 thous. per
child per month) continue for low-income
families from 2018. In addition,
various single payments were made
to all families with children aged 0-3
and 3-16 years, directly related to the
period of the COVID-19 pandemic in April
and July. In addition, in December 2020,
the President of Russia signed a decree
on a one-time payment to families with
children in the amount of RUB 5 thous.
per child under the age of 8.
The minimum wage in 2020 increased
by 7.5% to RUB 12,130 per month.
It is assumed that in 2021 the minimum
wage will increase further by 5.5%
to RUB 12,792 per month. There was also
a temporary increase in the minimum
and upper limits of unemployment
benefits in 2020. At the same time,
non-working individual entrepreneurs
began to receive unemployment
benefits at the upper limit.
In some regions (for example,
in Moscow), special payments were
introduced for people over 65 and for
those with chronic diseases. Furthermore,
separate payments, both at the federal
and regional level, were made to veterans
of the Great Patriotic War.
CPI and Food CPI in Russia in 2014-2020, %
6.4 7.7 16.2 15.7 8.3 6.8 4.6 3.4 2.2 3.0 5.2 5.0 2.4 3.6 4.4
25
20
15
10
5
0
Assistance was also rendered to small
and medium-sized businesses.
For companies in the most affected
sectors, partial tax breaks were
provided in Q2 2020, including
income tax, employee national
insurance contributions and others.
Moreover, starting from the Q2 2020,
the employee national insurance
contributions rate for all small
and medium-sized businesses
was reduced from 30% to 15%.
The Central Bank of Russia played
an important role in supporting
the economy with a further reduction
of the key rate from 6.25% in early 2020
to 4.25% by year-end. The government
also launched various preferential
programmes for loans, mortgage
loans in particular. Opportunities were
introduced to provide repayment
holidays for individuals and individual
entrepreneurs for a period of up
to 6 months in the event of a decrease
in monthly revenue by 30% year-on-
year or more.
In 2020, average real wages remained
almost unchanged (+2.5% year-on-year),
while real disposable income (RDI),
amid restrictions due to the COVID-19
pandemic, showed the most rapid decline
in the last years (-3.5% year-on-year).
The average unemployment rate grew
to 5.8%.
-4.2 1.8 0.1 -5.6 -2.6 -3.8 0.1 -0.1 1.0 0.0 -1.8 3.1 1.0 -5.3 -1.7
7.3 10.5 22.4 18.0 6.9 6.3 3.8 2.8 0.9 1.6 5.8 4.3 2.0 4.3 5.8
1Q’14 3Q’14 1Q’15 3Q’15 1Q’16 3Q’16 1Q’17 3Q’17 1Q’18 3Q’18 1Q’19 3Q’19 1Q’20 3Q’20 4Q’20
1Q’14 3Q’14 1Q’15 3Q’15 1Q’16 3Q’16 1Q’17 3Q’17 1Q’18 3Q’18 1Q’19 3Q’19 1Q’20 3Q’20 4Q’20
Unemployment, %
Real wages growth,
% Y-o-Y
Real disposable income growth,
% Y-o-Y
CPI, % Y-o-Y
Food CPI, % Y-o-Y
Source: Federal State Statistics Service, Ministry of Economy Development of the Russian Federation
Source: Federal State Statistics Service
38
39
magnit.com
20202020 Annual Report Market overview (continued)
Strategic Report
Corporate Governance
Appendices
We note a moderate impact on the
population of Russia’s incomes
and unemployment level compared
to developed countries. Russia has
a small share of small and medium size
enterprises in its economy (around 20%
of Russian GDP versus 50-60% of GDP
in advanced countries). The relatively
high proportion of the Russian
population working for the public sector
(around 25% of the Russian workforce
versus 15% in developed countries)
provided further stability. Finally, about
36 million pensioners had their pension
indexed by 6.6%, which is higher than
the inflation rate (CPI growth). Looking
ahead, in 2021, pensions are set to be
increased by 6.3%.
The Ministry of Economic Development
of Russia expects RDI growth of 3.0%
in 2021 driven by the rebound
in incomes from property and business
after a significant decline this year.
The unemployment rate is forecast
to decline to 5.2% in 2021.
In 2020, the Consumer Price Index
(CPI) grew by 3.4%, while Food CPI
increased by 3.9%1. According to the
Ministry of Economic Development
of Russian Federation, CPI is expected
to grow by 3.7% in 2021, as planned
fiscal consolidation will have a restrictive
effect on the CPI growth, which will only
be partially offset by the mitigation
of monetary policy. In the future,
the growth rate of CPI is expected
to return to the target level of the Bank
of Russia (4%).
CCI and Real Food Retail Sales growth in 2014-2020, %
Grocery Retail Market in 2020, USD bln
The Russian Retail Market
10.4 11.4 13.2 7.1 3.6 3.4 3.1 6.0 4.4 2.9 8.1 6.6 6.4 1.0 2.3
90
80
70
60
50
40
30
15
10
5
0
-5
-10
1.5 -0.3 -6.4 -9.6 -4.7 -4.5 -2.3 2.3 2.7 1.1 2.2 1.1 3.7 -3.6 -3.9
1Q’14 3Q’14 1Q’15 3Q’15 1Q’16 3Q’16 1Q’17 3Q’17 1Q’18 3Q’18 1Q’19 3Q’19 1Q’20 3Q’20 4Q’20
Consumer
Confidence Index, %
Nominal Food Retail Sales
growth, % Y-o-Y
Real Food Retail Sales
growth, % Y-o-Y
China
1,328
USA
1,239
India
407
Japan
287
France
269
Germany
266
United Kingdom
233
Russia
184
Italy
166
Turkey
Poland
Brazil
75
66
49
Source: Federal State Statistics Service
Source: Euromonitor, 2020
Food Retail Sales in Russia in 2002-2020
Share of Modern and Traditional Retail in 2020, %
24.3%
CAGR 2002–2008
11.2%
CAGR 2009–2015
4.5%
CAGR 2016–2020
23.8
19.3
23.4
24.7
22.7
23.9 32.8
9.3
12.8
13.8
9.4
11.9
11.1
8.4
2.5
5.0
4.3
6.7
2.1
15.1
12.0 11.7
10.9
9.0
11.9
13.3
8.8
8.8
6.1
6.6
6.5
11.4 12.9
5.4
2.5
4.3
3.0
4.9
8.0 9.1
7.1
6.5
10.0 11.1 12.3 13.4 13.8 14.4 15.1 16.1 16.4
4.9
3.9
3.2
2.6
2.1
3
0
0
2
4
0
0
2
5
0
0
2
6
0
0
2
7
0
0
2
8
0
0
2
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
0
2
0
2
1.8
2
0
0
2
North America
87
Australia
82
Western Europe
82
Russia
78
Eastern Europe
75
13
18
18
22
25
Latin America
51
49
Asia - Pacific
36
64
Middle East & Africa
31
69
Russian Food Retail
Sales, RUB trln
Food Retail Sales Growth,
% Y-o-Y
Food CPI, % EOP
Modern retail, %
Traditional retail, %
Source: Federal State Statistics Service, Ministry of Economic Development of Russian Federation,
Source: Euromonitor, Infoline, 2020
Magnit analysis
The real growth of food retail sales
in Russia in 2020 was negative (-2.6%)2.
The decline was primarily due to a sharp
drop in sales in traditional grocery retail
and big box formats associated with
restrictions and changing consumer
behavior due to the COVID-19 pandemic.
At the same time, sales in modern
convenience stores have grown
significantly. Despite both decreased RDI
and consumer confidence index (CCI)
having a negative impact on the whole
industry, in some large retail chains,
such as Magnit, customers tended not
to decrease their spending.
On the contrary, customers spent
more on food while cutting their spend
on travel, entertainment, services, etc.
The statistics clearly reiterate that
grocery retail is among the least affected
industries by the COVID-19 pandemic
in Russia. In 2020, the Russian food
retail market remains the eighth largest
in the world in terms of revenue, ahead
of countries such as Italy, Turkey, Brazil
and Poland.
The modern Russian food retail market
has solid potential for further growth
and strong players are gaining market
share. The share of modern retail in 2020
in Russia was 78%, behind the markets
of North America (87%), Australia (82%)
and Western Europe (82%). The Russian
retail market remains underpenetrated.
The retail market in Russia remains
fragmented with significant potential
for further market share growth for the
top players, especially Magnit, which
recorded robust results. At the end
of 2020, the share of revenue of the
top 5 retail chains was 34.5%, up 3.5 pp
versus 2019.
1 Average annual inflation rate is given based on the average quarterly CPI changes year-on-year.
Inflation rate at the end of December 2020 since December 2019 was 4.9%.
2 According to Federal State Statistics Service.
40
41
magnit.com
20202020 Annual Report Market overview (continued)
Share of Top-5 Retail Chains by Countries
in 2020, %
Top-10 Retail Chains Market Share in Russia
in 2020, %
0.8
1.2 1.1
0.8
12.8
X5 Retail Group
1.3
1.5
2.7
6.6
74.3
Germany
Czech Republic
73.6
United Kingdom
60.6
57.0
France
50.0
Poland
47.5
USA
43.4
Spain
36.9
Italy
35.0
Japan
34.5
Russia
28.7
Turkey
4.4
China
2.1
India
Source: Euromonitor, Infoline, Magnit analysis 2020
10.9
Source: Infoline, Magnit analysis 2020
Magnit
DKRB Mega Retail
Group Limited
Lenta
Auchan
Svetofor
Metro
O'Key
Monetka
Vkusvill
Total Selling Space in Russia for modern retail
in 2014-2020, mln sq. m
Magnit Market Share by Revenue in Russia
in 2014-2020, %
2020
2019
2018
2017
2016
2015
2014
19.8%
11.4%
68.8%
28.5
21.6%
11.7%
66.7%
27.5
23.4%
13.0%
63.6%
25.4
25.5%
13.8%
60.7%
23.3
27.3%
15.2%
57.5%
21.1
28.3%
16.5%
55.2%
19.0
30.1%
18.2%
51.7%
16.2
2020
2019
2018
2017
2016
2015
2014
+1.1 p.p.
+0.4 p.p.
+0.4 p.p.
+0.1 p.p.
+0.8 p.p.
+1.0 p.p.
10.9
9.8
9.4
9.0
8.9
8.1
7.0
Hypermarkets
Supermarkets
Convenience stores
Market Share, %
Growth, % Y-o-Y
Source: Infoline, Magnit analysis, 2020
Source: Federal State Statistics Service, Magnit analysis 2020
Strategic Report
Corporate Governance
Appendices
Magnit is
#1
in Russia by number of stores
and geographical footprint1
#2
retail chain in Russia
by revenue
In this respect, Russia remains 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 a significant
increase in their respective market
shares, primarily due to the rapid growth
of convenience stores. The COVID-19
pandemic has accelerated continued
market consolidation by industry
leaders due to the weak performance
of traditional retail and inefficient players.
Both small players and ineffective retail
chains are leaving the market, which
provides good opportunities for large
effective players to occupy well-
located vacant retail premises not only
individually, but also in large quantities.
In 2020, the Top-10 companies
in Russian retail demonstrated sales
growth by 14% year-on-year. According
to Infoline, the growth was primarily
driven by inflow of customers to federal
retail chains. Magnit’s market share
in 2020 increased by 1.1 pp (the highest
growth in the last 5 years) to 10.9%
primarily due to the changes in CVP
leading to higher sales densities.
In recent years, one of the major
trends has been an increase in the
number of convenience stores while
the average selling space has decreased.
The COVID-19 pandemic has only
accelerated this trend due to restriction
of movement. Magnit has benefitted
from the restrictions thanks to its multi-
format business model and dominant
share of local stores.
Our CVP is continuously evolving.
We are building our offering
in each format depending on the
preferences of customers in different
areas to become a store of choice.
For instance, this year Magnit launched
Metropolitan Convenience store
tailored for customer preferences
in larger cities as well as started
piloting discounter “My Price”. We
are developing our online expertise
and plan to undergo a full digital
transformation to be even more
transparent and accountable for our
stakeholders and shareholders.
Magnit is focused on profitability
of every project, while piloting new
formats and adapting our value
proposition to spearhead the market
trends and changing customer
preferences.
In 2021, we will continue our smart
growth strategy. With improved sales
density and attractive returns on new
store openings, we will accelerate
our organic expansion and continue
to closely monitor the opportunities
that the market provides.
See more at Strategy (p. 46.)
and Operational Review (p. 58.)
Key Trends in the Retail Market
Key trends in consumer behavior and preferences
Trend
Description
Consumer
behavior
— The COVID-19 pandemic significantly increased the trend towards
shopping in convenience stores
— Customers began to visit stores less often, but at the same time they
began to make larger purchases, which led to a simultaneous decrease
in traffic and an increase in the average ticket
— The trend to shop online has skyrocketed due to the COVID-19
pandemic, especially in large cities such as Moscow and Saint Petersburg.
The e-grocery market in Russia in 2020 grew by 229% and reached RUB
148 bln, which is 0.9% of the total food retail market volume
— From consumers leaving large hypermarkets, there is an increasing
demand for more expensive products in convenience stores
Despite the COVID-19 pandemic restrictions and the economic environment,
consumer preferences are still shifting towards:
— Healthy and safe food
— Simple and convenient service
— Quality and fresh products, especially fruit and vegetables
— Unique and local products
— Responsible consumption
— Technologically friendly and omnichannel services
— Awareness about products and shops from the media
Consumer
preferences
1 Federal State Statistics Service, public disclosures, Magnit analysis 2020.
42
43
magnit.com
20202020 Annual Report Market overview (continued)
Strategic Report
Corporate Governance
Appendices
Key trends in Russian retail market
Trend
Description
Accelerated industry consolidation
and growing availability of real
estate
— The pandemic has strengthened the trend towards consolidation of the industry by leading players
due to the withdrawal from the market of some more traditional retailers, HORECA, and small regional
and ineffective players
Rapidly evolving technologies
— Actively emerging digital ecosystems (e.g. Yandex, Mail.ru Group, Sber, Amazon, Wechat, Alibaba Group)
erase the borders of traditional sector based thinking
— Digital experience has become an essential part of today’s lives including shopping
Migration to big cities
— Migration to big cities strengthened after COVID-19 pandemic, which drives changes in customer needs
Aging population
— The population of Russia is in decline and the proportion of people receiving state support in various
forms is increasing
Key Changes in the Regulatory Environment in 2020 (continued)
Change
Regulatory Document
Effective Date
Experiment in receiving consumer packaging in retail
outlets.
Instruction of the Deputy Prime Minister of Russia dated by 20
July 2020
Q4 2020 - Q3 2021
Resolution on the approval of the Rules for the provision
of catering services, according to which restaurants
and cafes from 2021 will not be able to include any
payments that do not relate to the cost of ordered dishes
and selected services.
Decree for manufacturers, suppliers and retailers on setting
price caps for sugar and sunflower oil
Resolution of the Government of the Russian Federation dated
by 21 September 2020 No. 1515 "On approval of the Rules
for the provision of public catering services"
1 January 2021
An agreement between market participants.
14 December 2020
Moderate inflation rate
— Healthy inflation rate allows for more comprehensive planning of relationships with suppliers
and supports retailers
Increase in minimum retail prices for spirits, including vodka
and cognac.
Order of the Ministry of Finance of Russia dated by 7 October
2020 No. 232n
1 January 2021
Growing interest in sustainable
development
— Increased interest in sustainable development among stakeholders
— Growing attention to responsible waste disposal
— Increased focus on relationships with suppliers
— Higher investor expectations
Political factors
— Sanctions by the US and the EU
— Counter-sanctions
— Continuous support of local suppliers and manufacturers by government
— Regional protectionism
Key Changes in the Regulatory Environment in 2020
Change
Regulatory Document
Lower VAT rate on import and sale of fruit 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”.
Effective Date
4 January 2020
Increase in excise tax on the sale of alcohol
Federal Law of 29 September 2019 No. 326-FZ
1 January 2020
New legal regulation of domestic viticulture
and winemaking
Federal Law of 27 December 2019 No. 468-FZ
26 June 2020
Monthly cash payment for a child aged 3 to 7 years
Federal Law of 20 March 2020 No. 199-FZ
1 January 2020
The official publication of the amended Constitution
of the Russian Federation, in particular including a policy
ruling that the minimum wage cannot be lower than
the subsistence minimum.
Decree of the President of the Russian Federation No. 443
4 July 2020
A ban on the production and import of unlabeled drugs
Federal Law of 27 December 2019 No. 462-FZ
1 July 2020
Organic products and their manufacturers are introduced,
along with the norms for their production, storage,
transportation, labeling, and regulated sales
Federal Law No. 280-FZ
1 January 2020
Establishing the size of the state duty for the provision
or renewal of the license for the retail sale of alcoholic
beverages.
An experiment on labeling beer and other low alcohol
drinks, including mead and cider.
Transition to piece accounting of alcoholic beverages.
Extension of the anti-tobacco law to all nicotine-containing
products.
Increase of excise taxes on cigarettes and other tobacco
products in Russia by 20% in 2021
A variety of changes that affected trade were linked to the
coronavirus pandemic and approved by Rospotrebnadzor
both at the federal and regional levels (provision of PPE,
introduction of preventive measures, disinfection, etc.)
Draft Law "On Amendments to Article 333.33 of Part Two of the
Tax Code of the Russian Federation
1 January 2021
Draft Decree of the Government of the Russian Federation
"On conducting an experiment on labeling beer, beer
and low-alcohol drinks with identification means in the territory
of the Russian Federation" dated by 6 November 2020
From 1 April 2021
to 28 February 2022
Orders of the Federal Service for Alcohol Market Regulation
pursuant to Article 10.2. Federal Law of 22.11.1995 No. 171-FZ
"On state regulation of the production and circulation of ethyl
alcohol, alcoholic and alcohol-containing products and on
limiting the consumption (drinking) of alcoholic products"
1 November 2020
Federal Law No. 303-FZ of July 31, 2020
28 January 2021
Federal Law of 15 October 2020 No. 321-FZ
1 January 2021
At the year end, Recommendation for the Prevention
of the Novel Coronavirus Infection (COVID-19) in Trade
(MR 3.1/2.3.5.0191-20) approved on 21 April 2020 – became
mandatory in accordance with the sanitary and epidemiological
rules SP 3.1.3597-20, Prevention of the Novel Coronavirus
Infection (COVID-19)
On 21 April 2020,
it was decided
to extend the term
of the rules until
1 January 2022
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magnit.com
20202020 Annual Report Our Strategy
Overview
Magnit recorded double digit sales
growth in 2020, mainly due to significant
sales uplift in the mature stores
resulting in sales density improvement
of 6.5%. A number of initiatives are
already showing good progress
in line with the new strategic vision.
Magnit accelerated updated CVP
implementation, improved internal
processes, embarked on transforming
its digital capabilities, launched new pilot
projects (e.g. Discounter, Kiosk) and set
ambitious sustainability targets as part
of its Sustainability Strategy. Customers’
response to these new initiatives
has been overwhelmingly positive,
as demonstrated by a positive NPS trend
across all formats. Staff turnover is at
a record low level with room for further
improvement. All these efforts have
created significant value for shareholders
– Magnit’s share price has increased
by 66% since 20191 and new approach
to investments and redesigns drove
impressive returns and uplifts.
New store opening
with attractive
ROI2 ~40%
Redesign of Convenience
and Large formats yield
lucrative uplifts in LFL sales
of
+16%
Note: FY 2020. Net of COVID effect.
Strategic Report
Corporate Governance
Appendices
Our Strategic Goal
Our Strategic Ambition
Cement current leading
federal retail positions
growing market share significantly
and profitably
#1
Become #1 for consumers,
employees and investors
Strategy at a glance
The unprecedented events of 2020 also led to a re-evaluation
of several areas to ensure we are well positioned to meet changing
customer demands.
Coronavirus
National lockdowns negatively impacted economies
and changed consumer behaviour
The significant increase in people working from home resulted in soaring
demand for online services and home delivery, as well as lower in-store traffic
We decided to concentrate on a number of areas to overcome the challenging macro
environment, and it is against this backdrop that Magnit defined its strategic priorities
for 2021-2025.
Good for Me and the World
Strategic priorities for Magnit for 2021–2025
Transfer from demand on “fast & easy” to “don’t make me
think”
Consumers’ increased focus on sustainability and responsible consumption
raised their expectations of brands
Technology & Commodity
Technology & data increasingly becoming vital for a successful
business. Technology is accelerating the pace of change
in how people entertain themselves and consume.
Increasing consumer expectations of the digital consumer journey.
Enhancing CVP
as a key driver
for material
improvements
in sales density
and profitability
Extracting efficiency
to get higher
profitability and cash
generation
Smart expansion
implying high
profitability targets
for new store
openings
Selectively strengthen
our overall positioning
(based on strategic
and value accretive
approach) with
M&A deals
Extend consumer
offering
complementary
to our core business
to better satisfy
consumer needs
These challenges create opportunities
for retailers who can rapidly adapt
to changing consumer behaviour
and meet digital expectations.
We understand that this ability to adapt
will be key to achieving our strategic
ambitions.
Our strategy is driven by the desire
to create value for our three major
stakeholders – our consumers,
our employees and our investors.
Consumers
Growing LFL, best in NPS3
and net consumer gains
№1
Employees
Constant improvement in eNPS4
and staff turnover
Investors
Creating value for shareholders
through attractive returns
1 30 December 2020 compared to 30 December 2019.
2 ROI = OCF of fully ramped up year / CAPEX.
3 Net Promoter Score.
4 Employee Net Promoter Score.
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magnit.com
20202020 Annual Report
Our Strategy (continued)
These ambitious goals will support the evolution of Magnit
and satisfy customers, employees and investors.
We put our consumers first and have
a customer centric philosophy ...
Our strategy is built around four major pillars:
Consumer
first
Most efficient
& promising ways
to market
Modern
and efficient
platform
Employer
of choice
Consumer first
— Consumer centric decision making
to strengthen customer loyalty
— Enhanced CVP and clustering
to better serve customer needs
— Improved brand positioning (incl. care,
safety, ESG and value for money)
— Going beyond the traditional offering
to build an E2E customer ecosystem
Everything that
matters to our
customers
is provided
under the Magnit
Umbrella Brand.
Key differentiating pillars
— Multi-format model
— One loyalty programme
— Own production facilities
— One brand
— Emotional touch.
Strategic Report
Corporate Governance
Appendices
As the only truly national multi format
retailer, Magnit offers a full range
of products and services to meet
customer needs, supported by its strong
brand, loyalty programme and vertically
integrated structure.
We are improving the CVP of our key
formats and moving away from purely
focusing on price, instead offering
a new concept of a friendly, safe,
and comfortable store where customers
can find everything they need and get
the best value for money.
We are rationalising our product range
to ensure consistency across stores
and increase business efficiency, revising
our category management structure,
rethinking our approach to target
categories, removing inefficiencies
and rebalancing the price mix to capture
all relevant consumer segments.
We aim to utilize additional capacity
and efficiency throughout the system
and boost efficiency in our stores.
This is also supported by assortment
harmonization meaning "matryoshka"
principle revision with focus on proper
proposition throughout units of needs
and price tiers regardless of the store
size.
Clustering is another way of better
serving customers while tailoring
the CVP to the core clusters (cities,
towns and villages) and two
supplementary ones (street retail
and joint openings with cosmetics).
… in order to serve our customers
in the best possible way, we consider
the most efficient & promising ways
to market …
Most efficient & promising ways
to market
— Smart expansion in core formats
to increase market share, including
M&A
— Actively consider new sales lines, new
niches and markets
— Omnichannel development including
e-commerce
— Agile sourcing including partnerships
with suppliers, crystalized offering
in own production and private labels
to enhance proposition and secure
positioning
CVP enhancement and customer
centricity remain our key priorities.
We plan to expand smartly with high
profitability targets for new openings
as well as developing through M&A,
which will become increasingly important
as the Russian market consolidates.
We will extend our customer
proposition by offering services that are
complementary to our core business,
including partnerships, e-commerce
and new specialised formats to better
satisfy customer needs. Our approach
is to pilot relevant customer offerings
and operating models. We then selectively
scale the pilot projects that show
attractive performance and ultimately
deliver the best proposition to our
customers and high returns.
We have big ambitions to differentiate
our product offering through tailored
procurement initiatives in private
label, own production, direct import
and strategic partnerships with suppliers.
We believe we are very well positioned
to expand our Private Label (PL) efforts
– we expect the PL offering to account
for 25% of sales by 2025, while
extending the range and rationalizing
the brand portfolio with specific focus
on the cross-category brands and value
for money. Our own production facilities
and expertise are well placed to deliver
this and we will continue to invest
in strengthening our high-quality
proposition.
Direct import is another hugely
important area and we have a specially
dedicated procurement team focused
on securing the best deals and products
for our stores. Our procurement strategy
goes beyond the traditional approach
to buying – we want to create long-
term mutually beneficial E2E strategic
partnerships with our suppliers (including
data, innovations, capacity utilization,
tailored offerings, merchandising
supported by aligned promotional
and marketing initiatives).
48
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magnit.com
20202020 Annual Report
Our Strategy (continued)
E-commerce is an essential part of the
omni-channel customer experience.
Therefore, we are investing in our delivery
service to make it available to the
majority of our customers by the end
of 2021. We aim to build an ecosystem
of complementary services around
the Magnit brand and strong omni-
channel core. Magnit will develop
this ecosystem through strategic
partnerships with leading providers
in adjacent verticals. In H2 2020 Magnit
started testing e-commerce services,
both independently and in cooperation
with partners. As of the end of 2020,
Magnit had six online delivery projects,
all of them in pilot stage. Magnit
is searching for the optimal format of the
delivery service to satisfy the needs
of all customers.
… the respective ambitions require
modern and efficient platforms built
around clear functional strategies
and processes initiatives, adaptive
organisational structure and modern
IT and operational systems …
Modern and efficient platform
— Defined and straightforward
functional strategies
— Flexible organisation structure, clear
responsibility split combined with
entrepreneurial culture
— Smooth and efficient processes
— Flexible, reliable and scalable IT,
operational and data platform
Our goal is to build a modern
and efficient platform around clear
functional strategies and processes,
adaptive organizational structure
and modern IT and operational systems.
This requires clear synchronization
of all functional strategies supported
by specific E2E processes improvement
action plans, clear RACI1 and ownership
culture, and migration into modern
operational platforms supported by a
review of our technological capabilities.
Next generation data capabilities
to power digital transformation require
a modern centralised data platform
to enable data-driven decision-making.
This technological advancement will
be accompanied by the introduction
of scalable, industrial solutions for key
systems, including ERP, Forecasting
& Replenishment, Warehouse
Management, and Transportation
Management Systems. In addition,
e-commerce will be launched across
all segments.
Strategic Report
Corporate Governance
Appendices
… we would not to be able to achieve
our strategic ambitions without our
people – we are aiming to become
the employer of choice in Russia
Employer of choice
— Intensive investment in people
to support talent development
and expertise
— Agility and innovative thinking
— One team approach: effective cross
functional cooperation
— Performance assessments
and promotion opportunities
— Employee engagement
Magnit is privileged to be one of the
largest private employers in Russia and is
committed to supporting its employees
and their families, especially during these
uncertain times. In November last year
we launched the first company-wide
employee engagement survey and it
revealed an overall engagement score
of 84%, one of the best results among
food retailers.
Longer term, we are constantly refining
our organisational structure to maximise
synergies. Magnit aims to be a change
leader in labour market transformation
by developing an attractive EVP for all
employees and in particular to attract
Tech and Digital specialists.
We are committed to building a strong
employer brand and be recognised as
a leading employer in all segments. We
utilize digital channels to communicate
with and recruit new employees.
Promoting an open and friendly culture
is vital to ensuring alignment between
strategic priorities and everyday
activities.
Magnit believes in the education
and professional development of its
employees. We continue to run our
Retail Academy, as well as establishing
modern HR IT-solutions to automate HR
processes and provide employees with all
the relevant functionality through digital
channels.
Magnit – One of the Largest Private Employers in Russia
316,001
headcount of employees
33,751
Distribution
centres
12,189
Head
Office
11,056
Regional
branches
4,810
Production
& others
1 A responsibility assignment matrix (RAM), also known as RACI matrix or linear responsibility chart (LRC), describes the participation by various roles
in completing tasks or deliverables for a project or business process.
2,667
Other
formats
27,281
Supermarkets
& superstores
42,768
Drogerie
stores
181,479
Convenience stores
254,195
In-store
50
51
magnit.com
20202020 Annual Report
Our Strategy (continued)
Key Strategic Guidance 2021-2025
Our strategy in action envisions our future goals.
Clear potential
to increase sales
densities
also by the way of speeding up
value-accretive redesigns
Proactive and opportunistic
return-driven
consolidation play
(M&A)
Clear
CVP initiatives
to enhance consumer perception
and experience big time
Thought through
strategic plan
to execute to capture tremendous
business improvement potential
Accelerate
smart
organic expansion
(annually on gross basis):
• Convenience: 1,000-1,500 stores
• Drogerie: 750-1,000 stores
• Supermarkets & Superstores:
5-15 stores
Adherence
to sustain
high return
requirements
for new projects
Build a leading
e-grocery platform
capable of handling
5%+ of Magnit turnover
with seamless integration
into an omnichannel
consumer experience
Continue to proactively
consider adjacent value
accretive
additional niches
Strategic Report
Corporate Governance
Appendices
Key Financial Guidance 2021-20251
Sustainability
We believe that every strategic move should be supported by strong
and robust financials.
Benefit from lucrative
EBITDA margin (IAS 17)
steadily moving to the direction
of 8%
within 2021-2025 leading
to very attractive cash generation
Comfortable leverage of
~ 1.5x
of Net Debt/EBITDA (IAS 17)
with a self-imposed ceiling of 2.0x
Improvement
of working capital
with a focus on stock days
optimization by:
• 3-5 days in grocery
• 10-15 days in drogerie
Focus on high returns
and value accretion
for shareholders leading to
continuous strong
dividend payment
We firmly believe that embedding
sustainability in our strategy is key
to continued growth of the Company.
We plan to use every opportunity
to make Magnit one of the leading
companies in Russia in terms of the
implementation of efficient and scalable
technological and environmental
solutions.
Sustainability is an integral part of what
we do and acting in the interests of all
our stakeholders will produce better
returns over the long-term for our
shareholders. Our Sustainability
Strategy “Retail with Purpose”2,
which was announced last year, sets
out our ambitions and strategic
principles and formalizes our approach
to sustainability. We are committed
to reducing our environmental impact
and having a positive impact on wider
society, as well as ensuring our
employees are satisfied and upholding
the highest standards of the corporate
governance.
1 Based on IAS17.
2 Please, see Sustainable Development, p. 102.
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magnit.com
20202020 Annual Report
Investment Case
Magnit: Everything that matters is close to you
Magnit offers exposure to a sizeable market with potential for further
organic expansion and consolidation
Market potential
— Sizeable market with increasing
penetration of modern food retail
into the grocery market which
offers opportunities for organic
expansion
— Fragmented market with high
potential for further consolidation
— Large players are gaining market
share
— New niches and ways to market
actively emerging with constantly
evolving e-commerce offering
Russian market offers
further growth potential
The market has potential
for further consolidation
Modern retail share
in grocery retail, 2020, %
Share of Top-5 players
in grocery retail, 2020, %
90%
90%
88%
90%
84%
79%
78%
71%
74%
61%
57%
50%
48%
43%
37%
34%
Leading player
Magnit is one of the largest food retailers in Russia with well-developed
infrastructure, a loyal customer base, a well-known brand, and growing
market share
— Multi-format offering with
4 core formats covering range
of shopping missions in grocery,
drogerie and pharma segments
— Wide geographical coverage with
21,564 stores in 3,752 cities in
7 federal districts
— 11% market share in food retail sales
— Serving customers in all highly
populated Russian regions
(66 regions, 43m loyalty cards)
— Well-developed country-wide supply
chain with 38 distribution centers
and one of the largest own truck
fleets
— The only vertically integrated retailer
in Russia with 17 own production
facilities and agricultural complexes
Russian food retail and Magnit sales growth in 2018-2020, %
8.3
4.3
11.4
6.7
13.4
2.1
2018
2019
2020
Russian Food Retail Sales Growth, % Y-o-Y*
Magnit Sales Growth, % Y-o-Y*
* including VAT
Strategic Report
Corporate Governance
Appendices
Growth ambitions
On track to accelerate profitable return driven growth and increase market share
— Speed up value accretive organic
expansion
— Smart expansion with high
profitability targets for new
openings
— Adherence to sustain high return
requirements for new projects
— Store network redesign
programme to improve sales
density
— Development of leading
e-commerce platform capable of
handling 5%+ of total turnover
— Proactively consider adjacent
value accretive additional niches
Efficiency gains
On track to accelerate profitable return driven growth and increase market share
— Further CVP development to drive
material improvements in sales
density and profitability
— CVP initiatives to enhance
customer perception and
experience
— Increase in sales density
supported by accelerating store
redevelopments and process
improvement
— Extension of customer offerings
that are complementary to the
core business
— Benefits from lucrative EBITDA
margin (IAS 17) steadily moving
to the direction of 8% within
2021-2025 leading to very
attractive cash generation
— Continuous focus on efficiency to
generate higher returns
+97 bps
EBITDA margin
improvement in 2020 (IAS17)
+6.5%
sales density growth
in 2020
Strong capital discipline with focus on returns in all investment decisions
providing substantial dividend payment
Dividends
— Focus on quality of new store
openings resulting in better
payback
— Keeping comfortable level
of Net debt/EBITDA leverage
at 1.5x (IAS17)
— Clear plan to improve working
capital with a focus on stock
days optimisation
— Value accretion for shareholders
leading to consistent strong
dividend payment
Magnit dividend payment and dividend yield in 2008-2020
0.1 1.3 0.6 2.1 7.7 12.8 34.3 29.4 26.3 24.7 31.0 31.0 25.0
8.6%
0.3%
0.2%
0.7%
0.8%
1.7%
1.5%
3.7%
2.8%
4.0%
4.3%
4.9%
2.5%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 9M 2020
Dividend yield, % at the end of period
Total dividends paid, RUB bln
RUB 85 bln
strong free cash flow in 2020
1.1x
net debt/EBITDA leverage (IAS17) as at 31 December 2020
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magnit.com
20202020 Annual Report
Our strategy
Business model
Strategic Report
Corporate Governance
Appendices
Environment
Employees
Health and wellbeing
Big Data & Advanced Analytics
Responsible supply chain
Community involvement
Scalable & Reliable
IT solutions
Effective E2E processes
& Cross-functional cooperation
Strategic
goal
to secure Magnit's leading
positions in Russian retail
by expanding its presence
in the market and maintaining
high business profitability
We
strive
to become the store of choice
for customers, employees and
investors
Supreme
Quality
~6 thous. suppliers
Best local product range
52% local SKUs
Vertical integration
17 own production facilities
>310 thous. tonnes
of products per year
>2.5 thous. private label SKUs
10% share of PL
7% direct import supplies
Quality control "from field to plate"
12
3.5 thous.
laboratories
daily tests
Multi-format
& omni-channel
under single brand
14,911
stores
convenience
470 supermarkets
6,183 drogeries
1,165 pharmacies
3,752 Cities & townships
Online across all segments
and missions:
— regular delivery (stock-up)
— express
— E-pharma
Covers >1 thous. stores
in 47 regions of Russia
Largest supply
chain network
in Russia
Best
customer
experience
38 distribution centres
in 7 federal districts
>4.3 thous. trucks
91% centralisation ratio
Logistics transformation
Unique cross-format brand
— Enhanced CVP & clustering
— New retail technologies
— Eco-Initiatives
—13 mln customers daily
—14,354 new concept stores
Cross-format loyalty programme
>43 mln active users of loyalty cards
70% penetration in sales
M
o
d
e
r
n
a
n
d
e
ffi
c
i
e
n
t
platform
R
e
t
a
i
l
w
i
t
h
P
u
r
p
o
s
e
S
u
s
t
a
i
n
a
b
ilit
y Strategy
#1
Russian retailer
in terms of proximity
to customers and
geographical
coverage
21,564
stores
in 3,752 cities
and townships
>316 thous.
employees – one of
the largest private
employers in Russia
200 thous.
employees joined
Magnit's Corporate
Academy
Value creation for…
Customers
Delivering
fresh and high-
quality products
Employees
84% employee
engagement rate
73% employee
satisfaction rate
Suppliers
52%
of SKUs supplied
by 4.1 thous.
local producers
7%
direct
import supplies
(~700 contracts)
RUB 210 mln
allocated for charity
RUB 94 bln
taxes paid in 2020
Communities
RUB 2.9 bln
responsible
approach towards
environment
Goverment
44
procurement
sessions
in 38 regions
Investors
RUB 578 bln
сapitalization
(+ 66% in 2020)
RUB 31 bln
dividends paid
in 2020
x2
ROIC growth
in 2020
56
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20202020 Annual Report
Operational
Review
In 2020, Magnit faced
unprecedented challenges due
to the Covid-19 pandemic and the
Company reacted quickly to the
rapidly changing environment
and changing consumer behavior.
Implementing rigorous health
and safety measures, ensuring
the availability of products,
maintaining affordable pricing
levels and continuing to deliver
high levels of customer service
were all crucial to attract new
customers and remain the store
of choice.
In 2020, Magnit focused on the
operating efficiency of the existing store
base and delivered solid LFL results
and sales density growth. We achieved
strong profitability improvements
with EBITDA margin (IAS 17) up 1 p.p.
year-on-year. Working capital improved
significantly, with RUB 30.5 bln of cash
released from working capital. Debt
reduction became an area of focus
due to the challenges brought by the
pandemic and we reduced our leverage
significantly. Achieving such strong
results against this backdrop
is an outstanding achievement.
Our business model once again
demonstrated its resilience and ability
to adapt. We saw a continuous inflow
of new customers, and a significant
improvement in both customer
satisfaction rates and NPS scoring.
Magnit continued to adapt its formats,
forming clusters based on specific
customer trends prevalent in different
localities, and launching new pilots
including Magnit Metropolitan, Moya
Tsena1 discounters, Mini Cosmetics
stores and online offering. Progress
was made in developing and improving
operational structure and range, while
enhancing category management.
We also leveraged our private label
brand and own production capabilities,
tailoring our logistics and supply chain
based on demand and the specific
requirements of different formats.
The roll-out of our loyalty programme has
provided us with a unique opportunity
to gain a better understanding of our
customers and tailor our range
accordingly to better suit their needs.
Magnit continues to implement its
redesign programme, improve its
e-commerce segment and continue with
its digital transformation to support
all departments with the relevant data
and technologies.
Our operational efficiency is extremely
important, along with the improvement
of business processes. We managed
to improve service levels and on-shelf
availability of the new product range
for our customers even at the time
of increased demand. The overall supply
chain remained robust throughout
the year. Shrinkage level was decreased
thanks to the efforts of the team
to streamline cross-functional processes
aimed at improvement of inbound goods,
faster delivery, accurate forecasting
in collaboration with suppliers, etc.
We also note substantial reduction
in staff turnover, higher productivity
of personnel and improvement in rent
rates with landlords. As a result, costs
remained under strict control, despite
additional COVID-19-related expenses
which totalled RUB 2.8 bln.
Due to the COVID-19 pandemic, CAPEX
was lower than initially projected.
This was mostly as a result of slower
expansion and the delay of redesign
projects during the lockdown period.
In Q4 we resumed our expansion
programme and opened 445 stores
on a gross basis – more than in any
quarter of 2020 and higher than
in the previous year.
1 My Price.
2 For a number of months during challenging epidemiological situation.
Strategic Report
Corporate Governance
Appendices
Operational review
RUB 1,510 bln
13.3% year-on-year increase
in net retail revenue
7.4 %
LFL sales growth
839
stores opened
in 2020 (net)
7,497 thous.
sq. m total selling space
3.6 %
year-on-year increase
in total selling space
6.5 %
year-on-year sales
density increase
Anti-COVID-19 measures
and related costs:
— additional payments
to frontline personnel
— purchases of sanitisers,
thermometers, thermal
imagers
— purchases of respirators,
gloves and medical masks
— installation of screen
protectors at the cash desks
and special marking in the
stores to ensure social
distancing
— intensified cleaning
— zero mark up on several
socially important product
categories2
— charity boxes, additional
discounts to medical officers,
elderly people and socially
vulnerable citizens.
At the same time, we closed only
35 stores – the lowest number
in any quarter of 2020. On the back
of remarkable rise in returns per
store, we go into 2021 with a solid
foundation for growth, as we continue
striving to deliver the best value for our
shareholders.
Magnit continues to develop as an open
and progressive business working
for the benefit of all its stakeholders,
including our employees, suppliers
and communities. We made a significant
step forward in formalising our approach
to sustainability, with the announcement
of our sustainability strategy setting out
goals and commitments to be achieved
by 2025.
Our success would have been impossible
without the Magnit team and we strive
to ensure Magnit remains an attractive
and innovative employer. In 2020 we
reviewed our incentive programme,
improved our on-boarding procedure
for new employees, and continued
to develop our corporate academy.
Performance
In 2020, Magnit’s net retail sales reached
RUB 1,510 bln. Despite a slowdown in the
pace of new openings and the difficult
macroeconomic situation, the Company
delivered double-digit sales growth
of 13.3% driven by a strong uplift in LFL
sales of 7.4% and also by selling space
growth of 3.6%. As a result, overall sales
densities in 2020 improved by 6.5% year-
on-year as we saw customers responding
positively to our product offering,
customer service levels and pricing.
We are actively gaining new customers
and market share, reflected in our
improved NPS scoring and LFL sales
performance.
The lockdown measures imposed
to control the pandemic distorted
the structure of LFL sales – the frequency
of visits fell, while the average ticket
increased. Over time the frequency
of visits started to recover, but LFL
sales remained strong. We have closely
monitored the effect of the pandemic
on LFL sales and we calculate that
it had a 2.8% positive impact in 2020.
This indicates that most of the growth
in LFL sales during 2020 was due
to fundamental changes in the business
unrelated to COVID-19 pandemic.
LFL sales growth in 2020 was well
above CPI. Stores opened before 2018
were the main driver of the Company’s
strong LFL performance. In Q4 2020
only 5.5% of Magnit’s selling space
was in the ramp-up phase with 94.5%
already matured.
As noted above, measures against
COVID-19 resulted in mobility
restrictions, forcing consumers to stay
in their homes, with an associated impact
on their shopping habits. This resulted
in a reduction in the frequency of visits,
with a LFL traffic decline of -5.9%
in 2020. This decrease in the number
of visits was more than compensated
by 14.1% growth in LFL average ticket,
driven by increased spending per visit
on a higher number of articles per basket,
a trading up effect, lower promotional
intensity and on-shelf inflation.
In 2020 Magnit signed the long-term lease agreements for 77 retail facilities
previously occupied by stores operated by TD Intertorg under the Family
and Spar brands, and acquiring long-term leasehold rights for 89 Evroros,
Yablochko, and Tvoy stores in Murmansk and the Murmansk region in the
Northwestern Federal District. As for macroeconomic factors, Magnit’s results
were impacted by further consolidation in the private sector, growing
competition and a decline in consumers’ purchasing power.
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20202020 Annual Report
Operational Review (continued)
Increased on-shelf inflation was a result
of lower year-on-year promotional
activity, overall food prices growth
and local currency depreciation. LFL
traffic went negative and stood at -6.1%;
this decrease was an industry-wide trend
due to the pandemic.
Convenience stores
A convenience store with an average
of 6,450 SKUs is aimed at everyday
shopping with a large range of the most
popular food and non-food products
at attractive prices.
This format accounts for 77% of Magnit’s
net retail sales in 2020. 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
in cities, towns and more rural 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 2020 was RUB 1,161 bln, an increase
of 13.8%. There were 14,911 Magnit
convenience stores in Russia by the
end of 2020. In 2020 Magnit focused
on streamlining its portfolio of stores,
disposing of 380 non-core stores
and focusing on the most profitable
locations. New store openings were
slowed down due to the pandemic,
but in Q4 Magnit opened 212 stores
(net) – the highest number across
all quarters of 2020 and higher than
the previous year. In 2020, selling space
grew by 2.8%. As a result, sales density
of convenience food stores substantially
improved by 8.2% year-on-year.
280 convenience stores were redesigned,
bringing the share of convenience
stores operating under the new concept
up to 72%. LFL sales growth for 2020
reached 8.2%, an improvement of 1.3%
compared to 2019.
LFL average ticket growth for the year
was 15.2%, driven by volume increase,
trading up effect and on-shelf inflation.
The trading up effect was a result of less
frequent but more expensive shopping,
changes in the product range, improved
quality control.
Strategic Report
Corporate Governance
Appendices
Convenience stores
13.8 %
year-on-year sales
growth
77 %
of the net retail sales
14,911
stores
8.2 %
LFL sales growth
5,090
thous. sq. m
of selling space
289
net store
openings
2.8 %
year-on-year increase
in selling space
8.2 %
sales density increase
year-on-year
Magnit piloted three additional formats in 2020, which showed positive results.
Magnit City
Magnit Metropolitan
Magnit Discounters (Moya Tsena)
Pilot stores were opened in Moscow
and Krasnodar. The concept is for small
stores 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 spots with the total
space of 120-180 sq. m and the range
of up to 3,200 SKUs.
The first three pilot stores that were
opened in Moscow and Krasnodar
in summer 2019 received positive
feedback from customers and were
commercially viable, therefore
the concept was rolled out further
with six more store openings in 2020.
Magnit opened the first metropolitan
convenience store in October 2020.
It reflects customer preferences
in metropolitan areas and its design
focuses on creating a pleasant
ambience, providing useful services
and digital solutions while maintaining
attractive prices. The updated Magnit
store boasts an assortment of around
6,000 SKUs, with particular focus
on the Fresh and Ultra-Fresh categories,
which occupy 35% of the sales area.
For improved customer convenience,
a Magnit Pharmacy is located on the
same site. The Company plans to use
the elements of the metropolitan store
concept in different combinations
in other localities in the future.
These outlets have a comparatively
limited product range of around
1,750 high-demand SKUs with a large
proportion of the entry price products
(around 65% of total assortment),
private labels (around 18% of total
assortment), and value packs: fruits,
vegetables, dry foods, dairy, confections,
etc. The concept also has a reduced
staffing level compared to the
convenience store and requires much
less capital expenditures for opening.
The first three stores in this new
format were opened in July 2020
in Samara, Volgograd and Ulyanovsk
region. They replaced existing Magnit
convenience stores that did not fully
meet CVP requirements but were well
suited for the discounter concept.
These initial three stores showed
promising results, so the format was
rolled out to Krasnodar and Lipetsk
region in September 2020. By the end
of 2020, 16 Moya Tsena stores were
opened, with more planned in 2021.
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20202020 Annual Report
Operational Review (continued)
Supermarkets
1.7 %
year-on-year
sales growth
13 %
of the net
retail sales
470
stores
-0.8 %
year-on-year increase
in selling space
1.5 %
sales density increase
year-on-year
941
thous. sq. m
of selling space
0.8 %
LFL sales growth
3
stores closed (net)
Supermarkets include two sub-formats –
Magnit Family supermarkets and Magnit
Extra superstores. In 2020 Magnit
supermarkets continued to grow, despite
being impacted by changing consumer
habits. The federal lockdown did not have
any impact on standalone stores, but
those located within closed shopping
centres also had to close.
New cross-docking stations will also
enhance the product range and the
new store layouts are designed to unify
the layout approach across all the stores.
Supermarkets account for 13%
of Magnit’s net retail sales. Three stores
were closed in 2020 (on a net basis)
and 25 were redesigned.
Magnit’s goal is to increase the sales
density of the supermarkets. The larger
formats now have an improved
product range, café, extended in-store
food offering, more seasonal and less
non-food offers, as the overall consumer
behavior has shifted towards bulk
buying of seasonal, fresh and ultra-fresh
categories.
Strategic Report
Corporate Governance
Appendices
The supermarket segment was the
most affected by the pandemic, but
there was a positive growth in LFL
sales of 0.8%, despite the country-wide
trend for consumers to avoid visiting
large stores and shopping centres. LFL
traffic was negative and stood at -11.5%,
however the lower frequency of visits
was compensated by higher spending
per visit resulting in solid LFL average
ticket growth of 13.9%. In 2020 sales
density in supermarkets improved
by 1.5% year-on-year.
Togliatti, Samara region (famous
for the Avtovaz car-producing
factory): the store design resembles
city streets, walkways and car
elements; traffic signs are installed
as navigation tools and the store
is decorated with a few real cars.
Samara (the heart of the Russian
aerospace industry): aerospace-
themed store with sky images
and planets of the Solar system.
Magnit Family Supermarkets
Themed stores
Some Magnit superstores have
a themed design. They are located
in the cities that have hosted notable
events or have famous local industries.
Adler, Sochi: the store is dedicated
to the Winter Olympic Games.
Krasnodar: in October 2020
Magnit launched a new superstore
in collaboration with suppliers
designed as a candy factory.
The supermarkets have a larger product
range than the Convenience stores
and are located within walking distance
of residential communities and business
districts, as well as in shopping centres.
This format is offering the full product
range at attractive prices.
Magnit Extra Superstores
Magnit superstores are modern
and high-tech stores for the whole
family located within the city area.
Such stores have broader range of all
products, including Magnit’s private
labels, with a focus on fresh and ultra-
fresh products.
In 2020 Magnit launched its
supermarket delivery service. The service
allows customers to receive their orders
within three hours or book a delivery
for a certain time within the next two
days. The cost of delivery ranges RUB
0-199 depending on the order amount.
The online service offers a convenient
way for customers to shop and over
25,000 products are available online.
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20202020 Annual Report
Operational Review (continued)
Magnit Cosmetic
22.4 %
year-on-year
sales growth
6,183
stores
10.3 %
LFL sales growth
9 %
of the net
retail sales
1,428
thous. sq. m
of selling space
553
net store
openings
The Magnit Cosmetic format was
launched by the Company in 2010
and accounts for 9% of net retail
revenue, an increase of 0.7 p.p
compared to 2019. These stores stock
non-food products such as mass-market
make-up products and personal care
items (including private label products),
household cleaning products, perfumes,
hygiene products, and household items.
Magnit Cosmetic is the most
dynamic and successful format of the
Company, with double digit positive
LFL sales growth of 10.3%. In 2020
it also benefited from the proximity
to the customers and the closure
of competitor stores. 553 new drogeries
opened (on net basis) in 2020.
With 80 stores redesigned during
the year the share of drogeries
operating under the new concept
reached 56%. By year end, there were
6,183 stores, an increase in selling space
of 9.7%. As a result, revenue reached
RUB 134 bln, a 22.4% increase year-on-
year. Sales density improved by 7.2%
year-on-year.
One of the most important changes
of 2020 was the refinement of product
ranges between different stores to meet
the needs of different customer types
in different locations, with certain
locations stocking an increasing number
of eco-friendly products to meet
customer demand.
Strategic Report
Corporate Governance
Appendices
9.7 %
year-on-year increase
in selling space
7.2 %
sales density increase
year-on-year
Magnit
Pharmacy
This modern
pharmacy format
was launched
by the Company
in 2017
and is characterized by its affordable
prices, easy navigation, convenient open
display and friendly and professional
staff.
In 2020, Magnit began a click
and collect service that allows
customers to order products online
and collect from over 100 pick-up
locations in Magnit Pharmacies
throughout Moscow and the Moscow
region. Customers can choose between
two types of click & collect service:
30 minutes’ pick-up of products
in-stock at the nearest store or next-day
pick-up of full product range held in the
warehouse.
The product range currently includes
around 5,000 items, with plans
to expand it significantly.
Customers can also place orders online
for home delivery. The e-pharmacy was
Magnit’s first e-commerce offerings
for customers.
Magnit is targeting strong levels
of growth for its cosmetics business.
In 2020 Magnit started rolling out
the mini format of Magnit Cosmetic
to existing convenience stores
in selected locations. The cosmetics
store, which offers customers
around 4,000 products, will improve
the customer proposition of Magnit
Convenience stores and enhance
the sales density. In December
2020, delivery services from Magnit
Cosmetic were launched in Krasnodar
and Ekaterinburg and we plan to expand
the delivery services in 2021.
On the Magnit corporate website,
3D-tours of various store formats
are available for all visitors. This online
experience allows participants to visit
all of the Magnit formats: convenience
stores, supermarkets, Magnit Cosmetic
stores and pharmacies, and discover
more about how they operate.
During the tour, participants can see
how the Company’s stores are evolving
in terms of customer offering, product
range and service, and what new
technologies and solutions are being
introduced to make shopping
as enjoyable and convenient as possible.
See more at:
https://www.magnit.com/en/about-company/store-formats/
E-commerce
In H2 2020 Magnit started testing
e-commerce services, both independently
and in cooperation with partners.
At the end of 2020, Magnit operated
six online delivery projects, all of them
in pilot stage. Magnit is continually
evolving the format of its delivery
service to satisfy the needs of all
customers.
The Company started developing
its food-tech business together
with industry specialists, partnering
with Delivery Club in August 2020,
and with Yandex.Eda in September
2020. Both services provide express
delivery within 1 hour.
In September, the Company introduced
online ordering for its Magnit Pharmacy
format; in early November, it launched
its own Magnit Delivery app for express
deliveries within Moscow; and late
in November it also started a regular
delivery service from Magnit Family
stores in Krasnodar. In the beginning
of December 2020, Magnit and Delivery
Club launched deliveries from Magnit
Cosmetic stores in Ekaterinburg
and Krasnodar.
During the first three months, the pilot
schemes’ growth dynamics exceeded
original expectations and highlighted
the potential of this market.
Magnit fulfils around 6,000 online orders
every day. According to the Company’s
analysis, most of the orders are placed
by customers who did not shop at its
brick-and-mortar stores before.
The annualised run rate for Magnit’s
online segment stands at RUB 2.0 bln
based on December sales turnover.
Among these segments, convenience
store-based express delivery has
the highest sales and shows the best
growth dynamics.
Magnit’s e-commerce services today
covers over 1,000 stores in 47 regions
and 72 cities, with around 50%
of the current revenue from these
online projects generated outside
Moscow and St Petersburg. During
2021, the Company plans to expand
online delivery adding at least
1,500 convenience, drogeries and large-
format stores in more than 50 regions
across Russia.
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20202020 Annual Report
Improving
Customer Experience
Magnit always strives to deliver
the best customer experience
across all market segments.
Several important milestones were
achieved in 2020, with the introduction
of new product ranges, updated
navigation across all the formats,
increased availability and quality of the
product range, refreshed private labels
and development of the customer loyalty
programme. Another focus area
and crucial task during the pandemic was
safety of the customers and employees.
Even during nationwide quarantine
Magnit didn't close a single store.
In March 2020, we formulated our
social mission and introduced a role
of an “on duty officer”. This approach
was welcomed by our staff and helped
to increase team morale.
During the year, Magnit actively hired
workers from its partners to help
them sustain their financial position
and close the shortage of employees
for the Company: overall we hired
2,500 people in 2020.
Magnit continued to work on the
improved customer value proposition
(CVP): we added the new fresh
and ultra-fresh zones to our stores,
improved on-shelf availability, piloted
new formats within the dedicated areas
and significantly revised our product
range. We maintain continuous quality
control and introduced the new position
of Quality Attendant, who supervises
the quality of the products in-store.
In Magnit Cosmetic stores, we also have
Beauty Experts assisting our customers
to choose the best products to meet
their needs.
Magnit staff are constantly
trained to provide the best service
and hospitality to the customers, while
being efficient and using the best
available technologies.
— We introduced clusterisation
in different localities
— We improved layout, navigation
and zoning within the stores
— We are open and friendly to our
customers, employees and suppliers
— We use cutting-edge technologies
to understand customer habits
and behaviours to offer them
the best possible experience
— We take care of our employees
and offer them all opportunities
for education and personal
development.
Magnit aims to build an ecosystem
of complementary services around its
brand and strong omnichannel presence.
Digitalisation will play an important role
in improving customer experience, across
all stages of the consumer journey:
Pre-shopping
— loyalty, general promo
and CVM offers
— interest clubs
— partners' privileges
— checking availability
in nearest stores
In-store
experience
— informative in-store
navigation
— selection of goods with
mobile scanner / app
— easier and faster check-out
with mobile payment
E-grocery
experience
— express grocery
— regular grocery
— e-drogerie
— e-pharma
Payment
— digital loyalty card
— Magnit payment solution
Post-shopping
— feedback
— recipes
— digital content
Strategic Report
Corporate Governance
Appendices
Best
Customer Experience
Pilot projects at different stages of development and implementation.
Digital tools
Store
organisation
“Farmers’ Market”
“Health Island”
for balanced nutrition
Local food
products
Own bakeries
with professional coffee
machines
Fresh Café
with an open kitchen and TV
screens
Kids’ department
with a playground
Consumer
corners
Reverse vending
machines collecting empty
plastic bottles and aluminum
cans
SelfieToPay:
face-recognition-based payment
technology
Dual-mode
checkouts
(work both as self-service
terminals and standard cashier-
operated checkouts)
MobiScan:
app to scan and pay
at self-service checkouts
Interactive
price checkers, mobile printers
Bicolor
electronic price tags, providing
instant updates on product
information
Smart shelf:
video analytics, RFID systems,
weight and optical control
Data Matrix
labeling system for dairy
products
LED screens
with useful content
E-sommelier
Facilities
and services
Quality
Attendants
on duty
Beauty Experts
in Magnit Cosmetic
Convenient and intuitively
understandable
zoning, easy
navigation
Store space
arrangement based on
customer’s purposes
Accent lighting
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20202020 Annual Report Strategic Report
Corporate Governance
Appendices
Measures
Against COVID-19: Taking Care of Everyone
Organisational
Structure
• Removed cosmetic samples from
— We are supporting the most
vulnerable
• We were selling several socially
important product categories with
zero markup during the pandemic
• With the support of the Ministry
of Health of the Russian
Federation, we issued a series
of special bonus cards for medical
workers with an increased accrual
of bonuses of 20%
• On weekdays until 11 am
we provide a 10% discount
to pensioners, volunteers and social
workers for purchasing goods
for the elderly
• Launched the #MagnitZabota
programme and, with
the assistance of regional
authorities, we provide food
packages to socially vulnerable
citizens
• We supported personnel of other
organisations who had to suspend
their operations by temporarily
engaging them in our stores
and distribution centres.
Since the beginning of the
pandemic, Magnit has introduced
a number of measures to make
shopping at our stores as
comfortable and safe as possible.
The company is committed to helping
customers and employees to reduce
the spread of COVID-19 and support
those who are struggling. In difficult
conditions, we continue to provide
customers of 66 regions across
Russia with all their required products
and services, maintain our supply chains
and logistics, and introduce new safety
and hygiene measures.
Magnit is attentive and responsible to the
situation, therefore:
Magnit Cosmetic stores
• We carry out daily medical
examination and measurement
of the body temperature
of employees
• We inform customers about
compliance with security measures
and urge them to use self-service
checkouts.
— We have improved safety measures
at distribution centres
•
Increased the number of activities
for disinfection of premises, tools
and equipment
• Restricted staff movement
between premises and face-to-face
meetings
— We've improved store safety
• Adjusted the work schedule
•
Increased the number of activities
for the disinfection of premises,
door handles, carts, cash registers
and other equipment
• Allocated special schedule
for disinfection from 2.00 to 2.30 pm
in convenience stores and Magnit
Cosmetic stores
•
• Applied special markings near
the tills to maintain social
distancing
Installed protective screens at cash
registers
Installed free sanitisers
•
• Temporarily closed cafes in large
stores
• We increased the opening time
and hired additional staff to reduce
queues
• We equipped the surfaces
of supermarkets and hypermarkets
with a special protective film with
silver ions, which is in addition
to mechanical disinfection
to remove any contact between
shifts
• Transferred some of the
administrative staff to remote
working
• We assess the quality of products
remotely: product specialists are
able to assess goods with video
cameras.
• We carry out daily medical
examinations and temperature
checks for employees.
— We have adapted the delivery
of products
• We maintain a sufficient level
•
•
of stocks in distribution centres
Increased shipments of goods from
distribution centres to stores
Increased the level of stocks
in retail outlets where appropriate.
Magnit is upgrading its organisational
structure by developing its multi-
format approach to ensure the correct
distribution of formats across
the regions. Our new organisational
design reflects the right balance
of centralization and decentralization.
We have introduced new format heads
in commercial and operations functions
to strengthen format focus and expertise.
We have a new digital, tech and OMNI
team to strengthen tech, Big Data
and e-commerce capabilities. We have
a separate procurement team in the
commercial department, including
Private Label, own production and direct
import. We are rebalancing RACI1
between commercial and supply chain
departments to ensure E2E ownership.
Headquarters
Head Office is responsible for strategy
development, budget and methodology
and serves as a centre of best practice
to implement across the regions.
Head Office also performs a centralized
support function via its Shared Service
Centre.
In 2020 Magnit has completed
its migration of its financial function
to the Shared Service Centre (SSC),
established in 2019 in Krasnodar.
Now, Magnit’s SSC will keep
centralised accounts of all transactions
and perform payroll calculations
for over 300,000 employees
in 66 regions from all of branches,
districts, distribution centres, and motor
transport enterprises. Centralisation
of the financial function (accounting
and payroll calculations) in the SSC
will enable Magnit to save around 27%
of its cost before migration, or around
RUB 470 mln annually.
Magnit’s SSC was awarded the winner
of the “Best SSC rollout in Russia
and CIS” award, beating peers across
different industries. The criteria included
the technological level and the overall
achievements for the reporting period.
The Shared Service Centre will
largely contribute to the Magnit’s
automatisation and centralisation,
utilizing robotics to carry out the routine
tasks and standard requests which were
previously handled by regional teams.
Regional Structure
There are eight regional heads
managing their respective territories.
Regional Heads are responsible
for openings & redesigns, CVP execution
and local category management.
Regional Heads report to Head Office.
The primary focus is on operational
efficiency, quality control, and
development of customer satisfaction.
The digital transformation of Magnit
and aligning the ERP system into
communication processes will allow
for more effective communication
between the branches and the Head
Office.
Headquarters
— Strategy & Expertise
— Budget
— Execution guidelines
Operations & Commercial
Format Management
— Convenience stores
— Supermarkets and Superstores
— Drogerie Stores
Regional Heads
Managing their
respective
territories
Headquarters
Centralised
support
functions
Openings
& Redesigns
CVP Execution
Local Category
Management
1 Responsibility assignment matrix (Responsible, Accountable, Consulted, Informed).
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Corporate Governance
Appendices
Product range management
The Company is working towards
the optimal balance between
promotional activities and pricing
strategies within its product range
management. The eventual goal
is to embed the category management
principles across all the supply chain
to ensure the best possible product
range in all Magnit formats.
This approach led to the opening
of Magnit Metropolitan and Discounters
format, where the product range
is carefully matched with the needs
of the customers within the target area.
Even during the pandemic, customers
were still trading up in their product
choice, therefore we aim to expand
the product matrix in order to give
customer the widest possible choice
of products.
Other priorities for the future include
more streamlined transition of the new
items to the shelves and unification
of the item codes. Magnit is working
towards digitalising of all the producers
with the help of the coding laboratories.
In 2020 Magnit has started its transition
towards new Product Management
System, which was adjusted to reflect
the different regions and formats within
the category management structure.
It allows more flexibility and for individual
approach to each particular store.
Transition to the new product management system
Target matrix
management
Assortment matrix corrections
according to the new releases
Automated assortment update
in accordance with the target
category matrix
“Matryoshka” – geographically
dispersed product alignment
Dates agreed with commodity
experts to place items on sets .
Selection of rotating pairs to keep
picking points between the
displayed product range and new
products
Category
Management
The concept of category management
(СМ) was introduced in Magnit in 2019.
It has concentrated on the promotional
transformation and new product
management along with Consumer
Decision Tree developments. Category
management has become one of the
drivers of Magnit’s transformation,
and in 2020 there were several key
topics which the Company addressed.
They included working out the CVP
strategy for each format, format-specific
category management and extremely
successful loyalty programme rollout.
One of the milestones of the 2020 has
become the product range management.
Magnit has four pillars of its category
management which are at the heart
of the business, ensuring the customer
remains the focus for all business
decisions and transformations. Magnit
uses state-of-the-art analytics and Big
Data tools to drive its transformation
towards knowing the customer
and understanding what the customer
wants.
Category management has been taught
in the Magnit Corporate Academy since
2019. The training programme covers
all functional levels (line managers,
category managers and category
directors), and 230 people have already
completed their curriculum.
Fresh and Promo
Fresh Food
Products
Operational and Format
Management of CM
Dry/Nonfood items/Selling
Space
Commercial/
Procurement block
Big Formats
Grocery
Own Production
Ultra-Fresh
Magnit Cosmetic
Beverages
Private Label
Fruits and
Vegetables
Meat, Fish
and Poultry
Small Formats
Beauty
and Cleaning Products
Wholesale
Nonfood
products
Promo Planning
Commercial Districts CM Pricing and Sales
Support
Pillars of Category Management
Customer
comes
First
All
generations
approach
Understanding
the customer
insights
Being
close
to the customer
Magnit’s Corporate Academy is a programme of training
and development for Company’s employees at all levels
(employees, line managers and middle managers).
The Academy has combined and modified the existing training programmes,
becoming a single platform for continuous professional development
for employees. It encompasses three faculties – Logistics, Retail and Category
Management. The emphasis is placed on improving the qualifications of line
personnel, building a talent pool in each function and preparing employees
for the new challenges of a rapidly changing business environment.
Educational programmes are based on internal knowledge and experience
accumulated in the Company.
In the reporting year, about 200 thous. people were enrolled in the Corporate
Academy.
Magnit revised existing programmes for employees and developed new
ones in order to contribute to the all-round development of personnel and,
consequently, of the Company.
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Corporate Governance
Appendices
Cooperation
with Suppliers
“Implant” project
Advanced barcodes
Vendor Managed Inventory
Goods availability assessment
system
Startups to launch pilots with
Magnit
Efficient cooperation with our
suppliers allows us to make more
accurate plans and forecasts,
to optimise procurement volumes,
to deliver the best products
at minimum cost and to achieve
better commercial terms.
There are still areas for potential
improvement in cooperation with
suppliers. Some of the main focus areas
Magnit is currently working include
the flow of key documents, improving
forecasting techniques, on-shelf product
availability and sharing information
about the customer preferences
between suppliers (as appropriate).
To benefit from the synergies of working
with the suppliers, Magnit is committed
to being a reliable and trusted partner.
In 2020, the Company held a conference
titled “On the same wavelength”, where
management of Magnit met with
suppliers to discuss the major trends
and upcoming projects.
Magnit started to implement advanced
barcodes which include the expiry
date. It enables the Company to better
understand the volumes and expiry
dates of goods in order to offer the best
possible markdown method and to
provide optimal discount. At the pilot
stage, the project was encompassing
17 suppliers and 225 SKUs. Due
to the use of advanced barcodes,
the delivery of fresh products was
optimized to reduce wastage and as
a result, Magnit will drastically decrease
the volume of wasted produce and save
millions of rubles annually.
In 2019 we launched the unique
“Implant” project. Magnit invites
employees of our major suppliers
to work in our offices in order to build
cooperation and understanding,
and also offer an external viewpoint
of our processes and procedures with
a view to improving efficiencies and best
practice.
At the end of last year, 13 suppliers’
representatives worked at Magnit.
This year, the number of “implants”
will increase by at least another 30.
In 2020, the service level of suppliers
participating in the “Implant” project
increased by 4.9%, and completeness
and timeliness of their deliveries by 7.4%.
In addition, the availability of goods
on the shelf among some of Magnit's
partners increased by an average
of 10.6%, the forecasting accuracy
of purchases at the distribution centres
(DCs) increased by 10.3%, and the level
of service for shipments from the DC
to retail outlets increased by another
6.7%.
In 2020, Magnit, in cooperation with
Baltika, piloted a vendor management
inventory (VMI) system at Samara DC.
The system is based on the SaaS solution
GCR from Generix Group and allows
suppliers to autonomously forecast
and replenish stock at the retailer’s DC.
It analyses the data provided by the
retailer on daily basis and suggests
the optimal delivery volume. The supplier
immediately learns about sales trends
and in case of any shortages may ship
the necessary goods on the same
day. The use of the VMI system helps
to improve the freshness of products
on the shelf due to more frequent
restocking, allows to reduce costs
for calculating needs and placing orders
and to accelerate turnover.
The pilot showed a higher level
of efficiency than expected, and the
project will be extended to different DCs
and different suppliers.
The Company has developed a digital
solution to assess and monitor
availability of products in stores.
The automatic system identifies
and performs detailed analysis
of delivery-related failures along
the entire chain, from the manufacturer
to the shelf. With the help of big data
and machine learning, the system
analyses deviations using an extensive
library containing data about sales
and products. When the system was
piloted, sales in the 100 stores chosen
for testing increased by 1.5%–2%.
Sales of promotional products, which
the Company is also working on in
a separate stream, have increased
by almost 17% in Magnit Cosmetic
stores and by 5% in Convenience stores.
In Magnit’s Digital Office in Skolkovo,
several finalists of the MGNTech
Accelerator were invited to showcase
their ideas – the first project of this
kind for the retailer. During the Demo
Day, the Foundation’s specialists
and Company executives selected
10 innovative projects with the most
potential for further development.
The Company is expecting the increase
in economic impact from scaling
the innovations that succeed during
the pilot phase to be at least RUB 1
bln in 2021-2022. Startups include
BestPlace – a geoanalytics platform
utilising consumer data for segmenting
stores and managing the product range
depending on the customer's profile,
and Bio Z Laboratory – a solution
for increasing the freshness and shelf life
of products using active packaging.
In 2019-2020 the Company launched
a number of new projects for suppliers.
The Magnit Service Portal now allows
the exchange of logistics data and can
track the speed and quality of product
shipments to distribution centres.
Suppliers can familiarise themselves with
any deviations in logistics and adjust
tasks to respond quickly.
In addition, Magnit introduced digital
contracts with suppliers, significantly
reducing the time needed for document
verification.
10
innovative projects with the most
potential for further development
10.3 %
increase in the accuracy
of procurement forecasts in
distribution centers (DC)
6.7 %
increase in the level of service
for shipments from DC to retail
outlets
17
suppliers
225
SKUs at the pilot stage
SaaS GCR
the system allows suppliers
to autonomously forecast and
replenish stock at the retailer’s DC
1.5-2.0 %
sales growth in 100 stores
selected for testing
RUB 1.0 bln
economic impact from scaling
the innovations
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20202020 Annual Report Private Label
and Own Production
Magnit is the only food
retailer in Russia with its
own food production facilities.
The development of Magnit’s
Private Label (PL) range is central
to our customer value proposition
(CVP). Such products not only
provide excellent value for money,
but also higher margins
compared to branded goods.
To date, Magnit stores stock over
2,500 PL SKUs in various categories:
milk and dairy products, flour,
cereals, soft drinks, tea, coffee,
meat and vegetable preservation,
fruits and vegetables, confectionery
and household goods.
In 2020 we continued to optimise
our private label portfolio and expand
the product range. We scaled up our
‘My Price’ brand and the ‘Magnit family’
brands, and continued the roll-out of the
portfolio of cross-category PL. Since
the beginning of 2020, the ‘My Price’
and ‘Magnit family’ brands are available
in the majority of Magnit stores.
Magnit has developed its Magnit
Freshness brand incorporating over
100 SKUs in the fruit and vegetable
category (including cucumbers,
tomatoes, mushrooms, lettuce), with
dairy and meat items added during 2020.
We also made other notable
improvements to the range, expanding
our range of tomatoes, increasing
production of eggplant and green
lettuce, and exploring opportunities
to invest in the production of oyster
mushrooms.
Magnit is seeking to broaden its
PL range by enhancing in-house
production capabilities and by building
long-term relationships with its partners
and external suppliers of products
for the PL. In particular, Magnit is looking
into the possibility of directly importing
exclusive products in order to develop
its unique private label line.
Quality of PL products
To ensure high standards of PL products,
we carry out a range of quality
assurance tests such as vendor auditing
and consumer testing. In 2021, we plan
to audit all PL suppliers and more than
double the number of laboratory tests
carried out on products.
Strategic Report
Corporate Governance
Appendices
2020 Results:
19 %
growth in revenue
from PL sales
10 %
share of PL
in sales structure
Awards received in 2020
by Magnit for its PL products:
44 Magnit's PL products:
Quality Assurance, a competition
of food products quality (18 gold
medals, 16 silver medals, 10 quality
diplomas)
Gusto di Roma (pasta):
Private Label Awards, Best Private
Label for Food Products and Best
Department of Private Label
nominations
Premiere of Taste (Magnit's
premium PL): Dieline, Pentawards
and White Square international
design competitions (silver)
23 Magnit's PL products
awarded at the competition
‘100 Best Goods of Russia’
59 Magnit's PL products
awarded with the ‘Made in Kuban’
mark of quality
Zollider (a brand of care cosmetics
for men, in cooperation with
Gradient): listed by Forbes among
the most successful new brands
in Russia
Stellary (a brand of decorative
cosmetics, mascara): ‘Best of Beauty
2020’ by Glamour magazine
PL products are available across each of Magnit’s price brackets:
My Price
Good
Magnit family brands
(Magnit, Magnit Freshness, Magnit Necessities)
Better
Products at attractive
prices, including everyday
essentials
The core of our product range providing optimal value
for money. The range includes both food and non-food
products.
Dairy products, beverages, groceries, delicatessen; fruit,
vegetables and mushrooms; household goods
Premiere of Taste
Best
The best from across the world —
the flagship in food products
Snacks, nuts, preserves, cheeses,
and healthy lifestyle products
Quality of products
Development of own production
Magnit focuses on continuous
development and improvement of its
own production facilities. We recruit
the best specialists in the field,
and special laboratories conduct tests
of our new products to ensure quality
control throughout the production
process, from raw materials to the
finished product. All production facilities
are constantly monitored online
to maintain a high quality throughout
the cycle. Our production complies
with GOST R ISO 22000-2007
and the international Food Safety
System Certification (FSSC) v.5.
In 2020, Magnit opened a cheese
slicing and packaging facility in the
city of Penza and the same type
of production in Dmitrov, Moscow
area. A citrus packaging facility was
commissioned in Novorossiysk, enabling
the Company to expand its offer
of packaged fresh products, reduce
the load on logistics and improve quality
control of the products.
A number of initiatives were started
throughout the year, including
the development of different types
of fillings for confectionary
at Kuban Factory of Bakery Products
LLC and chocolate paste production lines
at Kuban Confectioner LLC, designing
a new production facility for green crops,
a production complex for growing oyster
mushrooms and a facility for roasting,
grinding and packaging coffee.
In addition, in April Magnit completed
the first stage of construction
of the second greenhouse complex
in Tikhoretsk district of Krasnodar region.
The greenhouses produce cucumbers,
tomatoes, eggplants and lettuce.
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20202020 Annual Report
Private Label and Own Production (continued)
Strategic Report
Corporate Governance
Appendices
In-house production
Underpinning Magnit’s PL range are the Company’s in-house
production facilities. Magnit operates 13 industrial and four
agricultural facilities, located in Krasnodar, Saratov, Ufa, Tver,
Lipetsk and Togliatti regions.
In house production enables the Company to deliver local
products to our stores, including in the fresh category products:
among the produced goods are frozen semi-finished products,
pasta, snacks, cereals, vegetables. The Company's own facilities
set a record in 2020, having produced 310,000 tonnes
of products, a 31% increase in sales year-on-year.
Magnit is the only Russian food retailer with its own
agricultural facilities producing fresh vegetables, three of which
are located in Kuban, and one in the Lipetsk region. The total
area of greenhouses is 113 hectares and annual production
of agricultural products is 98,000 tonnes. Our greenhouse
complex Zelenaya Liniya is the second largest in Russia
(by greenhouse surface area and volume of vegetables
produced).
Magnit’s production sites primarily produce products for the
low-price segment; however, the sites will be further reoriented
towards the production of food with higher added value
going forward. Thus, the share of our own production in these
categories is expected to increase.
When designing and developing our production facilities, we
take into account structural changes in consumer taste, such
as increased demand for products in the fresh and ultra-fresh
categories.
Share of in-house production across different
product types, %
Pasta
Tomatoes
Cucumbers
Lettuce
Cupcakes
Roulade
Mushrooms
Nuts and dried fruits
13%
22%
22%
43%
51%
74%
85%
88%
Lipetsk region
— Moskva na Donu LLC
Vegetables
13
production plants
+4 agricultural facilities
82
awards for quality
in 2020
~310 thous.
tonnes of production
Tver region
— Tver separate division
Tea, snacks
166
manufacturing lines
484
SKUs (+81 SKUs in 2020)
31 %
sales growth
Moscow region
— Cheese Slicing Facility Dmitrov JSC Tander
Penza region
— Cheese Slicing Facility Penza JSC Tander
Cheese slicing and packaging
Cheese slicing and packaging
Samara region
— Togliatti separate division
Republic of Bashkortostan
— Ufa separate division
Saratov region
— Saratov separate division
Frozen food
Grocery, snacks
Grocery, snacks
CENTRAL
VOLGA
SOUTHERN
Krasnodar region
— Kuban Factory of Bakery Products LLC
— Kuban Confectioner LLC
— Plastunovskaya separate division
— Tikhoretsk separate division
— Novotitarovskaya separate division
— Cheese Slicing Facility Krasnodar JSC Tander
— Cheese Slicing Facility Novorossiysk JSC Tander
— Zelenaya Liniya LLC – Tikhoretsk separate division
— Zelenaya Liniya LLC – Plastunovskaya separate division
— Zelenaya Liniya LLC – Mushroom complex
Shiitake mushroom production
Magnit piloted Russia's first compact plant to produce exotic
shiitake mushrooms. The plant is located in the Company's
mushroom complex in the Krasnodar region. It is unique due
to its remote management of the growing process which
utilizes artificial intelligence (AI). The AI system controls the
environment to ensure optimal growing conditions: climate
control, operation of sensors and controllers and energy
recovery.
During this first stage, the plant produced almost 1.5 tonnes
of mushrooms per month.
Sustainability of the PL range
In line with the Company's Sustainability Strategy,
50% of packaging for PL and own production will
be recyclable, reusable or compostable.
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20202020 Annual Report
Marketing and Loyalty
Programme
Marketing
Our strategic goal is to become a love
brand, which drives us to design
customer experience around their
personality rather than their wallet, give
them something more than products
at competitive prices, and provide
enjoyment in their daily lives.
Magnit’s marketing function ensures
superior customer communication
and strives to provide personalised
recommendations to all our customers.
We seek to communicate each of our
different offerings clearly, so our
audience understands the different
Magnit formats.
In order to ensure the effectiveness
of our marketing campaigns, we develop
a deep understanding of the target
audience and their preferences. Our
priority is to use the correct messaging
in order to really resonate with our
customers. Big data analysis and other
modern technologies are widely used
in marketing to support these efforts.
Marketing data collection and analysis
at Magnit
Receipts – depersonalised data
Cross-format loyalty programme –
personalised data
Digital footprint (website and mobile
application activities) – personalised data
Marketing data collection and analysis at Magnit
Data
collection
Data
analysis
tools
Receipts – depersonalised data
Cross-format loyalty programme –
personalised data
Digital footprint (website and
mobile application activities) –
personalised data
Big data analysis,
also in collaboration with
key partners and suppliers
Insight labs in collaboration
with producers
Joint consumer panels
with marketing research firms
(Nielsen, GfK)
Smart customer segmentation
(>300 identified attributes
for dynamic segmentation)
Targeted digital marketing
Customer behavior analysis
Machine learning technologies
used to forecast the efficiency
of promotions
Joint analytical tools with suppliers
Stock level assessment
Strategic Report
Corporate Governance
Appendices
New marketing projects
and technologies
— Digital marketing platform 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 advertising
to each of these groups based on the
chosen criteria. The platform enables
an increase in the accuracy of the
marketing campaigns of between
x2 – x5, while the increase in sales per
contact may reach 5-15%.
— Combining the customer data
processing technologies of the Chain’s
Digital Marketing Platform and Romir
Research Holding, which enables
Magnit to increase the effectiveness
of its own marketing campaigns
and provide brands and advertising
agencies with a tool to accurately set
up the customer communications.
— ‘My Magnit’ magazine – the biggest
Russian printed periodical of a retailer.
The magazine contains information
about trends, new products
and lifehacks, advice and recipes.
— Innovative contact points with
customers (digital screens, price
checkers, screens at cash desks,
disinfection terminals): bright
and dynamic images attract
customers’ attention, while
entertaining content creates
an emotional connection.
— Project of digital transformation,
which encompasses all aspects
of marketing. The changes will include
content digitalisation (production
catalogue, My Magnit magazine),
display of goods and recipes
on the screens, mobile application
development, “digital sommelier”
launch.
— Launch of theme clubs (health
and beauty club, pet owners club,
wine lovers club, kids’ club) with
the purpose to develop communities
within our customers base.
Key marketing campaigns of 2020
Collaboration with Gorod loyalty
programme
In September 2020, we launched
a promotion campaign in Magnit
and Magnit Cosmetic stores in Moscow
and the Moscow region: up to 50%
of the purchase amount was returned as
bonus cashback in the Gorod mobile app
(linked to the Troika card).
The bonuses could be exchanged
for a discount coupon, which gives
the opportunity to defray up to 100%
of the check amount minus RUB1
in Magnit and Magnit Cosmetic stores.
It might be used to pay for mobile,
transportation, or exchanged for up
to 99% discount with partners.
This type of marketing campaign
is unique for Russian retail. It attracts
customers, adds a level of interaction
in stores, shows customers additional
information about products,
and suggests similar products with
cashback options. We also estimate that
in the future, such programme might
potentially change customer experience
in offline stores.
Skrepyshi 2
In 2020 (from September 30
to November 22) Magnit ran
the “Skrepyshi 2” marketing campaign.
Customers received one toy for every
RUB 400 spent in our convenience
stores and two toys for every RUB
800 in supermarkets and drogeries.
“Skrepysh” is a cartoon character, which
can be used for different purposes, e.g.
as a bracelet, bookmark, a keychain or
another accessory.
A similar marketing campaign was run
in Magnit in Q3 2019, which increased
turnover by approximately 1.8%.
Collaboration
with Gorod loyalty
programme
>35,000
goods
>1,700
stores
up to 50%
cashback in bonuses
In 2020, the campaign was even more
successful: in the course of the campaign,
Magnit handed out over 242 mln pcs.
of Skrepyshi (32 mln pcs. more than
a year before), and the Company’s total
turnover increased by approximately
2.1% (compared to the approximate rise
of 1.8% in 2019).
Pora otygrat’sya (Time to recoup)
In August-October 2020, Magnit ran
a gamified promotion campaign Pora
otygrat’sya (Time to recoup) for members
of the loyalty programme. The loyalty
card members were able to win Apple
gadgets and other exciting prizes such
as gift cards, discounts and coupons.
To win a prize, customers had to shop
in supermarkets, scan their receipts
and be active in the Magnit official
mobile app in VK – vk.cc/magnitapp.
The campaign showed excellent results
with 1.5 mln participants, 2 mln receipts
registered and the number of Magnit’s
social media subscribers increased
by 700%.
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Marketing and Loyalty Programme (continued)
Logistics
Strategic Report
Corporate Governance
Appendices
Loyalty programme
and partnerships
The cross-format loyalty programme
is one of the key tools of Magnit’s
communication with various
customer bases. Data collected within
the programme provides a deep
understanding of the customer needs,
which enables us to improve category
management, merchandising, product
range localisation and promotional
offers, as well as to develop private
labels. Furthermore, the data allows
Magnit to shift towards personalised
digital marketing and targeted offers
for customers.
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.
43 mln
customers enrolled
in the loyalty programme
70%
penetration of loyalty
card in sales
55%
share of tickets
using the loyalty card
More than
every second
purchase in Magnit
is performed with
a loyalty card
Our award system is one of the most
attractive on the market: a customer
obtains a basic bonus of 0.5–2%,
depending on the purchase amount.
In addition, customers earn personal
points for participation in different
promotions (1 bonus point equals RUB 1,
and can be used to cover up to 100%
of the purchase price).
In 2020 we finished the roll-out of the
loyalty programme. As of the end
of 2020, the number of active users
reached 43 mln. The share of the
company's revenue with the use
of loyalty cards was 70%. The loyalty
programme also delivers positive cross-
format gains with sustainable growth
of customers visiting two and more store
formats: at the end of 2020, the share
of such customers was almost 44%.
Magnit continues to develop its loyalty
programme. The updated programme
will be characterised by increased
levels of personalisation, and emotional
engagement with participants. Among
the features of the updated ‘loyalty
programme 2.0’ are: implementing
the principles of Customer value
Management, based on the customer
life-circle, automated omnichannel
system of requests processing, super app
and personal accounts for users, clubs
and additional services (Magnit Pay,
Magnit Mobile).
Apart from that, we have created a long-
term saving loyalty programme with
a single currency “Magnitiki” and product
rotation. We will launch digital stickers
along with traditional ones, and will
create our own recognisable brands as
the extension of the Skrepyshi and Royal
Kuchen programmes.
In 2020, Magnit loyalty
programme received the prizes
in Loyalty Awards Russia
2020 – the national award
in the field of loyalty marketing
and CRM:
— Best loyalty programme of a food
retailer
— Start of the year – best new project
in loyalty marketing.
Co-branded bank cards
and partnerships
As part of its loyalty programme, Magnit
launches and develops co-branded
products with banks, which helps
to increase customer loyalty and retail
turnover, as well as commission from
partnering banks.
Since 2019, Magnit has co-branded bank
cards with Pochta Bank and Tinkoff Bank,
which allow their holders to gain extra
bonus points in the Company’s loyalty
programme.
In 2020 Magnit continued to collaborate
with the banking industry. Together
with Modulbank, we issued the first
co-branded card for entrepreneurs.
The card is linked to an SME bank account,
where the individual may gain and spend
bonuses. It also provides additional
benefits from selected partners.
In November 2020, the VTB-Magnit
co-branded debit card was launched.
Card holders benefit from bonuses
of up to 5% of purchases in Magnit stores
and additional bonuses from transactions
in other retail chains.
To offer customers more value through
the loyalty card and to monetise its
database, Magnit has started partnerships
with other brands. By the end of 2020,
over 66 external partners accrued
bonuses on the Magnit loyalty card,
among them fashion retailers, HoReCa,
educational services and other services.
Magnit’s logistics system
operates 38 distribution centres
with 1.7 mln sq. m of warehouse
space, a fleet of more than
4,400 trucks and almost
34 thous. employees. In 2020,
Magnit continued to implement
measures aimed at increasing
the efficiency of its logistics
and supply chain in line with
“The chain of freshness”
strategy introduced a year
earlier. The strategy covers
all areas of logistics including
distribution, transit, international
delivery, distribution centres,
and management structure.
Magnit’s retail network will enable its
suppliers to independently forecast
and replenish stocks at the retailer's
distribution centres (DC). In 2020,
the vendor management inventory
system was implemented in the
Company on the basis of the GCR
SaaS solution developed by Generix
Group, an international vendor of cloud
solutions for automation and supply chain
optimisation. The system reduces labour
costs for calculating capacities and placing
an order as it independently suggests
the recommended volume of products
for shipment for each DC.
It was initially tested together with
Baltika in Samara and showed positive
results in terms of store satisfaction
and freshness of delivered goods.
It is expected that the system will be
implemented throughout the Magnit
chain.
The Company equipped all 38 of its
distribution centres with a remote
temperature monitoring system
and implemented sensors to keep track
of the conditions during delivery to the
store. Currently, the level of compliance
with the temperature requirements is at
96% for the logistics centres, and 95%
for the vehicle fleet. In the future, Magnit
plans to bring these figures up to 100%.
Magnit has embarked on an ambitious long-term
programme of truck fleet renewal. Within the programme,
the Company sells available trucks, purchases small duty
vehicles and semi-trailers.
At the same time, the new mainline vehicles of increased
cargo capacity will significantly reduce the Company's
delivery expenses.
The new vehicles are suitable for big cities and can make
several deliveries per day, which reduces delivery time
of fresh produce to stores and contributes to Magnit’s
“Freshness” strategy.
In H1 2021 Magnit plans to purchase 750 vehicles. They will
all comply with the Euro 5 emissions standard, contributing
to the sustainability strategy and reducing the negative
impact on the environment.
Magnit approach to delivery by geographical zones
Daily delivery of fresh
category
Fresh and cross-docking
platforms1,2
Contactless goods
acceptance at night
Use of leased transport
Geographical zone
< 80 km
> 80 km
High population density
< 80 km
Low population density
maximum potential
minimum potential
1 Delivered In Full, On Time (DIFOT) is a measurement of delivery performance in a supply chain and measures how often the customer gets what they want
at the time they want it.
2 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.
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2020 Annual Report
Strategic Report
Corporate Governance
Appendices
Logistics (continued)
Novosibirsk DC
One of the major achievements
in logistical infrastructure was
the opening of the new distribution
centre in Novosibirsk which increased
the warehousing capacity of the
Company in Siberia.
We consider and test different solutions aimed at improving
the efficiency and effectiveness of warehousing processes and operation
of distribution centres. In July 2020 Magnit launched a lighting control
system based on motion sensors in its logistics centre in Krasnodar.
The main aim of the project was to evaluate the operating efficiency
of sensors. The launch of this technology at all company facilities will
save about 3,120,000 kW/hour per year.
>40,000
sq. m
>400
supplied stores
100
local suppliers work for
>700
new jobs created
Magnit also fully rebuilt Voronezh DC
in October 2020, which caught fire
in 2019. The restored warehouse has
an area of 24,000 sq. meters for storage
and distribution of goods.
Magnit seeks to not only improve
logistical efficiency but also to cut
the amount of harmful emissions.
In 2020 Magnit converted over
250 of its vehicles from diesel
to environmentally friendly natural gas
fuel (LNG). The gas-powered vehicles
will be operated over long distances
in the Central, Volga, Ural and North-
Western districts. This innovation
will cut greenhouse gas emissions
by 4,400 tons per year and will reduce
the fuel costs by 14%.
Geographical coverage of distribution centres in 2020
Region
Central Federal District
Volga Federal District
Southern Federal District
Urals Federal District
Northwestern Federal District
Siberian Federal District
North Caucasian Federal District
Number of DCs
Total warehouse space
(thous. sq. m)1
10
10
8
3
3
3
1
512
470
313
143
119
110
40
Overview of the logistics chain
Logistics chain characteristics
2020
2019
2018
2017
Number of stores served
21,564
20,725 18,348 16,298
Number of distribution centres
38
38
37
37
Total warehouse space, thous. sq. m1
1,707
1,686
1,645
1,640
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
4,39
4.29
3.91
3.51
567
910
545
812
496
440
752
697
Centralisation ratio3, %
91
91
89
88
Number of company-owned trucks
4,3554
5,656
5,897
6,089
1 Excluding small pharma warehouses located in the other regions.
2 Excluding pharmacies.
3 Share of goods delivered to the stores via distribution centres.
4 The number of trucks decreased in 2020 due to our truck fleet renewal programme.
Forecasting and replenishment
Pooling
In late 2020, Magnit started to roll out
the new Forecasting & Replenishment
(F&R) system with the help of Relex
solution platform. The project will
become the largest in Russian logistics
and one of the largest in the world,
covering about 22,000 stores, 38
distribution centres, and will be adapted
to the updated system and business
architecture of the company. The new
F&R system is based on AI and machine
learning technologies and encompasses
all functions of goods distribution,
data analysis, accurate forecasting of
sales volume for each product in each
store and planning deliveries. Through
its implementation, Magnit plans to
significantly increase transparency
of operations, increase availability
of products, particularly for Fresh
and Ultra-Fresh categories, optimise
inventory, ensure a high level of service,
and improve the quality and speed of
interaction with suppliers. The pilot
project will be launched in 2021 at one
of the distribution centres in Krasnodar,
which serves more than 1,250 stores.
It has been two years since we launched
pooling. Pooling entails the consolidated
delivery of goods from different suppliers
to distribution centres using a transport
company. The system now encompasses
11 shipment regions and 10 transport
companies. Pooling allows suppliers to
reduce logistics costs by an average
of 10-30%. In 2020, approximately
46,000 pallets per month (3% of the
total turnover) were delivered through
pooling. By the end of the year, 350
companies (>12% of suppliers) had joined
the system.
Cross-docking platforms
Cross-docking platforms are the small
warehouses located between the
distribution сentres and the stores
used to consolidate incoming products
for outgoing destinations. Thanks to
cross-docking platforms, inbound and
outbound shipment of items is carried
out within one day.
New electrical trucks “Moskva”
are being tested by Magnit in DC Dmitrov. They were specifically designed
for Magnit by the ‘DRIVE ELECTRO’ company and will deliver goods
for Magnit stores for the next 6-12 months. These new trucks are more
environmentally friendly, create less noise and are fully equipped for the
Russian climate. If the pilot is successful, Magnit will purchase 200 trucks.
9tonnes
loading capacity
110 km/h
maximum speed
Magnit plans to cover the local suppliers
with the cross-docking platforms
to decrease the costs of transportation
and speed up the delivery process.
In 2020 the new approach to cross-
docking was introduced with the help
of Nestle. It is also based on cross-
docking model and reduces
the time for delivery and the need
for warehousing space.
Automation
Automation and digitalisation are key
elements of Magnit’s modernisation of
logistics.
— RS+OSA+MS is the analytical platform
merged from the three existing
platforms, which allows to forecast
the orders based on the sales
from every point of the supply chain.
— Time slot is a system that manages
the loading and unloading and allows
to minimise potential for corruption
and increase efficiency. It has been
introduced in 100% of Magnit
warehouses.
— Picking carousel is a project piloted
in two warehouses which allows for
faster introduction of items to the
product range. It will be rolled-out in
the first quarter of 2021.
— New Warehouse Management
System (WMS) is aimed at decreasing
the amount of warehousing space
and the increasing the handling
capacity of the warehouse. It is being
piloted in one distribution centre and
will be launched in all DCs by 2023.
— Pick by voice provides voice
instructions to employees via headset.
This improves labour efficiency and
reduces errors. In 2020, all Magnit
DCs were equipped with the system.
It allows the user to keep track of
the movement of products online.
Personal assistants are used when
assembling an assortment that does
not require special storage conditions.
2020
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Future
Development
There is a pipeline of logistics
projects to be launched
and piloted in 2021, including
scaling the WMS system
and developing the cross-docking
and pooling systems. Magnit
will try to align the supply chain
for the specific format, while
ensuring timely and safe delivery.
Quality Control
Magnit devotes a lot of attention to the
quality of its products and made several
improvements in 2020. We constantly
review and update internal regulatory
documents on food and non-food safety,
as well as standards and procedures
for effective management of food
and non-food safety risks. We support
and enhance the quality management
system and the system for supplier
evaluation. The quality management
system is being improved along
the entire supply chain and monitored
through internal audits and preparation
for third-party certification audits.
Magnit has a quality control team
who oversee this function, comprised
of qualified professionals with
the required knowledge and experience.
In 2020, Magnit adopted a food
and non-food product quality and safety
policy. It states the Company’s
commitment to compliance with
Russian laws and regulations concerning
the quality and safety of food
and non-food products.
In March 2020, Magnit introduced
the position of Quality Attendant,
responsible for daily control of the
quality of goods. The Quality Attendant
monitors the cleanliness of the store
throughout the day, the quality of food,
including checking the fresh and ultra-
fresh products, and the product display
on the shelves.
Customers may recognise the Quality
Attendant by a special pin on their
uniform and address them with any
concerns and questions. This focus
on quality is a key part of our plan
to be the first-choice grocery retailer
for Russian customers.
Our
ambition
is to further enhance
our customer experience
and provide complementary
services beyond our core
offering, and to ensure
an effective modernisation
of our internal processes
and overall systems to drive
cost efficiencies and ensure
effective scalability in the
long-run.
Strategic Report
Corporate Governance
Appendices
Drive Change
Drive, track and communicate change,
focusing on digital transformation
and ensure track and trace of functional
and E2E transformation initiatives
Fund the journey & run effective budget
management for impact
Implement a sustainable, effective
and transparent financial process with
a systematic and balanced approach
across all financial procedures
Build a strong team & effective HR
management for digital team
Focus on development of strong
and motivated digital transformation
team by building an attractive Magnit
Tech Brand, proper talent acquisition
and development processes controlled
by effective HR KPI reporting
Fix & Re-Build Tech
Fix (short-term) ways of working in IT
and Data and minimise tech barriers
and re-build (mid- and long-term) IT
and Data architecture, overall tech
Employee Value Proposition (EVP),
and ensure the correct approach
to systems and resource management
to improve the quality and speed up time
to market for tech initiatives.
Support retail core via Tech & Data
Support implementation of game-
changing core systems and enable retail
and service functions to operate smoothly
and efficiently using appropriate tech
and data infrastructure and tools.
Establish strong (Digital) consumer brand
Build strong brand fundamentals with
a data-driven approach to all aspects
of marketing and personalisation
Build foundations for a modern
omnichannel customer experience
in Magnit-centered ecosystem
Rebuild digital product landscape,
successfully scale e-commerce
and realize transformational partnership
opportunities
Digital transformation
Our ambition - to further enhance
our customer experience and provide
complementary services beyond our
core offering, and to ensure an effective
modernisation of our internal processes
and overall systems to drive cost
efficiencies and ensure effective
scalability in the long run.
Magnit is on track with its digital
transformation which will enable a better
shopping experience and improve
staff productivity. Moreover, it has
the potential to improve returns
to our shareholders and benefits all
the stakeholders, including Magnit’s
customers, employees, suppliers
and investors.
Magnit has made significant progress
towards process automation, with
the rollout of the loyalty programme,
implementation of e-commerce
development, initiation of the electronic
document flow and kick-off of the ERP
SAP introduction. We also introduced
the Supplier Relationship Management
system for our production facilities.
A lot of work has already taken place
to improve internal levels of automation
and efficiency, and Magnit has now
brought all these projects under one
umbrella strategy, the large-scale Digital
Transformation Programme. For 2021,
the Company has defined 7 major goals
for its digital transformation.
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Future Development (continued)
Strategic Report
Corporate Governance
Appendices
ERP Transformation
There are four underlying projects included into the ERP Transformation Programme:
Build a strong brand and product
— Magnit App. Magnit is working
ERP (Enterprise Resource Planning)
is aimed at facilitating the management
of business processes in the Company.
The ERP system builds the strong
foundation for the further initiatives
across all business areas.
The entire ERP Transformation
Programme will take up to five years.
By end of 2022, Magnit will complete
the pilot phases for each solution, it will
then take 3 years to roll them out across
the company.
As a result of the ERP integration Magnit
expects the major economic benefits will
come in the area of Goods Movement
and Logistics through the reduction
of inventory and write-offs, etc.
The ERP-driven Supply Chain effects are
expected to be amplified by successful
delivery of other core modernisation
projects such as Forecasting &
Replenishment or WMS relaunch. Magnit
also expects increased efficiencies
in finance, non-commercial procurement
and human resource processes.
Magnit launched a large-scale Digital
Transformation Programme to integrate
all the existing projects and new
initiatives under one umbrella strategy.
The Company has identified 27 initiatives
within 4 major goals for its digital
transformation.
1 Goods movement
and Logistics
2 Finance, Non-
commercial procurement
and Real Estate
3 HR project
Implementation
in partnership
with leading integrators
delivering SAP solutions
4 Middleware, Internal
SAP Centre of Excellence
Magnit’s
internal team
Magnit’s ERP Transformation Programme consists of the following
SAP solutions:
Name
Description
SAP S/4Hana for Retail
The powerful tool to utilise all financial and commercial
functions and unify all the business processes within the
Company
SAP Central Finance
The system unifies the financials of all Magnit’s enterprises
SAP CAR
The modern check storage to be created within Magnit
SAP Track and Trace
The programme will trace the operations to comply with all
the regulations
SAP Business Objects
and SAP Analytics Cloud
The tools will be used to construct corporate analytics and
unifi-cation of the reporting
This focuses on ensuring effective
and engaging interaction with customers,
given the unprecedented size of Magnit’s
loyalty base.
— E-commerce. In H2 2020 Magnit
started testing e-commerce
services, both independently and in
cooperation with partners. Magnit
piloted six online delivery projects
in 2020 and is refining the format
to meet customer needs. By the end
of the year, Magnit’s e-commerce
services encompassed over 1,000
stores in 47 regions and 72 cities.
During 2021, the Company plans
to expand online delivery, adding
at least 1,500 convenience, Magnit
Cosmetic and large-format stores
in more than 50 regions across
Russia.
For more information about
our e-commerce projects,
please see p. 65.
on developing its app, featuring all
the advantages of the loyalty card,
delivery services and multi-format
offerings.
— Adjacent Projects
• MPay is a new tool which allows
customers to pay for their
purchases in any store, including
online orders. The virtual card can
be topped up for free or added
to various pay services and allows
customers to transfer money
to any Russian card. The tool
is especially beneficial for loyalty
programme members, as by using
Magnit Pay they get an additional
0.5% of their purchase amount
accrued as bonus points. For 30
days after the first purchase,
customers will receive double point
rewards. The launch of Magnit Pay
represents an important milestone
in the establishment of Magnit’s
superapp.
Since the payment service was
brought online, about 100,000
Magnit customers have become
active users, of which 60 thous.
users have added a Magnit Pay
card to contactless payment
services for offline usage. Every
day, about 30 thous. virtual
payment cards are issued via
Magnit's app, with their total
number already standing at
about 2 million.
• МMobile (Magnit Mobile) is an
MVNO service that Magnit
is developing to allow customers
to benefit from both the mobile
and retail: the loyal customers will
be able to get mobile traffic almost
for free, just making the regular
purchases in Magnit.
• Mobiscan is a self-scanning device
that will be installed in the shops
and digitalise the store experience
for the customer.
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20202020 Annual Report Strategic Report
Corporate Governance
Appendices
Financial
Review1
FY 2020 key financial highlights2
FY 2020 Key Financial Results
— Total revenue increased by 13.5% year-on-year to RUB 1,553.8 bln.
— Net retail sales reached RUB 1,510.1 bln representing 13.3% year-on-year growth.
— Gross profit margin stood at 23.5% - an increase of 74 bps year-on-year
on improved commercial terms, lower promo activity in a combination with better
promo coverage and higher promo margin, lower shrinkage and supply chain costs
partially offset by ongoing cost of the loyalty programme.
— Cash SG&A expenses3 as percentage of sales improved by 36 bps to 17.5%
primarily as a result of lower rent as well as positive operating leverage effect
partially offset by higher packaging and raw materials costs.
— EBITDA was RUB 109.4 bln with a 7.0% margin – an increase of 97 bps
year-on-year driven by strong gross margin dynamics and lower SG&A expenses.
— Net income increased by 120.8% year-on-year and stood at RUB 37.8 bln.
Net income margin increased from 1.2% in 2019 to 2.4% in 2020.
— As of December 31, 2020 Net debt was RUB 121.4 bln.
The Net Debt to EBITDA ratio was 1.1x vs 2.1x as at 31 December 2019.
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, the lower
the interest charges.
Total revenue in 2020 increased
by 13.5% to RUB 1,553.8 bln.
Net retail sales in 2020 grew by 13.3%
year-on-year to RUB 1,510.1 bln driven
by a combination of 3.6% selling space
growth and 7.4% LFL sales growth.
Every quarter of the reported year net
retail sales growth outpaced selling
space growth as strong LFL results
have led to a continuous improvement
of sales densities across all formats since
January 2020.
Wholesale revenue in 2020 increased
by 22.2% year-on-year to RUB 43.7 bln
primarily driven by improvements
of wholesale operations.
Share of wholesale segment increased
from 2.6% in 2019 to 2.8% in 2020.
Gross Profit in 2020 increased by 17.2%
to RUB 365.7 bln with a margin increase
of 74 bps year-on-year to 23.5%.
This came as a result of improved
commercial terms, lower promo activity
in combination with better promo
coverage and higher promo margin,
lower shrinkage and reduced supply
chain costs as well as increased share
of high-margin drogerie business. This
was partially offset by the ongoing
investments into Magnit’s loyalty
programme with higher penetration
and growing share of low-margin
wholesale business.
decreased by 56 bps year-on-year driven
by ongoing optimization of supply chain
processes, renegotiation of quality
standards with suppliers and other
initiatives.
Despite continuous increase of on-shelf
availability and improvement of service
level, transportation expenses
as a percentage of sales improved
by 6 bps year-on-year on route
optimisation, higher utilization of trucks
and other efficiency gains leading
to a reduction of cost per kilometre
by 7.9% year-on-year.
Alongside with the growing share
of fresh products and overall
improvement of on-shelf availability
shrinkage as a proportion of sales
RUB, mln
Total revenue
Retail
Wholesale
Gross Profit
Gross Margin, %
SG&A, % of sales
EBITDA pre LTI3
EBITDA Margin pre LTI, %
EBITDA
EBITDA Margin, %
EBIT
EBIT Margin, %
Net finance costs
FX gain / (loss)
Profit before tax
Taxes
Net Income
Net Income Margin, %
FY 2020
FY 2019
1,553,777
1,368,705
1,510,071
1,332,929
There may be small variations
in calculation of totals, subtotals and/
or percentage change due to rounding
of decimals.
IAS 17
IFRS 16
Change
13.5%
13.3%
22.2%
17.2%
74 bps
82 bps
29.6%
88 bps
31.6%
97 bps
74.8%
143 bps
-10.6%
FY 2020
FY 2019
1,553,777
1,368,705
1,510,071
1,332,929
43,707
365,756
23.5%
-19.1%
35,777
311,999
22.8%
-19.8%
179,043
149,309
11.5%
178,189
11.5%
88,424
5.7%
10.9%
147,310
10.8%
59,216
4.3%
-44,268
-47,509
Change
13.5%
13.3%
22.2%
17.2%
74 bps
70 bps
19.9%
61 bps
21.0%
71 bps
49.3%
136 bps
-6.8%
35,777
311,999
22.8%
-21.3%
85,111
6.2%
83,112
6.1%
36,324
2.7%
-15,095
781
-267.8%
22,010
-4,901
17,108
1.2%
121.2%
122.5%
120.8%
118 bps
-1,453
42,703
-9,709
32,993
2.1%
873
-266.5%
12,579
-3,015
9,564
0.7%
239.5%
222.0%
245.0%
142 bps
43,707
365,729
23.5%
-20.5%
110,264
7.1%
109,410
7.0%
63,493
4.1%
-13,497
-1,310
48,686
-10,905
37,781
2.4%
1 The Company provides analysis of financial metrics using IAS 17 approach in the current section of the report. Respective financial data according
4 Long-Term Incentive Programme.
to IFRS 16 is also provided further.
2 EBITDA, EBITDA pre LTI and LFL metrics are calculated by the Company and are not audited.
3 Selling, general and administrative expenses excluding depreciation and amortization.
88
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20202020 Annual Report Financial Review (continued)
Selling, General and Administrative Expenses (SG&A)
RUB, mln
Payroll and related taxes
as a % of Sales
Rent
as a % of Sales
Depreciation & amortization
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
Taxes, other than income tax
as a % of Sales
Packaging and raw materials
as a % of Sales
FY 2020
138,640
8.9%
67,011
4.3%
45,917
3.0%
28,287
1.8%
7,628
0.5%
9,051
0.6%
7,108
0.5%
6,732
0.4%
2,925
0.2%
4,861
0.3%
IAS 17
FY 2019
121,677
8.9%
63,195
4.6%
46,788
3.4%
24,737
1.8%
7,715
0.6%
8,723
0.6%
6,516
0.5%
5,748
0.4%
3,240
0.2%
3,215
0.2%
Total SG&A
318,159
291,555
Change
13.9%
3 bps
6.0%
-30 bps
-1.9%
-46 bps
14.3%
1 bps
-1.1%
-7 bps
3.8%
-5 bps
9.1%
-2 bps
17.1%
1 bps
-9.7%
-5 bps
51.2%
8 bps
9.1%
FY 2020
138,640
8.9%
1,429
0.1%
89,765
5.8%
28,287
1.8%
7,628
0.5%
9,051
0.6%
7,108
0.5%
6,732
0.4%
2,925
0.2%
4,861
0.3%
IFRS 16
FY 2019
121,677
8.9%
982
0.1%
88,094
6.4%
24,737
1.8%
7,715
0.6%
8,723
0.6%
6,516
0.5%
5,748
0.4%
3,240
0.2%
3,215
0.2%
296,425
270,648
Change
13.9%
3 bps
45.5%
2 bps
1.9%
-66 bps
14.3%
1 bps
-1.1%
-7 bps
3.8%
-5 bps
9.1%
-2 bps
17.1%
1 bps
-9.7%
-5 bps
51.2%
8 bps
9.5%
as a % of Sales
20.5%
21.3%
-82 bps
19.1%
19.8%
-70 bps
Cash SG&A (excl. D&A)
272,242
244,767
11.2%
206,660
182,554
as a % of Sales
17.5%
17.9%
-36 bps
13.3%
13.3%
13.2%
-4 bps
Strategic Report
Corporate Governance
Appendices
As a result of continued focus
on financial efficiencies, the cost of debt
reduced to 6.1% (102 bps year-on-year).
In 2020 the Company reported FX loss
in the amount of RUB 1.3 bln related
to direct import operations.
Income tax in 2020 was RUB 10.9 bln
with effective tax rate of 22.4%.
As a result, net income in 2020 more
than doubled year-on-year and stood
at RUB 37.8 bln. Net income margin
increased to 2.4%.
SG&A costs demonstrated solid
improvement of 82 bps to 20.5%
as a percent of sales.
Cash SG&A expenses as a percentage
of sales improved by 36 bps to 17.5%
primarily as a result of lower rent
costs as well as positive operating
leverage effect partially offset by higher
packaging and raw materials costs.
Personnel costs as a percent of sales
remained flat at 8.9% - one-off
COVID-related expenses incurred
in March and April 2020 were
offset by efficiency improvements.
The Company made increased payments
to its frontline personnel related to extra
working hours and additional hiring
to cover high demand in March partially
compensated by increased productivity
and lower staff turnover. Staff turnover
continued to improve during the period
driven by on-going automation
of business processes and improved
working conditions in the Company’s
stores including a selective increase
in compensation for frontline employees
as well as higher retention rate.
Rental costs as a percent of sales
decreased by 30 bps year-on-year
to 4.3% driven by higher sales density,
improved lease terms with landlords
and closing of inefficient stores.
This was achieved despite the increased
share of leased selling space to 78.0%
in 2020 vs. 77.2% a year ago.
Despite growing costs related to the
loyalty programme, advertising expenses
as a percentage of sales decreased
by 7 bps year-on-year to 0.5% thanks
to more efficient tactics and tools
of promo campaigns.
Packaging and raw materials expenses
increased by 8 bps year-on-year
to 0.3% reflecting the ongoing provision
of means of sanitary protection
to customers and employees during
the COVID-19 pandemic.
Other costs including utilities, bank
and tax expenses improved on positive
operating leverage effect.
Total costs incurred as a result
of the Company’s response to COVID-19
in 2020 reached RUB 2.8 bln.
This included additional payments
to frontline personnel (reflected in staff
costs) and safety procedures (reflected
in other operating expenses).
As a result, EBITDA was RUB 109.4 bln
with a 7.0% margin reflecting 97 bps
year-on-year expansion due to strong
gross margin dynamics and lower
SG&A expenses. LTI expenses in the
reported period stood at 0.05%
of sales – as a result EBITDA margin
pre-LTI was 7.1%.
Depreciation as a percent of sales
reduced by 46 bps year-on-year
to 3.0% driven by operating leverage,
slower expansion (839 net openings
in 2020 vs 2,377 stores opened last
year) and redesign programme
(385 refurbishments in 2020 vs 2,341
redesigns made last year).
As a result, operating profit in 2020
stood at RUB 63.5 bln or 74.8% higher
than a year ago.
Net finance costs in 2020 decreased
by 10.6% year-on-year (or 23 bps)
to RUB 13.5 bln due to the lower cost
of debt and total amount of borrowings.
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20202020 Annual Report Financial Review (continued)
Balance Sheet and Cash Flows
Financial Position Highlights as of 31 December 2020 (IFRS 16)
Despite ongoing improvement
to on-shelf availability, the increased
share of drogerie format by 66 bps
as a percent of net retail sales, supplier
inflation and total sales growth of 13.5%,
inventories decreased by RUB 12.9 bln
vs December 31, 2019 and stood
at RUB 205.9 bln. This was driven
by a number of projects launched
in 2020 including a reduction of slow-
moving items, assortment harmonization
and IT solutions aimed at better on-shelf
availability and promo forecasting.
Trade and other payables remained flat
year-on-year and stood at RUB 161.1 bln.
RUB 4.7 bln increase in trade payables
driven by improvement of payment
days was offset by RUB 5.2 bln decrease
of other payables related to high
pace of expansion in 2019. Accounts
receivables decreased by RUB 5.4 bln
or 38.8% to RUB 8.6 bln as a results
of ongoing optimisation initiatives
including weekly tracking of overdue
debts and clearing activities as well
as launch of electronic document flow
with suppliers.
RUB, mln
Non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other current assets
Assets
Equity
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
Debt Composition and Leverage as of 31.12.2020
31.12.2020
31.12.2019
678,461
697,347
205,949
218,874
8,564
13,993
44,700
7,718
8,901
9,574
945,392
948,689
182,889
188,533
147,695
119,632
330,535
340,125
161,072
161,631
18,392
64,578
104,809
74,189
945,392
948,689
RUB, bln
IAS 17
Gross debt
Long term debt
Short term debt
Net debt
Net debt / EBITDA
IAS 16
Net debt
Net debt / EBITDA
2020
Share, %
1H 2020
Share, %
2019
Share, %
56.3%
43.7%
88.9%
11.1%
166.1
147.7
18.4
121.4
1.1x
479.0
2.7x
208.6
117.4
91.2
187.4
2.0x
538.8
3.3x
64.9%
35.1%
184.2
119.6
64.6
175.3
2.1x
532.5
3.6x
Strategic Report
Corporate Governance
Appendices
As a results of repayment activities
gross debt decreased by RUB 18.1 bln
or 9.8% compared to December 31, 2019
and stood at RUB 166.1 bln
as of December 31, 2020 with cash
position of RUB 44.7 bln.
As a result, net debt reduced
by RUB 53.9 bln compared
to December 31, 2019 and stood
at RUB 121.4 bln. The Company's debt
is fully RUB denominated matching
revenue structure,
99% of debt portfolio was long-term
with 22 months maturity.
The net debt to EBITDA ratio was 1.1x
as at 31 December 2020 vs 2.1x
as at 31 December 2019.
Cash Flow Statement for FY 2020
IAS 17
IFRS 16
RUB, mln
FY 2020
FY 2019
Change
FY 2020
FY 2019
Change
Operating cash flows before working capital
changes
109,798
86,183
27.4%
175,408
148,492
18.1%
Changes in working capital
30,349
-13,385
-326.7%
30,712
-11,501
-367.0%
Net Interest and income tax paid
-25,738
-16,968
51.7%
-56,509
-49,377
14.4%
Net cash from operating activities
114,409
55,830
104.9%
149,611
87,614
70.8%
Net cash used in investing activities
-29,533
-57,167
-48.3%
-29,020
-55,709
-47.9%
Net cash generated / (used) from/(in)
financ-ing activities
-49,077
-16,510
197.3%
-84,793
-49,752
70.4%
Net cash increase / (decrease)
35,798
-17,846
-300.6%
35,798
-17,846
-300.6%
The Company’s cash flows from
operating activities before changes
in working capital for 2020 equalled
to RUB 109.8 bln, which was RUB 23.6 bln
or 27.4% higher year-on-year.
The change in working capital improved
to RUB 30.3 bln from RUB -13.4 bln
in 2019 as a result of a decrease
in inventory, receivables, higher accrued
expenses and taxes payable.
Net interest and income tax paid in 2020
increased by RUB 8.8 bln or 51.7%
to RUB 25.7 bln. Net interest expenses
decreased by 10.1% year-on-year
to RUB 12.6 bln in 2020 due to lower cost
of debt and lower amount of borrowings.
Income tax paid for 2020 increased
to RUB 13.1 bln.
With this net cash flow from operating
activities in 2020 increased by 104.9%
to RUB 114.4 bln as a result of positive
movement of working capital and lower
interest paid.
Net cash used in investing activities
predominantly composed of capital
expenditures decreased by 48.3%
to RUB 29.5 bln in 2020. The dynamic
was attributable to a slowdown
of expansion programme (1,292 store
openings on gross basis in 2020 vs
2,841 in 2019) and decelerated redesign
programme (385 stores in 2020 vs
2,341 stores in 2019). Capex in 2020 came
below the Company’s guidance on lower
than expected expansion given pandemic
restrictions and management’s intention
to expand selectively following strict
return requirements.
In 2020 net cash used from financing
activities was RUB 49.1 bln vs
RUB 16.5 bln used in 2019. In 2020
the Company paid dividends in the
amount of RUB 29.9 bln1. The rest was
driven by dynamics of proceeds from
borrowings and repayment of loans.
As a result of factors mentioned above
net cash position in 2020 increased
by RUB 35.8 bln to RUB 44.7 bln
as of December 31, 2020.
1 Excluding intercompany transactions between PJSC Magnit and JSC Tander.
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20202020 Annual Report Strategic Report
Corporate Governance
Appendices
Risk
Management
Magnit PJSC has a comprehensive
internal control and risk
management system. Risk
management is consistent
with the Company's needs
and generally accepted risk
management standards
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.
— Clear division of duties
and responsibilities.
The responsibilities and powers of the
internal control and risk management
bodies are distributed in order
to eliminate or reduce the risk of error
or fraud.
Key elements of risk management:
Risk management training:
— risk identification
— risk assessment
— the development and implementation
of risk management procedures
— constant monitoring of risk status.
The responsibility for risk management
at Magnit PJSC is with the Internal Audit
Department. The Company develops
the proficiency level of its accountable
employees.
Key documents of risk
management:
— Internal Control and Risk
Management Policy
— Regulation on process-oriented
risk management
— Catalogue of risks.
— Integration into organisational
— Risk orientation.
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.
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.
— Segregation of decision-making levels.
Risk management decisions are taken
at different levels of the Company’s
management, depending on the
importance of the risk and the
impacted area of the Company’s
business activity.
— Responsibility.
All subjects of internal control
and the risk management system
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.
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. Significant effort
is made to improve risk management
standards and approaches,
particularly regarding their
importance and acceptable level
of risk. For the sake of efficiency,
control procedures are imposed
upon areas of activity in order
of importance.
— Balance.
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 help
mitigate 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 the risk to be reduced
to an acceptable level.
Risk management is an ongoing process
conducted on a permanent basis, due
to the continuous nature of decision-
making in this area.
In 2020, representatives of the
Department took online courses in Risk
Management and Internal Control at the
Deloitte Academy, as well as participated
in the Risk Management Week 2020,
an online event held by the Institute
for Strategic Risk Analysis (ISAR).
The risk management system has
three levels – strategic, operational
and control. 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 controls and the
risk management system at 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 Internal Control
and Risk Management System on p. 140.
94
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20202020 Annual Report
Risk Management (continuation)
Key risks
The Company defines and ranks
the most important risks impacting its
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.
Risk map
t
c
a
p
m
I
16
14
1
2
5
9
3
4
6 7
11
8
10
12
13
15
Strategic Report
Corporate Governance
Appendices
Risks
Risks
Type
Source
Impact
Risk management
1 Risk of deterioration of socio-economic and political conditions
— increased isolation of Russia and the deterioration
strategic
external
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
— failure to pay wages in full and within the established
period by the state and numerous private companies
— increasing wage and benefits gap with quickly growing
living costs
— reduced public funding of the social sector.
2 Risk of transformation
revenue,
LFL
— 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.
— margin reduction during the transformation of category
management (incorrect pricing, promotion, assortment
revision, high purchasing prices, sale of obsolete stock with
a discount).
strategic
internal
and
external
strategy
execution,
revenue,
EBITDA
— collective decision making;
— hiring external consultants to speed up
and optimise the processes.
3 Risks of adverse regulatory changes
— increased requirements for limiting trade margins
— restrictions on the maximum market share
— EGAIS (alcohol registration system), PLATON (road
transportation payments), technical regulations
— more complicated procedures for licensing and obtaining
permits from external regulatory bodies
— possible introduction of new licenses and 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 Risks of excessive loss of the inventory for the following reasons
— inefficiency of logistics, goods acceptance,
operational
internal
EBITDA
— modifying the Сompany's business
storage and inventory accounting processes ;
— employee misconduct.
processes through the 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.
High
Moderate
Low
Likelihood
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20202020 Annual Report Strategic Report
Corporate Governance
Appendices
Risk Management (continuation)
Risks (continuation)
Risks
Type
Source
Impact
Risk management
Risks
Type
Source
Impact
Risk management
5 Risks of increased competition
— increase in price pressure
— traffic outflow
— decrease in sales per sq.m. of the selling space.
strategic
external
revenue
— monitoring competitors' actions
— utilising marketing tools, conducting promotions
— increasing the attractiveness of existing stores
through reconstruction
— evaluating the attractiveness and potential of the
proposed store openings using GIS-analysis
technologies.
6 Risks of making poor investment decisions
— return on investment of new stores
strategic
and reconstructions is below the WACC
— the growth of the number of unprofitable stores
— excess CAPEX per object (excess requirements,
excessive standards, low-quality construction
and installation works).
7 Risks associated with IT infrastructure support
internal
and
external
CAPEX,
EBITDA,
ROIC
— collective decision-making on investment projects
— standardisation of norms and financial models
— use of GIS-analysis technologies
— introduction of tender procedures
— budget control of expenses for the
implementation of the investment programme
— post-investment analysis.
operational
internal
EBITDA
— development of a detailed plan for priority
IT investments, collective decision-making
on investments in the IT infrastructure.
— increased business requirements to IT systems
may face the inconsistency with the existing
capacities of the IT infrastructure necessary
to support business processes, both existing ones
and ones planned for introduction (IT, contractors,
personnel, logistics)
— increased requirements to prompt search
of defects and their liquidation in the information
management systems providing an adverse
impact on the operations.
8 Risks of corruption and employee fraud
— the internal environment of the Company
operational
internal
and the level of fraud committed
is affected by the corporate values system,
fair motivation of employees, adherence
to internal rules and business processes.
all
parameters
— introduction of the rules of the Code of Business
Ethics, compliance with the Anti-Bribery
and Corruption Policy; functioning of the ethics
hotline and analysis of its operation, accession
to the United Nations Global Compact
— personnel training in corporate ethics and code
of conduct
— segregation of incompatible powers through
improved organisational structure, as well as
distribution of access rights and implementation
of the access rights matrix
— transaction control by the Financial Directorate
— inspection of potential candidates for vacant
positions by the Security Directorate.
9 IT security risks
— increased number of cyber-attacks
operational
on information systems around the world
dictates the need to provide adequate
protection of data and IT infrastructure
against intrusions of any kind, including
for the purpose of information theft
or damage, unauthorised access, propagation
of virus software.
10 Risks associated with changes in tax legislation
regulatory
external
revenue
— making amendments or supplements to the
legislative acts on taxes and levies regarding
an increase in tax rates, introduction of new
types of taxes
— changes in the Russian tax system
providing a significant adverse impact
on the attractiveness of investments in the
Company's securities
— possible challenges in the correct definition
and implementation of the tax planning
strategy, inconsistency of the tax planning
goals with the Company's strategic objectives.
internal
and
external
all
parameters
— functioning of access control procedures
and mechanisms, approved access matrices
— establishment of a software and infrastructure
change management system
— data backup, duplication of key information
systems
— functioning of a centralised monitoring system
for information security events.
— monitoring changes in legislation by specialists
of the financial unit and prompt introduction
of changes to internal policies and procedures
— consultations with the involvement of audit
companies
— development and coordination of the accounting
policy with external auditors.
11 Risks in the field of industrial safety, occupational health and environment
— violation of occupational and fire safety
operational
internal
standards and regulations may lead to the
termination of business at the Company's
facilities
— failure to comply with safety standards in the
performance of services by contractors
may also have a negative impact on the
Company's operations.
revenue,
EBITDA
— corporate training programmes for environmental
protection, industrial and occupational safety
with subsequent control of knowledge quality
by internal specialised training services
— alignment with the United Nations Global Compact
— regular efficiency monitoring of fire extinguishing
systems
— maintenance of the required level of the personnel
qualification, responsibility of managers to support
the proficiency level of employees
— assessment of working conditions
— compliance with Environmental Protection
and Industrial Safety Policy, Fire Safety Policy of the
Magnit Group
— insurance of facilities against force majeure factors.
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20202020 Annual Report
Risk Management (continuation)
Strategic Report
Corporate Governance
Appendices
Risks (continuation)
Risks
Type
Source
Impact
Risk management
Risks
Type
Source
Impact
Risk management
12 Risks of availability and continuity of IT
14 Risks associated with the quality of goods sold and produced
operational
internal
EBITDA
— increased requirements for the provision speed
and quality of the relevant business information
— possible inaccessibility of networks
and systems, lack of access to information
resources in case of remote operation
— dependence on manual data entry and uploads
from external sources, such as Excel sheets,
may affect the quality of information exchange
between systems.
— forecasting future capacity requirements
and increased load for future periods
— annual revision (IT monitoring) of the personal
computer configurations (capacities) of the users
— a functioning system in place for processing user
requests
— analysis of regular reporting based on user requests
and incidents, conducting annual polls on user
satisfaction with the operation
of the Support Service.
13 Risks of negative epidemiological situation impact on the Company's activities
internal
and
external
all
parameters
— real-time monitoring of the spread of COVID-19
— strict compliance with all recommendations made
by the Federal Service for Surveillance on Consumer
Rights Protection and Human Well-being,
the Ministry of Health and WHO
— disinfection of premises
— transfer of employees to remote working.
— introduction of severe restrictive measures
operational
to prevent the spread of COVID-19 may have
a negative impact on supply chains
— in case of significant spread of COVID-19,
the rate of infection among employees is likely
to increase
— the performance of functional duties by key
employees infected with COVID-19 will be
in question, depending on the severity of the
disease
— failure to comply with the recommendations
of the regulatory authorities to prevent
the spread of infection at the Company's
facilities may lead to restriction of their
activities and imposition of fines.
— inconsistency of quality
operational
internal
of goods sold and produced
with the established
requirements and standards
may result in reduced
customer loyalty to the
Magnit brand, followed by a
reduction in market share
and revenue.
EBITDA,
LFL
— functioning of the system selecting suppliers of goods and services,
“green” procurements of products and raw materials
— audit of suppliers
— a dialogue with suppliers to achieve a uniform understanding of the
food safety regulations
— compliance with the Responsible Supply Chain Policy
of Magnit PJSC
— compliance with the Food and Non-Food Quality and Safety Policy
of Magnit PJSC
— implementation of programmes for the development of local
suppliers and farmers
— monitoring legislation for the prompt adjustment of internal quality
control technologies of the goods sold and produced.
15 Risk of absence and recruitment of qualified personnel
operational
internal
revenue,
EBITDA
— implementation of integrated systems for long-term motivation
of personnel
— development of unique internal training and adaptation
programmes for employees
— development of social programmes for personnel
— interaction with universities to attract the best graduates
— development of the talent pool.
— the Company may face
difficulties related
to retention, search
and recruitment of qualified
employees. Increasing
personnel turnover can
have a negative impact
on operational business
processes.
16 Reputation risk
internal
and
external
all
parameters
— risks of dissemination
strategic
in the media of information
discrediting the Company's
image, disclosure
of confidential business
information, high-profile
litigations
— the ability to maintain
the stated level of social
responsibility.
— timely provision of full information about its activities by the
Company
— approval of the Sustainability Strategy
— implementation of the Code of Business Ethics (senior
management demonstrates commitment to high standards
of conduct)
— training for the personnel in the field of ethics and sustainability
requirements
— constant interaction with stakeholders, holding seminars
and forums to raise awareness about the Company's activities
— monitoring information about the Company in mass media
and social networks providing response to any incidents
and expressing an official position on specific issues
— signing a confidentiality agreement with the Company's employees
and contractors.
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Sustainable
Development
Overview
Magnit is one of Russia’s leading retailers
with over 21,000 stores in over 3,000
cities and towns across the country.
Magnit's activities cover three key areas:
we are a retail business, one of the
largest logistics operators, as well as
a food producer running our own
agricultural facilities.
Magnit has millions of daily touchpoints
with its stakeholders: customers,
employees, shareholders and suppliers.
The customer is always the centre
of our focus: all our activities are built
around them, thus strengthening our
competitive advantages and exploring
new areas of development.
At the heart of Magnit’s sustainable
development is a commitment to the
principles of responsible business aimed
at creating value for all stakeholders.
We create economic opportunities
for our partners and suppliers,
a collegiate and safe work environment
for our employees, support our local
communities, and provide our customers
with high-quality products and services.
Magnit's sustainability commitments for 2025
Environment1
Sustainable
sourcing
50%
packaging for PL and own production
will become recyclable, reusable
and compostable
100%
collection and processing of recyclable
plastic in Magnit’s own operations
50%
waste reduction
30%
GHG emissions reduction
25%
reduction in water and energy
consumption
100%
responsible sources of socially
significant goods
100%
responsible approach in own
production and agriculture
+
increase in the share of eco-friendly
packaging on shelves
Responsibility
Ensuring sustainable sourcing of
services and suppliers
Development
Programmes for the development
of local suppliers and farmers
1 All quantitative goals for reducing the indicators are calculated for 1 sq. m of total space.
2 Sustainability development goals.
82%
of the world's largest
companies published their
commitments to achieve
the SDGs2 in annual reports
79%
of the world's largest
companies conducted
an analysis of the relevance
of their activities to SDGs
Employees
70%
employee engagement
50%
reduction of lost time incidents
with zero fatalities
40%
maximum turnover rate
Strategic Report
Corporate Governance
Appendices
In 2020, with a view to channelling
our sustainable development activities
effectively, Magnit developed
and implemented the Sustainability
Strategy 2025.
Sustainability Strategy
This strategy is based on the 10 principles of the
UN Global Compact and the 17 UN Sustainable
Development Goals, as well as stakeholder
expectations.
Magnit has set 5 ambitious goals in the field
of sustainable development:
— 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 one employer in the
Russian retail industry
— we strive towards a 100% responsible supply chain
— we want to have best in class Corporate
Governance in the Russian retail industry.
Our sustainable development focus areas are as
follows: :
— environment
— sustainable sourcing
— employees
— local communities
— health and wellness of all stakeholders.
Local
communities
Health and
wellness
10%
Company employees participating
in volunteer programmes
Communities
Programmes for the development
of local communities in all regions
where the Company operates
Healthy lifestyle
Healthy lifestyle and nutrition
information is available to all
customers
Healthy food
Healthy food is available
to all customers
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Sustainable development (continued)
Strategic Report
Corporate Governance
Appendices
Management of sustainable
development issues
Corporate initiatives
Overall responsibility for sustainable
development lies with the Company's
Board of Directors. In 2020 the Board
established the Sustainability Steering
Committee which has responsibility
for the day to day coordination of the
sustainable development programme.
The Committee is responsible
for providing recommendations
on embedding sustainable practises
throughout the business and targeting
social, environmental, resource
and energy issues. Under the supervision
of this Committee, there are 16 working
groups responsible for creating
sustainable business models for all areas
of our operations: retail, production,
sourcing, logistics and human resources
management. The Committee reports
to the Board of Directors.
To drive the sustainability agenda
forward, the Committee made a number
of recommendations during 2020.
These included a proposal for a more
structured and formal programme
for sustainability initiatives, inclusion
of the sustainability agenda in the
operational and strategic processes
of each business unit and the launch of
an internal communication campaign
on sustainability for Company employees.
Communication within Company
is carried out through weekly
and monthly digest mailings, posts
on social media, workshops and events
organised for employees.
Sustainability management system
External initiatives
The UN's priority sustainable development goals of Magnit Group2
Strategy Committee of the Board of Directors
Sustainability Steering Committee
Director
of Corporate Relations
and Sustainability Department
Senior Advisor
on Sustainability
Sustainability Department
Responsible within business
functions:
sustainability champions within each
business unit with responsibility
for achieving sustainability goals
16 sustainability
working groups
Magnit has adopted policies regulating
the Company's sustainability
operations1 and formally announced
its Human Rights Policy, which defines
the Company's key values in terms
of respect for human rights. Magnit
opposes child and forced labour
in any form as well as discrimination
on any ground and builds an inclusive
and diverse working environment.
Magnit also launched an Anti-corruption
Policy which is based on a zero-tolerance
approach to corruption in any form. One
of the measures to prevent corruption
risk is compulsory anti-corruption
training for employees.
1,227
employees were trained
in anti-corruption in 2020
In 2020, Magnit joined the UN
Global Compact. The initiative aims
to encourage social responsibility
amongst businesses and brings together
more than 13,000 participants from
160 countries to promote sustainable
business practices. Magnit will adopt
the 10 principles of the Global Compact
across its business, with particular
focus on human and labour rights,
environmental protection
and anti-corruption.
Magnit seeks to contribute to achieving
the UN's Sustainable Development
Goals. The Company has chosen
seven sustainable development goals
as a priority based on the most relevant
topics and focus areas identified under
the Sustainability Strategy.
Interaction with stakeholders
customers
shareholders
Magnit has several stakeholder groups
and engages in an open dialogue
with each of them on a regular basis.
The Company's interaction with
stakeholders is built on the principles
of respect for stakeholders, transparency,
regularity, and compliance with
obligations.
The Company has identified a number
of key stakeholder groups whose
interests are most closely related to its
activities:
suppliers
employees
public authorities
public organisations
society and local community
mass media
investors
Each group has its own needs
and interests. Therefore, Magnit uses
various communication channels
to effectively interact with them.
1 See the full list of Sustainability documents: https://www.magnit.com/en/sustainable-development/policy-and-documents/#accordion-policy
2 For more information on achieving the UN's Sustainable Development Goals, see Magnit's Sustainability Report.
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Sustainable development (continued)
Fuel consumption by the Group’s enterprises in 2018–20201
Fuel types
All companies of
the Group
Magnit PJSC All companies of the
Group
Magnit PJSC All companies of the
Group
2018
2019
Diesel fuel, l
199,843,095
Gasoline, l
12,645,506
-
-
207,407,521
12,576,782
-
-
185,530,188
12,392,891
Fuel consumption by the Group’s enterprises in 2018–2020, RUB mln
Fuel types
Diesel fuel
Gasoline
2018
2019
All companies of
the Group
Magnit PJSC All companies of the
Group
Magnit PJSC All companies of the
Group
6,825.0
433.3
-
-
7,407.1
456.8
Energy consumption by the Group’s enterprises in 2018–20201
Type of energy resource
All companies of
the Group
2018
Magnit PJSC
All companies of
the Group
Magnit PJSC All companies of the
Group
6,435.9
433.4
-
-
2019
Strategic Report
Corporate Governance
Appendices
Sustainability Report 2020
Magnit's second Sustainability Report
was published in 2021 in addition
to standard Annual Report. It contains all
relevant non-financial results for 2020,
the baseline for all relevant KPIs, as well
as setting out the measures we intend
to take to achieve the commitments
stated in our Sustainability Strategy.
We present below the sustainability
data required by Russian legislation.
The full data set are presented
in our Sustainability Report.
Sustainable Development Report
please see on our website
https://www.magnit.com/en/
sustainable-development/
non-financial-performance-indicators/
2020
Magnit PJSC
-
-
2020
Magnit PJSC
-
-
2020
Magnit PJSC
Thermal energy, Gcal
1,246,351
516
1,356,426
494
1,288,317
568
Electricity, KW per hour
2,564,578,505
217,587
2,710,091,104
256,016
2,811,828,550
266,685
Natural gas, cbm
170,739,126
24,903
202,823,871
16,309
164,558,615
27,110
Energy expenditures by the Group’s enterprises in 2018–2020, RUB mln
Type of energy resource
Thermal energy
Electricity
Natural gas
All companies of
the Group
1,944.9
13,762.9
1,067.8
2018
Magnit PJSC
2019
All companies of
the Group
Magnit PJSC All companies of the
Group
0.8
1.1
0.2
2,221.1
15,696.3
1.395.0
0.8
1.4
0.1
2,258.7
17,543.6
1,086.1
2020
Magnit PJSC
1.0
1.6
0.2
PJSC Magnit did not use or consume other types of energy resources other than those indicated in the table in the reporting year.
Fuel consumption for transportation was reduced
as a result of improved fuel efficiency and the
optimisation of fuel consumption rates.
The decline in thermal energy consumption
has been achieved through the implementation
of various energy-efficiency measures.
1 Data for 2018 and 2019 differ from the data in the 2019 Annual Report due to improved data collection.
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Strategic Report
Corporate Governance
Appendices
Appendices
We`ve built a stable
system of corporate
governance
and internal
control
Corporate
Governance
2020
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108
109
109
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Corporate Governance
Appendices
Appendices
Corporate Governance
Framework
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. The Company continuously
enhances its corporate governance,
focusing on the best national
and international practices
and ensures the protection
of shareholders and other
stakeholders 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 and UK
corporate law, Magnit’s Articles
of Association and internal policies.
Corporate Governance
Chairman’s review
Dear Shareholders,
2020 highlighted the importance
of a robust corporate governance
system and of continuous and open
dialogue with the investment community.
In 2020, we decided to focus
on building the successful foundation
that had been created a year before:
we added the necessary expertise
to our management team, maintained
the optimal balance of independent
directors on our Board and implemented
essential policies and regulatory
documents, which govern the framework
of Magnit’s day-to-day operations.
In 2020, the Corporate governance
system was further strengthened. We
still have nine members on our Board,
with Gregor Mowat re-joining the team
this year and replacing Florian Jansen,
who joined management team.
The Committees of the Board
of Directors are headed as usual
by independent non-executive directors
only and consist mostly of independent
directors in order to comply
with our ambition to obtain a clear
and productive decision-making process.
We have also engaged an independent
consultant for an external assessment
of the Board of Directors as well as
conducted self-assessment in the
reporting period.
In terms of the balance of independent,
non-executive and executive directors,
the Company's Board of Directors
complies with the best market practices.
According to the results of the
assessment by an independent
consultant, the Board of Directors was
considered to operate with a high level
of efficiency as well as involvement
of the members of the Board
of Directors in the course of their work.
The management team has been
enriched by the experience of Florian
Jansen, who stepped in from
the Board to lead Company’s digital
initiatives, Maxim Shchegolev,
the prominent retail professional
and Anna Meleshina who now holds
a position of a Director for Corporate
Relations and Sustainability.
We consider these moves to be highly
beneficial for the further development
of Magnit and keeping up with the
recent developments in digitalisation
and integration in global retail.
In 2020, we rolled out our Sustainability
Strategy and created the Sustainability
Steering Committee headed by our
President and CEO Jan Dunning which
consists of the 16 working groups with
the representatives from every key unit
of the Company. This move corresponds
with the long-term aspirations of Magnit
in terms of tackling ESG issues and its
aspirations to install fully transparent
and effective corporate governance.
One of the noteworthy updates is the
adoption of the new edition of Magnit’s
Articles of Association, which helped us
combine all the changes of the previous
years and generally enhance the level
of the corporate governance within
the Company.
We continued to develop our long-term
and short-term incentive programmes
to ensure an optimal and fair method
of motivation and compensation for top
management.
Despite the fact that it was impossible
to be in touch with the investors face-
to-face this year due to the Covid-19
pandemic, we remained actively involved
participating in virtual conferences
and meetings. We also wanted to keep
stakeholders regularly informed
in regard to Company’s performance
and developments and so issued more
press-releases and updates compared
to the previous year and launched a new
corporate website with a more user-
friendly interface.
We set ourselves the ambitious task
of further strengthening our corporate
governance practices in accordance
with Russian standards. We endeavour
to also comply with the UK Corporate
Governance Code. Despite the general
market uncertainty and the challenges
of the pandemic, in 2020 Magnit
continued to implement best corporate
governance practices. We plan
to continue to work for the benefit
of all our shareholders, developing
a sustainable and successful business.
Charles Ryan
Chairman of the Board
of Directors
2020
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20202020 Annual Report Composition
of the Board of Directors
Strategic Report
Corporate Governance
Appendices
Board of Directors
Diversity
Nationality
Tenure, years
Changes in the composition
of the Board of Directors in 2020
Charles Ryan
Chairman of the Board of Directors
Charles Ryan
James Simmons
Alexander Vinokurov
Tim Demchenko
Jan Dunning
Walter Koch
Evgeny Kuznetsov
Alexey Makhnev
Gregor Mowat
USA
USA
Russia
UK
Netherlands
Germany
Russia
Russia
UK
3
3
2
3
2
2
2
31
12
The Annual General Meeting
of shareholders of PJSC Magnit on 4
June 2020 (minutes w/o number
dated 05 June 2020) made a decision
to elect the Board of Directors in a new
composition. Gregor William Mowat,
who previously served in the Board
of Directors in 2018-2019, was re-elected
to the Board of Directors. Florian
Jansen, who took over as member of the
Management Board and Deputy CEO –
Executive Director, did not join the new
Board of Directors.
Competences of the Board of Directors
IT
Strategy
Investments
Audit & Risk management
Retail & Marketing
Economy & Finance
1
4
8
4
5
9
With the exception of Jan Dunning, members of the Board of Directors
had not participated in the authorised 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 2020.
Age
533
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
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 Management Board,
ODIN EPC. (Northstar Industries, LLC)
2018 - present – Member of the Board of Directors, Ozon
Holding LLC
2018 - present – Chairman of the Board of Directors,
PJSC Magnit
2020 - present – Member of the Board of Directors, Member
of the Audit Committee and Member of the Nominating
Committee, Ozon Holdings PLC
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
privatization 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.
1 Prior to that, he was a member of the Board of Directors from 25 June 2009 to 5 June 2015.
2 Prior to that, he was a member of the Board of Directors from 19 April 2018 to 30 May 2019.
3 As of 31.12.2020
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20202020 Annual Report Board of Directors (continued)
James Simmons
Deputy Chairman
Age
42
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.
Strategic Report
Corporate Governance
Appendices
Tim Demchenko
Member of the Board of Directors
Age
47
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 billion 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 member
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.
1 Since 17 July 2019. Prior to that a Member of the Board of Directors.
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Strategic Report
Corporate Governance
Appendices
Walter Koch
Member of the Board of Directors
Age
58
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 till 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.
Board of Directors (continued)
Jan Dunning
Member of the Board of Directors, Chairman
of the Management Board, President and CEO
Age
61
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.
Participatory interest in the Company’s charter capital1
Share in the authorized capital: 0.176217% (including 46,226
Global Depositary Receipts (GDRs), which certify the rights
in relation to ordinary shares of PJSC Magnit in the ratio
of 5 GDRs per ordinary share);
The percentage of owned PJSC Magnit ordinary shares
is 0.167145%.
Information about transactions to acquire/dispose
the Company’s shares concluded over the reporting
period:
Date
Transaction type
Transaction volume,
(pc.)
23.03.2020
Acquisition
14.05.2020
Acquisition
41,177
23,404
Information on transactions to acquire/dispose of global
depositary receipts (GDRs), which certify the rights
in relation to ordinary shares of PJSC Magnit, for the
reporting period:
Date
Transaction type
Transaction volume,
(GDRs, pc.)
23.11.2020
Acquisition
24.11.2020
Acquisition
34,035
12,191
1 Hereinafter, information on the participation in the chartet capital (share of owned ordinary shares) is given as of 31 December 2020.
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Board of Directors (continued)
Evgeny Kuznetsov
Member of the Board of Directors
Age
51
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.
.
Strategic Report
Corporate Governance
Appendices
Alexey Makhnev
Member of the Board of Directors
Age
44
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,
M.video PJSC
2018 – present – Member of the Board of Directors,
VTB Real Estate LLC
2018 – present – Member of the Board of Directors,
PJSC Magnit
2021 – present – Member of the Board of Directors,
Fix Price Group Limited
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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20202020 Annual Report
Board of Directors (continued)
Gregor Mowat
Member of the Board of Directors
Age
48
Citizenship
UK
Education
1994 – Durham University (Bachelor of English Language
and Literature)
1998 – Institute of Chartered Accountants of Scotland (Member
of the Institute of Chartered Accountants of Scotland)
Current Employment
2016 – present – Director, Nooli UK Ltd
Current membership in the Board of Directors
2016-present – Co-Founder, Member of the Board of Directors,
Nooli UK Ltd
2016-present – Member of the Board of Directors, LOQBOX
Savings Limited
2016-present – Member of the Board of Directors, DDC Financial
Solutions Limited
2016-present – Member of the Board of Directors, Credit
Improver Limited
2017-present – Member of the Board of Directors, Nord Gold SE
2018-present – Member of the Board of Directors, AK BARS
BANK PJSC
2019-present – Member of the Board of Directors, LOQBOX US
INC
2019-present – Member of the Board of Directors, LOQBOX
Savings LLC
2019 -present – Member of the Board of Directors, LOQBOX
Finance LLC
2020-present – Member of the Board of Directors, PJSC Magnit
2020-present – Member of the Board of Directors,
PIK Group PJSC
2021 – present – Member of the Board of Directors, Fix Price
Group Limited
Experience
Mr Mowat spent more than 20 years working in the audit
and accounting profession, mainly with KPMG. With a principal
focus on banking and financial services clients, he also covered
other sectors including oil and gas and natural resources.
In 2011, Mr Mowat was appointed CFO of KPMG in Russia
and CIS, a role he held until 2016 and which required
him to take responsibility for all the support functions
in a multijurisdictional professional services firm with 4,000
staff. In 2013, in addition to his CFO responsibilities, Mr Mowat
was appointed Managing Partner of KPMG in Kazakhstan,
growing the business significantly in a challenging economic
environment.
After being part of the team that set up and implemented
the corporate governance for KPMG in Russia and CIS,
including being a founding member of the Board of Partners,
in 2016, Mr Mowat joined his family in the UK where he
co-founded LOQBOX, a FinTech that provides everyone
with a completely free way to build a credit payment history
and learn responsible financial management while they save.
LOQBOX fixes financial exclusion for the large group of people
globally who are locked out of the financial system either
through no fault of their own or because they have made
mistakes in the past.
Strategic Report
Corporate Governance
Appendices
Alexander Vinokurov
Member of the Board of Directors
Age
38
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
2020 – present – Member of the Board of Directors,
LLC Binnopharm Group
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.
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20202020 Annual Report Composition
of the Management Board
Jan Dunning
Member of the Board
of Directors,
Chairman of the
Management Board,
President and CEO
Participatory interest in the Company’s charter capital1
Share in the authorized capital: 0.176217% (including 46,226
Global Depositary Receipts (GDRs), which certify the rights
in relation to ordinary shares of PJSC Magnit in the ratio
of 5 GDRs per ordinary share);
The percentage of owned PJSC Magnit ordinary shares
is 0.167145%.
Information about transactions to acquire/dispose
the Company’s shares concluded over the reporting
period:
Date
Transaction type
Transaction volume,
(pc.)
23.03.2020
Acquisition
14.05.2020
Acquisition
41,177
23,404
Information on transactions to acquire/dispose of global
depositary receipts (GDRs), which certify the rights
in relation to ordinary shares of PJSC Magnit, for the
reporting period:
Date
Transaction type
Transaction volume,
(GDRs, pc.)
23.11.2020
Acquisition
24.11.2020
Acquisition
34,035
12,191
Age
61
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.
Strategic Report
Corporate Governance
Appendices
Anna Bobrova
Member of the
Management Board,
HR Director
Age
45
Andrey Bodrov
Member of the
Management Board,
Chief Investment
and Strategy Officer
Age
38
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 HR
department of Metro, from 2011 to 2013 was the Director of HR
and Organizational Development in X5 Retail Group N.V.
Anna Bobrova held managerial positions in HR in JSC SIA
International Ltd (2015 – 2019), Rimera Group (2013 – 2015)
and Rosatom (2009 - 2011).
From August 2019 occupies a position of the HR Director
of PJSC Magnit. 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.
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 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
of PJSC Magnit. 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.
1 Hereinafter, information on the participation in the chartet capital (share of owned ordinary shares) is given as of 31 December 2020.
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20202020 Annual Report
Composition of the Management Board (continued)
Strategic Report
Corporate Governance
Appendices
Maria Dei
Member of the
Management Board,
Supply Chain Director
Age
37
Ruslan Ismailov
Member of the
Management Board,
Deputy CEO – Retail
Chain Director
Age
43
Florian Jansen
Member of the
Management Board,
Deputy CEO –
Executive Director
Age
39
Anna Meleshina
Member of the
Management Board,
Corporate Relations &
Sustainability Director
Age
43
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 N.V.).
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): 0.003234%.
Information about transactions to acquire/dispose
the Company’s shares concluded over the reporting period:
Date
Transaction type
Transaction volume, (pc.)
13.05.2020
Acquisition
1,648
Experience
Ruslan Ismailov joined Magnit as the Retail Chain Director
on 27 May 2019. On June 4, 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 4 years in Lenta.
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.
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)
Experience
Florian Jansen is the co-founder and the ex-CEO of Lamoda
Group, which is a part of a public company Global Fashion
Group. 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 has been investing as an angel
in several startups across fashion, ecommerce, food delivery,
and technology and continues to serve as an independent
technology investor.
Florian Jansen was a member of Magnit Board of Directors
as an independent director from June 2019 to May 12, 2020
when he joined Magnit as the Deputy CEO - Executive Director.
On July 3, 2020 Florian Jansen was appointed as Member of the
Management Board.
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.
Education
1999 – St. Petersburg State University (philology)
2007 - Henley Management College (UK), MBA degree
Experience
Anna Meleshina joined Magnit in May 2019 as a Director
for Government & Public Relations and in August, 2019 was
appointed Director for Corporate Relations & Sustainability.
On November 20, 2020 Anna Meleshina was appointed
a Member of the Management Board. Prior to Magnit, Anna
served as a Public Affairs & Communications Director for Coca-
Cola in Russia and Belarus from 2017 till 2019. From 2013 till
2017 Anna held a position of a Public Relations & Government
Affairs Director and was a member of the Management Board
in Lenta. From 2002 till 2013 Ms. Meleshina took different roles
in HEINEKEN having become Corporate Relations Director
for the company in Russia and a member of the HEINEKEN
global corporate relations leadership team. Next to that,
Anna hold senior positions in non-commercial organizations,
including an advisory role at the Honorary Consul of Iceland
in St. Petersburg, and a board member and Deputy Chairman
of the Russian Breweries’ Association.
Anna is responsible for government relations, external
communications in Russia and internationally, as well as
sustainability.
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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Composition of the Management Board (continued)
Strategic Report
Corporate Governance
Appendices
Maxim Shchegolev
Member of the
Management Board,
Director for Chain
Development,
Real Estate
and Maintenance
Age
54
Elena
Zhavoronkova
Member of the
Management Board,
Chief Legal Officer
Age
50
Dmitry Ivanov
Controlling Director,
Acting Chief Financial
Officer of JSC Tander
Age
44
Education
1993 - St. Petersburg University of Economics and Finance
(Economics)
Education
2002 – Moscow State Law Academy (Law)
Experience
Maxim Shchegolev has over 20 years of experience in retail.
Before joining Magnit, he served as the Director for Format
Development and Integration at Lenta since 2012, and prior
to that, he worked in management positions for eight years
in O’KEY Group, where, for the most part, he was responsible
for store chain development. At earlier stages of his career,
Mr. Shchegolev occupied various management positions
in companies dealing in electronics and household appliances,
including Megatekhnika and Partiya.
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.
From April 2020 Maxim occupies a position of the Director
for Chain Development, Real Estate and Maintenance
of PJSC Magnit. Maxim was appointed a member of the
Management Board of PJSC Magnit on April 14, 2020.
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.
Shareholding information
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.004706%.
Information about transactions to acquire/dispose
the Company’s shares concluded over the reporting period:
Date
Transaction type
Transaction volume, (pc.)
13.05.2020
Acquisition
1,648
Education
1999 – St.Petersburg State University of Economics and Finance
(FINEC) (faculty of Finance, Credit and International relationship)
Experience
Dmitry Ivanov has 20 years of experience in corporate finances
in retail sector. Prior to joining Magnit, Dmitry spent 10 years
in leading positions in corporate finance and controlling at Lenta
and for 9 years in a similar position at Laverna.
From October 2019 until present Dmitry occupies a position
of the Controlling Director.
From July 15, 2020 Dmitry Ivanov is appointed acting Chief
Financial Officer of JSC Tander1.
1
Is not a member of the Management Board of PJSC Magnit.
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20202020 Annual Report
Composition of the Management Board (continued)
Structure
of corporate governance bodies
Strategic Report
Corporate Governance
Appendices
Сhanges in the composition
of the Management Board
In 2020 the composition of the Management Board underwent
a number of changes that affected financial block, commercial
block and strategic communications.
Elena Milinova who held the position of the Chief Financial
Officer made a decision to leave the Company. Dmitry Ivanov
is appointed acting Chief Financial Officer of JSC Tander1.
Vladimir Sorokin, who held the office of Deputy Chief Executive
Officer – Commercial Director, made a decision to resign. Jan
Dunning temporarily undertook an acting role of Commercial
Director. Subsequently the Company’s commercial department
will be restructured, including launch of a dedicated commercial
procurement unit. The aim of restructuring is to further
strengthen category management, pricing, promo planning
and private labels to ensure customer offering and margin
improvement going forward.
The powers of Jyrki Talvitie as a member of the Management
Board were early terminated. He held the position of Director
for Strategic Communications. Jyrki Talvitie remains engaged
with the Company as a Senior Advisor on Sustainability. Anna
Meleshina heads Corporate Relations & Sustainability holding
the position of the Department Director. Anna also became
a member of the Management Board of Magnit.
Besides that, during the re-election of the Management
Board, Anton Zavalkovsky, who previously held the position
of Real Estate Director, was not included in its composition.
He now heads the Procurement and Process Safety
Directorate created after merger of the respective
departments. Evgeny Melnikov resigned and continued
to serve as a temporary advisor.
In 2020, Mr. Jansen joined the Management Board of the
Company to accelerate Magnit’s digital transformation. Florian
Jansen's responsibilities as Deputy CEO – Executive Director
include such functions as managing the digital transformation
office, project office, developing IT, technology, advanced
analytics, and Big Data, as well as marketing, loyalty
and CRM implementation, and omnichannel services.
Comparing to the previous composition the Board
was joined by:
— Maxim Shchegolev, Director for Chain Development,
Real Estate and Maintenance
— Florian Jansen, Deputy CEO – Executive Director
— Anna Meleshina, Director for Corporate Relations &
Sustainability.
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 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 HR and Remuneration Committee
— the Strategy 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 and ensures effective
day-to-day interaction with shareholders,
coordination of the Company's actions
to protect the rights and interests
of shareholders, as well as provide
support for the effective work of the
Board of Directors.
General Meeting
Board of Directors
Audit
Committee
HR and
Remuneration
Committee
Capital Markets
Committee
Strategy
Committee
Sole Executive Bodies:
Collective Executive Body:
CEO
President
Management
Board
Corporate Governance Department
Internal Audit Department
Election, establishment
Accountability
Administrative subordination. Department Director
is appointed by the Board of Directors
1
Is not a member of the Management Board of PJSC Magnit.
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20202020 Annual Report
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 consistently improving the
level of its compliance with the Corporate
Governance Code and systematically
benchmarks its compliance against other
public companies.
For a detailed Report
on complying with the principles
and recommendations of the
Corporate Governance Code
see Appendix 1 (p. 167).
The Company’s activities are governed by its Articles of Association
approved in a new edition by the extraordinary General Meeting
of Shareholders of PJSC Magnit held on 24 December 2020
and internal regulations2, including:
Document
Regulations on the Committees of the Board of Directors
Code of PJSC Magnit On Terms and Conditions of Transactions
with Financial Instruments
Regulations on the Board of Directors
Effective date
17.07.2019
25.06.2019
05.12.2018
(with amendments
as of 30.05.2019)
Regulations on the Sole Executive Bodies (President and CEO)
30.05.2019
Regulations on the Collective Executive Body (Management
Board)
Code of Business Ethics
Regulations on Internal Audit
Regulations on the General Shareholders Meeting
List of Insider Information
Regulations on the Corporate Governance Department
Regulations on the Dividend Policy
Internal Control and Risk Management Policy
Anti-Bribery and Corruption Policy
Regulations on the Information Policy
Anti-alcohol and Anti-drug Policy
Safe Use of Vehicles Policy
Fire Safety Policy
Occupational Safety Policy
Environmental protection and occupational health and safety
policy
25.12.2020
21.03.2019
31.10.2018
21.06.2018
26.02.2018
27.05.2016
27.05.2016
12.12.2019
25.02.2014
06.09.2012
01.01.2020
01.01.2020
01.01.2020
01.01.2020
01.01.2020
Strategic Report
Corporate Governance
Appendices
Compliance with the principles and recommendations of the Corporate Governance Code3
Corporate governance principles
Number of principles
recommended by the
Code
2017
2018
2019
2020
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
13
36
2
10
6
7
5
79
–
Complied with
Partially complied with
Not complied with
9
31
2
7
6
4
3
2
3
0
2
0
3
2
62
12
2
2
0
1
0
0
0
5
9
33
2
7
6
4
3
2
1
0
3
0
3
2
64
11
2
2
0
0
0
0
0
4
8
33
2
8
6
4
3
2
1
0
2
0
3
2
64
10
3
2
0
0
0
0
0
5
8
33
2
8
6
4
3
2
1
0
2
0
3
2
64
10
3
2
0
0
0
0
0
5
78%
81%
81%
81%
1 For Report on complying with the principles and recommendations of the Corporate Governance Code see Appendix 1 (p. 167).
2 For more details, see the website of the Company https://www.magnit.com/en/corporate-governance/corporate-documents/.
3 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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Strategic Report
Corporate Governance
Appendices
Corporate Governance
Framework Development
General Meeting
of Shareholders
PJSC Magnit continues to steadily
develop its corporate governance
system accordingly with the best
practices. 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.
— The Annual General Meeting
of Shareholders in June 2020
made adjustments to the Articles
of Association to update it in relation
to the amended legislation on joint
stock companies and securities
market. An extraordinary general
meeting of shareholders made
a decision to approve the Articles
of Association in a new edition, taking
into account all previously adopted
amendments
In 2021, the Company plans to:
— continue to work on bringing
the Company's Information Policy
in line with the recommendations
of the Corporate Governance Code
(CGC) of the Russian Federation
— continue to increase the number
of implemented recommendations
of the CGC
In 2020, the Company further improved
its corporate governance system.
The main changes and innovations are
listed below.
— Development of information policy
and interaction with investors
and shareholders continued
— consider the possibility and take
the necessary measures to implement
the recommendations of the UK CGC.
— An independent consultant was hired
to conduct an external assessment
of the work of the Board of Directors
— A new website https://www.magnit.
com/en/ with a user-friendly interface
and navigation was launched
— The Sustainable Development
Strategy was adopted, which outlined
the goals of sustainable development,
as well as a number of other
provisions in the field of sustainable
development
— The composition of the Management
Board and the Board of Directors has
been strengthened
— The first Magnit Sustainability Report
was released
— Sustainability Steering Committee
headed by the President and CEO
of PJSC Magnit has been established.
It prepares recommendations
on strategic improvements the long-
term sustainability of the business.
The committee's recommendations
serve as the basis for updating
the Sustainable Development
Strategy
— Procedures have been standardised
in relation to identifying transactions
carried out by companies of the
Magnit Group, which require consent
to their execution in accordance with
the requirements of the law and / or
the constituent documents of such
companies
— The practice of liability insurance
of members of the Board of Directors
was continued
— A number of policies developed earlier
have been approved.
For more information about
policies, please see Regulations,
on page 130.
General Meeting resolutions
GM1
Quorum, %
Key resolutions
AGM,
04 June 2020
75.03
EGM,
24 December
2020
69.47
— Approval of annual report and annual financial
report for year 2019
— Approval of the distribution of profit (including the
payment (declaration) of dividends) based on the
2019 results
— Payment of remuneration and compensation
of expenses
— Election of members of the Board of Directors
— Amendments to the Articles of Association
of PJSC Magnit.
— Payment of dividends on PJSC Magnit shares
following the results for the first 9 months of 2020
— Approval of the restated Articles of Association
of PJSC Magnit
— Approval of the restated Regulations on collegial
executive body (Management Board)
of PJSC Magnit.
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 internal documents
regulating the activities of the
Company's bodies
— the election of the Board of Directors
— the distribution of profits, including
dividend payments
— approval of major and related party
transactions
— the approval of the Annual Report
and accounting statements.
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 2020: one
annual General Meeting (AGM) and one
extraordinary General Meeting (EGM).
1 https://www.magnit.com/en/shareholders-and-investors/shareholders-meeting/.
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Board of Directors
Board of Directors
Responsibilities
Composition of the Board
of Directors
Performance evaluation
of the Board of Directors
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 Management Board, 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.
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.
Introduction and training
of members of the Board
of Directors
When newly elected, members of the
Magnit Board of Directors undergo
an introduction 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.
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 specifics and scale of Magnit’s
business operations and objectives.
The Board of Directors’ activities
in 2020
In the reporting year, the Board
of Directors held 14 meetings
and considered 88 issues. The average
attendance at meetings of the Board
of Directors was 100%. The key issues
related to changes in the corporate
governance system, the convening
and holding of the General Meeting
of Shareholders, the approval of the
004Р exchange-traded bonds
programme and the securities
prospectus and the implementation
of the long-term incentive programme.
The external assessment has shown a high level of efficiency, thoroughness,
involvement, commitment and openness of the members of the Board
of Directors and its committees. The balance of the composition of the
Board of Directors in terms of independence, relevant experience and
complementary skills, as well as the ability to make informed decisions
for the benefit of the Company, was noted.
The Сompany adheres to the principle
of constant improvement of the Board
of Directors work. One of the key tools
for implementing this principle is to
regularly assess the activities of the
Board of Directors.
The HR and Remuneration Committee
of the Board of Directors conducts a
performance evaluation of the Board
of Directors on annual basis since 2016.
In accordance with the recommendations
of the Corporate Governance Code
of the Bank of Russia and best foreign
practices, the Company also conducts
an independent assessment of the
activities of the Board of Directors.
In 2020 it was decided to hire
an independent independent consultant
to conduct an external assessment of the
work of the Board of Directors.
External assessment of the Board
of Directors
As part of the external assessment,
the following components of the
activities of the Board of Directors were
analyzed:
— the structure, composition
and independence of the
Board of Directors and its committees
— the organization of work of the
Board of Directors and its committees
— the effectiveness of the Board
of Directors and its committees
— the role and performance of the
Board Chairman
— the overall performance, involvement
and contribution as well as skills
and competencies of each director.
Strategic Report
Corporate Governance
Appendices
An independent assessment of the
activities of the Board of Directors
included analysis of the internal
documents, survey and individual
interviews with the Board of Directors
members. Also, interviews with the
Company`s top management were
conducted. The activities of the Board
of Directors were also analyzed
for compliance with the provisions of the
following key methodological documents
and standards, including the Corporate
Governance Code of the Bank of Russia,
the UK Corporate Governance Code
and the OECD1 Principles of corporate
governance.
According to the results of the
assessment by an independent
consultant, a high level of efficiency
and thoroughness of the Board
of Directors of the Company was noted,
as well as very high level of involvement,
commitment and openness of the Board
of Directors and its committees.
The balance of the composition
of the Board of Directors in terms
of independence, the availability of the
necessary competencies, experience
and skills was separately noted. In terms
of independence and representation
of foreign directors, the Company is well
ahead of most Russian large companies
and is in line with international corporate
governance standards. The current
composition of the Board of Directors
fully meets the needs of the Company
and contributes to making informed
decisions.
The degree of implementation of key
functions of the Board of Directors was
assessed by an independent consultant
as high. The Board of Directors of the
Company considers a wide range
of issues and ensures effective strategic
management of the Company.
In order to further improve the work
processes of the Board of Directors
of the Company, based on the internal
assessment results, a list of key
areas for development was formed.
The identified areas for development will
form the basis of the plan to improve
the efficiency of the Board of Directors
for 2021.
Internal assessment of the Board
of Directors
In 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.
— The performance of the Chairman
of the Board of Directors, including:
• the overall management of the
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.
Results of the self-assessment confirmed
that the performance 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.
! The Organisation for Economic Co-operation and Development is an intergovernmental economic organisation with 37 member countries describing themselves
as committed to democracy and the market economy, providing a platform to compare policy experiences, seek answers to common problems, identify good practices
and coordinate domestic and international policies of its members.
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Committees
of the Board of Directors
In 2020, four Committees of the Board
of Directors were in operation:
— the Audit Committee
— the HR and Remuneration Committee
— the Strategy 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. All Сommittees are
chaired by Independent Non-Executive
Directors.
The Regulations on the Committees
of the Board of Directors of PJSC Magnit
regulates the composition and activities
of the Committees.
In 2020, committees held 15 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 interact 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 31.12.2020)
Name
Status
Audit
Committee
Strategy
Committee
HR and
Remuneration
Committee
Capital Markets
Committee
Independent Non-Executive
Director
Chairman
Independent Non-Executive
Director
Independent Non-Executive
Director
Independent Non-Executive
Director
Independent Non-Executive
Director
Gregor Mowat
Walter Koch
Evgeny Kuznetsov
James Simmons
Charles Ryan
Participation in committees
Chairman
Chairman
Chairman
Strategic Report
Corporate Governance
Appendices
Audit Committee
Strategy Committee
Key results:
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.
In 2020, the Strategy Committee
of the Board of Directors held 3 formal
meetings. All Committee members
attended 100% of the meetings.
In 2020, Audit Committee held 4 formal
meetings. All members of the Committee
attended 100% of the meetings.
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 remuneration
programmes for management and key
employees of the Company.
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 2021).
In the reporting year, the Strategy
Committee reviewed the plan for opening
stores and the budget for 2020, actively
interacted with management team in the
development of the Corporate Strategy
of the Company for 2021-2025.
HR and Remuneration Committee
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.
In 2020, HR and Remuneration
Committee held 5 formal meetings.
All members of the Committee attended
100% of the meetings.
Capital Markets Committee
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.
In 2020, Capital Markets Committee
held 3 formal meetings. All members
of the Committee attended 100% of the
meetings.
Key results:
In the reporting year, the Capital Markets
Committee reviewed issues related
to corporate governance practices,
including external assessment of the
activities of the Board of Directors,
compliance with the UK Corporate
Governance Code; addressed issues
on communication strategies and ESG
initiatives.
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Corporate secretary
Executive Bodies
Strategic Report
Corporate Governance
Appendices
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 Сompany’s actions to protect rights
and interests of the shareholders
and ensure the effective operation
of the Board of Directors as well as
the complience by the Company of the
current legislation that guarantees
the implementation of the rights
and legitimate interests of shareholders.
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.
The main functions of the Corporate
Governance Department are:
— to participate in improving
the Сompany’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
Company’s documents
— to ensure interaction between
the Company and its shareholders
and participate in preventing
corporate conflicts
Ekaterina Kister
Corporate Governance Director
Born: 18 April 1978
Education :
2000 – Kuban State University (Faculty of Law).
Experience
Joined PJSC Magnit in 2016, from JSC Tander where she worked
for 11 years.
Participatory interest in the Company’s charter capital
(percentage of the Company’s ordinary shares): 0.000981% .
— to ensure interaction between
the Company 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 current activities of the Company are managed by two sole
executive bodies of the Сompany: 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 biography of Jan Dunning, see
Composition of the Management Board on p. 122.
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.
As of the end of 2020, the Management Board comprised
of 9 people.
Further details regarding the powers of the Management
Board can be found in the Company’s Articles of Association
and Management Board Regulations.
For biographies of Board members, see
Composition of the Management Board on p. 122.
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20202020 Annual 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
as of 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:
Audit Committee
of the Board
of Directors
— approving the strategic framework for the
establishment and operation of the internal
control and risk management system
Board
of Directors
— integration of the internal control and risk
management system into the Company’s
organisational processes
— Identifying perceptions of the internal
control and risk management system among
employees.
CEO,
President
and executive
bodies
— organisation of the operation
and continuous monitoring of the
effectiveness of the internal control
and risk management system.
Internal Audit
Department
Heads of units,
employees
— implementation of control procedures
and risk management measures,
monitoring of their effectiveness.
Strategic
level
Operational
level
Control
level
administrative subordination
functional subordination
Strategic Report
Corporate Governance
Appendices
The internal control system is based
on the principles of the COSO concept
recommended by the Corporate
Governance Code. According to the
COSO1 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 Risk management on p. 94.
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
1 The Committee of Sponsoring Organizations of the Treadway Commission COSO) is a voluntary private organization established in the United States and is dedicated
to providing thought leadership through the development of frameworks and guidance on enterprise risk management, internal control and fraud deterrence.
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Internal control
and risk management system (continued)
— preparing information for the
Efficiency assessment
External audit
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).
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 2020, 19 internal audits were
conducted, resulted in 142 measures.
Of these, 25 measures were executed
in 2020, the rest will be implemented
from the beginning of 2021.
In 2020, training sessions were
organized for employees of the
Internal Audit Department to improve
their qualifications up to the modern
requirements in internal audit. In 2021,
it is planned to expand the employee
training programme through
the opportunity to study online.
In 2020, 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.
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 Association
“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 4 June 2020 as the auditor
of the Company’s consolidated financial
statements prepared in accordance
with International Financial Reporting
Standards.
Strategic Report
Corporate Governance
Appendices
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
in all its material aspects.
The auditor’s remuneration paid by the
Group in the reported period amounted
to RUB 7.7 mln (excluding VAT), including
the payments directly from PJSC Magnit
in the amount of RUB 301.6 thousand
(excluding VAT).
AF Faber Lex LLC did not provide
non-audit services to the Group during
the reporting year.
RAS Audit
The audit firm Faber Lex Limited Liability
Company (TIN 7709383532), location:
Krasnodar, 144/2 Krasnykh Partizan
Street, was approved at the AGM held
on 4 June 2020 as the auditor of the
Company’s accounting (financial)
statements for 2020 prepared
in accordance with Russian Accounting
Standards.
AF Faber Lex LLC is a member of the
Self-Regulatory Organisation of Auditors
Association SODRUZHESTVO (SRO
AAS) №441 dated 20 March 2020 with
the main registration number entry
(ORNZ) 12006114232.
In order to select an auditor for the audit
of the accounting (financial) statements
of the Issuer prepared in accordance
with Russian accounting and reporting
standards, we requested for proposals
in 2019.
Eight audit companies participated in the
request: Deloitte, PWC, KPMG, E&Y,
Faber Lex LLC, Gorislavtsev, FinExpertiza,
Intercom.
Based on the evaluation of the proposals,
it was recommended to approve Faber
Lex LLC as the auditor of the Issuer's
accounting (financial) statements
prepared in accordance with Russian
accounting and 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.
To select an auditor for the consolidated
financial statements of the Issuer and its
subsidiaries prepared in accordance
with international financial reporting
standards, we requested for proposals
in 2019. Four audit firms of the Big Four
participated in the request: Deloitte, PWC,
KPMG, E&Y.
Based on the evaluation of the proposals,
it was recommended to approve E&Y
(Ernst & Young LLC) as the auditor of the
consolidated statements of PJSC Magnit
and its subsidiaries prepared
in accordance with international financial
reporting standards.
The auditor audited the 2020 consolidated
financial statements of PJSC Magnit
and its subsidiaries in accordance with
IFRS in the reporting year.
Based on the results of the audit,
the auditor expressed an opinion
on the accuracy of the consolidated
financial statements for 2020, prepared
in accordance with IFRS.
The auditor’s remuneration paid by
the Company in 2020 amounted
to RUB 66.0 million (excluding VAT).
In addition, in the reported year the
auditor provided non-audit services
to the Group, including: consulting
on the development of a shared service
center, consulting on the development
of a Logistics development strategy and
other services. The auditor's remuneration
paid in 2020 for non-audit services was
RUB 85.2 mln (excluding VAT).
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In 2020, 3,156 appeals were received
through this communication channel,
of which 10% (or 311) are targeted.
Of these, 29% (or 89) 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:
— phone number: 8 (800) 600-04-77
— email: ethics@magnit.ru
— the form for submitting appeals via
the corporate website
https://magnit.com/en/anti-corruption/.
Ethics
and Anti-corruption
— The process of receiving
and responding to complaints about
violations in the Company has been
expanded and adapted to the remote
work mode.
During 2020, the topic of inadmissibility
of violations in the field of combating
corruption was actively covered
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 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.
All messages, including anonymous, are
considered. Information on utilising this
hotline is located in the “Ethics and Anti-
Corruption” section on the Company's
website4.
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).
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, and Code of Conduct2. All
Сompany 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 monitors compliance with
anti-corruption procedures. All violations
of employees are analysed, and result
in disciplinary measures up to and
including dismissal.
In 2020, corporate anti-corruption
measures were updated to completely
integrate into the remote work process
of employees:
— The procedure for the annual
declaration by managers of all levels
of information on the presence of a
conflict of interest has been converted
into electronic form
— Training courses on anti-corruption
and compliance with business ethics
have been updated, a number of video
materials have been introduced
for employees who are training
remotely. The quality of teaching
is monitored
Strategic Report
Corporate Governance
Appendices
Information
disclosure
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 2020, the Company
launched a renewed corporate website
https://www.magnit.com/en/.
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 useful
information.
In addition, the Company discloses
information via the Interfax disclosure
server https://www.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 traditional practice of visiting stores,
enterprises and agricultural complexes
in 2020 was suspended due to the safety
reasons during the COVID-19 pandemic.
Magnit prepared virtual tours across all
its store formats and organized virtual
events for the investment community
where Company’s COO Ruslan Ismailov
and members of IR team discussed
recent developments. The number
of virtual events has been significantly
expanded.
Representatives of the Company
participated in numerous investor
conferences held virtually due to travel
restrictions and held conference
and video calls with analysts
and investors.
Another important disclosure
channel is the annual report. In 2020
the Company significantly increased
the level of disclosure in the Annual
Report and released first Sustainability
Report in accordance with GRI Standards.
Types of messages disclosed in 2020
Type of disclosure
Related to the bond issue / circulation
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)
Disposal of the issuer's own shares by its subordinate organisation
On the change in the share of members of management bodies and other persons in the issuer's authorized capital
On yields accrued and paid on issue-grade securities
Performance
Other
TOTAL
Quantity
33
36
16
4
26
20
7
30
172
1 Approved by the Board of Directors 25.02.2014 (notes of 25.02.2014), http://ir.magnit.com/en/information-disclosure/charter-and-internal-documents/.
2 Approved by the Board of Directors 21.03.2019 (notes of 24.03.2019), http://ir.magnit.com/en/information-disclosure/charter-and-internal-documents/.
3 transparency.org.ru/special/trac2018russia/docs/report-ru.pdf.
4 https://www.magnit.com/en/anti-corruption/.
144
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20202020 Annual Report
Strategic Report
Corporate Governance
Appendices
Remuneration
Report
Director’s Remuneration
In 2020, 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.
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
150,000
Euro
200,000
Euro
Chairman of the
Audit Committee
150,000
Euro
Chairman of
the Strategy
Committee
150,000
Euro
100,000
Euro
Chairman of the
Capital Markets
Committee
150,000
Euro
Chairman of the HR
and Remuneration
Committee
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 50,0002 per year
Remuneration paid to members of the Board of Directors
in 2020, %
0.2
30.1
69.7
Remuneration Basic
RUB 116.8 mln
Additional
RUB 50.4 mln
Compensation of expenses
RUB 0.4 mln
Total3:
RUB 167.6 mln
Remuneration of the sole
executive bodies (CEO and
President)
In 2020, the policy of remuneration and
compensation of expenses of the CEO
and the President was regulated by the
Regulations on Sole Executive Bodies
(the President and the Chief Executive
Officer)4.
In accordance with these Regulations,
the amount of remuneration of the
CEO and the President is set in their
employment contracts.
In accordance with employment contract,
Jan Dunning received 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.
The first transfer of 82,355 shares
happened on 21 May 2019. The second
transfer of 41,177 shares happened
23 March 2020. The third and last
transfer of 41,178 shares happened
8 February 2021.
Remuneration of members
of the Management Board
In 2020, the policy of remuneration
and compensation of expenses
to members of the Management Board
was regulated by two regulations:
— Regulations on the collective executive
body (Management Board), approved
by the AGM on 30 May 2019 (minutes
of 31 May 2019)
— Regulations on the collective executive
body (Management Board), approved
by the EGM on 24 December 2020
(minutes of 25 December 2020).
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 targeted value
of the bonus equal to the
annual salary. The actual
amount of the bonus
depends on the fulfillment
of the Corporate KPIs
and bonus conditions
approved by the Board
of Directors for the
reporting year.
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
Compensation of expenses
According
to the
terms of the
employment
contract
The motivation programme
sets the targeted value
of the bonus equal to the
annual salary. The actual
amount of the bonus
depends on the fulfillment
of the Corporate KPIs
and bonus conditions
approved by the Board
of Directors for the
reporting year.
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.
Remuneration of members of the Management Board, total, RUB mln
All companies of the Group
PJSC Magnit
Remuneration
Base Salary
Bonus
317.3
276.6
Compensation of expences
12.4
Total5
606.3
12.4
22.8
–
35.2
Remuneration paid to members of the collective executive body
in 2020: RUB 606.3 mln.
1 Regulations were approved at EGM on 5 December 2018 (minutes of 6 December 2018), with amendments approved at the AGM 30 May 2019
(minutes of 31 May 2019).
2 The issue of compensation for expenses more than EUR 50,000 is considered at the General Meeting of Shareholders.
3 Does not include remuneration for the performance of the functions of the sole executive body paid to a person that performed the function
4 Regulations were approved at the AGM on 30.05.2019 (minutes of 31.05.2019).
5 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
of the sole executive body in the specified period and at the same time was a member of the Board of Directors.
in the specified period and at the same time was a member of the Management Board.
146
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20202020 Annual Report
Remuneration Report (continued)
Strategic Report
Corporate Governance
Appendices
KPI
LTI
Programme structure
In addition to the short-term incentive
scheme, the Group has a long-term
remuneration programme. Programme
objectives are:
— LFL sales growth (%)
— EBITDA (RUB bln)
— Working capital (RUB bln).
In case of failure to meet at least one
of the three triggers, the bonuses are
not paid.
If the trigger indicators are met,
the following corporate indicators
are set for all members of the
Management Board in the company:
— growth in LFL sales (%)
— EBITDA (RUB bln).
For members of the Management Board
who are responsible for key business
functions, annual bonuses are entirely
dependent on the achievement
of corporate KPIs. Individual KPIs
have also been set for a number
of Management Board members,
and corporate KPIs are applied as
a multiplier to the individual portion
of the bonus.
The Board of Directors approves the list
of corporate and individual KPIs as well
as their influence on bonus payments
for CEO -1 level.
In addition to the short-term incentive
scheme, the Group has a long-term
remuneration programme. 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 2020, the Board of Directors changed
the total number of programme
participants.
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.
Participants have right to receive shares
of the option-based part if the market
share price exceeds RUB 4,700 per share.
Payments are made if the target EBITDA
is reached and the terms of the contract
are met.
The amount of payments to programme
participants depends on the period
worked during the execution
of programme.
In 2020, the Company transferred
73,597 shares to 23 employees as part
of the long-term remuneration
programme, including 27,242 shares
transferred to 6 employees who left
the Company in 2020.
Number of employees who received shares
including employees who left the Сompany
Shares transferred
including to employees who left the Сompany
2020
23
6
73,597
27,242
Share-based part
Option-based part
Order
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 the following year + 1/3 in two years.
Shares provided within the option-based part are
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.
Conditions
–
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 in 2020
Name
Management Board
Jan Dunning
Maria Dei
Elena Zhavoronkova
Other employees of the Company
Employees who left the Company in 2020
Position
Shares
Chairman of the Management Board, President, CEO
Supply Chain Director
Chief Legal Officer
23,404
1,648
1,648
19,655
27,242
148
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20202020 Annual Report
Shareholder and investor
engagement
Authorised and issued share
capital
As of 31 December 2020, the authorised
capital of Public Joint-Stock Company
Magnit amounted to RUB1,019,113.55
and consisted of 101,911,355 ordinary
with a par value of RUB0.01 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 RUB0.01 each
(declared shares).
As of 31 December 2020, 34 entities
were registered in the share register,
including 30 individuals, one nominal
holder (National Settlement Depositary)
and three other legal entities.
As of 31 December 2020, PJSC Magnit
does not hold any treasury shares. As
of 31 December 2020, JSC Tander, owned
by the Company owned 4,246,498 voting
shares in PJSC Magnit, which amounts
to 4.166855 % 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 2020, 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 2020, the share of the
free-float in the Company’s shares was
71,00%2. As at the end of 2020, Magnit’s
market capitalisation was RUB 578.3 bln3
on MOEX and USD8,584.4 mln4
on the LSE.
Structure of share capital as at the end of 20205
Title
Legal entities
Including nominal holders
Individuals
Total
Number of registered
entities
Share of authorised
capital, %
5
1
30
35
97.50
97.50
2.50
100
Significant changes in the share capital structure in 20206
Date of change
Title
Ownership type
Number of shares
Share
of authorized
capital, %
Number
of shares
Share
of authorised
capital, %
19.08.2020
Dodge & Cox
Indirect
5,144,652
5.048 %
5,094,652
4.9991 %
Before the date of the change the share
After the date of the change the share
1 State registration number: 1-01-60525-P of 4.03.2004.
2 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.
3 Capitalisation in RUB is calculated using the following formula: number of shares outstanding * share price as at the end of 2020.
4 Capitalisation in USD is calculated using the following formula: 5* number of shares outstanding * GDR price as at the end of 2020.
5 Shareholding structure is provided in accordance with the list of shareholders registered in the register of PJSC Magnit shareholders as of 31.12.2020.
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.
Strategic Report
Corporate Governance
Appendices
Breakdown by geography
of free-float, %
Authorised and issued share capital history
End 2019, %
6.83
8.7
9.7
20.3
18.0
29.7
End 2020, %
8.3
5.89
24.2
11.8
22.3
27.5
Russian Federation
United States of America and Canada
United Kingdom
European union
Asia
Rest of the World
Source: Shareholder Identification report
Date
24
April
2006
13
February
2008
22
April
2008
2
September
2009.
6
October
2011
15
November
2017
21
August
2018
Changes
The Company completed the process of an initial public offering in the
Russian Trading System (RTS) and on the Moscow Interbank Currency
Exchange (MICEX).
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.
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.
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.
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.
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.
The Board of Directors of PJSC Magnit approved the share buyback
programme (taking into account the changes approved by the Board
on the 4th of October, 2018).
The programme was launched on 5 September 2018 and completed
on 1 March 2019. Total number of shares bought out under buyback
programme was 5,897,776, including:
— 3,510,638 shares were allotted to LTI programme
— Since the start of the LTI programme 178,855 shares were
distributed to participants.
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.
150
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20202020 Annual Report Shareholder and investor
engagement (continued)
Strategic Report
Corporate Governance
Appendices
Listing of shares
on the Moscow
Exchange
The Company’s shares have
been traded 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.
GDR listing
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 and trading volume on the Moscow Exchange in Q1-Q4 2020
Indices
Period
Q1
Q2
Q3
Q4
Share price, RUB
Volume, RUB mln1
Min.
Max.
As at end of
period
Period total
Daily
average
Daily median
2,337.0
3,855.0
3,191.0
172,083.5
2,868.1
2,466.9
3,140.0
4,180.5
4,084.5
120,198.7
1,970.5
1,895.5
4,202.0
5,080.0
4,937.5
132,595.7
2,039.9
2,034.3
4,659.0
5,685.5
5,674.5
125,060.5
1,954.1
1,739.8
Market cap.
of period,
RUB bln
325.2
416.3
503.2
578.3
Magnit is included in a broad number
of different indices. More information
is provided by the following key ETFs;
groups:
Index name
VanEck
SPDR
Vanguard
MSCI
iShares
Site addresses of key groups of ETF funds
https://www.vaneck.com/
https://www.ssgafunds.com/
https://investor.vanguard.com/
https://www.msci.com/
https://www.ishares.com/
Columbia Threadneedle Investments
https://www.columbiathreadneedleus.com/
MOEX and RTS
https://www.moex.com/ru/index/IMOEX
GDR price and trading volume on LSE
Period
Q1
Q2
Q3
Q4
GDR price, USD2
Volume, USD mln3
Min.
Max.
As at end of
period
Period total
Daily
average
Daily median
6.47
8.71
12.97
13.75
14.26
13.56
15.71
18.24
8.96
12.99
14.92
17.60
391.51
282.22
352.05
321.40
6.12
4.63
5.42
5.02
5.58
4.11
4.46
4.52
Market cap.
of period,
USD mln
4,373.06
6,335.87
7,277.23
8,584.40
GDR quotes on London Stock Exchange in 2020
17.0
16.0
15.0
14.0
13.0
12.0
11.0
10.0
20.0
18.0
1 6.0
14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0
Analyst coverage
and consensus forecast
As of the 31 December 2020, 18
investment banks produced equity
research on Magnit compared to 16
in 2019. New banks initiated coverage,
namely Morgan Stanley and VTB Capital.
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@bofa.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
Yulia Gerasimova +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
Morgan Stanley
Henrik Herbst
+44 20 76 77 1309
henrik.herbst@morganstanley.com
Raiffeisen
Egor Makeev
+7 495 221 98 51
egor.makeev@raiffeisen.ru
Renaissance Capital
Kirill Panarin
+7 499 956 42 16
kpanarin@rencap.com
Sberbank CIB
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
VTB Capital
Maria Kolbina
+7 495 663 46 48
maria.kolbina@vtbcapital.com
Wood & Company
Lukasz Wachelko +48 22 222 15 60
lukasz.wachelko@wood.com
Jan-
20
Feb -
20
Mar -
20
Apr -
20
May-
20
Jun -
20
Jul -
20
Aug-
20
Sep-
20
Oct-
20
Nov-
20
Dec-
20
Trading volume, USD mln
GDR price, USD
Source: Thomson Reuters, Company analysis Indexes
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.
2 Maximum and minimum are calculated based on quotes at the end of the trading session.
3 Сalculations are based on daily trading volumes in currency, which are calculated as the daily trading volume in securities multiplied by the closing price.
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20202020 Annual Report
Strategic Report
Corporate Governance
Appendices
September
2020
18 November
2020
30 July
2020
20 August
2020
25 December
2020
+66%
19 June
2020
29 October
2020
+8%
Shareholder and investor
engagement (continued)
Share trading on the Moscow Exchange in 2020
6,000
5,000
4,000
10 January
2020
6 February
2020
6 March
2020
3,000
15 January
2020
29 April
2020
16 March
2020
2,000
1,000
0
9M 2019
Dividend Record
Holiday Sales
Update1
Date
4Q/12M 2019
Global financial
FY 2019 Audited
1Q 2020
2019 Dividend
2Q/6M 2020
1H 2020 Reviewed
Global financial
3Q/9M 2020
Board of Directors
Approval of the
Trading Update
markets
Financial Results
Trading Update
Record Date
Trading Update and
Financial Results
markets correction
Trading Update and
recommendation
9 months 2020
and Financial
correction due to
Highlights
the first wave of
COVID-19
and Financial
Highlights
Financial Highlights
due to the second
Financial Highlights
to the EGM on the
dividends payment
wave of COVID-19
9 months of 2020
by EGM
dividends payment
Trading volume, RUB bln
Ordinary share price, RUB
MOEX index quotes, RUB
Source: Thomson Reuters
1 Magnit defines “pre-New Year sales” as sales made across all the Chain’s formats from December 17 to December 31.
154
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20202020 Annual Report
Shareholder and investor
engagement (continued)
Analyst recommendations and average target price local shares
80%
60%
40%
20%
0
Jan-
20
Mar -
20
May-
20
Jun -
20
Jul -
20
Nov-
20
Jan-21
Analyst recommendations and average target price GDRs
80%
60%
40%
20%
0
Company collected
recommendations and consensus
on local shares for 2020, %
0
22
78
Company collected
recommendations and consensus
on GDRs for 2020, %
8
46
5,000
4,000
3,000
2,000
1,000
0
18
16
14
12
10
8
6
4
2
0
Jan-
20
Mar -
20
May-
20
Jun -
20
Jul -
20
Nov-
20
Jan-21
46
Buy
Hold
Sell
Average target price, USD
Source: Thomson Reuters, Company collected recommendations and consensus for 2020
Consensus for key financial indicators for 2020, RUB bln (IAS 17)
Consensus average
Reported
Sales and growth
Gross profit and margin
EBITDA and margin
Net Income and margin
1,553.5
13.5%
1,553.8
13.5%
366.2
23.6%
365.7
23.5%
109.7
7.1%
109.4
7.0%
37.1
2.4%
37.8
2.4%
Source: Company collected recommendations and consensus for 2020 based on open sources
Strategic Report
Corporate Governance
Appendices
Consensus for key financial indicators for 2020, RUB bln (IFRS 16)
Consensus average
Reported
Sales and growth
Gross profit and margin
EBITDA and margin
Net Income and margin
1,553.5
13.5%
1,553.8
13.5%
366.2
23.6%
365.8
23.5%
179.9
11.6%
178.2
11.5%
29.7
1.9%
33.0
2.1%
Source: Company collected recommendations and consensus for 2020 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 exchange bonds
(BO-003R-01, BO-003R-02, BO-003R-
03, BO-003R-04, BO-003R-05,
BO-002R-01, BO-002R-02, BO-002R-
03) with a total nominal volume of RUB
90 bln (the volume in circulation at the
end of the reporting year was RUB 80
bln, bond issue BO-003R-03 was repaid
on 24.12.2020).
.
Within the framework of the
XVIII Russian Bond Congress
in St. Petersburg, the placement
of bonds of the Magnit retail chain,
series BO-002R-01 for RUB10 bln
was recognised as the best public
offering by a retailer.
Parameters of the BO-003R-01, BO-003R-02, BO-003R-03, BO-003R-04, BO-003R-05, BO-002R-01,
BO-002R-02, BO-002R-03 series bonded loans of PJSC Magnit
Issue
identification
number and
assignment
date
4B02-01-
60525-P-003P,
1.02.2019
4B02-02-
60525-P-003P,
21.02.2019
4B02-03-
60525-P-003P,
25.06.2019
4B02-04-
60525-P-003P,
29.10.2019
4B02-05-
60525-P-003P,
23.12.2019
4B02-01-
60525-P-002P,
04.03.2020
4B02-02-
60525-P-002P,
27.04.2020
4B02-03-
60525-P-002P,
19.05.2020
Volume of issue,
RUB
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)
15,000,000,000
(fifteen bln)
10,000,000,000
(ten bln)
15,000,000,000
(fifteen 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)
15,000,000
(fifteen mln)
10,000,000
(ten mln)
15,000,000
(fifteen 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)
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
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
05.03.2020
29.04.2020
22.05.2020
156
157
magnit.com
20202020 Annual Report
Shareholder and investor
engagement (continued)
Parameters of the BO-003R-01, BO-003R-02, BO-003R-03, BO-003R-04, BO-003R-05, BO-002R-01,
BO-002R-02, BO-002R-03 series bonded loans of PJSC Magnit (continued)
Issue
identification
number and
assignment
date
4B02-01-
60525-P-003P,
1.02.2019
4B02-02-
60525-P-003P,
21.02.2019
4B02-03-
60525-P-003P,
25.06.2019
4B02-04-
60525-P-003P,
29.10.2019
4B02-05-
60525-P-003P,
23.12.2019
4B02-01-
60525-P-002P,
04.03.2020
4B02-02-
60525-P-002P,
27.04.2020
4B02-03-
60525-P-002P,
19.05.2020
Placement
method
public
placement
public
placement
public
placement
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
1092th day
from the
placement date
1092th day
from the
placement date
1092th day
from the
placement date
Number of
coupons
6
4
3
5
6
6
6
6
ISIN code
RU000A1002U4
RU000A1004G9
RU000A100H02
RU000A100ZS3
RU000A1018X4
RU000A101HJ8
RU000A101MC3
RU000A101PJ1
Coupon rate
8.70%
8.50 %
7.85%
6.90%
6.60%
6.20%
6.70%
5.90%
Credit ratings
As of 31.12.2020
In 2020, leading rating agencies assigned
credit ratings to the Company. S&P
affirmed its rating of the Company
and ACRA assigned a new rating.
Rating agency
Rating recipient
Rating
Forecast
Date of rating
(issued /
reaffirmed)
Standard&Poors
Issuer at international scale
BB
Stable
15.12.2020
Dividends
The core principles underpinning
Magnit’s dividend policy are as follows:
— Transparency: identifying
ACRA
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
Issuer at national scale
AA (RU)
Stable
22.09.2020
Bonds BО-003R-03,
BО-003R-02
National scale
BО-003R-04
BО-003R-05
BО-002R-01
BО-002R-02
BО-002R-03
AA (RU)
AA (RU)
AA (RU)
AA (RU)
AA (RU)
AA (RU)
–
–
–
–
–
–
22.09.2020
22.09.2020
22.09.2020
22.09.2020
22.09.2020
22.09.2020
Regulations on the dividend policy of PJSC Magnit
(new edition) of 27.05.2016: https://www.magnit.com/en/
shareholders-and-investors/dividends/.
Strategic Report
Corporate Governance
Appendices
— Fairness: equal rights for shareholders
Report on announced and paid dividends for 2008-2020
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.
A dividend payment in the amount
of RUB 157.00 on the ordinary
registered shares of PJSC Magnit
in relation to the 2019 financial results
was approved by the Annual General
Meeting of Shareholders on 4 June 2020
(minutes dated 5 June 2020). Earlier,
on 24 December 2019, the Extraordinary
General Meeting of Shareholders
approved a decision to pay dividends
based on the results of 9 months 2019
in the amount of RUB 147.19 on the
ordinary registered shares (minutes
dated 25 December 2019). Thus, the total
payment of dividends for 2019 amounted
to RUB 31 bln or RUB 304.19 per ordinary
share, which corresponds to the amount
paid for 2018.
The Extraordinary General Meeting
of Shareholders on 24 December 2020
(minutes dated 25 December 2020)
approved the payment of an interim
dividend in the amount of RUB 245.31
on the ordinary registered shares
of PJSC Magnit which corresponds
to the total payment of RUB 25 bln,
based on the results of the first nine
months of 2020.
Reported period
Total dividends
announced, RUB bln
Total dividends paid,
RUB
Dividend per share,
RUB
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
9M 2020
0.1
1.3
0.6
2.1
7.7
12.8
34.3
29.4
26.3
24.7
31.0
31.0
25.0
0.1
1.3
0.6
2.1
7.7
12.8
34.3
29.4
26.3
24.7
31.0
31.0
25.0
1.46
14.82
6.57
22.93
81.35
135.21
362.94
310.47
278.13
251.01
304.16
304.19
245.31
Paid dividends for 2008-2020
0.1 1.3 0.6 2.1 7.7 12.8 34.3 29.4 26.3 24.7 31.0 31.0 25.0
8.6%
3.7%
2.8%
2.5%
4.0%
4.3%
4.9%
0.7%
0.3%
0.8%
0.2%
1.7%
1.5%
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 9M 2020
Dividend yield, % at the end of period
Total dividends paid, RUB bln
158
159
magnit.com
20202020 Annual Report
Shareholder and investor
engagement (continued)
Shareholders and investor
engagement
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, while
treating all the investment categories
with special attention.
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.
4 conference calls and 6 publications
regarding the financial and operational
results were conducted by senior
management in 2019. In 2020
the IR-team has also participated in the
number of virtual conferences, including
with the retail investors.
Magnit was the first in the industry
to introduce a new way to showcase
chain stores in a virtual format. Virtual 3D
tours, accompanied by Ruslan Ismailov,
Deputy CEO - Retail Chain Director,
allowed investors from all over the world
to appreciate the qualitative changes
in convenience stores, superstores
and drogeries1.
The Company’s management held
9 roadshows and together with
the IR team participated in 120 different
investors’ events covering
218 institutional investors in 2020.
Five conferences for individual investors
were also held.
The list of the most frequently asked
questions by investors and analysts
is presented below:
— LFL indicators and their dynamics
— Sales density indicators
— The impact of the pandemic on the
consumer, industry, Company
— Macro-economic environment,
inflation and promo activity
— CVP implementation including
assortment, redesign programme,
loyalty programme, organisational
model, etc
— Status of business transformation
— Changes in strategy
— Digital transformation, including ERP
implementation and e-commerce
initiatives
— Innovations and efficiency gains
— Magnit actions in online sales
— Expansion plans and M&A
opportunities
Strategic Report
Corporate Governance
Appendices
Investor relations activities
114
Number of institutional
investor events where
Magnit participated
218
Number
of institutional
investors covered
5
Number of individual
investor events
6
Number of ESG events
7
Financial
and operational
results releases
4
Conference calls
6
Number
of virtual
store tours
9
Roadshows
Magnit has won a silver
medal for the Best
Corporate Website
(International) category
at the Corporate
and Financial Awards 2020.
First
Albert Avetikov
Chief Investor Relations
Officer of Magnit, was
ranked first in TOP Investor
Relations Professionals
by Association of Managers
and Kommersant.
— created a corporate video about
the activities of the Company and its
achievements
— the practice of holding conferences
with investors and analysts in a virtual
mode was introduced
— 5 conferences with individual
investors were held
— 6 ESG-dedicated events conducted
— expanded content and improved
structure of press releases,
presentations and documents with
reference information
— the practice of maintaining an up-to-
date consensus forecast of key
financial indicators based on analysts'
forecasts has been introduced.
— Sustainability of margins
— Working capital improvements
— Management KPIs and incentive
schemes
— Management team changes.
During the reporting year, the Company
continued to improve its investor
relations approach:
— the Company launched a new
corporate website for investors,
expanded the content, improved
the structure and systematized
the information presented
— due to pandemic restrictions,
the Company found a way to conduct
virtual stores visits with management
presentations. In 2020, six virtual
store tours for institutional investors
and analysts were successfully
completed, including tours
to the convenience store, superstore
and Magnit Cosmetic
1 Please, see https://www.magnit.com/en/about-company/store-formats/.
160
161
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20202020 Annual Report
Strategic Report
Corporate Governance
Appendices
Investor
calendar 2020-2021
12-13 May 2020
23-24 June 2020
20 August 2020
Morgan Stanley Virtual
EEMEA Conference 2020
RenCap Virtual Moscow
Conference
1H 2020 Reviewed
Financial Results
Virtual
Virtual
Krasnodar
2020
6 February 2020
13 May 2020
30 June 2020
4Q / 12M 2019 Trading
Update and Financial
Highlights and Conference
Call
BAML Retail and
Consumer Virtual Trip
Virtual
Virtual Investor Group
Meeting 'Retail with
Purpose. Magnit
Sustainability Strategy
2-3 September 2020
Raiffeisen Virtual
Emerging Europe Days
Virtual
29 October 2020
18-19 November 2020
3Q / 9M 2020 Trading
Update and Financial
Highlights and Conference
Call
VTB Capital "Russia
Calling" Conference
Virtual
Krasnodar
2021
30 October 2020
1-3 December 2020
4 February 2021
Auerbach Grayson-
SOVA Capital Emerging
and Frontier Markets
Conference
UBS Global Emerging
Markets One-on-One
Virtual Conference
Virtual
4Q / 12M 2019 Trading
Update and Financial
Highlights and Conference
Call
Krasnodar
Virtual
Virtual
Krasnodar
16 March 2020
27 May 2020
8-9 July 2020
FY 2019 Audited Financial
Results
Aton Consumer Day
Virtual
Krasnodar
J.P. Morgan Virtual
CEEMEA & LATAM Asia
Forum
Virtual
3 September 2020
HSBC Investor Trip to
Russia
2-3 November 2020
2 December 2020
15 March 2021
Moscow Virtual Exchange
Forum
Wood`s EM Consumer
Conference
FY 2019 Audited Financial
Results
Virtual
Virtual
Virtual
Krasnodar
21 April 2020
28 May 2020
14 July 2020
10-17 September 2020
9-10 November 2020
3 December 2020
29 April 2021
Wood`s EM Consumer
Conference
HSBC Virtual EEMEA Food
Retail Conference
UBS CEEMEA Virtual
Retail Trip
Citi's Virtual GEMS
Conference
GS 12th Annual CEEMEA
1-1 Conference
Gazprombank Russian
Retail Day
Virtual
Virtual
Virtual
Virtual
Virtual
Virtual
1Q 2020 Trading Update
and Financial Highlights
and Conference Call
Krasnodar
29 April 2020
2-3 June 2020
30 July 2020
1Q 2020 Trading Update
and Financial Highlights
and Conference Call
BAML Emerging Markets
Debt & Equity Conference
2020
Krasnodar
Virtual
2Q / 6M 2020 Trading
Update and Financial
Highlights and Conference
Call
Krasnodar
13-14 October 2020
HSBC Virtual Global EM
Forum
11 November 2020
RenCap 25th EM&FM
Conference
Virtual
Virtual
162
163
magnit.com
20202020 Annual Report
Strategic Report
Corporate Governance
Appendices
Magnit Reports 7.4%
LFL Sales Growth
and 7.0% EBITDA margin (IAS 17)
in 2020
Appendices
to the Annual
Report 3
165
165
164
164
2020
magnit.com
magnit.com
20202020 Annual 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
167
188
189
190
260
Strategic Report
Corporate Governance
Appendices
Report
on complying with the principles
and recommendations of the Corporate
Governance Code
Compliance status
Full
Partial
None
The Board of Directors confirms that the data provided in this report contains complete and reliable information on PJSC Magnit’s
(hereinafter referred to as the “Company”) compliance with the principles and recommendations of the Corporate Governance
Code, recommended by the Bank of Russia (Letter No. 06-52 / 2463 dated 10 April 2014) for use by joint-stock companies whose
securities are admitted to organized trading (hereinafter referred to as the “Code”), for 2020.
#
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.
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.
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.
166
167
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20202020 Annual Report
Strategic Report
Corporate Governance
Appendices
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
#
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
1.1.3
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.
1.1.5
Each shareholder was able
to freely exercise their voting
right in the simplest and most
convenient way.
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
(hereinafter referred to as the “Proposals”) 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 the Proposals.
During the reporting period, there were no instances
in which shareholders would not have had enough time
to submit the Proposals within this period.
At the same time, the Company is working
to improve internal documents, taking into account
the recommendations of the Code and development plans.
It is planned that the alignment of internal documents
in accordance with this recommendation of the Code will be
completed during 2021.
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.
The Company registrar and the Company in practice do
not refuse such a request when holding general meetings
of shareholders in the form of joint presence.
The Company is working to improve internal documents,
taking into account the recommendations of the Code
and development plans. It is planned that the alignment
of internal documents in accordance with this
recommendation of the Code will be completed during 2021.
1.1.6
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.
Criterion 2 is only partially not complied with.
Criterion 3 is not complied with.
Company's internal documents set out the possibility
for candidates to the management and supervision bodies
of the Company to participate at the meeting in person.
However, in the reporting year, due to the epidemiological
situation and in accordance with Federal Law No. 50-FZ
dated 18 March 2020, the general shareholder meetings
were held in the form of absentee.
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.
The possibility and necessity of such a practice is planned
to be considered before the annual general meeting
of shareholders, which will be held for 2021.
1.2
1.2.1
1.2.2
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.
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.
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.
168
169
magnit.com
20202020 Annual Report
Strategic Report
Corporate Governance
Appendices
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
1.2.4
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.
The Company’s Articles of Association 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.
At the annual general shareholders meetings held for 2018
and 2019, at the proposal of the shareholders, the matter
of amending the Articles of Association 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 twice did not support such amendments
to the Company Articles of Association.
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.
1.3
1.3.1
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.
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.
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 and is consistently decreasing.
The participation of these shares in voting at general
shareholders meetings does not result in the artificial
redistribution of corporate control in the Company.
At the annual general meetings held for 2018 and 2019,
at the suggestion of shareholders, the proposal of changing
the Company’s Articles of Association in terms of the
obligation of the Company to take measures aimed
at limiting voting rights of shares owned by legal entities
controlled by the Company was considered.
On both occasions, the shareholders did not support such
amendments to the Company Articles of Association.
The possibility and necessity of such a practice is planned
to be considered before the annual general meeting
of shareholders, which will be held at the end of 2021.
#
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.
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.
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.
The board of directors plays
a key role in preventing,
identifying, and resolving
internal conflicts between
the company’s bodies,
shareholders, and employees.
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.
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).
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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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.
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.
1. The company’s annual report for the
reporting period includes the information
on individual attendance at board
of directors and committee meetings.
2.2.2
2.3
2.3.1
2.3.2
The chairman of the board
of directors is available
to communicate with
the company’s shareholders.
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.
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.
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.
1. As part of assessment of the board
of directors’ performance run in the
reporting period, the board of directors
reviewed its requirements to professional
qualifications, experience, and business
skills.
1. As part of assessment of the board
of directors’ performance run in the
reporting period, the board of directors
considered whether the number
of directors met the company’s needs
and shareholders’ interests.
2.3.3
2.3.4
The board of directors has
a balanced membership,
including in terms of directors’
qualifications, experience,
expertise, and business
skills, and it has the trust
of shareholders.
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.
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.
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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2.4.3
2.4.4
Independent directors make
up at least one third of elected
directors.
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 make up at least
one third of directors.
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.
2.5
The chairman of the board of directors ensures that the board of directors discharges its duties in the most efficient way.
2.6
2.6.1
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.
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.
Members of the Board of Directors regularly fill out
a questionnaire prepared by the Company and update
the information provided if it changes as soon as possible.
The information obtained makes it possible to monitor
situations with a possible conflict of interest.
In addition, 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.
The Company is working to improve internal documents,
taking into account the recommendations of the Code
and development plans. It is planned that the alignment
of internal documents in accordance with this
recommendation of the Code will be completed during 2021.
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.
2.6.4
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. 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.
1. Under the company’s internal
documents, directors are entitled
to access documents and make requests
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.
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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.
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.
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.
20202020 Annual Report
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2.7
2.7.1
2.7.2
2.7.3
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.
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.
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 board of directors held at least six
meetings in the reporting year.
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.
1. The company’s Articles of Association 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.
In the opinion of the Company, the development
of modern telecommunications technologies practically
eliminates the differences in the effectiveness of in person
and absentee formats of meetings of the Board of Directors.
The most important issues included in the agenda
of meetings of the Board of Directors are preliminarily
considered by the relevant committees of the Board
of Directors and are comprehensively discussed by members
of the Board of Directors before voting, including absentee
form of voting.
The Company believes that transferring a large number
of meetings of the Board of Directors to in person format
is not economically feasible.
Taking into account the epidemiological situation that
developed during the reporting year and the related
limitations, in person meetings for the Company were not
possible.
In the future, the Company plans to maintain this approach
to holding meetings and to develop the use of modern
telecommunication technologies when planning meetings
and making decisions.
2.8
2.8.1
2.8.2
2.8.3
2.7.4
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 Articles of Association 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.
1. The company’s Articles of Association
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.
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.
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.
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. 1. The board of directors has set up
a nomination committee (or its tasks
listed in Recommendation 186 of the
Code are fulfilled by another committee
*(5)) 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.
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2.8.4
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.).
2.8.5
Committees are composed so
as to enable comprehensive
discussions of matters under
preview, taking into account
the diversity of opinions.
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.
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.
2.8.6
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.
2.9
The board of directors ensures performance assessment of the board of directors, its committees, and members of the board of directors.
2.9.1
2.9.2
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.
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.
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.
Also in 2020, the Company made a decision to engage
an independent consultant to conduct an independent
assessment of the work of the Board of Directors.
The report on the results of such an independent
assessment was presented after the end of the reporting
year and considered at a meeting of the Board of Directors.
The main results of the independent assessment are
reflected in the Annual Report.
3.1
3.1.1
3.1.2
4.1
4.1.1
4.1.2
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.
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 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
1. The board of directors approves
the appointment, dismissal, and additional
remuneration of the corporate secretary.
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.
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.
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.
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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.
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.
4.1.3
4.1.4
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.
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.
4.2
Remuneration system for directors ensures alignment of financial interests of directors with long-term financial interests of shareholders.
4.2.1
The company pays fixed
annual remuneration to its
directors.
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.
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.
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.
4.2.2
4.2.3
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.
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.
4.3
4.3.1
4.3.2
4.3.3
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.
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 2021.
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 2021.
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.
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).
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.
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.
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.
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.
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Corporate Governance
Appendices
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on complying with the principles and recommendations
of the Corporate Governance Code (continued)
#
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
#
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
5.1
5.1.1
5.1.2
5.1.3
5.1.4
5.2
5.2.1
5.2.2
The company has in place an effective risk management and internal control system providing reasonable assurance in the achievement of the
company’s goals.
6.1
The company and its operations are transparent for its shareholders, investors, and other stakeholders.
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.
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.
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.
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.
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. 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.
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.
Criterion 1 is not complied with.
The Company's information policy was approved prior
to the implementation of the Code, but many of the Code's
recommendations were reflected in the information policy.
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.
The Company is developing a document defining
the information policy of the Company, taking into account
the recommendations of the Code and development plans.
It is planned that the alignment of internal documents
in accordance with this recommendation of the Code will be
completed during 2021.
6.1.1
The company has developed
and implemented
an information policy
ensuring efficient exchange
of information by the company,
its shareholders, investors,
and other stakeholders.
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.
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.
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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Corporate Governance
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of the Corporate Governance Code (continued)
#
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
#
Corporate governance
principles
Compliance criteria
Compliance
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Reasons for non-compliance
The company makes timely disclosures of complete, updated, and reliable information to allow shareholders and investors to make informed
decisions.
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.
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.
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 obligation to disclose information, including in the form
of the issuer's quarterly reports, applies to the Company
since 2006, while the Company, within the framework
of compliance with the legislation on disclosure
of information, discloses the information received on the
number of shareholders of the Company, information on the
number of voting shares broken down by categories (types)
of shares, as well as the number of shares at the disposal
of the company and legal entities controlled by it, information
on persons who directly or indirectly own shares and (or)
dispose of votes on shares constituting five or more percent
of the authorized capital or ordinary shares of the company
and other information required by applicable law, in the
form of statements of material facts and as part of annual,
quarterly reports and lists of affiliates, which are disclosed
on the website on the Internet.
At the same time, 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 shareholdings 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 2022.
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 formalistic approach in the disclosure
of material information about its activities.
6.2.3
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.
6.3
The company provides information and documents requested by its shareholders in accordance with the principles of fairness and ease of access.
6.3.1
The company provides
information and documents
requested by its shareholders
in accordance with
the principles of fairness
and ease of access.
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.
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.
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.
The Company's information policy was approved prior
to the implementation of the Code, but many of the Code's
recommendations were reflected in the information policy.
However, the recommendations of the Code regarding
the determination of the procedure for providing
shareholders with information on legal entities controlled
by the Company are absent in the information policy of the
Company.
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.
The Company is developing a document defining
the information policy of the Company, taking into account
the recommendations of the Code and development plans.
It is planned that the alignment of internal documents
in accordance with this recommendation of the Code will be
completed during 2021.
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Corporate Governance
Appendices
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
#
Corporate governance
principles
Compliance criteria
Compliance
status
Reasons for non-compliance
7.1
7.1.1
7.1.2
7.1.3
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.
However, transactions and actions that the Code
recommends to be attributed to significant corporate
actions are reflected in the Articles of Association
and internal documents of the Company, but are not
combined terminologically.
The Company is consistently working to improve internal
documents, taking into account the recommendations of the
Code and development plans.
It is planned that the alignment of internal documents
in accordance with this recommendation of the Code will be
completed during 2021.
1. The company’s Articles of Association
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 Articles
of Association, 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.
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 Articles
of Association 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.
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 Articles
of Association 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.
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.
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.
7.2
7.2.1
7.2.2
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.
Rules and procedures related
to material corporate actions
taken by the company are set
out in the company’s internal
documents.
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 not 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 interest,
was expanded.
The annual general shareholders meetings for 2018
and 2019 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, on both occasions this proposal was
not supported by the 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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Appendices
Major transactions
Related party
transactions
During the reporting year, there were no transactions that are recognised 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 Federal Law "On Joint Stock Companies".
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20202020 Annual Report 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
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199
200
202
204
To the Shareholders and Board of Directors of PJSC Magnit
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.
.
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 2020, and the consolidated statement
of comprehensive income, consolidated statement of changes
in equity and consolidated statement of cash flows for 2020,
and notes to the consolidated financial statements, including
a summary of significant accounting policies.
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 2020 and its consolidated financial performance
and its consolidated cash flows for 2020 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’
(IESBA) International 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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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 rebates 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 11 to the consolidated financial
statements.
We compared a sample of accruals of volume rebates
and other rebates, recorded based on management
assumptions, to supporting documents from vendors
and vendor agreements. We also compared the outstanding
allowances receivable to the direct confirmations from
vendors 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 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 7 and 8 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 2020, 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-generating unit
for impairment testing purposes, forecasted revenue
and gross margin, long-term growth rates and discount rates.
Information about goodwill is disclosed in Note 10
to the consolidated financial statements.
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.
Application of IFRS 16 Leases
The application of IFRS 16 was one of the key audit
matters because the effect of the standard is significant
to the consolidated financial statements, as 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 application of IFRS 16 Leases
is disclosed in Notes 3 and 8 to the consolidated financial
statements.
We analyzed the list of lease agreements to which
IFRS 16 is applied and compared, on a sample basis, data
in agreements with the Group’s accounting records.
We analyzed management’s judgments made to determine
the lease term in agreements with extension options
and to calculate the discount rates.
We analyzed information on IFRS 16 application disclosed
in the consolidated financial statements.
192
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magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report Independent auditor’s report (continued)
Other information included in the Annual report of PJSC Magnit for 2020
Other information consists of the information included in the Annual report of PJSC Magnit for 2020 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 2020 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.
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, actions taken to eliminate threats or safeguards applied.
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 I.Y. Ananyev.
I.Y. Ananyev
Partner Ernst & Young LLC
12 March 2021
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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magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report Statement of management’s
responsibilities for the preparation and
approval of the consolidated financial
statements
for the year ended 31 December 2020
The following statement is made with a view to the respective responsibilities of management in relation to the consolidated
financial statements of PJSC Magnit and its subsidiaries (“the Group“).
Management is responsible for the preparation of these consolidated financial statements that present fairly the financial position
of the Group as at 31 December 2020 and the results of its operations, cash flows and changes in shareholders’ equity for the year
then ended, in compliance with International Financial Reporting Standards (“IFRS”).
In preparing the consolidated financial statements, management is responsible for:
— Selecting and applying accounting policies;
— Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable
and understandable information;
— Providing additional disclosures when compliance with the specific requirements of IFRSs are insufficient to enable users
to understand the impact of particular transactions, other events and conditions on the Group’s consolidated financial position
and financial performance;
— Making an assessment of the Group’s ability to continue as a going concern.
Management is also responsible for:
— Designing, implementing and maintaining an effective and sound system of internal controls;
— Maintaining appropriate accounting records to ensure compliance of the consolidated financial statements of the Group with
IFRS, local legislation and local GAAP;
— Preventing and detecting material misstatements due to fraud or error.
The consolidated financial statements of the Group for the year ended 31 December 2020 were approved by management
on 12 March 2021.
On behalf of the management as authorised by the Board of Directors.
The Chief Executive Officer of PJSC Magnit
J.G. Dunning
12 March 2021
Consolidated statement
of financial position
as at 31 December 2020 (In thousands of Russian rubles)
Assets
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Goodwill
Long-term financial assets
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
Total assets
Equity and liabilities
Equity attributable to the shareholders of the parent
Share capital
Share premium
Treasury shares
Share-based payments reserve
Retained earnings
Total equity
Notes
31 December
2020
31 December
2019
7
8
9
10
11
12
13
14
15
15
15
31
336,513,344
308,444,695
5,506,252
26,879,317
1,117,551
352,985,987
313,566,212
3,914,677
26,879,317
314
678,461,159
697,346,507
205,949,194
8,563,822
5,581,366
75,650
1,081,971
317,672
661,791
44,699,581
266,931,047
218,873,586
13,993,440
5,769,958
1,464,207
656,210
553,697
1,130,420
8,901,298
251,342,816
945,392,206
948,689,323
1,020
87,390,921
(16,021,596)
2,055,322
109,463,257
1,020
87,379,413
(16,454,110)
1,623,268
115,983,222
182,888,924
188,532,813
The accompanying notes on pages 14-73 are an integral part of these consolidated financial statements.
196
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magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report Consolidated statement
of financial position (In thousands of Russian rubles)
(continued)
Consolidated statement
of comprehensive income
for the year ended 31 December 2020
(In thousands of Russian rubles)
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
Notes
31 December
2020
31 December
2019
20
8
21
29
17
18
19
16
22
21
20
8
147,694,926
316,141,855
–
2,167,641
12,225,590
119,632,362
320,600,953
244,623
3,206,076
16,073,679
478,230,012
459,757,693
161,072,294
161,631,006
23,252,598
11,854,351
24,094,729
955,732
2,592,558
627,304
18,391,601
41,432,103
284,273,270
762,503,282
17,020,105
4,291,007
14,452,943
696,526
1,056,711
62,857
64,578,456
36,609,206
300,398,817
760,156,510
945,392,206
948,689,323
Revenue
Cost of sales
Gross profit
Rental and sublease income
Selling expenses
General and administrative expenses
Interest income
Finance costs
Other income
Other expenses
Foreign exchange (loss)/gain
Profit before tax
Income tax expense
Profit for the year
Note
23
24
25
26
27
28
29
30
2020
2019
1,553,777,351
1,368,705,394
(1,188,021,688)
(1,056,706,053)
365,755,663
311,999,341
3,153,243
3,143,997
(16,887,124)
(15,686,379)
(279,538,315)
(254,961,673)
504,476
272,595
(44,772,274)
(47,781,649)
17,069,195
(1,129,018)
(1,453,331)
42,702,515
(9,709,223)
32,993,292
16,396,467
(1,676,061)
872,834
12,579,472
(3,015,250)
9,564,222
Total comprehensive income for the year, net of tax
32,993,292
9,564,222
Profit for the year
Attributable to:
Shareholders of the parent
Total comprehensive income for the year, net of tax
Attributable to:
Shareholders of the parent
Earnings per share (in RUB per share)
32,993,292
32,993,292
9,564,222
9,564,222
32,993,292
9,564,222
32,993,292
9,564,222
— basic profit for the year attributable to the shareholders of the parent
— diluted profit for the year attributable to the shareholders of the parent
30
30
337.95
336.07
97.98
97.68
The accompanying notes on pages 14-73 are an integral part of these consolidated financial statements.
The accompanying notes on pages 14-73 are an integral part of these consolidated financial statements.
198
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magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
Consolidated statement
of cash flows
for the year ended 31 December 2020
(In thousands of Russian rubles)
Cash flows from operating activities
Profit before income tax
Adjustments for:
Note
2020
2019
Restated (Note 4.2)
42,702,515
12,579,472
Depreciation and impairment of property, plant and equipment and right-of-use assets
7, 8
Amortization of intangible assets
(Gain)/loss from disposal of property, plant and equipment
Loss from disposal of intangible assets
Gain from sales of investments
Provision for expected credit losses on trade and other receivables
Provision for expected credit losses on financial assets
Expense for inventories carried at net realizable value
Share-based payments reserve
Gain from cancellation of lease contracts
Gain from Covid-19 related rent concessions
Income from government grants
Foreign exchange loss/(gain)
Finance costs
Investment income
Operating cash flows before working capital changes
Decrease/(increase) in trade and other receivables
Decrease/(increase) in advances paid
Increase/(decrease) in advances received
Decrease/(increase) in taxes receivable other than income tax
Increase in prepaid expenses
Decrease/(increase) in inventories
(Decrease)/increase in trade and other payables
Increase in accrued expenses
Increase/(decrease) in taxes payable other than income tax
Increase/(decrease) in contract liabilities
Cash generated from operations
9
28
9
26
31
8
8
21
27
18
22
88,061,585
1,703,793
(1,165,190)
45,065
–
451,920
247,436
597,351
876,076
(1,687,459)
(1,481,968)
(664,257)
1,453,331
44,772,274
(504,476)
175,407,996
4,021,037
188,592
14,583
1,388,557
(425,761)
12,327,041
(2,133,884)
6,232,493
7,563,344
1,535,847
87,117,847
976,589
358,190
23,164
(47,511)
405,773
–
358,375
2,452,342
(1,985,180)
–
(383,086)
(872,834)
47,781,649
(272,595)
148,492,195
(6,787,427)
(322,155)
(132,870)
(1,397,460)
(134,189)
(37,091,458)
31,320,853
3,935,220
(500,829)
(390,341)
206,119,845
136,991,539
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
Proceeds from sale of property, plant and equipment
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 increase/(decrease) 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
Note
8, 33
7
9
21
33
33
16, 33
8
14
14
2020
(13,088,683)
(43,820,851)
400,901
149,611,212
(28,136,397)
(3,340,433)
2,069,928
–
196,832
190,269
2019
Restated (Note 4.2)
(2,896,680)
(46,732,567)
251,870
87,614,162
(53,911,476)
(3,237,281)
672,002
(539,032)
692,806
614,318
(29,019,801)
(55,708,663)
452,555,765
(471,761,619)
(29,871,472)
(35,715,802)
–
(84,793,128)
35,798,283
8,901,298
44,699,581
695,756,324
(677,163,335)
(29,993,007)
(33,242,289)
(5,109,648)
(49,751,955)
(17,846,456)
26,747,754
8,901,298
The accompanying notes on pages 14-73 are an integral part of these consolidated financial statements.
200
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magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report Consolidated statement
of changes in equity
for the year ended 31 December 2020
(In thousands of Russian rubles)
Share capital
Share premium
Treasury shares
Provision for share-based
payments
Retained earnings
Equity attributable
to shareholders of the parent
Attributable to shareholders of the parent
1,020
87,257,340
(12,051,463)
Balance at 1 January 2019
Profit for the year
Total comprehensive income for the year
Dividends declared (Note 16)
Purchase of treasury shares (Note 15)
Share-based payments (Notes 15, 31)
Transfer of rights to equity instruments for share based payments (Notes 15, 31)
Balance at 31 December 2019
Balance at 1 January 2020
Profit for the year
Total comprehensive income for the year
Dividends declared (Note 16)
Share-based payments (Notes 15, 31)
Transfer of rights to equity instruments for share based payments (Notes 15, 31)
Balance at 31 December 2020
–
–
–
–
–
–
1,020
1,020
–
–
–
–
–
1,020
–
–
–
–
–
122,073
87,379,413
87,379,413
–
–
–
–
11,508
87,390,921
–
–
–
(5,109,648)
–
707,001
(16,454,110)
–
–
–
–
–
2,452,342
(829,074)
1,623,268
(16,454,110)
1,623,268
–
–
–
–
432,514
(16,021,596)
–
–
–
876,076
(444,022)
2,055,322
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
115,983,223
32,993,292
32,993,292
(39,513,258)
–
–
188,532,814
32,993,292
32,993,292
(39,513,258)
876,076
–
109,463,257
182,888,924
The accompanying notes on pages 14-73 are an integral part of these consolidated financial statements.
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magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
Notes to the consolidated
financial statements
for the year ended 31 December 2020
(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, supermarkets 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
LLC Logistika Alternativa
LLC Zvezda
LLC TD–holding
LLC MagnitEnergo
LLC Management Company Industrial Park
Krasnodar
Rent operations
Other operations
IT operations
Import operations
Assets holder, vehicles maintenance services for the Group
Production and processing of food for the Group
Buyer of electric power for the Group
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
Ownership interest
as at 31 December
2020
Ownership interest
as at 31 December
2019
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%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Ownership interest
as at 31 December
2020
Ownership interest
as at 31 December
2019
Company name
LLC Moskva na Donu
LLC Magnit Pharma
LLC Magnit IT Lab
LLC TH SIA Group*
LLC MF-SIA
JSC SIA International Ltd*
JSC RINK*
LLC MC SIA Group*
Principal activity
Production of agricultural products for the Group
Pharmaceutical license holder
Innovative software product development
Pharmaceutical wholesale
Management activities
Pharmaceutical wholesale
Production of medical devices
Management activities
JSC SIA International – Krasnodar*
Commission trade of medicines and medical products
LLC SIA International – Arkhangelsk*
Commission trade of medicines and medical products
100%
100%
100%
–
100%
–
–
–
–
–
LLC SIA International – Vladivostok
Commission trade of medicines and medical products
100%
LLC SIA International – Tambov*
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
LLC SIA International – Kazan*
Commission trade of medicines and medical products
LLC SIA International – Krasnoyarsk*
Commission trade of medicines and medical products
–
–
–
–
–
–
–
LLC SIA International – Nizhniy Novgorod
Commission trade of medicines and medical products
100%
LLC SIA International – Novosibirsk*
Commission trade of medicines and medical products
LLC MFS – Samara*
LLC MFS – Yaroslavl*
Commission trade of medicines and medical products
Commission trade of medicines and medical products
LLC SIA International – Saint Petersburg*
Commission trade of medicines and medical products
LLC SIA International – Khabarovsk
Commission trade of medicines and medical products
Stellary Cosmetic GmBH* *
Holder of intangible assets
–
–
–
–
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%
–
* In 2020, the management of the Group decided to liquidate a number of the SIA group companies engaged in pharmaceutical wholesale and commission trade
of medicines and medical products, production of medical devices and management activities. Liquidation of these companies did not have a significant impact
on the consolidated financial statements of the Group and its operations.
** During the 2020 year, the Group acquired 100% of Stellary Cosmetic GmBH equity shares. This change did not have any material effect on the Group’s consolidated
financial statements and its operations.
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magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report 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 consolidated 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 of the date of transition to IFRS.
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 2021, 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 considers 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 entitled to, or is exposed to a variable return
on the investment or is exposed to the risk of its change 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 to risk, 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.
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3. Summary of significant accounting policies (continued)
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 acquiree 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 of assets and liabilities
The Group presents assets and liabilities in statement of financial position based on current/ noncurrent classification. An asset
is current when it is:
— 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.
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
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.
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, maximizing the use of relevant observable inputs and minimizing 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 reassessing 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.
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
centers. 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 or stores, 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 a discount on goods of the main assortment or 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 its estimate
of the number of loyalty points that will be redeemed regularly, and the adjusted balance of contract liabilities is charged against
revenue.
Expenses related to loyalty programs in respect for goods purchased for the purpose of promotion and not sold in the retail chain,
are recognized in selling expenses and classified as advertising expenses.
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.
Revenue from advertising services and packaging materials
Revenue from advertising services and packaging materials is recognized in the reporting period when the services are provided.
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The Group classifies such revenue within other income and recognizes it over the period, during which a customer receives
the services and obtains benefit from them at the same point of time. The Group recognizes revenue in proportion to the services
received out of total services per contract
Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses. Such cost
includes the cost of replacing major parts or components of the property, plant and equipment and borrowing costs for long-term
construction projects given the recognition criteria are met. When significant parts of property, plant and equipment are required
to be replaced at certain 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.
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
1-14
1-10
Other fixed assets consist of vehicles and other miscellaneous groups of fixed assets. Depreciation of vehicles is included in selling
expenses.
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 attached to it,
and that the grant will be received.
Government grants provided to finance specific expenses 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. Grants provided
to finance an asset are 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 a below-market interest rate is measured as the difference between the fair value of the loan and cash
received.
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 software development costs, as well as websites and electronic applications that meet the criteria for recognition, 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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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-of-use assets capitalized
to the carrying value of assets under construction during the construction and redesign period necessary to bring the property into
a condition suitable for use in accordance with the objectives of the Group. 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 accrual 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.
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 pretax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset.
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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Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, if 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 tax legislation.
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.
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.
At the reporting date the Group did not have any pension plans accounted for in accordance with IAS 19 Employee Benefits.
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, supermarkets
and others, and determined that the stores have 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 (until
the qualifying asset is put into operation).
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Contract balances with customers
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 receive
equity instruments as consideration for rendered services. (equitysettled 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 conditions 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, 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
Initial measurement
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
At the first stage 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.
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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.
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.
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.
Derecognition of financial assets and liabilities
A financial asset is removed from the consolidated statement of financial position when:
— contractual rights to cash flows from this financial asset expire; or
— the Group transfers the financial asset (substantially all the risks and rewards of ownership of the financial asset): or (a)
transfers contractual rights to receive cash flows from the financial asset; or (b) reserves contractual rights to receive cash flows
from the financial asset while assuming contractual obligations to repay these cash flows to one or several beneficiaries under
the contract.
When the Group transfers a financial asset, it evaluates the extent to which it retains the risks and rewards of ownership
of the financial asset. When substantially all the risks and rewards are transferred, the Group derecognizes the financial asset.
When the Group has not transferred all the risks and rewards and retained control over such financial asset, the financial asset
continues to be recognized to the extent of the Group’s continuing involvement in such asset.
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. Treasury shares may be purchased and held by the Company or other subsidiaries of the Group. Any difference
between the carrying amount and the consideration, if reissued, is recognized in the share premium.
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.
Treasury shares are used to settle share-based payments during the period.
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.
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.
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 original effective interest rate or approximation value. 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.
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 2020 and 2019.
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 ECLs). 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 ECLs).
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.
Diluted earnings per share have been determined using the weighted average number of the Group’s shares outstanding during
the 12 months ended 31 December 2020 and 2019 increased by the expected number of additional ordinary shares that would
have been outstanding assuming the conversion of all dilutive potential ordinary shares.
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.
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Derecognition of financial liabilities
The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
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. Summary of changes in accounting policies and disclosures
Changes in accounting policies and disclosures
4.1
During the preparation of the consolidated financial statements for 2020, the Group decided to change its accounting policies as
regards accounting for the effect from Covid-19 related rent concessions.
In its consolidated financial statements for 2020, the Group applied an exemption from the requirements of IFRS 16 concerning
lease modification accounting for rent concessions arising as a direct consequence of Covid-19. The Group applied the practical
expedient and did not analyze whether its rent concessions were lease modifications. The approach to amendments to IFRS 16
Covid-19 Related Rent Concessions disclosed in Note 4.3. The amendment was applied retrospectively.
During the preparation of the interim condensed consolidated financial statements for the six months of 2020, the Group did not
apply the practical expedient and accounted for changes in lease payments as lease modifications.
The table below shows the effect of applying the new approach on information included in the Group’s interim condensed
consolidated financial statements for the six months ended 30 June 2020.
Impact on the interim condensed consolidated statement of financial position as at 30 June 2020 (increase/(decrease) per line
item):
Non-current assets
Right-of-use assets
Total non-current assets
Total assets
Equity and liabilities
Retained earnings
Total equity
Non-current liabilities
Long-term lease liabilities
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Short-term lease liabilities
Total current liabilities
Total equity and liabilities
30 June 2020
as previously reported
Effect
of restatement
30 June 2020
as restated
306,122,243
680,089,706
936,276,458
114,334,304
187,301,865
315,005,878
14,109,880
449,589,875
(1,004,158)
(1,004,158)
(1,004,158)
728,562
728,562
(1,515,608)
182,141
305,118,085
679,085,548
935,272,300
115,062,866
188,030,427
313,490,270
14,292,021
(1,333,467)
448,256,408
38,301,842
299,384,718
(399,253)
(399,253)
37,902,589
298,985,465
936,276,458
(1,004,158)
935,272,300
Impact on the interim condensed consolidated statement of comprehensive income for the six months ended 30 June 2020
(increase/(decrease) in income and decrease/(increase) in expenses):
General and administrative expenses
Finance costs
Other income
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
For the six months ended
30 June 2020
as previously reported
Effect
of restatement
For the six months ended
30 June 2020
as restated
(139,032,804)
(23,265,342)
6,767,975
17,947,775
(4,176,629)
13,771,146
13,771,146
15,825
(58,918)
953,796
910,703
(182,141)
728,562
728,562
(139,016,979)
(23,324,260)
7,721,771
18,858,478
(4,358,770)
14,499,708
14,499,708
13,771,146
728,562
14,499,708
Basic and diluted earnings per share for the year attributable to the
shareholders of the parent
141.11
7.47
148.58
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4. Summary of changes in accounting policies and disclosures (continued)
The table below shows the effect of changes on the consolidated statement of cash flows for the year ended 31 December 2019:
Impact on the interim condensed consolidated statement of cash flows for the six months ended 30 June 2020:
Cash flows from operating activities
Profit before income tax
Adjustments for:
Depreciation and impairment of property, plant and equipment and
right-of-use assets
Gain from Covid-19 related rent concessions
Finance costs
Cash flows from operating activities before changes in working capital
Cash generated from operations
Cash generated from operations
Interest paid
Net cash from operating activities
Cash flows from financing activities
Repayment of lease liabilities
Net cash used in financing activities
For the six months ended
30 June 2020
as previously reported
Effect of
restatement
For the six months ended
30 June2020
as restated
17,947,775
910,703
18,858,478
44,371,294
–
23,265,342
87,006,937
58,845,657
(22,462,135)
32,403,518
(15,825)
(953,796)
58,918
–
–
(58,918)
(58,918)
44,355,469
(953,796)
23,324,260
87,006,937
58,845,657
(22,521,053)
32,344,600
(17,761,266)
(8,635,012)
58,918
58,918
(17,702,348)
(8,576,094)
Reclassification in the consolidated statement of cash flows
4.2
The Group changed the presentation of certain items of the consolidated statement of cash flows for the year ended 31 December
2020. The comparative amounts for the year ended 31 December 2019 have been aligned with the newly adopted format
of presenting the information. The Group made the following changes with respect to comparative data:
— provision for inventory in the amount of RUB 358,375 thousand was reclassified to line “Expenses on inventories recorded
at net realizable value” from “Increase in inventories”;
— government grants received to purchase property, plant and equipment in the amount of RUB 614,318 thousand were
reclassified from cash flows from operating activities to cash flows from investing activities.
Cash flows from operating activities
Expenses on inventories recorded at net realizable value
Income from government grants
Operating cash flows before working capital changes
Increase in inventory
Increase in government grants
2019
as previously reported
Effect
of reclassification
2019
as restated
–
–
148,516,906
(36,733,083)
231,232
358,375
(383,086)
(24,711)
(358,375)
(231,232)
358,375
(383,086)
148,492,195
(37,091,458)
–
Cash generated from operations
88,228,480
(614,318)
87,614,162
Cash flows from investing activities
Proceeds from government grants
–
614,318
614,318
Net cash used in investing activities
(56,322,981)
614,318
(55,708,663)
New and amended standards and interpretations
4.3
Except for the changes mentioned above and the adoption of new standards and interpretations effective as of 1 January 2020,
the accounting policies adopted in the preparation of the annual consolidated financial statements for 2020 are consistent with
those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2019.
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Amendments to IFRS 3: Definition of a Business
The amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of activities
and assets must include, at a minimum, an input and a substantive process that, together, significantly contribute to the ability
to create output. Furthermore, it clarifies that a business can exist without including all of the inputs and processes needed
to create outputs. These amendments had no impact on the consolidated financial statements of the Group, but may impact
future periods should the Group enter into any business combinations.
Amendments to IFRS 7, IFRS 9 and IAS 39 Interest Rate Benchmark Reform
The amendments to IFRS 7, IFRS 9 and IAS 39 Financial Instruments: Recognition and Measurement provide a number of reliefs,
which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship
is affected if the reform gives rise to uncertainty about the timing and/or amount of benchmark-based cash flows of the hedged
item or the hedging instrument. These amendments have no impact on the consolidated financial statements of the Group as it
does not have any interest rate hedge relationships.
Amendments to IAS 1 and IAS 8 Definition of Material
The amendments provide a new definition of material that states, “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”.
The amendments clarify that materiality will depend on the nature or magnitude of information, either individually
or in combination with other information, in the context of the financial statements. A misstatement of information is material
if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact
on the consolidated financial statements of the Group, nor is there expected to be any future impact.
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4. Summary of changes in accounting policies and disclosures (continued)
Conceptual Framework for Financial Reporting issued on 29 March 2018
The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or requirements
in any standard. The purpose of the Conceptual Framework: to assist the IASB in developing standards; to help preparers develop
consistent accounting policies where there is no applicable standard in place; and to assist all parties to understand and interpret
the standards. This will affect those entities which developed their accounting policies based on the Conceptual Framework.
The revised Conceptual Framework includes some new concepts, updated definitions and recognition criteria for assets
and liabilities and clarifies some important concepts. These amendments had no impact on the consolidated financial statements
of the Group.
Amendments to IFRS 16 Covid-19 Related Rent Concessions
On 28 May 2020, the IASB issued Covid-19 Related Rent Concessions – amendment to IFRS 16 Leases. The amendments
provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct
consequence of the Covid-19 pandemic. As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent
concession from a lessor is a lease modification. A lessee that makes this election accounts for any change in lease payments
resulting from the Covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change
were not a lease modification.
The amendment applies to annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted. The Group
has used the right to the exemption from the requirements of IFRS 16 in accounting for lease modifications. The decrease in lease
payments resulting from Covid-19-related rent concessions was recorded as a decrease in the lease liability in the consolidated
statement of financial position and as an increase in other income in the consolidated statement of comprehensive income.
The decrease in the lease liability was determined as the difference between its carrying amount immediately prior to the rent
concessions and the present value of future lease payments, with concessions included, discounted using the original discount rate.
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 (IFRS 4) 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.
IFRS 17 is effective for reporting periods beginning on or after 1 January 2023, 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 IAS 1: Classification of Liabilities as Current or Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to 76 of IAS 1 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 the reporting period;
— that classification is unaffected by 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 a liability not
impact its classification.
The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and must be applied
retrospectively. The Group is currently assessing the impact which the amendments will have on current practice and whether
existing loan agreements may require renegotiation.
Reference to the Conceptual Framework – Amendments to IFRS 3
In May 2020, the IASB issued Amendments to IFRS 3 Business Combinations – Reference to the Conceptual Framework.
The amendments are intended to replace a reference to the Framework for the Preparation and Presentation of Financial
Statements, issued in 1989, with a reference to the Conceptual Framework for Financial Reporting issued in March 2018 without
significantly changing its requirements.
The Board also added an exception to the recognition principle of IFRS 3 to avoid the issue of potential ‘day 2’ gains or losses
arising for liabilities and contingent liabilities that would be within the scope of IAS 37 or IFRIC 21 Levies, if incurred separately.
At the same time, the Board decided to clarify existing guidance in IFRS 3 for contingent assets that would not be affected by
replacing the reference to the Framework for the Preparation and Presentation of Financial Statements.
The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply prospectively.
Amendments to IAS 16 – Property, Plant and Equipment: Proceeds before Intended Use
In May 2020, the IASB issued Property, Plant and Equipment – Proceeds before Intended Use, which prohibits entities deducting
from the cost of an item of property, plant and equipment, any proceeds from selling items produced while bringing that asset
to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity
recognises the proceeds from selling such items, and the costs of producing those items, in profit or loss.
The amendment is effective for annual reporting periods beginning on or after 1 January 2022 and must be applied retrospectively
to items of property, plant and equipment made available for use on or after the beginning of the earliest period presented when
the entity first applies the amendment.
The amendments are not expected to have a material impact on the consolidated financial statements of the Group.
Amendments to IAS 37 – Onerous Contracts – Costs of Fulfilling a Contract
In May 2020, the IASB issued amendments to IAS 37 to specify which costs an entity needs to include when assessing whether
a contract is onerous or loss-making.
The amendments apply a “directly related cost approach”. The costs that relate directly to a contract to provide goods or services
include both incremental costs and an allocation of costs directly related to contract activities. General and administrative costs do
not relate directly to a contract and are excluded unless they are explicitly chargeable to the counterparty under the contract.
The amendments are effective for annual reporting periods beginning on or after 1 January 2022. The Group will apply these
amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period
in which it first applies the amendments.
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5. Significant accounting judgements and estimates
IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued an amendment to IFRS 1 First-time
Adoption of International Financial Reporting Standards. The amendment permits a subsidiary that elects to apply paragraph
D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s
date of transition to IFRS.
This amendment is also applied to an associate or joint venture that elects to apply paragraph D16(a) of IFRS 1. The amendment
is effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted.
IFRS 9 Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IFRS 9. The amendment
clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially
different from the terms of the original financial liability. These fees include only those paid or received between the borrower
and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies
the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period
in which the entity first applies the amendment.
The amendment is effective for annual reporting periods beginning on or after 1 January 2022 with earlier adoption permitted.
The amendments are not expected to have any impact on the consolidated financial statements of the Group.
IAS 41 Agriculture – Taxation in fair value measurements
As part of its 2018-2020 annual improvements to IFRS standards process the IASB issued amendment to IAS 41 Agriculture.
The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when measuring
the fair value of assets within the scope of IAS 41.
An entity applies the amendment prospectively to fair value measurements on or after the beginning of the first annual reporting
period beginning on or after 1 January 2022 with earlier adoption permitted. The amendments are not expected to have any impact
on the Group.
Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2: Disclosure of Accounting policies
In February 2021 the IASB issued amendments to IAS 1 and IFRS Practice Statement 2. The amendments to IAS 1 require companies
to disclose their material accounting policy information rather than their significant accounting policies. The amendments to IFRS
Practice Statement 2 provide guidance on how to apply the concept of materiality to accounting policy disclosures.
The amendments will be effective for annual reporting periods beginning on or after 1 January 2023, with early application
permitted.
The amendments are not expected to have a material impact on the Group.
Amendments to IAS 8 Accounting policies, Changes in Accounting Estimates and Errors: Definition of Accounting Estimates
In February 2021 the IASB issued amendments to IAS 8. The amendments clarify how companies should distinguish changes
in accounting policies from changes in accounting estimates. That distinction is important because changes in accounting
estimates are applied prospectively only to future transactions and other future events, but changes in accounting policies are
generally also applied retrospectively to past transactions and other past events.
The amendments will be effective for annual reporting periods beginning on or after 1 January 2023, with early application
permitted.
The amendments are not expected to have a material impact on the Group.
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 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.
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).
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.
Impairment of non-current 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.
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
forecast 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.
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6. Balances and transactions with related parties
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 and intangible assets
The Group’s property, plant and equipment and intangible assets 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 leasehold improvements in convenience stores used under leases are depreciated using the straight-line method over
their estimated useful life beyond the legal expiry dates of lease agreements assuming leases will be renewed.
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 tendencies and changes in the Group’s development strategy.
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 (hereinafter “ECLs”) for trade and other receivables and contract assets
The Group uses a provision matrix to calculate ECLs for long-term, trade and other receivables and contract assets. The provision
rates are based on days past due for groupings of various customer segments that have similar loss patterns.
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.
Assessment of the correlation between historical observable default rates, forecast economic conditions and ECL is a significant
estimate. The amount of ECL is sensitive to changes in circumstances and forecast economic conditions. The Group’s credit loss
experience and forecast economic conditions are not necessarily indicative of the customer’s actual default in the future.
Incremental borrowing rate
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 its incremental borrowing rate, adjusted to take into account
the specific terms and conditions of a lease and to reflect the interest rate that the Group would pay to borrow:
— over a similar term to the lease term;
— the amount needed to obtain an asset of a similar value to the right-of-use asset; and
— in a similar economic environment.
The Group enters into transactions with related parties in the ordinary course of business.
The Group purchases materials from related parties, receives loans, places deposits, receives rental income.
Related parties of the Group are represented by the shareholders that have significant influence over the Group, and companies,
which are the members of the same Group with shareholders (other related parties).
Bank VTB PJSC and VTB Capital JSC represent the related parties being shareholders of the Group and having significant influence
over the Group.
Transactions with related parties can be carried out on terms different to transactions with third parties.
Related parties’ balances as at 31 December 2020 and 31 December 2019 are presented as follows:
Other payables (Note 17)
Advances received
Other receivables (Note 12)
Loans received (Note 20)
Short-term loans receivable
Shareholders
Other related parties
31 December 2020
31 December 2019
31 December 2020
31 December 2019
20,583
11,890
2,567
–
–
94,502
3,585
1,834
33,200,000
–
165,670
492
3,114
–
–
58
–
–
–
247,761
The Group’s transactions with related parties for the years ended at 31 December 2020 and 31 December 2019 are presented as
follows:
Shareholders
Other related parties
2020
2019
Repayment of loans received, incl. finance costs
Finance costs
Other expenses
Interest income
Rent and utilities income
Other income
Loans receivable repayment
Loans received
Purchases of inventory
Loans issued
Purchase of property, plant and equipment
Purchase of intangible assets
Rent expenses
No guarantees have been given or received.
2020
33,509,193
309,193
91,134
49,429
28,839
61
–
–
–
–
–
–
–
2019
2,784,279
2,565,727
42,995
14,611
26,632
19,809
15,202
5,218,552
–
–
–
–
–
–
52,946
–
2,041
23,998
–
–
564,472
–
–
–
–
–
–
30,228
73
–
278,721
–
911,273
236,780
171,232
45,248
2,683
27,368
26,282
228
229
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report 6. Balances and transactions with related parties (continued)
Property, plant and equipment as at 31 December 2019 consisted of the following:
No significant expense has been recognized in the period for expected credit losses on amounts due from related parties.
Short-term remuneration of the key management and members of the Board of Directors of the Group for 2020 amounted
to RUB 1,733,030 thousand (2019: RUB 2,067,900 thousand). Payments to the Group’s management include remuneration under
an employment contracts, social contributions and payments to members of the Board of Directors of the Group. The Group
also accrued share-based payments to its key management personnel for 2020, information on these accruals is disclosed
in the Note 31.
7. Property, plant and equipment
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
Transfers
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
Property, plant and equipment as at 31 December 2020 consisted of the following:
Accumulated depreciation and impairment
Land
Buildings
Machinery and
equipment
Other
assets
Assets under
construction
Total
Cost
At 1 January 2020
14,013,576
327,078,060
131,244,831
42,265,508
12,329,092
526,931,067
Additions
Transfers
Disposals
–
–
–
12,840,791
1,432,848
13,992,898
28,266,537
14,965,156
–
–
(14,965,156)
–
(8,590)
(3,817,335)
(3,978,170)
(7,227,977)
(159,982)
(15,192,054)
At 31 December 2020
14,004,986
338,225,881
140,107,452
36,470,379
11,196,852
540,005,550
At 1 January 2019
Depreciation for the year
Impairment for the year
Disposals
At 31 December 2019
Net book value
At 1 January 2019
– (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)
14,004,240 243,551,660
43,059,195
21,065,460
23,156,927
344,837,482
Accumulated depreciation and
impairment
At 1 January 2020
Depreciation for the year
Impairment for the year
Reversal of impairment losses
Disposals
At 31 December 2020
Net book value
At 1 January 2020
–
–
–
–
–
–
(65,460,025)
(83,753,846)
(24,467,009)
(264,200)
(173,945,080)
(18,795,931)
(18,131,764)
(5,065,408)
–
(41,993,103)
(1,315,750)
288,314
(13,064)
11,904
–
–
(812,743)
(2,141,557)
–
300,218
3,764,278
3,464,916
6,955,165
102,957
14,287,316
(81,519,114)
(98,421,854)
(22,577,252)
(973,986)
(203,492,206)
14,013,576
261,618,035
47,490,985
17,798,499
12,064,892
352,985,987
At 31 December 2020
14,004,986
256,706,767
41,685,598
13,893,127
10,222,866
336,513,344
At 31 December 2019
14,013,576 261,618,035
47,490,985
17,798,499
12,064,892
352,985,987
In 2020, the weighted average capitalization rate on borrowed funds was 7.01% per annum (2019: 8.10%). The information
on interest expenses included in the cost of qualifying assets is disclosed in Note 27.
Impairment of non-current assets, except for goodwill
Based on observed external evidence of impairment of non-current assets, except for goodwill, as at 31 December 2020, the Group
made a conclusion on the unfavourable market and economic conditions in the market where the Group operated.
The Group performed the impairment test of non-current assets, including property, plant and equipment, right-of-use
assets and intangible assets, to assess whether there are indicators of possible impairment. Based on the impairment testing,
the Group recognized impairment losses in the consolidated statement of comprehensive income of RUB 2,160,293 thousand
for the tested assets, including impairment of property, plant and equipment in the amount of RUB 1,328,814 thousand,
and right-of-use assets in the amount of RUB 831,479 thousand: the amount of reversals of impairment losses of property, plant
and equipment amounted to RUB 300,218 thousand right-of-use assets – RUB 303,769 thousand (as for 2019 year the Group
recognized impairment losses RUB 1,458,360 thousand, including impairment of property, plant and equipment in the amount
of RUB 1,038,962 thousand, right-of-use assets in the amount of RUB 419,399 thousand).
In addition, the Group recognized losses from impairment of property, plant and equipment in the consolidated statement
of comprehensive income in the amount of RUB 812,743 thousand for items of property, plant and equipment for which
completion of construction is not expected (In addition for 2019 year the Group recognized losses from impairment of property,
plant and equipment resulting from a fire at the Group’s distribution center in Voronezh and agricultural assets in the amount
of RUB 512,134 thousand).
230
231
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
7. Property, plant and equipment (continued)
8. Lease
Group approach for impairment testing
The evaluation was performed at the lowest level of aggregation of assets that is able to generate independent cash inflows (CGU),
which is generally at the individual store level.
In determining units that generate substantially independent cash inflows 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 CGUs 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 5 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 4.2% (mainly driven by CPI) (2019: 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 12.81%.
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 160,367 thousand. 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 195,633 thousand. If the revenue rate of growth had been 0.5%
lower than management’s estimates, the impairment of non-current assets would increase by RUB 319,240 thousand.
Group as a lessee
Right-of-use assets and lease liabilities
As at 31 December 2020, right-of-use assets consisted of the following:
Cost
As at 1 January 2020
Additions
Modification
Indexation
Derecognition
As at 31 December 2020
Accumulated depreciation and impairment
As at 1 January 2020
Depreciation for the year
Impairment for the year (Note 7)
Reversal of impairment losses (Note 7)
Derecognition
As at 31 December 2020
Net book value
As at 1 January 2020
As at 31 December 2020
Buildings
Land
Total
481,831,850
36,623,382
10,554,431
1,373,791
(14,220,337)
516,163,117
(173,221,982)
(43,811,248)
(831,479)
303,769
5,844,218
(211,716,722)
5,872,964
100,272
(148,910)
17,664
(970,024)
4,871,966
(916,620)
(152,540)
–
–
195,494
(873,666)
487,704,814
36,723,654
10,405,521
1,391,455
(15,190,361)
521,035,083
(174,138,602)
(43,963,788)
(831,479)
303,769
6,039,712
(212,590,388)
308,609,868
304,446,395
4,956,344
3,998,300
313,566,212
308,444,695
In 2020 depreciation of a right-of-use assets in the amount of RUB 264,355 thousand was capitalized to the value of property,
plant and equipment.
232
233
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
8. Lease (continued)
As at 31 December 2019, right-of-use assets consisted of the following:
Cost
As at 1 January 2019
Additions
Modification
Indexation
Derecognition
As at 31 December 2019
Accumulated depreciation and impairment
As at 1 January 2019
Depreciation for the year
Impairment for the year (Note 7)
Derecognition
As at 31 December 2019
Net book value
As at 1 January 2019
As at 31 December 2019
Buildings
Land
Total
418,391,845
54,440,799
20,204,993
2,570,743
(13,776,530)
481,831,850
(137,065,442)
(41,740,978)
(419,399)
6,003,837
5,614,674
424,006,519
67,007
385,366
19,765
(213,848)
5,872,964
(763,385)
(224,692)
–
71,457
54,507,806
20,590,359
2,590,508
(13,990,378)
487,704,814
(137,828,827)
(41,965,670)
(419,399)
6,075,294
(173,221,982)
(916,620)
(174,138,602)
281,326,403
308,609,868
4,851,289
4,956,344
286,177,692
313,566,212
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.
Lease liabilities
Set out below are the carrying amounts of Group’s lease liabilities and their movements during the period:
Short-term liabilities
Long-term liabilities
Total
Short-term liabilities
Long-term liabilities
Total
Year of maturity
2021
2022-2069
Weighted average
effective
interest rate, %
8.47
8.37
Year of maturity
2020
2021-2069
Weighted average
effective
interest rate, %
9.08
8.94
31 December
2020
41,432,103
316,141,855
357,573,958
31 December
2019
36,609,206
320,600,953
357,210,159
Set out below are the are the amounts recognized in the consolidated statement of comprehensive income ((income)/expenses):
Depreciation and impairment of right-of-use assets
Interest expenses on the lease
Foreign exchange loss/(gain)
Gain from cancelation of lease contracts
Gain from Covid-19 related rent concessions
Lease expenses related to short-term lease (included in “General and administrative expenses”)
Lease expenses related to lease of low-value assets (included in “General
and administrative expenses”)
Variable lease payments (included in “General and administrative expenses”)
31 December
2020
31 December
2019
44,227,143
30,771,302
143,239
(1,687,459)
(1,481,968)
267,715
79,410
1,081,701
41,660,137
32,414,202
(92,271)
(1,985,180)
–
249,969
103,472
628,765
73,401,083
72,979,094
At 1 January
Additions and other increase
Modification
Indexation
Payments
Interest accrued (Note 27)
Interest paid
Derecognition
Rent concessions due to Covid-19 pandemic
Foreign exchange loss/(gain)
At 31 December
2020
357,210,159
36,459,462
10,405,521
1,391,455
(35,715,802)
30,771,302
(30,771,302)
(10,838,108)
(1,481,968)
143,239
2019
322,741,246
54,522,871
20,590,359
2,590,508
(33,242,289)
32,414,202
(32,414,202)
(9,900,264)
–
(92,272)
357,573,958
357,210,159
234
235
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
9. Intangible assets
10. Goodwill
As at 31 December 2020, intangible assets consisted of the following:
Goodwill as at 31 December 2020 and 2019 consisted of the following:
Cost
At 1 January 2020
Additions
Disposals
At 31 December 2020
Accumulated amortisation and impairment
At 1 January 2020
Amortisation for the year
Disposals
At 31 December 2020
Net book value
At 1 January 2020
At 31 December 2020
Licenses
Software
Trademarks
Other
Total
503,881
81,115
(283,376)
301,620
(160,946)
(233,281)
268,921
(125,306)
4,622,012
3,220,423
(981,308)
6,861,127
(1,125,834)
(1,427,274)
952,487
(1,600,621)
342,935
176,314
3,496,178
5,260,506
32,592
1,606
(18)
34,180
(9,190)
(3,387)
18
(12,559)
23,402
21,621
99,373
37,289
(37,317)
99,345
(47,211)
(39,851)
35,528
(51,534)
5,257,858
3,340,433
(1,302,019)
7,296,272
(1,343,181)
(1,703,793)
1,256,954
(1,790,020)
52,162
47,811
3,914,677
5,506,252
As at 31 December 2019, intangible assets consisted of the following:
Goodwill as at 1 January
Goodwill as at 31 December
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
2020
26,879,317
26,879,317
2019
26,879,317
26,879,317
As at 31 December 2020 As at 31 December 2019
25,511,824
1,367,493
25,511,824
1,367,493
26,879,317
26,879,317
Stores Magnit Cosmetic and Magnit Pharmacy formats CGU
At the year end the Group performed an annual impairment test of goodwill related to the acquisition of SIA Group. In assessing
whether the goodwill has been impaired, the carrying 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.
Future cash flows were determined based on the forecast of free cash flows for five years subject to the effect of their terminal
value.
Licenses
Software
Trademarks
Other
Total
The pre-tax discount rate was determined based on the weighted average cost of capital of the Group and amounted to 12.81%.
Cost
At 1 January 2019
Additions
Disposals
At 31 December 2019
Accumulated amortisation and impairment
At 1 January 2019
Amortisation for the year
Disposals
At 31 December 2019
Net book value
At 1 January 2019
At 31 December 2019
282,546
300,305
(78,970)
503,881
(138,561)
(88,854)
66,469
2,636,596
2,890,995
(905,579)
4,622,012
(1,197,228)
(825,120)
896,514
(160,946)
(1,125,834)
143,985
342,935
1,439,368
3,496,178
31,721
871
–
32,592
(5,938)
(3,252)
–
(9,190)
25,783
23,402
122,017
45,110
(67,754)
99,373
(54,004)
(59,363)
66,156
(47,211)
3,072,880
3,237,281
(1,052,303)
5,257,858
(1,395,731)
(976,589)
1,029,139
(1,343,181)
68,013
52,162
1,677,149
3,914,677
Amortization expense is included in general and administrative expenses (Note 26). The information about impairment test
performed is disclosed in Note 7.
As a result of the analysis no impairment was identified for this CGU.
Key assumptions used in value in use calculations and sensitivity to changes in assumptions
The calculation of the value in use 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 Magnit Cosmetic and Magnit Pharmacy formats
is in accordance with the approved strategic development plan and expected increased volume of sales. A decrease in consumer
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
An increase in the pre-tax discount rate by i.e. + 0.5%, to 13.31%, would reduce the expected discounted cash flows but would not
cause an impairment loss.
236
237
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
10. Goodwill (continued)
12. Trade and other receivables
Revenue growth
Revenue growth for the forecast period being in the range from 2.2% to 10.7% (2019 – 11.1% to 28%). The forecast is based
on Group’s activities in the Magnit Cosmetic and Magnit Pharmacy formats. 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 4% (2019: 2.8-3.2%). The Group’s management believes that all of its estimates are
reasonable and consistent with the internal reporting and reflect management’s best knowledge.
A decrease in customer demand may lead to 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.
Manufactory company TD-holding LLC
The Group performed its annual impairment test of goodwill related to the acquisition of
TD-holding LLC as of 31 December2020. In assessing whether the goodwill has been impaired, the carrying 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 five years plus terminal value. approved by the management of the Group, taking into account inflation 4% (2019:
3.3%), demand for goods produced by TDholding LLC, as well as other macroeconomic assumptions. Pre-tax discount rate was
determined based on the weighted average cost of capital of the Group and amounted to 12.81%.
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.
11. Inventory
Inventory as at 31 December 2020 and 2019 consisted of the following:
Goods for resale (at lower of cost and net realisable value)
Materials and supplies (at cost price)
2020
194,944,876
11,004,318
2019
208,653,823
10,219,763
205,949,194
218,873,586
Materials and supplies are represented by spare parts, packaging materials and other materials used in supermarkets, stores
and warehouses, as well as semi-finished goods of own production.
During 2020 year the Group wrote down inventories to their net releasable value, which resulted in recognition of expenses within
“Cost of goods sold” in the consolidated statement of comprehensive income in the amount of RUB 597,351 thousand (2019:
RUB 358,375 thousand).
Trade and other receivables as at 31 December 2020 and 2019 consisted of the following:
Other receivables – third parties
Trade receivables – third parties
Other receivables – related parties (Note 6)
Expected credit losses
2020
5,224,320
4,848,309
5,681
(1,514,488)
8,563,822
2019
6,272,129
8,782,045
1,834
(1,062,568)
13,993,440
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 receivables from customers of the SIA Group.
The Group uses a provision matrix to calculate expected credit losses (ECLs) for trade and other receivables. The provision rates are
based on days past due for groupings of various customer segments that have similar loss patterns.
The provision matrix is initially based on the Group’s historical observed default rates. The Group calibrates the matrix to adjust
the historical credit loss experience with forward-looking information. At every reporting date, the historically observed default
rates are updated and changes in the forward-looking estimates are analysed.
The ECLs 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.
As at 31 December 2020 the Group made an analysis of pandemic Covid-19 influence on the ECLs and did not identify significant
deterioration of credit quality of the Group’s main customers, so there was no need for the revision of the provision matrix for ECLs.
Set out below is the information about the expected credit losses on the Group’s trade and other receivables as at 31 December
2020:
Current
Overdue
<90 days
Overdue
90-180 days
Overdue
180-360 days
Overdue
>360 days
Total
2020
ECL rate
0.1-3%
3-5%
Carrying amount before ECLs
3,910,007
4,485,359
ECLs
89,077
123,568
10-20%
255,116
51,023
50%
354,015
177,007
100%
1,073,813
10,078,310
1,073,813
1,514,488
238
239
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
12. Trade and other receivables (continued)
14. Cash and cash equivalents
Set out below is the information about the expected credit losses on the Group’s trade and other receivables as at 31 December
2019:
Cash and cash equivalents as at 31 December 2020 and 2019 consisted of the following:
Current
Overdue
<90 days
Overdue
90-180 days
Overdue
180-360 days
Overdue
>360 days
Total
2019
ECL rate
0.1-1.5%
3-5%
Carrying amount before ECLs
12,482,031
1,251,200
ECLs
25,024
37,536
10-20%
168,101
33,620
50%
376,577
188,289
100%
778,099
15,056,008
778,099
1,062,568
Set out below is the movement in the allowance for expected credit losses:
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 RUB
2020
2,080,093
9,348,609
935
1,599,303
9,160,000
22,510,641
2019
2,262,150
452,565
5,456
4,981,127
1,200,000
–
44,699,581
8,901,298
As at 1 January
Accrual of provision for expected credit losses
Release
As at 31 December
13. Advances paid
Advances paid as at 31 December 2020 and 2019 consisted of the following:
Advances to third party suppliers
Advances for customs duties
Other advances
2020
(1,062,568)
(668,262)
216,342
2019
(656,795)
(505,958)
100,185
(1,514,488)
(1,062,568)
2020
4,901,938
617,903
61,525
2019
4,904,086
751,668
114,204
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 2020 and 2019.
As at 31 December 2020, cash of RUB 22,510,641 thousand was placed in rubles deposits, and cash of RUB 9,160,000 thousand
in rubles was placed on accounts with minimum account balance maturing in January 2021. Interest accrued as at 31 December
2020 was immaterial.
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.
15. Share capital, share premium and treasury shares
Authorized share capital (ordinary shares with a par value
of RUB 0.01)
5,581,366
5,769,958
Issued and fully paid share capital (par value of RUB 0.01 each)
Share premium at 1 January
Transfer of rights to equity instruments under share-based payments program (Note 31)
2020
No. (‘000)
200,850
101,911
2020
87,379,413
11,508
2019
No. (‘000)
200,850
101,911
2019
87,257,340
122,073
Share premium at 31 December
87,390,921
87,379,413
240
241
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
15. Share capital, share premium and treasury shares (continued)
In 2020, the Group paid dividends of RUB 29,871,472 thousand (2019: RUB 29,993,007 thousand).
Balance of shares outstanding at beginning of financial year
Purchase of treasury shares
Transfer of treasury shares under share-based payments program (Note 31)
Transfer of treasury shares under employment contract with the President (Note 31)
2020
No. (‘000)
97,550
–
74
41
2019
No. (‘000)
98,665
(1,302)
105
82
Balance of shares outstanding at the end of financial year
97,665
97,550
In 2020, the Group did not acquire any treasury shares on the open market.
In 2020, the Group transferred 73,597 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 271,571 thousand. The difference
of RUB 5,770 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 a reduction of share premium.
In 2020, the Group transferred 41,177 treasury shares to the Group’s President under his employment contract (Note 31). The fair
value of the consideration transferred was RUB 172,451 thousand. The difference of RUB 17,278 thousand between the carrying
amount of the treasury shares and the fair value of consideration transferred was recognized as an increase of share premium.
In 2019, the Group purchased 1,302,397 treasury shares on the open market, the acquisition cost of the shares amounted
to 5,109,648 thousand rubles.
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’s President 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.
16. Dividends declared
As at 31 December 2020, dividends payable were RUB 24,094,729 thousand (31 December 2019: RUB 14,452,943 thousand).
Dividends payable as at 31 December 2020 were paid in January 2021.
17. Trade and other payables
Trade and other payables as at 31 December 2020 and 2019 consisted of the following:
Trade payables to third parties
Other payables to third parties
Other payables to related parties (Note 6)
31 December 2020
31 December 2019
145,281,458
15,604,583
186,253
140,630,829
20,905,617
94,560
161,072,294
161,631,006
Average trade payables turnover was 43 days in 2020 and 45 days in 2019. 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 reported year. 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 2020 totaled
RUB 10,398,919 thousand, including RUB 8,488,173 thousand in USD dollars and RUB 1,910,746 thousand in euros (31 December
2019: RUB 7,258,346 thousand, including RUB 5,785,691 thousand in USD dollars and RUB 1,472,655 thousand in euros).
18. Accrued expenses
Accrued expenses as at 31 December 2020 and 2019 consisted of the following:
Accrued salaries and wages
Other accrued expenses
31 December 2020
31 December 2019
11,278,431
11,974,167
8,124,514
8,895,591
23,252,598
17,020,105
In 2020, the Group declared dividends to shareholders relating to 2019 and the 9 months of 2020.
Other accrued expenses are represented by salary surcharges, employee bonuses and other accruals.
Dividends declared for 2019 and for 9 months 2020 (RUB 157 and RUB 245.31 per share)
In 2019, the Group declared dividends to shareholders relating to 2018 and the 9 months of 2019.
Dividends declared for 2018 and for 9 months 2019 (RUB 166.78 and RUB 147.19 per share)
2020
39,513,258
2019
30,816,128
242
243
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report 19. Taxes payable, other than income tax
21. Government grants
Taxes payables as at 31 December 2020 and 2019 consisted of the following:
Value added tax
Social insurance contributions
Personal income tax
Property tax
Other taxes
20. Loans and borrowings
31 December 2020
31 December 2019
8,251,995
1,790,088
1,226,450
520,401
65,417
–
2,378,411
1,171,380
631,732
109,484
11,854,351
4,291,007
At 1 January
Received during the year
Recognized in profit or loss
At 31 December
Short-term
Long-term
2020
3,268,933
190,269
(664,257)
2,794,945
627,304
2,167,641
2019
3,037,701
614,318
(383,086)
3,268,933
62,857
3,206,076
The government grants were received to reimburse a part of the direct costs incurred for the construction and modernization
of property, plant and equipment. The government grants were received as benefit from obtaining loans at a below-market interest
rate.
Year of maturity 2020
31 December 2020 Year of maturity 2019
31 December 2019
22. Contract liabilities
Contract liabilities as at 31 December 2020 and 2019 consisted of the following:
Long-term and short-term loans and borrowings as at 31 December 2020 and 2019 consisted of the following:
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
Short-term loans and borrowings
Unsecured bonds
Unsecured bank loans
Current portion of long-term borrowings and loans
Total short-term loans and borrowings
2022-2023
2022-2027
2021
2021
70,897,128
79,614,330
–
(2,816,532)
147,694,926
10,296,260
5,278,809
2,816,532
18,391,601
2021-2022
2021-2027
2021-2022
2020
2020
40,737,574
47,817,777
33,200,000
(2,122,989)
119,632,362
10,001,047
52,454,420
2,122,989
64,578,456
The Group’s loans and borrowings as at 31 December 2020 and 31 December 2019 bear market interest rates. All loans, borrowings
and bonds are denominated in Russian rubles. Loans and borrowings were received at fixed rates.
The Group has complied with all covenants set out in the loan agreements as of 31 December 2020 and 31 December 2019.
Short-term liabilities to the customer loyalty program
Short-term advances received from wholesale customers
Changes to the short-term liabilities to the customer loyalty program include the following:
At 1 January
Deferred during the year
Recognized as revenue during the year
At 31 December
31 December 2020
31 December 2019
2,148,681
443,877
810,214
246,497
2,592,558
1,056,711
2020
810,214
12,235,191
(10,896,724)
2,148,681
2019
1,178,273
5,479,317
(5,847,376)
810,214
244
245
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
23. Revenue from contracts with customers
26. General and administrative expenses
Revenue for the years ended 31 December 2020 and 2019 consisted of the following:
General and administrative expenses for the years ended 31 December 2020 and 2019 consisted of the following:
Retail
Wholesale
2020
2019
1,510,070,771
1,332,928,824
43,706,580
35,776,570
1,553,777,351
1,368,705,394
Revenue from contracts with customers is represented by the amounts disclosed in the table above and advertising income
and income from sales of packing materials (Note 28) for the 2020 amounted to RUB 1,562,939,358 thousand (2019:
RUB 1,378,925,154 thousand).
24. Cost of sales
Cost of sales for the years ended 31 December 2020 and 2019 consisted of the following:
Cost of goods sold
Transportation expenses
2020
2019
1,149,730,128
1,022,098,438
38,291,560
34,607,615
1,188,021,688
1,056,706,053
Cost of goods sold is reduced by rebates and promotional bonuses received from suppliers.
Cost of goods sold includes losses due to inventory shortages.
In 2020, payroll expenses of RUB 22,419,764 thousand (2019: RUB 22,108,828 thousand) were included in cost of sales.
25. Selling expenses
Selling expenses for the years ended 31 December 2020 and 2019 consisted of the following:
Advertising
Packaging and raw materials
Depreciation of property, plant and equipment
2020
7,627,912
4,861,131
4,398,081
2019
7,715,200
3,215,294
4,755,885
16,887,124
15,686,379
Payroll
Depreciation and impairment of right-of-use assets (Note 8)
Depreciation and impairment of property, plant and equipment (Note 7)
Payroll-related taxes
Utilities and rent
Bank charges
Repair and maintenance
Taxes, other than income tax
Security
Amortisation of intangible assets (Note 9)
Provision for unused vacation
Accrual of expected credit losses (Note 12)
Other expenses
27. Finance costs
Finance costs for the years ended 31 December 2020 and 2019 consisted of the following:
Interest on loans and borrowings
Interest on bonds
Interest on lease liabilities (Note 8)
Total interest expense for financial liabilities
Less amounts included in the cost of qualifying assets
2020
2019
108,535,879
44,227,143
39,436,361
30,104,070
29,715,812
7,108,373
6,731,558
2,924,806
1,790,229
1,703,793
542,696
451,920
6,265,675
95,517,926
41,660,137
40,701,825
26,159,360
25,719,454
6,516,095
5,747,572
3,240,165
1,797,235
976,589
681,018
400,437
5,843,860
279,538,315
254,961,673
2020
8,462,099
5,669,013
30,771,302
44,902,414
(130,140)
44,772,274
2019
13,359,504
2,037,062
32,414,202
47,810,768
(29,119)
47,781,649
246
247
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report 28. Other income
Other income for the years ended 31 December 2020 and 2019 consisted of the following:
Advertising income
Sales of packing materials
Fines and penalties
Gain from cancellation of lease contracts (Note 8)
Gain from Covid-19 related rent concessions (Note 8)
Gain from the sale of property, plant and equipment
Other
2020
5,371,680
3,790,327
2,626,926
1,687,459
1,481,968
1,165,190
945,645
2019
6,379,618
3,840,142
3,341,220
1,985,180
–
–
850,307
17,069,195
16,396,467
Deferred tax liabilities
Property, plant and equipment
Prepaid expenses and intangible assets
Trade and other receivables
Other
Total deferred tax liability
Including offset with deferred tax asset
Net deferred tax liability
At 1 January
2020
Recorded in the consolidated
statement of compre hensive
income, 2020
At 31 December
2020
28,608,661
319,556
173,278
75,610
29,177,105
(13,103,426)
16,073,679
(722,682)
70,845
(10,636)
(75,610)
(738,083)
(3,110,006)
27,885,979
390,401
162,642
–
28,439,022
(16,213,432)
(3,848,089)
12,225,590
The tax effect of main temporary differences that give rise to deferred tax assets and liabilities as at 31 December 2019 is as
follows:
29. Income tax
The Group’s income tax expense for the years ended 31 December 2020 and 2019 was as follows:
Consolidated statement of comprehensive income
Current tax
Adjustments in respect of current income tax of previous year
Deferred tax
Income tax expense reported in the consolidated statement of comprehensive income
2020
2019
13,728,393
(171,081)
(3,848,089)
9,709,223
3,302,256
(1,068,227)
781,221
3,015,250
The tax effect of main temporary differences that give rise to deferred tax assets and liabilities as at 31 December 2020 is as
follows:
Deferred tax assets
Right-of-use assets / lease liabilities
Accrued expenses
Inventory
Advances paid
Other
Total deferred tax asset
Including offset with deferred tax liability
Net deferred tax asset
At 1 January
2020
Recorded in the consolidated
statement of compre hensive
income, 2020
At 31 December
2020
(10,915,536)
(834,430)
(962,839)
(131,884)
(258,737)
(13,103,426)
13,103,426
–
(1,190,334)
(1,045,028)
(512,512)
(56,686),
(305,446),
(3,110,006)
3,110,006
–
(12,105,870)
(1,879,458)
(1,475,351)
(188,570)
(564,183)
(16,213,432)
16,213,432
–
248
Deferred tax assets
Right-of-use assets / lease liabilities
Accrued expenses
Inventory
Trade and other receivables
Advances paid
Prepaid expenses and intangible assets
Other
Total deferred tax asset
Including offset with deferred tax liability
Net deferred tax asset
Deferred tax liabilities
Property, plant and equipment
Prepaid expenses and intangible assets
Trade and other receivables
Other
Total deferred tax liability
Including offset with deferred tax asset
Net deferred tax liability
249
Recorded in the consolidated
statement of comprehensive
income,
2019
At 1 January 2019
At 31 December 2019
(9,041,780)
(1,873,756)
(10,915,536)
(338,284)
(831,505)
(128,665)
(254,167)
(163,988)
(544,185)
(11,302,574)
11,302,574
–
(496,146)
(131,334)
128,665
122,283
163,988
285,448
(1,800,852)
1,800,852
–
(834,430)
(962,839)
–
(131,884)
–
(258,737)
(13,103,426)
13,103,426
–
25,701,441
2,907,220
28,608,661
–
–
893,591
26,595,032
(11,302,574)
15,292,458
319,556
173,278
(817,981)
2,582,073
(1,800,852)
781,221
319,556
173,278
75,610
29,177,105
(13,103,426)
16,073,679
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report 29. Income tax (continued)
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 before tax
Theoretical income tax expense at 20%
Adjustments for:
Non-taxable income
Unrecognized deferred tax assets related to losses carried forward of Group companies
Reversal of income tax liability as a result of filing amended tax returns
Income tax expense
Effective income tax rate
2020
2019
42,702,515
(8,540,503)
12,579,472
(2,515,894)
(1,141,221)
(198,580)
171,081
(663,373)
(904,210)
1,068,227
(9,709,223)
(3,015,250)
22.74%
23.97%
31. Share-based payments
Long-term incentive program for key management personnel
The Group has a long-term incentive program for its key management. In accordance with the program regulations, the Group
grants key management personnel the right to receive equity instruments based on the results of their work for 2018, 2019, 2020,
2021, and 2022, if the program conditions are met.
The long-term incentive program for key management personnel of the Group consists of a share options (share component)
and share value appreciation rights (option component).
Each tranche provides for deferred execution (transfer of shares) for three years, provided that the employees continue to provide
services. Each employee under this plan receives 15 options, each of which entitles them to an estimated number of shares over
three years in five tranches.
Share value appreciation rights
Options provide transfer of a variable number of shares depending on the excess of the market value of the Group’s shares over
the strike price.
As at 31 December 2020 unrecognized deferred tax assets in respect of previous years losses received by the Group companies
amounted to RUB 3,825,876 thousand (as of 31 December 2019: RUB 3,627,296 thousand).
The date of granting the options corresponds to the date of conclusion of the contract with the program participant. The maximum
number of shares that can be purchased by all participants of the program under the option part is 1,755,319.
The Group did not reflect the deferred tax liability as of 31 December 2020 and 31 December 2019 in relation to the temporary
taxable differences associated with investments in subsidiaries, since it subject to 0% tax rate to applicable dividend income
in accordance with Russian Tax Code, 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
Earnings per share for the years ended 31 December 2020 and 2019 have been calculated on the basis of the net profit
attributable to shareholders for the year and the weighted average number of common shares outstanding during the year.
Diluted earnings per share is calculated by dividing the profit attributable to shareholders for the year by the weighted average
number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued
on conversion of all the dilutive potential ordinary shares into ordinary shares:
Profit for the year attributable to shareholders of the parent
Weighted average number of shares (in thousands of shares)
Basic earnings per share (in RUB)
Effects of dilution from share options (in thousands)
Weighted average number of ordinary shares adjusted for the effect of dilution (in thousands)
Diluted earnings per share (in RUB)
2020
32,993,292
97,629
337.95
545
98,174
336.07
2019
9,564,222
97,615
97.98
297
97,912
97.68
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.
Share options
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 corresponds to the date of conclusion of the contract with the program participant. The maximum
number of shares that can be purchased by all participants of the program within the joint-stock part cannot exceed
1,755,319 shares.
The procedure for settlements with the participant when obtaining rights to equity instruments is similar to the procedure under
the option part.
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);
— a program participant continues to work in the Group on the exercise date of the option.
250
251
Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report 31. Share-based payments (continued)
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 (%)
The 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)
Applicable model
2020
6
30.27
4.42
5
4,637
2019
6
28.78
7.84
6
3,920
Monte Carlo
Monte Carlo
Movement for the period
For the year ended 31 December 2020, the Group recognized an expense in respect of share-based payments in the amount
of RUB 971,718 thousand (2019: RUB 1,892,833 thousand) in the consolidated statement of comprehensive income.
In 2020, under the decision of the Board of Directors based on the analysis of the fulfillment of non-market terms of the Program
in 2019, the rights to the payment of the 1/3 of the 2019 tranche were not transferred to the Participants of the Program.
Following the decision, service expenses of RUB 202,323 thousand recognized earlier with respect to the 1/3 of the 2019 tranche
were reversed in the consolidated financial statements for the year ended 31 December 2020.
As at the reporting date, the management of the Group expects that with respect to all tranches the program targets will be
achieved.
During 2020, the Group transferred 73,597 treasury shares (2019: 105,258 treasury shares) repurchased from shareholders
as a compensation to key management personnel under the Long-term remuneration of key employees of the Group. The fair
value of the consideration transferred was RUB 271,571 thousand (2019: 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 in the amount
of RUB 5,770 thousand reflected as a decrease in share premium (2019: RUB 35,979 thousand recorded as an increase in share
premium).
The weighted average fair value per share at the execution was RUB 3,690 for the year ended 31 December 2020 (2019:
RUB 4,110).
Share-based payments under the employment contract with the President of the Group
According to the terms of the employment contract concluded with the Group’s President, the President 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 payments under the employment contract with the President of the Group (continued)
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.
In 2020, the Group recognized an expense in respect of share-based payments in the amount of RUB 106,681 thousand
in the consolidated statement of comprehensive income (2019: RUB 559,509 thousand).
During 2020, the Group transferred 41,177 treasury shares (2019: 82,355 shares) repurchased from shareholders under
the terms of the employment agreement entered into with the Group’s President. The fair value of equity instruments provided
during the period was RUB 172,451 thousand (2019: RUB 396,440 thousand). The difference between the carrying amount
of the treasury shares and the fair value of the consideration given to the President in the amount of RUB 17,278 thousand (2019:
RUB 86,094 thousand) was recorded as an increase in share premium. The weighted average price per share at the execution date
was RUB 4,188 in 2020 (2019: RUB 4,134).
32. Contingencies, commitments and operating risks
Operating environment
The Group sells products that are sensitive to changes in general economic conditions that impact consumer spending. Future
economic conditions and other factors, including sanctions-imposed consumer confidence, employment levels, interest rates,
consumer debt levels and availability of consumer credit could reduce consumer spending or change consumer purchasing
behavior.
Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by 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.
The Russian economy has been negatively impacted by a decline in oil prices and sanctions imposed on Russia by a number
of countries. The combination of the above resulted in reduced access to capital, a higher cost of capital, increased 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.
As the Covid-19 outbreak continues there remains uncertainty about further developments of pandemic duration and the extent
of the possible economic recovery in the nearest future. Government continues to take various measures, the future stability
of the Russian economy is also largely dependent upon the impact and span of the Covid-19, the measures taken to contain
the spread of the virus and further government reforms.
The Group’s management continuously assesses the risks, as well as the consequences of the pandemic and the measures taken
by the government.
Restrictive measures implemented in Russia to cope with the pandemic Covid-19 are resulted to less frequent customer visits
to stores but larger purchases. From the beginning of Covid-19 pandemic the Group has taken necessary measures to avoid
direct impact of the pandemic on its operations with a special focus on protection of the health of employees, customers
and uninterrupted business processes.
To date, the Group’s management has not identified a significant negative impact of the pandemic, either on the supply chain
or on the activities of the Group’s chain of stores.
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33. Financial risk management objectives and policies
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.
A number of the relevant Russian tax, currency and customs legislations are vaguely and contradictory formulated, which may lead
to different interpretations (which, in particular, may apply to legal relations in the past), selective and inconsistent application, as
well as frequent and in some cases unpredictable changes. In practice the tax authorities may be taking a more assertive position
in their interpretation and application of this legislation and assessments, It is therefore possible that transactions and activities
of the Group that have not been challenged in the past may be challenged at any time in the future. As a result, additional taxes,
penalties and interest may be imposed by the relevant authorities. Fiscal periods remain open and subject to review by the tax
authorities for a period of three calendar years immediately preceding the year in which the decision to conduct a tax review
is taken. Under certain circumstances tax reviews may cover longer periods.
It is not possible to determine the amounts of constructive claims or evaluate probability of their negative outcome.
Management believes that at 31 December 2020, 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 2020 and 2019, the Group accrued no provisions for tax positions.
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 commitments
As at 31 December 2020 and 2019, 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
2020
2,536,645
–
2019
3,793,382
6,968
2,536,645
3,800,350
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 20, cash and cash equivalents disclosed
in Note 14 and equity attributable to shareholders of the parent, comprising issued capital, reserves and retained earnings as
disclosed in Note 15.
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 2020 of 2.62 (2019:
2.82).
The debt-to-equity ratio as at 31 December 2020 and 2019 was as follows:
Loans and borrowings (Note 20)
Long-term and short-term lease liabilities (Note 8)
Cash and cash equivalents (Note 14)
Net debt
Equity
Net debt-to-equity ratio
2020
2019
166,086,527
357,573,958
(44,699,581)
184,210,818
357,210,159
(8,901,298)
478,960,904
532,519,679
182,888,924
188,532,813
2.62
2.82
Debt is defined as long-term and short-term loans and borrowings and also long-term and short-term lease obligations. Equity
includes all capital and reserves of the Group.
The change in the target net debt-to-equity ratio is due to the changes in the capital structure in 2020.
Fair values
Set out below is a comparison by class carrying amount and fair value of the Group’s financial instruments that are recorded
in the consolidated financial statements.
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As at 31 December 2020 and 2019 the foreign currency balances were presented by trade and other payables disclosed in Note 17.
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.
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.
Long-term loans
Bonds
Carrying amount
2020
2019
Fair value
2020
77,795,398
69,899,528
79,653,488
39,978,874
79,179,985
70,373,951
2019
81,873,746
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 2020 and 2019, the fair value of the Group’s financial instruments, except as described above, approximates
their carrying value.
Set out below are changes in liabilities arising from financing activities:
2020
Short-term and long-term loans and
borrowings
2019
Short-term and long-term loans and
borrowings
Proceeds
from loans and
borrowings
Repayment
of loans and
borrowings
1 January
Finance costs
Interest paid
31 December
184,210,818
452,555,765
(471,761,619)
14,131,112
(13,049,549)
166,086,527
164,573,341
695,756,324
(677,163,335)
15,362,852
(14,318,365)
184,210,818
Information about changes in lease liability are presented in Note 8.
2020
Dividends payable
2019
Dividends payable
As at 1 January
Dividends declared
Dividends paid
As at 31 December
14,452,943
39,513,258
(29,871,472)
24,094,729
13,629,822
30,816,128
(29,993,007)
14,452,943
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).
2020
2019
Change in USD
exchange rate
Effect on profit
before tax
Change in euro
exchange rate
Effect on profit
before tax
+16.00%
-16.00%
+13.00%
-11.00%
(1,381,542)
1,381,542
(783,588)
663,036
+16.00%
-16.00%
+13.00%
-11.00%
(339,500)
339,500
(220,460)
186,543
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.
Interest rate risk management
The Group is exposed to insignificant interest rate risk as the Group’s entities borrow funds 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 and contract assets 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.
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 financial 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 offsets its financial assets and financial liabilities when all the conditions for offset are met. The effect of the offsetting as
at 31 December 2020:
2020
Less than
1 month
1-3 month
3 month
to 1 year
1-5 years More than 5 years
Total
Gross amount of recognized
financial assets and liabilities
Gross amount of recognized
financial liabilities and assets
offset in the consolidated
statement of financial position
Net amount of financial
assets and liabilities presented
in the consolidated statement
of financial position
19,765,158
19,765,158
(11,201,336)
(11,201,336)
8,563,822
8,563,822
Trade and other payables
128,236,830
32,835,464
Dividends payable
24,094,729
–
–
–
–
–
–
–
161,072,294
24,094,729
Long-term and short-term lease
liabilities
Long-term and short-term loans
and borrowings
2019
5,753,427
11,512,811
52,770,481
257,214,471
165,920,031
493,171,221
386,931
17,229,596
9,146,323
158,419,180
430,394
185,612,424
158,471,917
61,577,871
61,916,804
415,633,651
166,350,425
863,950,668
(172,273,630)
(172,273,630)
11,201,336
11,201,336
(161,072,294)
(161,072,294)
Trade and other payables
127,097,996
34,533,010
Dividends payable
14,452,943
–
–
–
–
–
–
–
161,631,006
14,452,943
As at 31 December 2020
Financial assets
Trade and other receivables
Total
Financial liabilities
Trade and other payables
Total
The effect of the offsetting as at 31 December 2019:
Long-term and short-term lease
liabilities
Long-term and short-term loans
and borrowings
5,558,534
11,065,328
50,541,221
254,023,784
195,440,197
516,629,064
9,376,666
2,474,305
63,637,393
129,767,356
1,186,754
206,442,474
156,486,139
48,072,643
114,178,614
383,791,140
196,626,951
899,155,487
Additionally to the current loans the Group has access to financing facilities of RUB 280,612,664 thousand remained unused
at 31 December 2020 (2019: RUB 263,940,663 thousand). The Group expects to meet its other obligations from operating cash
flows and proceeds from maturing financial assets.
34. Subsequent events
There are no significant events after the reporting date.
As at 31 December 2019
Financial assets
Trade and other receivables
Total
Financial liabilities
Trade and other payables
Total
Gross amount of recognized
financial assets and liabilities
Gross amount of recognized
financial liabilities and assets
offset in the consolidated
statement of financial position
Net amount of financial
assets and liabilities presented
in the consolidated statement
of financial position
28,340,288
(14,346,848)
13,993,440
28,340,288
(14,346,848)
13,993,440
(175,977,854)
14,346,848
(161,631,006)
(175,977,854)
14,346,848
(161,631,006)
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.
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Notes to the consolidated financial statements for the year ended 31 December 2020(In thousands of Russian rubles) (continued)magnit.com2020Strategic Report Corporate GovernanceAppendices2020 Annual Report
Strategic Report
Corporate Governance
Appendices
Management Statement
of Responsibility
Glossary
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 21, 2021
(minutes w/o No. as of April 24, 2021) and approved by the annual General shareholders
meeting of PJSC «Magnit» held on June 10, 2021 (minutes w/o No. as of June 11, 2021).
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)
a graphical representation of a customer's buying decision process expressed in a tree format
CPI (Consumer Price Index)
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
Federal state informational system
“Mercury”
automated system for electronic certification of goods subject to state veterinary control in Russian
Federation
LFL (like–for–like)
Net debt
the method of comparing current year sales figures to prior year’s sales figures excluding the
expansion effect
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
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20202020 Annual Report Glossary (continued)
RACI
Real GDP
RACI matrix, or linear responsibility chart (LRC), describes the participation by various roles in
completing tasks or deliverables for a project or business process
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
SaaS (Software as a Service)
is a software licensing and delivery model in which software is licensed on a subscription basis and
is centrally hosted
Sales density
Selling space
SKU (stock keeping unit)
Sustainable development
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
a number assigned to a particular product to identify the price, product options and manufacturer
of the merchandise
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
Strategic Report
Corporate Governance
Appendices
Abbreviations
ACRA
AGM
BPs
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
NGO
PJSC
p.p.
Q
RTS
RUB
SPO
Sq.m
STI
VAT
WMS
Y-o-Y
Accounting and Corporate Regulatory Authority
Annual General Meeting
Basis points
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
Non-governmental organization
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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20202020 Annual Report Strategic Report
Corporate Governance
Appendices
Contact
Information
Address
350072, 15/5, Solnechnaya street, Krasnodar, Russian Federation
Investor 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
About the Report
The Annual Report of Magnit PJSC for 2020 (hereinafter also referred to as
Magnit or the Company) was prepared based on the information available
to Magnit PJSC and its subsidiaries (hereinafter together referred to as the Group)
as of 31 December 2020, 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 2020 in such matters as strategic
and corporate governance as well as financial and operating results.
The Annual Report was prepared in accordance with the requirements
of the applicable laws.
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.
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