Part of the
Neighbourhood
Annual Report 2021
Stategic Report
Corporate Governance
Consolidated Financial Statements
Appendices
Corporate
Statement
Magnit is aiming to contribute to improving
the wellbeing and health of millions of its
customers. By developing different store
formats, expanding our presence and own
food production, we are seeking to be
helpful to all Russians and satisfy their
needs, providing equal access to high-quality
and accessible goods.
Magnit is a fixture
of the neighbourhood!
Revenue
+19.5%
growth YoY
Share in Russian grocery
11.5%
as at the end of 2021
+4,513 stores
half being new openings,
half – Dixy acquisition
Modest leverage of
1.5X
net debt to EBITDA
EBITDA margin
expansion to
7.2 %
LFL sales
growth of
7.0%
Note: All fiNANciAl metrics Are provided iN AccordANce with iAs 17 stANdArd.
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Stategic Report
Corporate Governance
Consolidated Financial Statements
Appendices
Table of Contents
2
4
Corporate Statement
Table of Contents
Strategic Report
6
8
12
16
18
28
32
34
38
42
44
48
52
54
60
62
72
Magnit at a Glance
Chairman’s Statement
President and CEO’s Statement
Highlights of the Year
Market Overview
Strategy
Investment Case
Business Model
Operational Review
Case Study: Dixy – Acquisition update
Case Study: My Price Discounter Stores
Case Study: Private Label and Own Production
Case Study: E-commerce
Financial Review
Key Performance Indicators
Risk Management
Sustainable Development
Corporate Governance
78
80
86
92
97
100
104
107
108
112
116
132
Chairman’s Review
Board of Directors
Management Board
Corporate Governance Framework
Board Responsibilities Composition
and Evaluation of Effectiveness
Internal Control and Risk Management System
Committees of the Board of Directors
Corporate Secretary
Remuneration Report
Stakeholder Management
Shareholder and Investor Engagement
Investor Calendar 2021-2022
Consolidated Financial Statements
Appendices to the Annual Report
223
226
227
Glossary
Disclaimer
Contact Information
About the Report
The Annual Report of Magnit PJSC for 2021
(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 2021, 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 2021 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.
The Annual Report should be read as a whole
taking into account the content of all sections
as well as the notes and the explanations
herein, including the information set forth in
the Disclaimer.
As at the date of publication, we are witnessing
growing geopolitical and economic risks that
may have an impact on the business of Magnit
and its suppliers. The supply of food, hygiene
products and home essentials for the needs
of consumers has always been and will be our
top priority. We will do everything in our power
to keep our supply chain resilient and support
our suppliers, including a significant number
of local manufacturers. Our long track record
in the market proves that we remain a reliable
employer and business partner in the most
challenging situations thanks to the existing
infrastructure and resources, responsible
business practices and robust corporate
governance.
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Magnit at a Glance
Who we are
Magnit is one of Russia’s leading food retail chains and the country’s largest by number of stores
and geographical coverage. The Company was founded in 1994 in Krasnodar, the South of Russia,
where it is still headquartered today.
As of 31 December 2021, Magnit had a total
of 26,077 stores across 67 regions of Russia
and about 360 thous. employees.
We operate a multi-format and omni-channel
model which includes convenience
and drogerie stores, supermarkets
and pharmacies under the Magnit and Dixy
brands. Our significant scale and reach attract
15 million customers to our stores each day,
and our cross-format loyalty programme
boasts about 59 million loyalty card holders.
Magnit offers its customers online options
in both express and regular delivery.
Magnit’s business model is unique in the
Russian retail market as we are the only food
retailer to operate our own private-label food
production business. The Company owns
and manages 17 production facilities, including
4 agricultural complexes and 13 plants
for the production of dry food and
confectionery, with an output of more
than 360,000 tonnes of produce in 2021.
Our advanced logistics and supply chain
infrastructure comprises 45 distribution
centres and more than 5 thous. trucks,
one of the largest own truck fleets in Russia.
26,077 stores
across 67 regions of Russia
~360 thous. employees
15 mln customers
daily footfall
17 production facilities
45 distribution centres
>5 thous. trucks
Our mission, culture and values
Our mission is to become the store
of choice for every Russian family.
A focus on sustainability underpins
every aspect of our business, and our
mission is to become the store of choice
for every Russian family. We have a strong
corporate culture of continuing operational
improvement and focus on delivering
exceptional quality and customer service.
This is supported by our commitment
to professionalism, teamwork and respect
for each other and our customers.
We encourage open and constructive
dialogue, ownership of responsibilities,
effective cross-functional cooperation
and commitment to innovation to ensure
we achieve our goals.
Our five-year sustainability strategy
to 2025, “Retail with Purpose”, recognises
the significant opportunity we have
in building a better future for everyone.
The ambitious goals we set for ourselves
help to embed sustainability throughout
the business, enhancing our corporate
culture further.
Our values
Underpinning our mission and culture is our
set of values which places our customers
at the heart of everything we do.
Caring for our customers
Achieving results
We build long-lasting connections
with our customers. Our team
members easily relate to customers
because they also shop at Magnit
We always achieve our goals
and strive to do so in the most
efficient manner
Stronger together
Taking responsibility
We achieve our goals through joint
concerted actions, incorporating the
views of our employees
We know what we stand for
and we take responsibility
for our decisions
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Chairman’s
Statement
Magnit has continued to consolidate its position as one of Russia’s largest retail and food
production businesses. In 2021, we completed the acquisition of Dixy, and we continued
to build our private label and multi-format offerings to meet consumer trends.
The ongoing global pandemic has demonstrated Magnit’s ability to respond to change
quickly and meet the challenges presented by constant uncertainty. First and foremost,
our priority is to ensure the health and safety of our staff and customers alike, so we have
put in place all the necessary measures to stop the spread of the virus and help vulnerable
people to cope during these difficult times. Some of our large-format stores have been
used as vaccination centers, supporting the road out of the pandemic. We also arranged
vaccination of our employees in our head office, which made the vaccination process
for our colleagues easier and safer.
Our strategy for sustainable growth –
to continually improve our customer value
proposition, bring about efficiencies,
undertake considered expansion and a multi-
format provision – resulted in a strong
financial and operational performance
with improvements across all KPIs. We are
firmly positioned as a value for money store
of choice for Russian families.
The acquisition of Dixy, the fifth largest
grocery retailer in Russia, in July 2021
added 2,477 stores to the Magnit portfolio
and strengthened our presence in the Moscow
and St. Petersburg regions. The brand has
a strong customer base and has added scale
to Magnit’s operations. Integration of the
business is progressing well, with profitability
improving since the acquisition.
Magnit’s e-commerce sales channel continued
to gain traction, achieving RUB 11 bln Gross
Merchandise Value (GMV) for 2021, with
the average number of orders per day
exceeding 62,000 in the fourth quarter
of the year. At the end of December Magnit
processed 100,000 orders per day, and this
is a big achievement as the Company has only
recently started to roll out its e-commerce
offering.
Magnit now runs a number of online
delivery projects, including own delivery
and partnerships, across grocery, pharma
and cosmetics.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Chairman’s Statement
(continued)
A continued decline in real disposable income
saw significant growth in discounter stores,
a format that has had considerable success
in Europe and which is underpenetrated
in Russia. Magnit is at the forefront of this
value-for-money offering, having opened over
200 My Price brand stores since July 2020.
We continued to develop the long-term
and short-term incentive (LTI & STI)
programmes to ensure an optimal and fair
method of motivation and compensation
for top management, adding new members
to the LTI and setting KPIs for the STI against
which performance is evaluated.
The ongoing development of our private label
is also supporting price-sensitive customers
across all Magnit formats, offering high quality
products at a range of prices to suit varying
customer needs. We have expanded our
unique own production capabilities and built
new, and strengthened existing, partnerships
to grow our Private label range. In 2021, we
grew our Private label range by over 20%.
Our commitment to developing a ‘best in class’
corporate governance system resulted in a
number of developments in 2021. The rapid
growth of Magnit led us to reevaluate our
Board structure to make sure we have
a broad range of skills and knowledge needed
to support our growth ambitions, while
also ensuring greater diversity. As a result,
the Board of Directors has been extended
from nine to eleven members, strengthening
its independence and gender diversity.
In parallel, the Management Board expanded
from nine to 13 members to improve decision-
making and reflecting the Company’s strategic
priorities and development in the retail market.
Led by our President and CEO, Jan Dunning,
our sustainability strategy is supporting
the Company’s overall strategy. In April 2021,
Magnit published its second sustainability
report, presenting the Company’s progress
on commitments to 2025 announced in June
2020. Now in its third year, the Sustainability
Strategy is embedded fully in Magnit’s day-
to-day operations, underpinning many non-
financial KPIs and long-term environmental
and social aspirations.
We recognise that even more can be gained
if we work with other influential partners
to achieve our ESG goals. That is why we joined
forces with eight of the largest international
FMCG producers in the ‘United for a Healthier
Future’ initiative. Our pledge is to improve
the quality of life for consumers and local
communities by promoting healthy living
and environmental care through education,
making available sustainable goods, solutions,
and services, cooperating with other
organisations, and investing in research.
I would like to extend my thanks to all members
of the Board and Management Board, both
old and new, for their dedication to Magnit
and supporting the execution of our strategy.
I would also like to extend a warm welcome
to all those who joined in 2021, as they support
the continued growth and transformation
of the Company.
Charles Ryan
Chairman of the Board of Directors
Attracting and retaining talent is a key
concern for all retailers in Russia as migration
flows have slowed. In 2021, we continued
to develop both financial and non-financial
incentives for staff and evolved our
unique internal training and development
programmes. Our employees are part of
the large Magnit ‘family’ around which
there is a strong culture of communication
and support both in and out of work. I would
like to extend my thanks to all Magnit
employees who worked tirelessly in 2021.
We maintained regular engagement with
investors throughout the year, holding
meetings and issuing regular announcements,
reflecting the high degree of activity in this
particularly busy year. We encourage two-
way dialogue, responding to any concerns
raised. Last year we introduced a new Audit
Fees Policy in response to objections raised
by shareholders in relation to non-audit fees.
The new policy limits the amount of non-audit
fees charged by Magnit’s auditors.
We welcome any feedback and would like
to thank our investors for bringing this matter
to our attention and for their continued
support.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Stategic Report
Corporate Governance
Consolidated Financial Statements
Appendices
President and CEO’s
Statement
Magnit had another remarkable year in 2021. We are now bigger than
ever and have consolidated our market position as one of Russia’s
leading retailers and private companies. This has been achieved through
a strategically important acquisition, organic expansion and an unwavering
focus on delivering our strategic objectives.
We continued to enhance our value proposition founded on high quality
at an affordable price, and addressing a wide range of consumer missions.
Our customers are responding positively to the changes as evidenced
by our growing loyalty programme, increased footfall and average spend.
Trading performance
We have delivered yet another year
of record results, with robust sales
growth and improved efficiencies
in our operations and processes.
Our strong sales increase benefitted
from both organic and acquired
growth.
Total sales grew by 19.5%
to RUB 1,856.1 bln as a result
of an increase in like-for-like sales
and retail space growth. Net retail
sales, adjusted for Dixy, grew by 11.3%
to RUB 1,680.5 bln, outpacing selling
space growth on further improvement
of sales densities. LFL sales grew 7.0%,
driven by a 7.1% average ticket growth
with traffic flat year-on-year (0.1% LFL
traffic decline).
The strategically important
acquisition of Dixy was completed
in July and the subsequent
performance of Dixy has been
consolidated into the Magnit Group
results, with sales and operating
performance of the Dixy brand also
reported separately. The integration
of Dixy has progressed well, with
the first portion of synergies
successfully extracted and further
efficiencies to be gained.
EBITDA was RUB 133.1 bln with a 7.2%
margin, a small improvement on 2020
as a result of stronger gross margin
and efficiency initiatives, which were
partially offset by the consolidation
of Dixy.
Our gross debt position
as at 31 December 2021 stood
at RUB 270.4 bln, and our cash position
increased to RUB 73.4 bln compared
to RUB 44.7 bln the previous year.
Net Debt to EBITDA ratio was 1.5x
at the year-end compared to 1.1x
as at 31 December 2020.
CAPEX in 2021 was significantly higher
at RUB 66.9 bln, compared with
RUB 32.1 bln in 2020, as the Company
executed its expansion and redesign
programmes.
Delivering on our strategic
priorities
In 2021 we accelerated the expansion
of our retail network, adding
a total of 4,513 stores, resulting
in 26,077 stores at the year-end,
and increasing our selling space
by 20% to 8,997 thous. sq. m.
Of this, the acquisition of the Dixy
retail chain added 2,412
net convenience stores and
39 superstores operating under
the Megamart brand to our network.
The acquisition consolidated
our market position further with
the addition of a well-known brand
and strong customer base in the
strategically important Moscow
and St. Petersburg regions. We
are confident that we can extract
significant synergies from Dixy
through shared back office functions
including procurement and supply
chain management.
At an operating level, the Dixy brand
will remain separate to Magnit, but
sharing a single loyalty programme
and many synergistic back
office functions such as finance,
investment, project management,
procurement and supply chain.
A dedicated integration management
office (IMO) providing cross-
functional support, driving decision-
making and tracking progress
is making headway in aligning Dixy’s
operations as well as in the brick-
and-mortar aspect of the business.
Dixy stores located in close proximity
to existing Magnit convenience
stores are being evaluated with
a view to being converted into
a complementary format should
they prove to generate better value
that way. The integration process
is expected to be largely completed
by mid-2022.
Magnit further opened 2,281
stores (gross) across all major
formats with a particular
focus on convenience stores
and drogeries. Convenience stores
achieved the strongest performance
across all Magnit store formats,
driven by an increase in average
ticket value and selling space
growth. Several new formats were
piloted to meet diverse consumer
missions such as City stores,
My Price discounters and kiosk-style
Magnit Go, which offers on-the-go
food and snacks.
Note: All fiNANciAl metrics Are provided iN AccordANce with iAs 17 stANdArd.
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President and CEO’s Statement
(continued)
Of these, we believe the discounter
format may become a substantial
business segment within
the Company’s ecosystem. The format
is aimed at price-sensitive consumers
and has a limited assortment and high
proportion of private label products.
Compared to convenience stores,
they have higher sales densities,
faster stock rotation, significantly
lower operational expenses
and lease costs, and around 40%
less capital expenditures ensuring
an attractive return on investment.
During the year, 175 My Price stores
were opened, bringing the total
at year-end to 190 stores, compared
with 15 at 31 December 2020.
Further My Price store openings
are planned in 2022 and beyond,
to build on the success of this format.
eCommerce sales grew throughout
2021 with orders fulfilled via our own
delivery and partner services linked
to nearly 4,500 brick-and-mortar
stores. An average of 72,000 orders
per day were fulfilled in December,
compared to 7,000 in the same period
in 2020. Sales grew 32x overall during
the year to RUB 11.2 bln. To enable
eCommerce growth, we piloted
our first dark store in February
2021, dedicated to serving online
customers and their specific
preferences. By the year end we had
a total of 20 dark stores.
In line with our customer-centric
approach, we implemented a number
of initiatives to enhance our customer
value proposition and perception.
The focus was on improving our
in-store experience and offering
modern, well-designed and attractive
shopping experiences.
A total of 703 Magnit stores were
refurbished during 2021, resulting
in over 78% of convenience stores,
45% of supermarkets and 62%
of drogeries operating under
the new concept.
Output grew by 17% in 2021
to 360,000 tons reflecting
the expansion of the private
label range through a ramp-up
of production rates and increased
yields from greenhouse complexes.
During the year the number of loyalty
programme cardholders reached
58.7 million, with the proportion
of tickets using the loyalty card
reaching 56% with sales penetration
of 69%. The loyalty programme
continued to deliver positive cross-
format gains with 43% of our
customer base visiting two or
more formats. The average ticket
of the active user is 1.8x higher
compared to transactions without
a loyalty card in a convenience store
and 2.0x higher in larger formats.
We have continued to improve
and expand our private label range
to support a variety of consumer
missions and price points.
Our ambition to have an up to 25%
private label share in sales by 2025
is being achieved through a focus
on quality and price, investment
in our own production, direct
imports to differentiate our offering
and strategic partnerships with
suppliers. Private label sales grew
by 23.8% during the year.
Magnit remains the only retailer
in Russia that operates its own food
production facilities out of 17 sites
spread across Russian regions.
The facilities currently manufacture
around 500 articles, including
socially important goods. Our own
greenhouses ensure the availability
and quality of fresh vegetables,
including those that may be subject
to import restrictions.
Private label and own production
is tied strongly to Magnit’s
sustainability commitments
to 2025, since we can directly
affect the decisions made in the
products we produce. Our aim is to
achieve a 50% share of recyclable,
reusable or compostable packaging,
and ensure 100% responsible
production and agriculture.
Our rapid growth resulted in a 13%
increase in staff at our operations
to a headcount of about 360 thous.,
including the Dixy acquisition,
a significant jump which cements our
position as one of the largest private
employers in Russia. We recognise
the huge responsibility this comes
with, so we keep working to be
the nation’s number one employer
in retail in order to attract and retain
the best talent.
Our strategy is driven by the desire
to create value for employees,
which will result in a constant
improvement in employee net
promoter score and reduced staff
turnover. This is important since
the labour market is experiencing
increased competition, fuelled by an
aging population, and by restrictions
on population movements.
In response, the HR team have
been developing our employer
value proposition (EVP), working
on our corporate culture
and communications, recruitment,
talent development,
as well as benefits and employee
loyalty programmes.
impacts. During 2022, we will
progress our ESG commitments,
fine-tune our work to drive greater
improvements and facilitate greater
transparency and accountability
in our operations.
Over the course of this year and
beyond, I am confident in Magnit’s
ability to further cement our
position as a leading Russian retailer.
This would not be possible without
the hard work and commitment
of our skilled teams and support
of all our stakeholders, and I
would like to thank them for their
continued dedication to Magnit.
Jan Dunning
President
and Chief Executive Officer
Special attention is being paid
to reducing a comparatively high
staff turnover at Dixy. This includes
improving recruitment channels,
compensation packages, reducing
workloads, training and induction
programmes, management oversight
and non-financial motivation tools.
During the period we continued
to strengthen our Management
Board, growing it from 9 to 13
members to reflect the changes
taking place at the Company
and ensure more efficient
cross-functional collaboration.
Appointments included a new
e-commerce Director and Chief
Digital and Technology Officer.
They are responsible for accelerating
the roll-out of our e-commerce
strategy and the continuous
development of our technology
and IT-infrastructure, harnessing
advanced analytics and big data.
Our supply chain transformation
continued through the year
replacing the legacy internal solution
with a cloud-based platform based
on AI and ML technologies. We
also began implementing a single
transport management system,
replacing a number of disparate
technologies to bring about greater
efficiencies and better coordination
in our logistics services.
Outlook
We began 2022 in a strong financial
position, with optimised leverage,
improved working capital and
increased cash generation.
This gives us confidence to continue
our development and further
strengthen our market position.
We will continue to follow our clear
strategy to improve the customer
value proposition, to offer formats
that meet consumer missions
and introduce operational
efficiencies across the Group.
The market environment continues
to be tough. Noticeable increases
in inflation rates are putting
greater pressure on consumers
as well as the cost of raw materials
and production costs. In response,
we have taken measures to mitigate
price increases on a broad range
of socially important goods, allowing
us to provide targeted assistance
to cash-strapped consumers.
As a responsible retailer our
purpose remains to provide
safe, nutritious, affordable food
and products to improve the lives
of our customers. At the heart
of this is a strong commitment
to growing the business sustainably
and continuing to reduce our
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Highlights
of the Year
Strategic priorities
Improvement
of LFL sales
growth
Accelerate
smart organic
expansion
Proactive
and opportunistic
return-driven
consolidation play
Margin regain
High returns leading
to strong dividend
payment
E-grocery
platform
development
Improvements
of the working
capital cycle
Achievements in 2021 vs 2020
>7 days
optimisation of WC
with RUB 18 bln cash release and
working capital turning negative
EBITDA margin
improvement to
7.2 %
in 2021 from 7.0% in 2020
on the back of gross margin
gains and strict cost control
3 M&As
strategic acquisition
of Dixy business and
two bolt-on acquisitions
of Edelweiss and Radezh
2,281
gross new stores
of core formats opened
in 2021 vs. 1,292 in 2020
Full-year GMV of
RUB11.2 bln
with more than 62,000
orders daily
LFL sales growth of
ROIC1 growth to
7.0 %
2021 – second consecutive
year of market-leading
LFL sales growth
16.5 %
in 2021 vs 13.8% in 2020 vs 7.9%
in 2019 and 20% YoY increase
in dividend payment2
1 roic = (eBit - iNcome tAx) / (AverAge Net deBt + AverAge equity)
2 BAsed oN the first trANche of divideNd pAymeNt – for 9m 2021 of ruB 30 BlN vs 9m 2020
of ruB 25 BlN
Note: All fiNANciAl metrics Are provided iN AccordANce with iAs 17 stANdArd.
2021 strategic priorities –
We deliver what we
promise
In 2021, Magnit delivered
significant progress against its
strategy. We continued organic
expansion and improvement
of customer experience in our
stores, demonstrating industry-
leading growth in LFL sales.
We completed a strategically
important acquisition of Dixy
that strengthened our positions
in Moscow and St. Petersburg
and improved its profitability.
Despite this large acquisition, we
managed to maintain a “healthy”
debt level at 1.5x EBITDA (IAS 17).
The e-commerce channel, launched
by Magnit in the second half
of 2020, quickly gained traction
and surpassed RUB 11 bln in turnover
for the full year. We also managed
to further optimise our working
capital cycle and improve return
on investments.
— The Board of Directors introduced
the Audit Fees Policy to limit the
volume of non-audit fees received
by the Company’s external auditor
to ensure its independence.
Corporate Governance
— Shareholders approved a
new edition of the Articles of
Association that expanded the size
of the Board of Directors from nine
to eleven members
— Magnit further strengthened the
Board of Directors, introducing
new independent Board Members
with expertise in tech and finance
— We continued to strengthen the
Management Board to improve
decision-making. The Management
Board was expanded to 13 members
Securities
— Dividends paid for 9M 2021
amounted to RUB 30 bln. This
represents 20% YoY growth
compared with RUB 25 bln paid
for 9M 2020
— Magnit placed RUB 20 bln of
exchange-traded bonds with
a 7.05% coupon
— Credit Rating Agency ACRA
affirmed its credit rating for Magnit
bonds at AA (RU)
— S&P upgraded Magnit's credit
rating to BB+ with forecast “Stable”
Operations
— Redesign of more than 700 Magnit
stores (including convenience
stores, supermarkets and
drogeries) to improve customer
value proposition
— Magnit organic expansion
to add 1,450 convenience
stores, 825 cosmetic stores and
6 supermarkets during the year,
boosting the gross number of store
openings 77% from 2020
— Successful pilot of 190 My Price
discounter stores showing returns
of >50% has triggered the decision
to further roll out this format
— Concept tailoring of new promising
ventures City and Go and launch
of updated pilots
— Multi-format e-commerce rollout
(including dark stores scaling) led
to 62,000 daily orders and annual
GMV of RUB 11.2 bln
— IT landscape upgrade on track,
including SAP-based ERP
integration, supply chain software,
focus on cloud-based technologies.
Sustainability
— Reducing carbon emissions in
logistics operations via upgrading
our truck fleet, switching to more
environmentally friendly fuel
— Ongoing energy saving programme
for refrigerator equipment, air
conditioners and lighting systems
— Magnit headquarters in Krasnodar
received a Green Office certificate
for practices including waste
recycling, energy and water saving
— Project to analyse waste
composition at our stores to
increase waste recycling vs disposal
— Joint initiative with eight largest
FMCG brands – “United for a
Healthier Future” – to promote
healthy lifestyles among consumers
and local communities
— Rollout of healthy food zones in our
stores
— “Kind Bunny” project – creating
an inclusive environment for people
with disabilities in our stores,
training personnel to serve this
category of customers
— In July, National Rating Agency
ranked Magnit No.3 in the
ESG rating of Russian public
non-financial companies and No. 1
among retailers
— In August, MSCI increased Magnit's
ESG rating to BBB.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Market Overview
Consumer spending surged
in April 2021 following the removal
of restrictions and continued to show
growth for the rest of the year, albeit
at a slowing rate. Food retail has
benefitted with a return to growth,
and the market leaders, including
Magnit, gained market share due
to consolidation and the ongoing
focus on modernisation and CVP
improvements.
Macroeconomic Environment
Year-on-year GDP improved by 4.7%
in 2021 due to the gradual recovery
of economic activity following
the implementation of the Nationwide
Economic Recovery Plan and the
removal of restrictive measures
related to COVID-19. This was coupled
with a highly supportive inflationary
trends for retailers and a substantial
recovery in real disposable incomes
as people returned to work.
After the initial spike in consumer
spending in 2Q 2021, retail
and food sales growth weakened
in subsequent quarters. To provide
additional stimulus to the economy
the government announced a series
of additional financial support
measures for families, vulnerable
people and small businesses.
This includes a one-off payment
to pensioners, as well as elementary
and secondary school students,
of RUB 10,000 and RUB 15,000
to ex-military personnel. Meanwhile
children aged 8 to 16 years from
families with one parent now receive
payments of on average RUB 5,650
a month.
Real GDP change in Russia, %
4.0
1.8
0.7
-2.0
0.2
1.8
2.8
2.2
-2.7
4.7
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
source: federAl stAte stAtistics service, miNistry of ecoNomy developmeNt of the russiAN federAtioN
Low-income households typically
spend around 40% of income
on food and the implication of this
extra support is that it will be
directed towards food purchases.
According to SBER CIB bank,
in total the government is expected
to spend an estimated extra
RUB 500 billion between 2021–2024
on social services, construction, and
state oversight over environmental,
digital, and customer-oriented
development projects. This is being
made possible thanks to strong
economic performance and a
recovery in non-oil and gas tax
revenues1.
The monthly minimum wage in Russia
rose by 5.5% in 2021 to RUB 12,792.
In Moscow it was set at RUB 20,589
and RUB 19,000 in St. Petersburg.
In 2021, average real wage grew
marginally by 2.9% while real
disposable income (RDI) has
been slowly growing by 3.1%
year-on-year, driven primarily
by a rebound in incomes from
property and business.
The average total number of the
unemployed in December 2021
amounted to 3.2 million shrinking
year-on-year to 4.3% compared
to 5.9% the previous year.
The unemployment rate has dropped
to a record low, while the number
of vacancies is at a record high.
The Consumer Price Index (CPI)
rose throughout 2021 by 6.7%2,
while Food CPI increased by 8.4%3
with particular rises in fresh foods
such as vegetables and eggs. Rising
food prices increased food spend
by 2.4%, drawing growing concern
by consumers.
Seasonally adjusted growth
in consumer prices rallied
to a six-year high in October
and November. Household inflation
expectations rose up to a five-year
high in December. Businesses’ price
expectations also held close to multi-
year highs. In response, the Central
Bank of Russia raised its benchmark
policy rate to 8.5% during its
December 2021 meeting, to dampen
the continually rising inflation.
Real wages, real disposable income and unemployment rate, %
CPI and Food CPI in Russia, %
4
4
.
4
2
.
.
6
0
7
.
1
-
.
0
9
-
.
5
8
-
.
5
9
-
.
8
9
-
.
6
0
-
.
3
0
2
.
1
8
.
1
8
.
1
4
3
.
1
.
3
.
9
5
.
2
0
1
6
.
7
3
6
.
1
.
4
3
.
1
6
2
.
0
3
.
.
6
4
.
2
6
1
.
0
-
8
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1
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2
2
6
.
1
5
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0
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8
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8
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10
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25
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8
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.
1
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4
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2
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1
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8
5
.
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.
.
5
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.
.
6
3
.
3
4
8
5
.
4
.
7
3
.
7
1
.
8
.
8
0
1
Q
1
Q
2
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3
Q
4
Q
1
Q
2
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3
Q
4
Q
1
Q
2
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3
Q
4
Q
1
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2
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3
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4
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1
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3
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4
Q
1
Q
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3
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4
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1
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4
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1
Q
2
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1
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2
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1
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1
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1
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3
Q
4
2014
2015
2016
2017
2018
2019
2020
2021
2014
2015
2016
2017
2018
2019
2020
2021
Unemployment, %
Real wages growth,
Real disposable income
CPI, % YoY
Food CPI, % YoY
% YoY
growth, % YoY
source: federAl stAte stAtistics service
source: federAl stAte stAtistics service
1 sBer ciB iNvestmeNt reseArch, russiA ecoNomic
moNthly – very stroNg reveNues Allow goverNmeNt
to Boost speNdiNg, 10 septemBer 2021
2 AverAge ANNuAl iNflAtioN rAte is giveN BAsed
oN the AverAge quArterly cpi chANges yeAr-oN-yeAr.
3 iNflAtioN rAte At the eNd of decemBer 2021
siNce decemBer 2020 wAs 10.6%.
18
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magnit.com
19
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Market Overview
(continued)
Grocery Retail Market in 2021, USD bln
Food Retail Sales in Russia in 2001−2021
# 1
in Russia by number of stores
and geographical footprint
Russian retail market
The easing of COVID-19 related
restrictions in April 2021 saw
an immediate and significant real
growth in retail sales in Russia,
and continued growth throughout
the year to an average of 7.3%.
This was reflected in real growth
of food retail sales in Russia to an
average of 2.2% demonstrating
a strong recovery from
the previous year.
Modern retailers such as Magnit
continued to benefit, taking a 75%
market share as operators resumed
their store roll-out after the 2020
hiatus, adding 2.6 mln sq. m of new
space during 2021. This was
coupled with a continued strong
performance from modern
convenience stores. The recovery
in real disposable income (RDI)
and consumer confidence index
(CCI) in 2021 resulted in customers
continuing to concentrate their
spend on food rather than on travel,
entertainment and leisure.
The statistics clearly reiterate that
grocery retail is benefitting more
from the post-pandemic recovery
than other industries in Russia.
20
China
1,444
USA
1,266
India
441
Germany
283
Japan
281
France
280
United Kingdom
254
Russia
181
Turkey
Poland
Brazil
South Africa
70
69
45
39
source: euromoNitor, 2021
In 2021, the Russian food retail
market remained 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 with the top five players
increasing the market share
in revenue terms to 42%, up 2 p.p.
from 2020.
1.4
1.8
2.1
2.6
3.2
3.9
4.9
6.5
7.1
8.0
9.1
10.0 11.1
12.4 13.4 13.7 14.4 15.1
16.1
16.6 18.4
23.8
19.3
23.4 24.7
22.7
23.9 32.8
18.6
15.1
12.0
11.7
10.9
9.0
11.9
13.3
9.3
12.8
13.8
9.4
11.9
11.1
8.3
8.8
8.8
6.1
6.6
6.5
11.4
12.9
2.3
5.0
4.5
7.1
2.9
11.2
5.4
2.5
4.3
3.0
4.9
6.7
2001 2002 2003 2004 2005 2006 2007
2008 2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Russian Food Retail Sales, RUB trln
Food CPI, % YoY
Food Retail Sales Growth, % YoY
source: federAl stAte stAtistics service, miNistry of ecoNomic developmeNt of russiAN federAtioN, mAgNit ANAlysis
CCI and Real Food Retail Sales growth, %
.
0
0
1
.
2
0
1
4
.
1
1
.
5
2
1
1
.
3
1
2
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.
0
.
7
1
.
5
.
6
3
9
.
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3
.
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100
80
60
40
20
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.
Q
1
Q
2
Q
3
Q
4
Q
1
Q
2
Q
3
Q
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Q
2
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3
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4
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1
Q
2
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1
Q
2
Q
3
Q
4
2014
2015
2016
2017
2018
2019
2020
2021
Consumer
Confidence Index, %
Nominal Food Retail
Sales growth, % YoY
Real Food Retail Sales
growth, % YoY
source: federAl stAte stAtistics service, miNistry of ecoNomy developmeNt of the russiAN federAtioN
2021
magnit.com
21
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Market Overview
(continued)
Share of Modern and Traditional Retail in 2021, %
Total Selling Space in Russia for modern retail in 2014−2021, mln sq. m
# 2
retail chain in Russia
by revenue
There remains considerable scope
for consolidation in a fragmented
and underpenetrated market,
particularly for companies like
Magnit which are well funded
and have clear M&A strategies.
Russia remains behind developed
countries, where the top 5 players
account for 61% 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
and market consolidation. In 2021,
the top 10 companies in Russian
retail demonstrated sales growth
of 11% year-on-year. Magnit’s market
share in 2021 increased by 0.6 p.p.
to 11.5%, due to acceleration of
organic expansion as well as
acquisition of Dixy.
The trend to shop online has
skyrocketed as a result of the
pandemic, especially in large cities
such as Moscow and St. Petersburg.
The e-grocery market in Russia
in 2021 grew by 247% and reached
RUB 383 bln, which is 2.1% of the total
food retail market volume, leaving
considerable room for growth.
22
Denmark
United Kingdom
Poland
USA
Germany
Australia
France
Russia
South Africa
Turkey
Brazil
8
9
10
11
12
19
20
25
35
39
40
Traditional retail
Modern retail
source: euromoNitor, 2021
In 2022, we will continue our
smart growth strategy focusing
on improved sales density, new
store openings, and enhanced
CVP. In addition, the growth of
e-commerce is fast accelerating,
giving further opportunities.
We will continue to closely monitor
opportunities available in the market.
See more at Strategy
and Operational Review
92
91
90
89
88
81
80
75
65
61
60
2021
2020
2019
2018
2017
2016
2015
18%
11%
20%
11%
22%
12%
24%
13%
26%
14%
72%
69%
67%
63%
61%
28%
15%
58%
29%
16%
55%
2014
30%
18%
52%
31.0
28.4
27.2
25.3
23.1
20.9
18.8
16.2
Hypermarkets
Supermarkets
Convenience stores
source: iNfoliNe, mAgNit ANAlysis, 2021
Magnit market share by revenue
in Russia in 2021, %
Magnit Market Share by Revenue in Russia
in 2014−2021, %
7.0
8.1
8.9
9.1
9.4
9.8
10.9
11.5
.
.
p
p
9
0
+
.
.
.
p
p
1
.
1
+
.
.
p
p
1
.
0
+
.
.
p
p
3
0
+
.
.
.
p
p
4
0
+
.
.
.
p
p
1
.
1
+
.
.
p
p
6
0
+
.
12.7 X5 Retail Group
11.5 Magnit
5.9 Mercury Retail
2.4 Lenta
1.8 Svetofor
1.4 Auchan
1.1 Metro
1.1 O'Key
1.0 Vkusvill
0.8 Monetka
2014
2015
2016
2017
2018
2019
2020
2021
Market Share, % YoY
Growth, % YoY
source: iNfoliNe, mAgNit ANAlysis, 2021
source: federAl stAte stAtistics service, mAgNit ANAlysis, 2021
2021
magnit.com
23
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Market Overview
(continued)
Key trends in consumer behaviour and preferences in 2021
Spending still up, but showing slowing
trend
Grocery buying behaviour adopted
during the pandemic has remained, with
consumer spending on average
higher by 2.4% year-on-year,
but showing a slowing trend
as consumer concerns about
the pandemic decrease
and confidence index
returns to pre-pandemic
levels. This will lead to a greater
balance between price, quality
and usability.
Consumers becoming more digital
Growing dependency on online content
driving changes in consumer behaviour
and interaction with retailers. Consumers
expect relevant and personalised content
and access to services and shopping at an any
time and everywhere. Demand for immediate
actions and service is increasing due to the
accelerating pace of life, and consumers are
checking prices and promo
offers.
Convenience continued to trump price
Continuing to favour convenience stores
and retailers that can offer omni-channel
capabilities, although price remains a top
priority for store selection.
Focus on healthy living and conscious
consumption
Greater awareness around the environment,
nutrition and health is leading to consumers
who are ready to pay more for healthier
and eco-friendly products in certain
categories.
Key trends in Russian retail market
Growing inflation
Emerging digital systems
Inflationary trends are expected to support
food retail into 2022, but will put pressure
on CAPEX.
Further consolidation
M&A activity of federal players is expected
due to the withdrawal of smaller and regional
operators.
eGrocery sales accelerating
eGrocery is expected to reach 5% penetration
in food retail in 2024. Number of dark stores
is increasing to serve the eGrocery market.
Rise of hard discounters
A growing number of hard discounter stores
targeted at the price-sensitive consumer
niche and penetration into locations, such
as remote or regional, which are not suitable
for regular formats. Availability of smaller
retail units is helping to drive expansion.
Technology enabling a more personalised
experience through analytics.
State support
Additional and continued financial payments
to support the elderly, young families
and other low-income and vulnerable social
groups, with much of this spending being
directed towards food purchases.
Sustainable development becoming key
Stakeholders increasingly focused
on sustainable development and responsible
behaviour from large companies, with
expectations of continuous environmental,
social and governance improvement.
24
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25
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Market Overview
(continued)
Key changes in regulatory environment in 2021
Change
Regulatory Document
Effective Date
Change
Regulatory Document
Effective Date
Changes were introduced in the process of implementing
the labeling of dairy products, including the postponement of the
deadline for the mandatory display of the product code in retail
sales
Regulation of the Government of the
Russian Federation No. 2100 dated
30 November 2021
Indexation of the Platon heavy vehicle charge system tariff
(increase by 14 kopecks compared to the previous tariff)
Decision of the Ministry of Transport
of the Russian Federation
1 February
2021
Approval of the list of goods and packaging to be disposed
of after the loss of their consumer properties
Executive Order of the Government
of the Russian Federation No. 3721-r
dated 31 December 2020
1 January 2021
to 1 January
2022
Approval of the procedure for conducting continuous monitoring
of prices for consumer goods and services
Regulation of the Government of the
Russian Federation No. 497-r
27 February
2021
Increase of minimum retail prices for spirits, including vodka
and cognac
Order of the Ministry of Finance of Russia
No. 232n dated 7 October 2020
1 January 2021
According to the law, the "Champagne" name can be used only
in relation to Russian-made goods in the territory of the Russian
Federation. Foreign wines should be renamed "sparkling wines".
There are other changes in the classification of wine products,
in retail it is necessary to organise a separate layout
Extension of agreements on fixation of prices for sugar until 1 June
2021, and for sunflower oil until 1 October 2021
On 1 April 2021, the transitional period for labeling alcohol imported
into the territory of Russia was completed. From 1 January 2021, all
alcohol must be labeled with federal special marks. Prior to this, only
products made in Russia were designated by special marks
20% increase in the excise tax rates on cigarettes and other
tobacco products in Russia from 2021 came into force
Federal Law No. 345-FZ on alcohol market
regulation
2 July 2021
Agreements between market participants
on stabilisation of sugar and sunflower oil
prices
30 March 2021
Federal Law No. 436-FZ dated
22 December 2020
1 January 2021
Federal Law No. 321-FZ
1 January 2021
The minimum retail price for a pack of cigarettes has been set
at RUB 107.78
Federal Law No. 504-FZ dated
30 December 2020
Extension of the anti-tobacco law to all nicotine-containing products Federal Law No. 303-FZ dated
31 July 2020
Federal Law No. 371-FZ of 9 November
2020
1 July 2021
28 January
2021
1 July 2021
Creation of a national system of traceability of goods (NSP)
in Russia. From 1 July 2021, organisations are required to submit
reports on transactions with goods subject to traceability,
and documents containing traceability details
New rules for the sale of goods at retail came into force
Executive order on urgent measures to support small and medium-
sized entrepreneurs in the retail sector. Regional authorities are
recommended to facilitate the work of retail markets and fairs
in crowded places
Regulation of the Government
of the Russian Federation No. 2463
1 January 2021
Executive Order of the Government
of the Russian Federation No. 208-r
dated 30 January 2021
30 January
2021
Extension of the food embargo until the end of 2022. The document
envisages a ban on the import of meat, dairy and fish products,
vegetables and fruits, salt, live pigs and edible offal from the EU,
the USA, Norway and Australia
The President of the Russian Federation Vladimir Putin instructed
the Federal Antimonopoly Service to monitor the formation
of product prices in retail chains. On 13 August 2021, the FAS
of the Russian Federation began unscheduled on-site inspections
in relation to leading retail chains for an anti-competitive agreement,
the consequence of which may be an increase and maintenance
of prices
A number of regions of the Russian Federation adopted regulations
on mandatory vaccination of certain categories of citizens, including
trade employees, and on pass control at the entrance to certain
shopping facilities (admission of citizens only with a QR code
on vaccination, QR code on the previous disease, QR code
on a negative test for the coronavirus infection or a certificate
of medical exemption)
On the day
of publication,
as far as
the provisions
relating
to retail trade
are relevant
30 September
2021
Decree of the President of Russian
Federation
Decree of the President of Russian
Federation
8 August 2021
Resolutions of chief medical officers
of regions on the basis of paragraph 6
part 1 article 51 of the Federal law No.
52-FZ "On sanitary and epidemiological
well-being of population" dated 30 March
1999, article 10 of the Federal law No. 157-
FZ "On immunoprophylaxis of infectious
diseases” dated 17 September 1998,
item 18.3 Sanitary Rules and Regulations
3.1/3.2.3 146-13 "General requirements
for the prevention of infectious
and parasitic diseases", order of the
Ministry of Health of Russia No. 125n
"On approval of the national calendar
of preventive vaccinations and calendar
of preventive vaccinations for epidemic
indications” dated 21 March 2024
26
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magnit.com
27
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Strategy
Our strategic goal is to cement
our current leading federal retail
positions by growing our market
share significantly and profitably.
Our strategic ambition
is to become #1 for consumers,
employees and investors.
Our strategy at a glance
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 NPS/CSI1 and more
customer gains
than losses
Our goals are supported by four pillars:
Consumer first
Employer of choice
— Flexible and proactive
approach to personnel
attraction
— Intensified investment
in people to ensure
best competences
and business continuity
— One team approach as
the base for effective
cross-functional
cooperation
— Talent assessments
and social lifts
— Agility and innovative
thinking
— Consumer-centric
decision-making
with enhanced
loyalty (as the key
data source)/
personalisation
powered by AI /
Big Data
— Enhanced CVP
and clustering
to better serve
consumer needs
— Improved brand
positioning (including
care, safety, ESG
and value for money)
— E2E consumer
offering going beyond
traditional offline
space – digital /
ecosystem
Most efficient
and promising ways
to market
— Smart expansion
in core formats to
profitably catch up
market share,
including M&As
— Actively and
structurally consider
new sales lines,
new niches / markets
— OMNI including online
— Agile sourcing including
partnerships with
suppliers, crystalised
offering in own
production /
Private Label
to enhance offering
and secure positioning
Modern and efficient
platform
— Defined and
straightforward
functional strategies
— Smooth and efficient
processes
— Flexible organisational
structure, clear
responsibility split
combined with
entrepreneurial culture
— Flexible, reliable and
scalable cloud-based
IT solutions and Data
platform
— Product-centric
technology
organisation
Magnit recorded significant sales
growth in 2021, driven by increased
selling space, a trading environment
that improved throughout the year,
and continued sales uplift from
mature stores, resulting in a sales
density improvement of 4.7%.
It is clear that our initiatives
to enhance consumer perception
and experience are working,
as demonstrated by positive
NPS and Consumer Satisfaction
Index trends and net consumer
gains. Our sustainability strategy
is now embedded throughout our
organisation as we continue to add
more data metrics to monitor our
performance and improvements.
We have continued to develop
internal processes to extract
greater efficiency and our
investment in people has intensified
to ensure we have the right
competencies and have an agile
and innovative company.
28
Investors
Creating value
for shareholders thanks
to attractive returns
Employees
Constant improvement
of eNPS2/ engagement,
employee turnover
and staffing level
+4.7%
sales density improvement in 2021
These efforts have created
significant value for shareholders –
Magnit’s local share price has
increased by 55% from January 2019
to December 2021, and a new
approach to investments
and redesigns drove impressive
returns and uplifts.
1 Net promoter score/ coNsumer sAtisfActioN iNdex
2 employee eNgAgemeNt ANd sAtisfActioN survey
Sustainability
Sustainability is firmly embedded
in all areas of our strategy and it
is key to the continued growth
of the Company. It 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 sets
out our ambitions and strategic
principles and formalises our
approach. We are committed
to reducing our environmental
impact and having a positive
impact on the wider society,
as well as ensuring our employees
are satisfied and upholding
the highest standards
of corporate governance.
2021
magnit.com
29
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Strategy
(continued)
Strategic priorities
Priorities
Our strategic priorities for 2021
Our strategic guidance for 2025
Keep improving CVP as a key driver for material
improvements of sales density and profitability supported
by processes and ways of working enhancement
Clear CVP initiatives to enhance consumer perception
and experience big time
Enhance CVPs
Clear potential to increase sales densities by way
of speeding up value accretive redesigns
Continuous focus on extracting efficiency to get higher
profitability and cash generation
Thought-out strategic plan to capture tremendous
business improvement
Extract
efficiency
Smart
expansion
Strengthen
our overall
positioning
Extend
consumer
offering
Focus on smart expansion implying high profitability
targets for new openings
Accelerate smart organic expansion
(p.a. on gross basis)
— ~1,000 convenience stores
— 700−800 drogeries
— 300−600 discounters
— 5−10 supermarkets and superstores
Due to overall market evolution and high consolidation
potential we expect more opportunities to become
available in the M&A field where we could selectively
(based on strategic and value accretive approach)
strengthen our overall positioning
Proactive and opportunistic return-driven consolidation
play (M&A)
Extend consumer offering complementary to our core
business (incl. partnerships, E-comm, new geographies
and specialised formats in important adjacent consumer
Build a leading e-commerce platform capable of handling
5%+ of Magnit turnover with seamless integration into
an omni-channel consumer experience
missions, etc.) to better satisfy consumer needs
Continue to proactively consider adjacent value accretive
niches
Adherence to sustaining high return requirements
for new projects
We believe that every strategic
move should be supported
by strong and robust financials:
— Benefits from lucrative EBITDA
margin (IAS 17) steadily improving
to 8.0% in 2021−2024 and 8%+
from 2025 despite expanding
into e-commerce channel
and discounters
— Improvement of working capital
with a focus on stock days
optimisation by 4−7 days, incl.:
• 3−5 days in grocery
• 10−15 days in drogerie
— Continue following strict return
requirements for all projects.
CAPEX to remain <4.0%
as a % of sales
— Comfortable leverage of ~1.5x
(IAS 17) of Net Debt/EBITDA
with a self-imposed ceiling
of 2.0x and high potential to fall
to around 1.0x in the next years
subject to M&A opportunities
— Focus on constant improvement
of returns and value accretion
for shareholders. Expect
double-digit ROIC1 growth
in 2025 vs 2021
— Capacity for annual increase
of dividend payments depending
on the financial position
and subject to Board decision
and shareholder approval
Integrating Dixy
Our in-depth examination makes
us confident that we can extract
significant synergies from
the acquisition of Dixy in the
medium term, and allows us
to maintain our ambitious
long-term targets.
While Dixy and Magnit will
continue to operate as separate
brands, we have established
an integration management
office (IMO) as well as new joint
committees at the senior level
Synergies identified :
for strategy, investment, financial,
remuneration and integration. New
cross-functional mandates have
been identified to align financial
terminology and investment
methodology as well as key
decision-making processes such as
investments, authorities and HR.
Project management, audit
and tracking will also be a joint
effort, and we are in the process
of combining our communications
plans to align our corporate
cultures.
Commercial
Cost savings
— Combined sourcing/
procurement
— Private label production,
direct import and seasonal
and exclusive assortment
— Align pricing strategy
Operations
— New effective solutions
for overlapping stores
on a case-by-case basis
— Potential to transform /
redeploy Dixy stores into
a Magnit convenience,
supermarket, drogerie,
hard discounter or dark
store
— Align business
processes and IT
— Centralise back office
and support functions
where relevant
— Share and decrease costs
in marketing, utilities
and outsourced services
— Reduce tariffs
for acquiring, cash
collection and bank fees
Cross-synergies
— Technology sharing
— Customer data analysis
via loyalty programmes
— Re-usage of data centers
See more on how we are
integrating Dixy on p. 42.
30
2021
magnit.com
31
1 roic = (eBit - iNcome tAx) /
(AverAge Net deBt + AverAge equity)
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Investment Case
The acquisition of Dixy, the fifth largest grocery retailer in Russia,
in 2021 is expected to strengthen Magnit’s competitive position
significantly in the Russian food retail sector.
The Dixy brand’s strong exposure to the strategically important Moscow
and St. Petersburg regions, which in 2020 accounted for approximately
29% of the total Russian food retail market1, has led to a sharp increase
in the Company’s market positions in both capitals, including more
than twofold market share growth in both Moscow and St. Petersburg.
The integration of Dixy will provide synergies in procurement, category
management, technology, as well as cost savings in various business
processes. This, together with the significant gains in e-commerce
and the development of Private Label products and CVP will benefit
the Company’s customers and provide value accretion for shareholders.
Market potential
We offer exposure to a sizeable
market with potential
for further organic expansion
and consolidation
— Sizeable market with growing
modern food retail penetration
which offers opportunities
for organic expansion
— Fragmented market with high
potential for further consolidation
— Large players are gaining
market share
— New niches / ways to market actively
emerging with constantly evolving
e-grocery market
5 reasons to invest in Magnit
Russian market offers further
growth potential
The market has potential
for further consolidation
Share of Modern
and Traditional Retail in 2021, %
Share of top-5 players
in grocery retail in 2021, %
8
9
10
11
12
19
20
25
35
39
92
91
90
89
88
81
80
75
65
61
80
79
75
62
61
58
43
42
41
33
Leading player
Magnit is one of the largest food
retailers in Russia with well-
developed infrastructure, strong
customer base, well-known brand,
and market share gain
— Multi-format offering with four core
formats covering range of shopping
missions in grocery, drogerie
and pharma segments
— Wide geographical coverage with
26,077 stores in 3,898 cities in 7
federal districts
— 11.5% market share
in food retail sales
— Serving customers in all highly
populated Russian regions
(67 regions, 58.7 mln loyalty cards)
— Well-developed country-wide supply
chain with 45 distribution centres
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 2018−2021, %
2021
11.2
19.3
2020
2.9
13.4
2019
7.1
11.4
2018
4.5
8.3
Russian sales growth, % YoY
Magnit sales growth rate*, %
* including VAT
Growth ambitions
On track to speed up profitable
return-driven growth leading
to further market share grab
— Consider small to mid-size value
accretive M&A to strengthen
market positions
— Adherence to sustaining high return
requirements for new projects
— Store network redesign programme
+13 bps
EBITDA margin
improvement in 2021 (IAS 17)
— Speed up value accretive organic
to improve sales density
expansion
— Smart expansion implying high
profitability targets for new
openings
— Build a leading e-grocery platform
capable of handling 5%+ of turnover
— Proactively consider adjacent value
accretive niches
+ 4.7%
sales density
improvement in 2021
Efficiency gains
We have tremendous business
improvement potential to be
materialised
— Further CVP improvement to drive
material improvements of sales
density and profitability
— CVP initiatives to enhance
consumers’ perception
and experience
— Increase in sales densities also
by way of speeding up redesigns
and processes improvement
— Extension of consumer offering
— Benefits from lucrative EBITDA
margin steadily improving to 8.0%
within 2021−2024 and 8%+ (IAS 17)
from 2025 despite expansion of
the e-commerce channel
and discounters
— Continuous focus on efficiency
complementary to core business
to get higher returns
Dividends
Strong capital discipline with a
focus on returns in all investment
decisions providing substantial
dividend payment
— Focus on quality of new store
openings resulting in better payback
— Keeping a comfortable level
of Net Debt/EBITDA leverage
at ~1.5x (IAS 17)
— Clear plan to improve working
capital with a focus on stock
days optimisation
— Value accretion for shareholders
leading to continuous strong
dividend payment
Magnit dividend payment and dividend yield in 2008−2021
0.1
1.3
0.6
2.1
7.7
12.8 34.3 29.4 26.3 24.7 31.0 31.0 50.0 30.0
8,7
8,9
8,7
3.7
2.8
2.5
4.0
0.3
0,7
0.2
1.7
1.5
0.8
RUB 64.2* bln
strong free cash flow
in 2021
* excluding Dixy
5.4
1.5x
Net Debt/EBITDA
leverage (IAS17)
as of December 2021
1 dAtA comBiNed for moscow & moscow regioN
ANd st.petersBurg & leNiNgrAdsky regioN
for 2020 AccordiNg to rosstAt
32
Traditional retail
Modern retail
source: euromoNitor, 2021
2008 2009 2010
2011
2012
2013
2014 2015
2016
2017
2018
2019 2020 9M 2021
Dividend yield, %
Total dividends paid, RUB bln
2021
magnit.com
33
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Stategic Report
Corporate Governance
Consolidated Financial Statements
Appendices
Business Model
We are everywhere for our customers
Inputs: resources and relationships
How our business is different
Outcomes for our stakeholders
Our customers
Employees
15 mln
customers daily
Suppliers
>6 thous.
~360 thous.
one of the largest private
employers in Russia
Shareholders
>150
thous.
According to EGM 2021
Government
and regulators
Magnit has an efficient
corporate governance framework
Environment
and communities
Magnit’s Sustainability Strategic
Framework sets an ambitious
goal for embedding sustainability
in every aspect of the business
Quality and range
100 quality awards in 2021
12 quality control
laboratories conducting
>2.8 thous. daily tests
>4 thous. private label
SKUs = 16% share of PL
Largest supply
chain network
45 distribution centres
in seven federal districts
>5 thous. trucks
1.9 mln sq. m
of warehouse space
Multi-format
and omni-channel
>4,490 offline stores
and 20 dark stores in 64 regions of Russia
8,997 thous. sq. m
selling space
3,898 cities & townships
Own production
and private label
4 agricultural complexes
in seven federal districts
13 industrial facilities
168 production lines
Everywhere
for our customers
Rewarding
our employees
Cooperating with
our suppliers
Delivering returns
to our shareholders
Economic
contribution
Protecting
the environment
and supporting
communities
How our business is different
Outcomes for our stakeholders
Business Model
(continued)
We are everywhere for our customers.
Magnit is further solidifying its leading position in Russian retail by transforming
the business, improving its customer proposition and maintaining high business
profitability. We strive to become the number one choice for our customers,
employees and investors.
Inputs: resources and relationships
Our customers
Suppliers
Magnit is the number one
Russian retailer in terms
of the quantity of stores,
proximity to customers and
geographical coverage. 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 a
population of 3,000 people.
15 mln
customers daily
~59 mln
cross-format loyalty card
holders
69%
penetration in sales
Employees
The scale of operations makes
Magnit one of Russia’s largest
employers. Being an employer
of choice is a key strategic
focus to achieve our ambitions.
~360 thous.
employees – one of the largest
private employers in Russia
Experienced
and talented
management team
Magnit is committed to
being a reliable and trusted
partner to its suppliers. We
differentiate our product
offering through tailored
procurement initiatives, which
includes direct import and
strategic partnerships with
suppliers.
>6 thous.
suppliers
7%
direct import supplies
(~750 contracts)
Shareholders
Strong capital discipline
with a focus on returns in all
investment decisions
Comfortable level
of Net debt/EBITDA leverage
at 1.5x (IAS17)
bln
RUB 64.21
strong free cash flow
1 excludiNg dixy AcquisitioN
Recognised for
supreme quality
and breadth
of range
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 continue
to adjust our customer value
proposition (CVP), develop
our own production facilities
and expand our private label
assortment.
100 quality awards
in 2021
12 quality control
"from field to plate"
laboratories conducting
>2.8 thous. daily tests
>4 thous.
private label SKUs
16 %
share of private label (PL)
Government
and regulators
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 ensuring the protection
of stakeholders rights.
Environment
and communities
Multi-format
and omni-channel
Magnit's Sustainability
Strategic Framework
sets an ambitious
goal for embedding
sustainability in every
aspect of the business
and its processes across five
key areas:
— reducing environmental
impact
— creating a responsible
supply chain
— taking care of employees
— supporting local
communities
— promoting healthy
lifestyles
Magnit operates a multi-format
model across 26,077 stores
which includes convenience
stores and supermarkets,
drogeries and pharmacies.
Both food and non-food
segments of Magnit
are present online.
8,997 thous. sq. m
selling space
3,898
cities & townships
Covers over
4,490 offline stores
and 20 dark stores
in 64 regions of Russia
Largest supply
chain network
in Russia
Our wide geographical
coverage requires us to
have advanced logistics and
supply chain management to
always bring fresh produce
to our customers. We have
a continuous long-term
programme of truck fleet
renewal replacing old
vehicles with Euro-5 eco
standard.
45
distribution centres
in seven federal districts
>5 thous.
trucks
1.9 mln sq. m
of warehouse space
Own production
capabilities and
private label
Uniquely in Russia, Magnit
operates a private label
(PL) food production
business, managing plants
for growing vegetables
and the production of dry
food and confectionery
as well as greenhouse
and mushroom complexes,
which are amongst the
largest in Russia.
4
agricultural complexes
13
industrial complexes
facilities
168
production lines
Everywhere
for our customers
Cooperating
with our suppliers
52% of SKUs
supplied by 4.2 thous. local
producers
Improving
availability of goods through
technology, innovation and
communication
Working
together to identify new
trends and upcoming
projects
Supplier
representatives working
within Magnit offices
• Customer satisfaction rates
and NPS scoring
• Adapting / new format
based on specific customer
trends prevalent
in different localities
• Launching new pilots
including the rollout of
CVM (Customer Value
Management) tools
• Gaining new customers
• Online delivery / shopping
Rewarding
our employees
200 thous.
employees enrolled
in Magnit's Corporate
Academy
83%
employee engagement rate
72%
employee satisfaction rate
Delivering
returns to our
shareholders
Consistent
strong dividend payment
~RUB 48 bln
of dividends paid in 2021
New store openings payback
with ROI2 >40%
Economic
contribution
RUB 94 bln
taxes paid in 2021
44 procurement
sessions in 38 regions
2 roi = ocf for the yeAr
with rAmp-up phAse / cApex
‘Retail with Purpose’: delivering value through our
sustainability strategic framework
Our ambitions
Leader
in environmental impact
reduction in the industry
Best
in class corporate
governance
#1 Employer
in the industry
100%
responsible supply chain
Positive
impact
on the quality of life
of all people in Russia
C
I
T
S
A
L
P
R
E
P
A
P
Protecting the environment and supporting
communities
— Reduction targets for carbon emissions, energy and resource
usage, pollution and food waste
— Responsible sourcing and production and 100% responsible
sourcing for socially important categories
— Community programmes across Magnit’s geographic footprint
36
2021
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37
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Operational Review
RUB1,808bln 7.0%
net retail revenue,
up 19.7% YoY
LFL sales growth
8,997
thous. sq. m
total selling space
26,077
convenience stores,
supermarkets,
superstores
and drogeries
Net retail revenue by format,
RUB mln
Selling space by format,
thous sq. m
1,807,752
Total
8,997
Total
1,309,682 Convenience Magnit1
120,552 Convenience Dixy
214,988 Supermarkets2
152,215 Drogerie
10,314 Other formats3
5,635 Convenience Magnit
718 Convenience Dixy
1,012 Supermarkets
1,604 Drogerie
28 Other formats
As restrictions related to the
COVID-19 pandemic eased in 2021,
Magnit was able to accelerate
sales growth and resume new store
openings at a large scale. Over
the past year, our network expanded
by a record number of 4,513
stores with almost half accounting
for new openings and another half
– for the strategically important
acquisition of the Dixy chain
that strengthened our positions
in Moscow and St. Petersburg.
While accelerating inflation has
been putting pressure on consumer
incomes, Magnit managed
to increase operational efficiency.
We delivered market-leading LFL
sales growth of 7.0% after having
improved customer value proposition
in our stores. This was driven by 7.1%
average ticket growth, while LFL
traffic declined by 0.1%. At the same
time, we increased profitability with
EBITDA margin (IAS 17) gaining
13 bps YoY and reaching 7.2%.
These improvements became possible
due to better purchasing terms
with suppliers, reducing working
capital cycle by more than a week
and expanding private label and own
production.
1 coNveNieNce stores iNclude coNveNieNce stores ANd smAll pilots such As mAgNit city ANd my price discouNters
2 iNcludiNg megAmArt superstores
3 other formAts iNclude phArmAcies ANd stores locAted At russiAN post offices
Our loyalty programme, which covers
59 mln participating customers,
helped to increase synergy between
our different store formats
with 43% of consumers visiting
at least two of these formats. Via
different formats – convenience
stores, supermarkets, superstores,
drogeries and discounters –
we are targeting different groups
of customers and adjust our offering
to their specific needs. Convenience
stores have remained our core
format, with the Dixy acquisition
strengthening it further. We are
also developing new trading formats
to follow consumer preferences.
In 2021, our important achievements
included the roll-out of My Price
discounters to target frugal
customers and development of the
e-commerce channel that has grown
almost from scratch to reach RUB
11.2 bln GMV last year. See more
details on these in separate sections
below.
See case studies about
Discounters on p. 44 and about
e-commerce on p. 52 for more
information.
In 2021, Magnit almost doubled
CAPEX YoY to RUB 66.9 bln
and accelerated store network
expansion, adding 2,295 new
stores on the gross basis during
the year (1,450 Magnit and 14 Dixy
convenience stores, 825 drogeries
and 6 supermarkets). Besides
the Dixy acquisition (discussed
in a separate section below) Magnit
also conducted smaller regional
deals, acquiring rights for 56 stores
of the Edelweiss chain in Kazan
and 58 stores of the Radezh chain
in Volgograd. We also redesigned
703 Magnit stores during the year
to improve the interior and customer
value proposition. In mature stores,
we increased revenue per square
meter – sales density improved 4.7%
YoY. We continued piloting ultra-small
formats focused on ready-to-eat
products – Magnit City and Magnit
Go – for locations with high traffic.
In 2021, Magnit increased net retail
revenue 19.7% to RUB 1,808 bln due
to LFL sales growth and acceleration
of selling space growth to 20.0%.
Including the Dixy acquisition, our
selling space increased to almost
9 mln sq. m.
38
2021
magnit.com
39
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Operational Review
(continued)
Magnit convenience stores
Magnit convenience is our primary
format accounting for 72% of the
Company’s retail revenue and 63%
of its selling space. These stores
are aimed at everyday shopping
and minor stock up and offer
a product range of more than
5,000 SKUs, including the most
popular food and non-food
products at attractive prices.
We are constantly developing
this format to follow consumer
demand. Last year, Magnit opened
1,450 new convenience stores
(gross) and redesigned another
611. As of year-end, 78% of Magnit
convenience stores were either
new or redesigned.
At the same time, we continued
to improve our customer value
proposition. We expanded
the ready-to-eat product range,
unified dry food offering across
stores, introduced new goods into
important categories and reduced
shrinkages by 0.4 p.p.
The share of private label goods,
which usually cost consumers
less than brand names, rose
by 1.7 p.p. at convenience stores
during the year. Net Promoter
Score (NPS) – a metric that
measures customers’ loyalty –
rose by 2.5 p.p. for Magnit
convenience stores last year,
showing the widest improvement
among the Company’s formats.
In the reporting year, Magnit
convenience stores generated
RUB 1,309,682 mln of net
retail revenue, a 12.8%
increase YoY. Total selling
space of convenience stores
expanded 10.7% during the year
to 5,635 thous. sq. m due to new
store openings.
In 2021, LFL sales in Magnit
convenience stores increased
by 8.2%. This was driven by 8%
growth in the average ticket,
while consumer traffic advanced
0.2%.
RUB 1,310bln
net retail revenue,
up 12.8% YoY
5,635 thous. sq. m
of selling space
8.2%
LFL sales growth
16,190 stores
+8.6% increase YoY
the existing ones, we adhered
to a neutral colour scheme that
logically zoned the premises,
and also fit out stores with digital
equipment, such as E-Visage
smart mirrors, which allow us
to test a particular cosmetic
product in a virtual format, price
checkers, interactive displays
and self-service cash desks.
At the end of 2021, our drogerie
format consisted of 6,966 Magnit
Cosmetic stores.
Paying special attention to the
marketing development of this
format, in 2021 we launched three
online “clubs”, where members
receive exclusive content
and exclusive offers from Magnit
Cosmetic. To promote the format
among younger generations,
we are actively collaborating
with influencers, who helped
us significantly increase our
audience reach by 78% in 2021.
In the reporting year, we also
expanded delivery from Magnit
Cosmetic stores to regions
of presence, where we previously
hadn't offered delivery.
Magnit Cosmetic
(drogerie)
Magnit Cosmetic stores
(“drogerie”) are our leading
non-food format offering a wide
range of cosmetics, perfumes,
home goods and household
cleaning products. In 2021, Magnit
Cosmetic posted strong growth
in LFL sales by 4.4%. The format’s
net retail revenue increased
by 13.4% YoY to RUB 152,215 mln,
while the sales density of the
format improved by 2.3%.
In 2021, we opened 825 Magnit
Cosmetic stores (gross),
accelerating the pace of new
openings YoY. As a result, our
selling space reached 1,604 thous.
sq. m, expanding 12.3%. This was
the highest selling space growth
across our formats. When opening
new stores and redesigning
RUB 152 bln
net retail revenue,
1,604
thous. sq. m
of selling space
4.4%
LFL sales growth
6,966
stores
RUB 208 bln
net retail revenue
937 thous. sq. m
of selling space
1.9%
LFL sales growth
470 stores
We strive to ensure that the offered
goods cover a wide range
of interests of buyers, providing
them not only with food, but also
with goods for the home and garden.
We maintain the share of new
products in the target assortment
at the level of 30.5%. We are also
expanding our private label offering,
the share of which grew by 2.3% p.p.
in 2021.
Despite the temporary introduction
of QR codes to access shopping
malls where a third of Magnit's
supermarkets are located, the total
net retail revenue of this format
amounted to RUB 208,316 mln,
and LFL sales grew by 1.9%. This
result was driven by a 5.2% increase
in the average ticket and a 3.1%
decrease in traffic.
Magnit supermarkets
In 2021, the number of our
supermarkets under the Magnit
Family brand and superstores under
the Magnit Extra brand remained
unchanged and amounted to 470
stores. Magnit Family is a classic
supermarket with average selling
space of about 2 thous. sq. m. Its
product range includes about
14.7 thous. items, almost triple
the product range at a convenience
store. Magnit Extra is an even
larger format (superstore) with
a more diverse range of products
at competitive prices.
In the reporting year, we
redesigned 74 Magnit supermarkets
and superstores to improve
the shopping experience. We
added healthy food zones (“Health
Island”), expanded the range of fresh
and farm products.
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Case Study:
Dixy – Acquisition update
2,477
stores
5 operating DCs
with 150 thous. sq. m total space
and a fleet of 708 trucks acquired
The acquisition of Dixy, the fifth largest
grocery retailer in Russia, was completed
on 22 July 2021
Significant synergies:
— Commerce
Key highlights:
— Enhanced scale
— Significantly strengthened market positions
in two capitals: Moscow region market
share increased by 2.1x and St. Petersburg
and Leningrad region market share
increased by 1.7x
— Accelerating e-commerce roll-out in both
capitals
— High-quality locations
— Well-known brand
— Strong customer base
— FY2020 Dixy total revenue of RUB 298.8 bln
— Dixy to operate as a separate business
• Procurement thanks to combined sourcing
• Private label production, direct import,
seasonal and exclusive Magnit assortment
• Aligning pricing strategy
— Operations
• New effective solutions for overlapping
stores on a case-by-case basis
• Potential transformation of some
regional stores into Magnit convenience,
supermarket, drogerie, hard discounter or
dark stores
— Cost savings
• Aligning business processes and IT
• Centralising back-office & support functions
where relevant
• Decreasing costs in marketing, utilities
and outsourced services
• Reduction in tariffs for acquiring, cash
collection, bank fees, etc.
— Cross-synergies
• Technology sharing
• Customer data analysis via loyalty
programmes
• Re-usage of data centers
Central
North-West
Urals
Volga
>25% EBITDA
increase in 2022
1 17 dixy stores Are AlreAdy trANsferred to mAgNit formAt
2 three moNths moviNg AverAge As of decemBer 2021 vs JuNe 2021
As of 31 December 2021
Convenience Stores
Supermarkets&
Superstores
Disribution
Centers
CENTRAL FEDERAL DISTRICT (ex. Moscow & Moscow region)
437
–
Moscow & Moscow region
1,315
–
NORTHWESTERN FEDERAL DISTRICT
(ex. St. Petersburg & Leningrad region)
144
–
St. Petersburg & Leningrad region
444
–
URALS FEDERAL DISTRICT
711
39
VOLGA FEDERAL DISTRICT
1
Total
2,412
–
Total
39
–
3
–
1
1
–
Total
5
Key achievements to date
— Smooth integration while maintaining growth
and meeting key financial targets (revenue, sales
density and EBITDA)
— All FAS requirements met on time in terms
of store base optimisation
— 95 Dixy stores in Urals1 are in the process
of transferring to Magnit format
— >150 bps commercial margin uplift driven by joint
procurement conditions
— Scale-driven SG&A benefits, including cash
collection, banking services and marketing, etc.
— Decreased staff turnover, with TMMA2 down
by 39.3%
Next steps
— Continue roll-out of efficiency
projects aimed at synergies extraction
and profitability uplift
— Implementation of Magnit’s Direct Import
and Private Label categories
— Backward upside for Magnit – Dixy’s
category expertise in Moscow
— Extra synergies via joint marketing efforts
— Rent negotiation campaign for Dixy stores
— Megamart stores in Urals to be transferred
to Magnit supermarkets and superstores
— Agile approach towards functional
cooperation, organisational structure
and SG&A optimisation
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Case Study:
My Price Discounter Stores
Discounters market shares
in grocery retail , %
Russian discounter market size,
RUB bln
Store format
Germany
Poland
Austria
Turkey
Mexico
Canada
Netherlands
Italy
Switzerland
UK
Spain
France
USA
Brazil
Russia
source: euromoNitor
35
35
26
21
21
14
14
14
13
11
8
8
3
2
1.9
My Price discounters have selling space
below 250 sq. m and offer a regular limited
assortment of around 2,000 high-demand
SKUs with a high rotation. 65% of total
assortment is in lower-price segments, and the
share of Private Label is currently around 23%
of total sales.
Discounters offer a variety of value packs
in the following categories: fruits, vegetables,
dry foods, dairy, confections, baby food, drinks,
pet food, household chemicals, and others.
Most of the assortment is dry food with a
limited share of fresh and ultra-fresh. Fruit
and vegetable availability is designed to cover
basic needs.
The format follows Magnit’s EDLP (everyday
low price) pricing policy where regular prices
are already low without any promotions.
The stores are designed to attract customers
from other chains rather than from our own
convenience stores. Pricing is set at 0.85
of the consumer price index, or 15% lower
than prices elsewhere. The objective is to
have the best customer attractiveness within
a particular catchment area in terms
of value for money.
115.4
144.9
185.1
247.1
>1,000
2017
2018
2019
2020
2025
source: euromoNitor, iNfoliNe
23%
share of Private
Label in total sales
65%
of total assortment
is in lower-price
segments
_ Underpenetrated market segment in Russia
compared to developed markets
_ Fast growing channel targeting
price-sensitive consumers
_ Rolling out discounter stores after success
_ Enabling expansion into new regional
_ Limited assortment in lower-price segments
and remote locations
of pilot project
Expanding Magnit’s offering into formats
that are complementary to the core business
to better satisfy consumer needs is central
to our corporate strategy. We regularly pilot
new store formats to cover the maximum
number of relevant shopping missions
and attract customer segments.
Magnit started piloting discounter stores in
July 2020 in response to the fast-changing
economic environment. As at 31 December 2021
the Company had 190 operating My Price
discounters compared to 15 stores a year ago.
During 2021 Magnit opened 175 stores. Today
we have over 200 discounters in operation
delivering encouraging results.
The discounter concept is aimed at price-
sensitive consumers who frequently make minor
purchases of traditional goods or stock up on
products.
Market background
The hard discounter segment
is underpenetrated in Russia compared
to other developed markets where they
are often seen as market disruptors,
providing considerable room for growth.
The macro environment is also supportive
for developing the discounter format,
as real disposable income has been declining
since 2012.
Hard discounters currently have 1.9%
penetration in Russia, and this is expected
to grow to around 5% by 2025.1
1 goldmAN sAchs, russiA retAil, decemBer 2021
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Case Study: My Price Discounter Stores
(continued)
Product mix differences, %
2021 Performance
The results from My Price stores in 2021
were encouraging, at times exceeding
our expectations and fully prove
the long-term potential of the concept:
_ LFL sales growth of 30 %
Convenience
My Price
48 Dry
49 Fresh
3 Non-food
55 Dry
44 Fresh
2 Non-food
In September 2021, we launched
a new design that was created
specifically for our discounter
format. It emphasises the low-
price concept while creating
a positive ambiance and providing
a comfortable shopping space.
Previously, our discounters used
visual elements of our convenience
stores.
The results of these stores are
encouraging, sometimes exceeding
our expectations and fully prove
the concept.
The layout of the store is simple
and aimed at maximum efficiency,
e.g. fresh fruit and vegetables
are located next to the open
refrigerated displays to save
on additional equipment; products
are displayed in show boxes and less
often on a pallet.
The concept implies an optimised
staffing level compared
to convenience stores – 5 FTE vs 11
in convenience stores on average —
though customer service levels
remain high. In discounters that
generate sales comparable to a
convenience store there are still
2 FTE less vs convenience format.
Discounters require significantly
less capital expenditure for opening,
including investments in repairs
and refurbishment.
in reformatted stores mainly driven
by footfall
_ The lower average transaction value
compared to a convenience store
is due to a narrower assortment,
shift to lower price segments
and lower prices
_ Optimised operating model
resulting in higher sales
productivity despite the limited
number of grocery and general
merchandise SKUs across a narrow
range of categories with a focus
on entry-level prices
_ Higher share of Private Labels
at lower prices vs convenience
stores enables better merchandise
margin
_ Assortment mix, EDLP model
and sharply priced commodity
goods leading to lower gross profit
margin despite improved shrinkage
_ Limited fixturing, low rent,
and labour costs help reduce
SG&A expenses, with savings
potentially reinvested back into
price to help drive volume
_ Discounters converted from
convenience stores generate higher
profitability vs their performance
as convenience stores driven
by higher sales density and lower
SG&A
_ Pilot stores operate with positive
EBITDA and Net Income after the
ramp-up phase
_ The share of highly rotated items
on the shelves leads to higher
inventory turnover – by 30−40% –
allowing for higher profitability
_ CAPEX is about 40% lower than
for the same size convenience store
implying very attractive returns.
My Price potential
We see significant potential in this concept for a number of reasons:
Decline in real disposable
income
High growth potential
not limited by Moscow
and St. Petersburg markets
Everyday low prices are part
of Magnit’s DNA
Real disposable income has been declining
since 2012 and price-conscious customers
are sensitive to ongoing economic uncertainty
and rising food prices.
The fastest-growing market segments now
are specialist stores, hard discounters
and online. However, hard discounters have
much greater growth potential, have proven
success in developed markets, and are
not limited by geographies like Moscow
and St. Petersburg. The niche can become
sizeable when roll-out brings efficiencies.
The EDLP model is part of Magnit’s DNA.
Our production capacities across Russia
have increased substantially supporting
the development of the Private Label offering.
High availability of locations
< 250 sq. m
Since the COVID-19 pandemic an increasing
number of locations below 250 sq. m have
become available at attractive rental rates.
Fits certain locations which
would not support a regular
convenience store
Customers are willing to travel further to visit
My Price due to the affordable price points,
giving greater flexibility on where stores can
be located.
Production growth in Russia
supports Private Label
expansion
Production capacities across Russia
have increased substantially supporting
the development of Private Label offering
through hard discounters.
Lower CAPEX and strict
OPEX control lead
to attractive returns
Low CAPEX and strict OPEX control allow
us to derive returns that fit our internal
requirements and achieve better sales
densities.
Magnit’s purchasing power,
own production and direct
import operations
Magnit’s own production facilities, direct
import operations and high purchasing power
make our offer attractive for customers in that
we can offer a regular assortment of products,
differentiating us from our competitors.
Future development
We see an opportunity to open
300−500 My Price discounters
in 2022 including reformatting some
convenience stores, potentially
including Dixy stores, making Magnit
the largest discounter operator
amongst Russian retailers.
We see significant potential
for expanding this format in specific
regions and areas. Discounters
fit well in locations such as small
and remote locations, where
opening a convenience store may
be inefficient, and where consumer
incomes are lower than average.
Meanwhile we are continuing
to develop the concept, including
giving discounters their own unique
design to make the format uniquely
recognisable. We are developing
our product range to increase
the proportion of Private Label
and are expanding our product
mix so that there are more non-
food items and seasonal offers.
We are also engaging with suppliers
to develop shelf-ready packaging
and layout.
To support our growth in this area,
we have appointed a dedicated
operational director for discounters
and are building a dedicated team
to manage Magnit’s discounter
infrastructure including analytics,
operations, and expansion teams.
Given our competitive strengths,
including own production
capabilities, Magnit is exceptionally
well positioned to take advantage
of the growing customer demand
for discounters and basic fast-
moving consumer goods.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Case Study:
Private Label and Own Production
Magnit is the only food retailer in Russia
with its own food production facilities.
Its Private Label range is a key area
of differentiation.
The development of Magnit’s PL1 is central
to our customer value proposition. Since
the start of the COVID-19 pandemic there has
been an increase in demand for PL products,
partly as consumers have become more price-
sensitive.
We have also noticed a shift towards PL
among those consumers who previously
preferred mainstream and premium products.
In addition to providing our customers with
excellent value for money, our PL goods also
generate higher margins compared to branded
products.
PL products are available at a range of prices
to suit varying customer needs, split across
three core divisions:
Magnit's private label portfolio 2022–2025
Good
Better
Price-driven
Value for money
Best
Additional value
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.
The best from across
the world — the flagship
in food products
Dairy products, beverages, groceries,
delicatessen; fruit, vegetables
and mushrooms; household goods
Snacks, nuts, preserves,
cheeses, and healthy
lifestyle products
Key
umbrella
brands
Category
brands
Format
brands
Loyalty
campaigns
Other
exclusive
brands
My Price
Magnit family brands
PANTONE 871C
1
Including direct import
2021 highlights:
23.8%
growth in revenue of PL
sales to RUB 267.5 bln
16%
PL share in total sales
>4,000 SKUs
PL portfolio, including
1,650 food SKUs
In 2022 we will continue to develop our PL
offering by refreshing our brands. We will be
investing in and updating the design of our
key Magnit brand, as well as a redesign of our
Lucky Days confectionary brand.
As we continue to broaden our portfolio,
next year we also plan to launch new non-
food brands: Sportour – goods for sports
and outdoor activities, Wellfort – goods for the
home, Wowplay – games and toys.
Longer term, we have set out ambitious targets
to grow our PL business. In 2025 we aim for PL
to account for 25% of our total sales, and our
goal is to reach 100% core PL SKUs availability
in all Magnit stores.
In 2021 we continued to optimise our PL
portfolio and product range in response
to changing customer demand by enhancing
in-house production capabilities and building
long-term relationships with our partners
and external suppliers.
During the year, Magnit’s PL portfolio
increased by 750 SKUs, currently we have more
than 4,000 PL SKUs in various categories: milk
and dairy products, fish gastronomy, processed
meat and sausages, fruits and vegetables,
cheese, bread, grocery, confectionary, soft
and hot drinks, snacks, canned and frozen food,
cosmetics and household goods, non-food.
In response to increased demand for fresh
products, our Magnit Freshness brand now
incorporates over 150 SKUs in the fruit
and vegetable category as well as several dairy
lines.
In December 2021, we opened a second test
studio based on one of own large-format
stores in Izhevsk, providing more opportunities
to test out our PL products with customers.
Magnit’s first test studio was opened
in 2020 in Krasnodar.
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food
non-food
1 pl – privAte lABel
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Case Study: Private Label
and Own Production (continued)
Own production
Our state-of-the-art, in-house production
facilities underpin the development of the PL
range by allowing us to adapt easily and quickly
to evolving consumer tastes. Today, Magnit
operates 13 industrial production and four
agricultural complexes which produce a vast
range of goods including vegetables, spices,
cereal and frozen fish.
In 2021, Magnit’s facilities produced
362,000 tonnes of produce, a 17% increase
year-on-year.
The total area of Magnit-owned greenhouses
is 113 hectares and annual production
of agricultural products is 90,000 tonnes.
During 2021 concepts for more than five new
projects were approved, including two facilities
for growing berries and green crops, facilities
for oyster mushroom production, coffee
production and a ready meal factory. In 2022
construction of Russia’s largest berry production
facility will begin at the Krasnodar greenhouse
complex. It will open in 2023 and be able
to produce 1,229 tonnes of strawberries and 95
tonnes of blueberries per year.
Fast facts
25%
of cucumbers,
tomatoes and lettuce
sold in Magnit stores
are produced in our
own greenhouses
85%
25%
of the mushrooms sold
in Magnit stores are
own production
of sales of dried fruits
and nuts in Magnit
stores are Vostochny
Guest PL brand
21%
of pasta sales are
Gusto Di Roma
PL brand
Share of in-house production across
different product types1, %
Plum tomatoes
Cucumbers
Round tomatoes
Lettuce
Cherry tomatoes
Mushrooms
1 shAre iN totAl sAles iN kg
9
15
22
29
55
60
Focus on quality
To maintain the high standards of our PL
products, we carry out a range of quality
assurance tests to ensure quality control
throughout the production process, from raw
materials to the finished product.
All production facilities are equipped with
modern equipment with a high degree
of automation. This allows us to ensure
the production of quality products with
minimum manual labour. All production facilities
are constantly monitored online to maintain
high quality levels throughout the production
process. Our production complies with
GOST R ISO 22000-2007 and the international
Food Safety System Certification (FSSC) v.5.
In 2021, an innovative pilot scheme for vertical
greenhouses was tested, implemented
in cooperation with the Israeli company
CENTRAL FEDERAL DISTRICT
Tver region
— Tver separate division
Moscow region
— Cheese Slicing Facility Dmitrov JSC Tander
Lipetsk region
— Moskva na Donu LLC
VOLGA FEDERAL DISTRICT
Saratov region
— Saratov separate division
Penza region
— Cheese Slicing Facility Penza JSC Tander
Samara region
— Togliatti separate division
Republic of Bashkortostan
— Ufa separate division
SOUTHERN FEDERAL DISTRICT
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
Vertical Field, a leading agri-tech company
which develops urban farms. Magnit’s first
vertical greenhouse was opened next to the
superstore in Krasnodar. Green crops such
as lettuce, spinach and basil are successfully
grown in the greenhouse – ensuring maximum
freshness for customers.
Sustainability
As part of our commitment to sustainability,
at least 50% of the packaging for PL and own
production will be recyclable, reusable
or compostable by 2025.
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Case Study:
E-commerce
2021 highlights:
62,274 RUB 11.2 bln 4,490
average number
of orders per day*
2021 online GMV
offline stores in 301 cities
are covered by Magnit’s
e-commerce services
Key developments
During the year we continued to develop
our partnerships and began working with
Sbermarket and Wildberries, the largest
online retailer in Russia, as we rolled out
the joint delivery offering across Russian cities.
In December 2021, we launched 30-minute
express grocery delivery through Delivery Club,
building on our previous delivery
projects with the company. We also launched
a new partnership with Uteka and Megapteka,
a pharmacy products marketplaces, which made
Magnit Pharmacy assortment available on a
partner platform, successfully complementing
our own e-pharma offering.
In 2021 we started opening dark stores
throughout the country, which will further
enhance our operational efficiency in e-commerce.
These include our first pharmacy dark store, which
operates as a click-and-collect pharmacy.
In July 2021, Magnit appointed Andrey Lukashevich
as E-Commerce Director. He was responsible for
shaping our e-commerce strategy and executing
the roll-out of digital sales channels, establishing
and developing the e-commerce infrastructure,
and ensuring that the e-commerce business
achieves its key financial targets. Andrey brought
a wealth of experience in e-commerce, having
previously held executive positions at Delivery
Club, Mail.Ru Foodtech Ventures and Vezet taxi
aggregator. On 12 April 2022 Andrey Lukashevich
left the Company for family reasons.
* in 4Q 2021
Growing online grocery adoption in Russia, %
Developing strong omni-channel
business to further enhance our CVP
Performance
Our online sales channel is delivering strong
results despite only recently launching in the
second half of 2020.
In 2021, our e-commerce gross merchandise
value (GMV) totalled RUB 11.2 bln.
By the end of December 2021, GMV of Magnit’s
e-commerce services exceeded 1% of total
revenue, while for the full year of 2021 it stood
at 0.6% of total revenue.
Over the course of the year, the average
number of orders per day continued to grow
steadily, reaching 62,274 in 4Q 2021 vs 3,959
the year before (15.7x growth).
On 30 December 2021, we reached a milestone
of 100,000 orders per day, whilst in December
2020 the daily number of orders was only 7,000.
The average order value across all online
services for 2021 was RUB 1,045 including VAT.
This average order value is approximately
2.8x higher than the average ticket in the
convenience stores (RUB 371). This is mostly
due to a larger number of items per basket.
The average ticket within Magnit’s own delivery
service was RUB 1,239.
Magnit has been piloting e-commerce services
since the second half of 2020, with the online
sales channel already demonstrating strong
performance. The Company currently operates
both its own delivery through the Magnit
Dostavka (Magnit Delivery) app and delivery
via partnerships with Yandex.Eda, Delivery
Club, Sbermarket and Wildberries. Both food
and non-food segments of Magnit are present
online, covering all customer missions:
Grocery and drogerie
_ Stock-up (2 hours+) — big ticket purchase
_ Express (30 minutes) — everyday small
_ E-Pharma — current needs and regular
purchases
purchases
Magnit’s e-commerce services today cover
4,490 offline stores and 20 dark stores
in 301 cities across 64 Russian regions,
with 66% of the revenue generated outside
Moscow and St. Petersburg.
The aim is to quickly capture opportunities
in low-penetrated regional markets
by converting Magnit’s loyal customers into
online, while getting new customer inflow
in computerised Moscow & St. Petersburg
markets. The Company plans to leverage
existing infrastructure in the regions with
strong physical presence. However, in Moscow
and St. Petersburg, Magnit may continue
opening dark stores to support brick-and-
mortar presence to cover the cities with its
delivery service.
Ivanovs purchasing groceries online on a regular basis,
% of all Ivanovs
Ivanovs purchasing groceries online on a regular basis,
% of all Ivanovs, by regions
16
24
24
22
22
23
31
31
Moscow
40
44
+4 p.p.
St. Petersburg
41
42
-1 p.p.
Other 1 mln+
cities
500 thous. −
1 mln people
31
33
+2 p.p.
28
28
300 thous. −
500 thous. people
26
27
100 thous. −
300 thous. people
22
24
-1 p.p.
+1 p.p.
-2 p.p.
All of Russia
31
31
+1 p.p.
2018 May`20 2Q20 4Q20 1Q21
2Q21 3Q21 4Q21
3Q21
4Q21
Note: mAy '20 refers to our speciAl survey dedicAted
to the lockdowN ANd spreAd of covid-19
source: sBer ciB ivANov coNsumer coNfideNce trAcker
Omni retail at the core of Magnit’s future ecosystem
We aim to build an ecosystem
of complementary services around the Magnit
brand and our strong omni-channel core.
The launch of our payment service Magnit
Pay in December 2020 was an important step
in this process, which represented the first
stage in the development of an enhanced
app centred around Magnit’s loyalty
programme.
Magnit Pay can be used to pay for purchases in any
store – online and offline, within and beyond Magnit.
As at year-end 2021, the Company issued
7.5 million virtual payment cards. About 51%
of holders use this service for purchases outside
the Magnit ecosystem. Most often, virtual cards
are used in grocery stores, as well as for payment
for transport, subscription and delivery services.
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Financial Review 1
In 2021, Magnit maintained strong
financial discipline across its
operations. We upheld a return-
based approach in opening
new stores and refurbishing
the existing ones. We’ve been
rolling out e-commerce in a prudent
way to avoid financial losses.
We managed to increase both
revenue and EBITDA margin boosting
value for our shareholders.
I am delighted that having completed
a relatively large deal – acquisition
of Russia's fifth-largest food
retailer Dixy – Magnit managed
to keep leverage at a healthy level
of 1.5x EBITDA with average cost
of debt being low at 6.4%. Another
big achievement for us has been
the decrease of the working capital
cycle by more than 7 days, which
released RUB 18.3 bln of cash
for the Company.
Dmitry Ivanov,
Chief Financial Officer
FY 2021 key financial highlights
Total revenue
increased by
Net retail sales
reached
Gross profit
increased by
19.5%
YoY to RUB 1,856.1 bln. Total
revenue adjusted for the Dixy
acquisition increased by 10.8%
RUB 1,808 bln
increasing 19.7% YoY. Net retail
sales growth adjusted for the Dixy
acquisition was 11.3%
20.1%
YoY to RUB 439.2 bln with
a margin of 23.7% as a result
of better promotional margin, lower
shrinkage and favourable format mix
Cash SG&A2
increased by
EBITDA was
Net income increased by
RUB133.1 bln
with a 7.2% margin –
an improvement of 13 bps YoY
as a result of stronger gross
margin but partially offset
by Dixy consolidation
36.8%
YoY to RUB 51.7 bln with a margin
of 2.8% vs 2.4% a year ago
25bps
to 17.8% due to higher
advertising and other costs
As of 31 December 2021
Net Debt was
RUB 197.0 bln
The Net Debt to EBITDA ratio
was 1.5x
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 FY 2021 increased
by 19.5%. This growth was
underpinned by net retail sales
growth of 19.7% and wholesale
revenue growth of 10.6%. Wholesale
operations accounted for 2.6%
of total sales.
Gross Profit in FY 2021 increased
by 20.1% YoY to RUB 439.2 bln with
a margin of 23.7%. An improvement
of 13 bps YoY was a result of better
promotional margin, lower shrinkage
and favourable format mix.
The latter positively impacted gross
margin, with the share of wholesale
operations decreasing to 2.6%
from 2.8% a year ago. Promotional
intensity was slightly higher YoY
driven by the dynamics of the 1H.
Transportation expenses were flat YoY
and stood at 2.5% as a percentage
of sales despite continued increase
of on-shelf availability. This was due
to higher productivity and utilisation
at distribution centres, which offset
the negative impact of the increased
container shipping tariffs.
Alongside the growing share
of fresh products, overall
improvement of on-shelf availability
and consolidation of the Dixy
business, shrinkage as a proportion
of sales decreased further by 20
bps YoY. This was driven by ongoing
optimisation of supply chain
processes, renegotiation of quality
standards with suppliers and other
initiatives.
FY 2021 Key Financial Results
RUB mln
Total Revenue
Retail
Wholesale
Gross Profit
Gross Margin, %
SG&A, % of Sales
EBITDA pre-LTI3
EBITDA Margin pre-TI, %
EBITDA
EBITDA Margin, %
EBIT
EBIT Margin, %
Net Finance Costs
FX Gain/ (Loss)
Profit before Tax
Taxes
Net Income
Net Income Margin, %
IAS 17
IFRS 16
FY 2021
FY 2020
Change
FY 2021
FY 2020
Change
1,856,079
1,553,777
1,807,752
1,510,071
48,327
439,238
23.7%
−20.6%
134,054
7.2%
133,143
7.2%
79,744
4.3%
−12,966
302
67,081
−15,387
51,694
2.8%
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%
19.5%
19.7%
10.6%
20.1%
13 bps
−17 bps
21.6%
13 bps
21.7%
13 bps
25.6%
21 bps
−3.9%
−123.1%
37.8%
41.1%
36.8%
35 bps
1,856,079
1,553,777
1,807,752
1,510,071
48,327
43,707
439,264
365,756
23.7%
−19.2%
215,132
11.6%
214,220
11.5%
108,897
5.9%
23.5%
−19.1%
179,043
11.5%
178,189
11.5%
88,424
5.7%
−46,578
−44,268
281
62,600
−14,494
48,106
2.6%
−1,453
42,703
−9,709
32,993
2.1%
19.5%
19.7%
10.6%
20.1%
13 bps
−15 bps
20.2%
7 bps
20.2%
7 bps
23.2%
18 bps
5.2%
−119.3%
46.6%
49.3%
45.8%
47 bps
55
1 the compANy provides ANAlysis of fiNANciAl metrics usiNg the iAs 17 ApproAch iN the curreNt sectioN of the report
2 selliNg, geNerAl ANd AdmiNistrAtive expeNses excludiNg depreciAtioN ANd AmortisAtioN
3 lti – loNg-term iNceNtive progrAmme
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
IAS 17
IFRS 16
FY 2021
FY 2020
Change
FY 2021
FY 2020
Change
Financial Review
(continued)
Selling, General and Administrative Expenses (SG&A)
RUB mln
Staff costs
as a % of sales
Rent
as a % of sales
Depreciation, amortisation &
impairment
as a % of sales
Utilities & communication
services
as a % of sales
Advertising
as a % of sales
Other expenses
as a % of sales
Bank Services
as a % of sales
Repair & maintenance
as a % of sales
Taxes, other than income tax
as a % of sales
Packaging & materials
as a % of sales
Total SG&A
as a % of sales
166,606
139,886
9.0%
80,834
4.4%
53,399
2.9%
34,252
1.8%
11,475
0.6%
10,944
0.6%
9,022
0.5%
8,216
0.4%
2,944
0.2%
5,500
0.3%
9.0%
67,011
4.3%
45,917
3.0%
28,827
1.9%
7,628
0.5%
7,265
0.5%
7,108
0.5%
6,732
0.4%
2,925
0.2%
4,861
0.3%
383,194
20.6%
318,159
20.5%
Cash SG&A (excl. D&A)
329,795
272,242
as a % of sales
17.8%
17.5%
19.1%
−3 bps
20.6%
4 bps
16.3%
−8 bps
18.8%
−1 bps
50.4%
13 bps
50.6%
12 bps
26.9%
3 bps
22.1%
1 bps
0.7%
−3 bps
13.1%
−2 bps
20.4%
17 bps
21.1%
25 bps
166,606
139,886
9.0%
2,739
0.1%
9.0%
1,429
0.1%
105,323
89,765
5.7%
34,252
1.8%
11,475
0.6%
10,907
0.6%
9,022
0.5%
8,192
0.4%
2,944
0.2%
5,500
0.3%
5.8%
28,827
1.9%
7,628
0.5%
7,265
0.5%
7,108
0.5%
6,732
0.4%
2,925
0.2%
4,861
0.3%
356,962
296,425
19.2%
19.1%
251,638
206,660
13.6%
13.3%
19.1%
−3 bps
91.7%
6 bps
17.3%
−10 bps
18.8%
−1 bps
50.4%
13 bps
50.1%
12 bps
26.9%
3 bps
21.7%
1 bps
0.7%
−3 bps
13.1%
−2 bps
20.4%
15 bps
21.8%
26 bps
SG&A costs increased by 17 bps YoY
to 20.6% as a percentage of sales.
Cash SG&A expenses as
a percentage of sales increased
by 25 bps to 17.8% on higher
advertising and other costs.
Advertising expenses increased
by 13 bps YoY to 0.6% as
a percentage of sales on higher
marketing activities including
digital marketing and loyalty
campaigns.
Rental costs as a percentage
of sales increased by 4 bps YoY
to 4.4% driven by the consolidation
of Dixy stores predominantly
located in the Moscow and
St. Petersburg regions with higher
rent rates, acceleration of stores
openings and, subsequently,
a larger number of stores in the
ramp-up period as well as a higher
share of leased selling space.
The share of leased selling space
increased to 80.2% at the end
of 2021 vs 78.0% a year ago.
Despite the above-mentioned
factors, rent expense of Magnit’s
standalone business decreased
as a percentage of sales thanks
to higher sales density, improved
lease terms with landlords and the
closure of inefficient stores.
Staff costs as a percentage
of sales remained flat YoY at 9.0%
(−3 bps YoY). Higher productivity
of in-store personnel, ongoing
automation of business processes
partially offset additional pressure
from new stores in the ramp-up
phase and slightly higher staff
rotation due to the pandemic last
year.
Utilities, repair and maintenance,
packaging and materials, bank and tax
expenses remained broadly flat as
a percentage of sales YoY.
Other costs increased by 12 bps
YoY to 0.6% as a percentage
of sales on higher advisory services,
online order picking and delivery
and software maintenance.
As a result, average cost of debt
increased to 6.4% (33 bps YoY).
99.8% of the Company’s debt
profile is represented by long-
term borrowings and bonds with
an average maturity of 18 months.
Higher interest expense was offset
by higher interest income compared
to the previous year.
Other income and expense increased
by 25 bps to 1.3% as a percentage
of sales due to higher income from
sales of packaging materials as well
as advertising, rental and sublease
income.
In 2021 the Company reported FX
gain in the amount of RUB 0.3 bln
related to direct import operations.
Income tax in 2021 was RUB 15.4 bln
with effective tax rate of 22.9%.
As a result, net income in 2021
increased by 36.8% YoY and stood
at RUB 51.7 bln. Net income margin
increased by 35 bps YoY to 2.8%.
As a result, EBITDA was RUB 133.1 bln
with a 7.2% margin – an improvement
of 13 bps YoY. This was driven
by gross margin dynamics partially
offset by higher SG&A costs. LTI
expenses in the reported period
stood at 0.05% of sales – as a result,
EBITDA margin pre-LTI was 7.2%
(in line with the reported EBITDA).
Depreciation as a percentage of sales
reduced by 8 bps YoY to 2.9% due
to consolidation of the Dixy business
with a lower share of depreciation
as a percentage of sales as well as
positive operating leverage effect.
As a result, operating profit in 2021
stood at RUB 79.7 bln with 4.3% EBIT
margin.
Net finance costs in 2021 decreased
by 3.9% and stood at RUB 13.0 bln.
In the reporting period the Company
increased its total debt by RUB 104.3
bln by obtaining long-term bank loans
and bond issuance. These supported
the Company’s accelerated expansion
and the acquisition of Dixy.
Note: pleAse Note thAt there mAy Be smAll vAriAtioNs iN cAlculAtioN of totAls, suBtotAls, ANd/or perceNtAge chANge due to rouNdiNg of decimAls.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Financial Position Highlights (IFRS 16)
Cash Flow Statement for 2021
31 Dec 2021
31 Dec 2020
IAS 17
IFRS 16
Financial Review
(continued)
Balance Sheet
and Cash Flows
Inventories increased
by RUB 18.9 bln (9.2%) compared
with 31 December 2020 and stood
at RUB 225 bln on the back of total
sales growth of 19.5%. Adjusted
for the Dixy acquisition, inventories
of Magnit’s standalone business
reduced substantially. This was
driven by a number of ongoing
projects, including the reduction
of slow-moving items, assortment
harmonisation and IT solutions
that are aimed at better on-shelf
availability and promotion
forecasting.
Trade and other payables grew
by RUB 56.4 bln compared with
31 December 2020 and stood
at RUB 240.8 bln, driven by higher
sales and increased payment
days. Accounts receivable
increased by RUB 3.2 bln vs
31 December 2020 and stood
at RUB 11.7 bln due to higher sales
and improved commercial terms with
suppliers.
As a result, working capital as
of 31 December 2021 turned negative
with the cash release of RUB 18.3
bln. Negative working capital was
achieved for both the standalone
Magnit and Dixy businesses.
Debt Composition
and Leverage
As at 31 December 2021 Gross Debt
increased by RUB 104.3 bln or 62.8%
compared to 31 December 2020
and stood at RUB 270.4 bln.
The Company’s cash position
increased to RUB 73.4 bln
as at 31 December 2021
from RUB 44.7 bln as
at 31 December 2020.
As a result, Net Debt increased
by 62.3% YoY to RUB 197.0 bln
as at 31 December 2021.
RUB mln
Non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other current assets
Assets
Equity
Long-term loans and borrowings
Other long-term liabilities
Trade and other payables
Short-term loans and borrowings
Other short-term liabilities
889,346
224,873
11,727
73,399
10,100
1,209,444
178,985
205,287
410,132
240,771
65,139
109,129
678,461
205,949
8,564
44,700
7,718
945,392
182,889
147,695
330,535
184,325
18,392
81,557
Equity and liabilities
1,209,444
945,392
Debt Composition and Leverage
IAS 17
Total Debt, RUB bln
Long-Term Debt
Short-Term Debt
Net Debt, RUB bln
Net Debt/EBITDA
IFRS 16
Net Debt, RUB bln
Net Debt/EBITDA
31 Dec 2021
30 June 2021
31 Dec 2020
270.4
205.3
65.1
197.0
1.5x
653.3
3.0x
265.5
222.9
42.6
136.1
1.2x
498.9
2.7x
166.1
147.7
18.4
121.4
1.1х
479.0
2.7x
The Company’s debt is fully RUB-
denominated, matching its revenue
structure. The Net Debt to EBITDA
ratio was 1.5x as at 31 December 2021
vs 1.1x as at 31 December 2020.
RUB mln
12M 2021
12M 2020
Change
12M 2021
12M 2020
Change
Operating cash flows before
working capital changes
Changes in working
capital
Net interest expense and
income tax paid
Net cash from operating
activities
Net cash used in investing
activities
Net cash generated / (used)
from/(in) financing activities
Net cash increase /
(decrease)
136,443
109,930
24.1%
215,359
175,540
22.7%
18,298
30,217
−39.4%
18,499
30,580
−39.5%
−30,776
−25,738
19.6%
-64,388
−56,509
13.9%
123,965
114,409
8.4%
169,470
149,611
13.3%
−127,903
−29,533
333.1%
−126,689
−29,020
336.6%
32,638
−49,077
−166.5%
−14,082
−84,793
−83.4%
28,699
35,798
−19.8%
28,699
35,798
−19.8%
Cash Flow Statement
for 2021
The Company’s cash flows from
operating activities before changes
in working capital in 2021 equalled
to RUB 136.4 bln, which was RUB 26.5
bln or 24.1% higher YoY. The change
in working capital continued
to improve and stood at RUB 18.3 bln
compared to RUB 30.2 bln in 2020
as a result of higher YoY trade
and other payables partially offset
by higher inventories.
Net interest expense and income tax
paid in 2021 increased by RUB 5.0 bln
or 19.6% to RUB 30.8 bln. Net
interest expenses decreased
by 0.7% YoY to RUB 12.6 bln in 2021
due to higher average amount
of cash on bank accounts during
the reported period. Income tax
paid for 2021 increased by 39.2%
to RUB 18.2 bln.
With this net cash flow from operating
activities in 2021 increased by 8.4%
to RUB 124.0 bln as a result of higher
EBITDA and positive movement
of working capital.
In 2021 net cash generated from
financing activities was RUB 32.6 bln
vs RUB 49.1 bln used in 2020. In 2021
the Company paid dividends in the
total amount of RUB 48.1 bln1.
As a result of the factors mentioned
above net cash position in 2021
increased by RUB 28.7 bln to RUB
73.4 bln as of 31 December 2021.
Net cash used in investing
activities predominantly composed
of capital expenditures increased
by 333.1% to RUB 127.9 bln in 2021
due to acceleration of expansion
and redesign programmes as well
as the Dixy acquisition.
Capital expenditure for the full year
of 2021 almost doubled and stood
at RUB 66.9 bln, compared with
RUB 32.1 bln in 2020. This increase
was driven by almost twofold
acceleration of the Group’s expansion
and store redesign programme
(2,295 store openings on gross basis
including Dixy and 703 redesigns
(Magnit only) in 2021 vs 1,292
and 385 respectively in 2020).
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1 excludiNg iNtercompANy trANsActioNs BetweeN pJsc mAgNit ANd Jsc tANder
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Key Performance
Indicators
LFL sales
Significance
Like-for-like sales is the best barometer of
how well we adjust to consumer needs. If we
continually innovate and improve our customer
value proposition, people will ultimately choose
to spend more at Magnit stores.
Measurement
LFL calculation base includes stores that have
been operating for 12 months since the first
day of sales. LFL sales growth is calculated
based on sales turnover including VAT.
2021 results
LFL sales
+7.0% YoY
Earnings (EBITDA)
Significance
Our strategy implies not just growth at any
cost, but rather profitable growth that creates
long-term value for Magnit stakeholders.
Return on invested capital
Measurement
Significance
EBITDA (earnings before interest, taxes,
depreciation and amortisation) is a basic
metric for earnings that is neutral to the
company’s capital structure and methods of
amortisation. EBITDA is a non-audited metric
under IFRS, it is calculated by the Сompany.
2021 results
EBITDA
+21.7% YoY
EBITDA margin
+13 bps YoY
Return on invested capital (ROIC) measures
how efficiently Magnit invests in projects such
as opening new stores or production facilities.
The Сompany is creating value if its ROIC
exceeds its weighted average cost of capital,
comprised of net debt and equity.
Measurement
We calculate ROIC as earnings before interest
and taxes less income tax divided by the sum
of average net debt and average equity.
2021 results
ROIC reached 16.5%
+265 bps YoY
Inventory turnover
Significance
Managing inventory turnover is the key
element of retail business. We buy goods
from suppliers and sell them to customers as
soon as possible to operate efficiently. Having
inventories that are either too high or too low
can result in losses for the business.
Measurement
Working Capital Cycle shows the average
number of days it takes to sell goods
purchased from suppliers to Magnit
customers.
2021 results
Decrease in the working
capital cycle was
>7 days YoY
which released
RUB18.3 bln
of cash for Magnit
Note: All fiNANciAl metrics Are provided iN AccordANce with iAs 17 stANdArd.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Risk Management
PJSC Magnit has a comprehensive
internal control and risk management
system. Risk management
is consistent with the Company's
needs and generally accepted risk
management standards.
The Board of Directors and the
Management board of PJSC Magnit
ensure the effective operation
and development of the internal
control and risk management system,
which provides for the control
over the Company's strategic
and operational goal achievements,
the reliability of information
disclosure and compliance with
external and internal requirements.
The internal control and risk
management system goals
are timely identification of all
key risks, assessment of the
possibility of occurrence,
damage from the implementation
and consequences of their
occurrence, determination
of measures to minimise negative
consequences and creation of control
mechanisms that ensure the stable
functioning of business processes.
In the process of creating shareholder
value, the Company makes
management decisions taking into
account multidirectional factors that
can have both a positive and negative
impact on goal achievements. One
of the ways to reduce the uncertainty
caused by such factors is to increase
the awareness of shareholders,
management and employees
of factors that can influence
the achievement of goals,
and to assess their possible impact.
The Company's risk management
system is a set of measures
and interconnected processes aimed
at developing risk management as an
integral part of:
— corporate culture
— strategic management
— decision-making.
Key documents of risk
management:
— Internal Control and Risk
Management Policy1
— Regulation on process-oriented risk
management
— Catalogue of risks.
Main risk management
principles:
— Continuity and integrity Internal
control and risk management are
continuous processes covering all
areas of the Company’s business
activities, at all management levels.
— Integration into organisational
processes The internal control
and risk management system
is an integral part of the
Company’s business, management
and corporate culture. It is
integrated into every organisational
process of Magnit, including policy
development, strategic and business
planning, and change management.
— Methodological framework
integrity 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.
1 Approved By the decisioN of the BoArd of directors oN 12 decemBer 2019 (miNutes w/o of 13 decemBer 2019).
— 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.
— 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.
— Risk orientation The internal
control and risk management
system includes risk analysis
and monitoring in each area of
the 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 the order
of importance.
— Balance Controlling procedures
and risk management functions
are equipped with the necessary
resources and authorisation
for their successful execution.
Spending on the implementation
and realisation of controlling
procedures are therefore 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.
Key initiatives and results
of internal control and risk
management in 2021:
— A separate structural unit
for risk management and the risk
management team2 was formed
— A comprehensive assessment
of internal and external risks was
carried out
— The risk classifier and risk assessment
criteria were updated
— The analysis of strategic, financial,
operational and regulatory risks
of the Company was conducted
— Began implementing additional
measures for risk prevention
— Began updating internal regulatory
documents of internal control
and risk management procedures
— Risk management training was
conducted for certain units of the
Company.
Key areas of activity for 2022
on the development of a risk
management system:
— Formation of detailed risk
management plans
— Online course development
for Company employees on the risk
management basics
— Complete updating of risk
management regulatory documents
— Elaboration of automation issues
of risk management processes.
Key elements of risk
management:
— Risk identification
— Risk assessment
— The development
and implementation of risk
management procedures
— Constant monitoring of risk status.
The risk management system has
three levels – strategic, operational
and control. The Company’s principal
managing bodies comprising 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 least 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. 100.
2 withiN the orgANisAtioNAl structure of Jsc tANder – mAiN operAtioNAl compANy
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Risk Management
(continued)
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
14
10
8
9
1 2 3
4 5
7
6
16
13
11
12
15
17
18
Risks description
№
1
2
3
Risks and factors
Risk management
Likelihood
Impact
YoY change
YoY change
Risk of deterioration of socio-economic
and political conditions
— deterioration of macroeconomic factors (high level
of inflation, high exchange rate volatility and rouble
devaluation, key rate increase)
— high level of sanction pressure
— growing unemployment, decrease in general living
standards, with a corresponding change
in consumption behaviour
— increasing wage and benefits gap with growing living
— adjustment of the Company's strategy and financial
model
— revision of investment plans
— updating the expansion programmes and plans
by functional areas
— 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.
costs.
Type of risk: strategic
Source of risk: external
Impact: all parameters
Risks related to the shortage / absence of
imported goods – food products, specific
equipment, spare parts, materials for the
following reasons
— imposition of sanctions
— disruption of logistics chains, including a reduction
of the number of suppliers.
Type of risk: operational
Source of risk: internal and external
Impact: all parameters
Risk of transformation
— change of transformation effects
— margin reduction during the transformation
of category management (incorrect pricing,
promotion, assortment revision, high purchasing
prices, sale of obsolete stock with a discount)
— errors when transferring data from existing
accounting systems to new ones.
Type of risk: strategic
Source of risk: internal and external
Impact: strategy execution, revenue, EBITDA
— search for alternative contractors from the countries
not subject to sanctions
— readjustment of logistics chains
— search for and development of Russian suppliers.
— adjustment of the transformation project
— collective decision-making
— hiring external consultants to speed up and optimise
the processes.
5
5
5
5
5
5
High
Moderate
Low
Likelihood
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Risk Management
(continued)
Risks description
№
4
5
6
Risks of adverse regulatory changes
— nationalisation of the Company
— strengthening of the currency control
— introduction of price regulation by the government
— limiting of trade margins growth
— EGAIS (alcohol registration system), PLATON (road
transportation payments), technical regulations
— increase in the cost of environmental charges
— restriction on the use of packaging/packages, other
types of packaging within own production and
private label in the sales areas
— government approval of distance selling of alcohol
— additional regulation of shelves and layout
— introduction of quotas on the supply of key consumer
basket goods to retail chains
— more complicated procedures for licensing and
obtaining permits from external regulatory bodies
— possible introduction of new licenses and permits.
Type of risk: regulatory
Source of risk: external
Impact: market share, revenue, EBITDA
Restriction / suspension of work of foreign
software / services:
— suspension / termination of cooperation with some
IT partners
— difficulty of quick replacement of software and
services.
Type of risk: operational
Source of risk: external
Impact: all parameters
Risks and factors
Risk management
Likelihood
Impact
YoY change
YoY change
— 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, and technical
documents
— the government eases regulation in a number of areas,
which is a supporting factor for business operation.
№
7
Risks and factors
Risk management
Likelihood
Impact
YoY change
YoY change
Risks associated with IT infrastructure support
— increased business requirements to IT systems,
— a detailed plan for IT investments has been developed
— forecasting future capacity requirements and increased
provision of the speed and quality of the relevant
information
— increased requirements to prompt search of defects
and their liquidation in the information management
systems providing an adverse impact on the
operations
— lack of IT staff with the necessary qualifications.
load for future periods
— annual revision of configurations (capacities)
— a functioning system in place for processing user
requests
— analysis of regular reporting based on user requests
5
5
and incidents, conducting annual polls on user
satisfaction with the operation of the Support Service.
— search for alternative vendors.
5
5
9
5
5
Type of risk: operational
Source of risk: internal
Impact: revenue, EBITDA
8
Risks of increased competition
— development of e-commerce / marketplace /
ecosystems
— introduction of new players specialising in a
— development of own e-commerce
— launch of price projects
— launch of the new format of Moya Tsena stores
and development of the Magnit Family format
particular offer and closing needs (hard discounters,
alcoholic beverage stores, etc.)
— monopolisation of the market in a number of product
— introduction of affordable and quality private labels
— monitoring competitors' actions
— conducting a comprehensive analysis when choosing
categories by the largest manufacturers
marketing tools, promotions
4
5
— increase in price pressure
— traffic outflow.
Type of risk: strategic
Source of risk: external
Impact: revenue
— increasing the attractiveness of existing stores through
redesign
— evaluating the attractiveness and potential of proposed
store openings using GIS analysis technologies
— significant investments in attracting and retaining
customers.
Risks of excessive loss of the inventory
— inefficiency of logistics, goods acceptance, storage
— modifying the Сompany's business processes through
the redistribution of powers and responsibilities
and inventory accounting processes
— involving internal security in the investigation of theft
— employee misconduct
— robbery in stores (western regions of the Russian
Federation)
— increase in theft at stores due to the declining living
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
standards.
systems in the budget.
4
5
IT security risks:
— increased number of cyber-attacks on information
— functioning of access control procedures and
mechanisms, approved access matrices
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, and propagation of
virus software.
— 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
— additional investments in the development
of information technologies.
Type of risk: operational
Source of risk: internal and external
Impact: all parameters
5
5
Type of risk: operational
Source of risk: internal
Impact: EBITDA
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Risk Management
(continued)
Risks description
№
10
Risks and factors
Risk management
Likelihood
Impact
YoY change
YoY change
3
5
3
4
Risk of absence and recruitment of personnel
— significant increase of compensation payments
and benefits in the labour market for high-demand
professions
— reduction of migration flows to the Russian
Federation
— indexation of wages for individual branches
and departments
— development of dedicated internal training
and adaptation programmes for employees
— improving the culture of employee management
— implementation of integrated systems for long-term
— abandonment of outsourcing and introduction
motivation of personnel
of additional workload for employees
— lack of IT specialists in the labour market
— remote employment opportunity.
Type of risk: operational
Source of risk: internal and external
Impact: revenue, EBITDA
11
Risks of corruption and employee fraud
— the internal environment of the Company and the
level of fraud committed is affected by the corporate
values system, fair motivation of employees,
adherence to internal rules and business processes.
Type of risk: operational
Source of risk: internal
Impact: all parameters
12
Risks in the field of industrial safety, occupational
health and environment
— fires, smoke, ignitions
— occurrence of accidents, impact of natural factors
— occupational injuries
— violation of occupational and fire safety standards
and regulations by the Company’s employees
and contractors
— intensification of the negative epidemiological
situation, spread of COVID-19.
Type of risk: operational
Source of risk: internal and external
Impact: revenue, EBITDA
— development of social programmes for personnel
— interaction with universities to attract the best
graduates
— development of the talent pool
— strengthening of resources for hiring specialists.
— compliance with 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
— joining the United Nations Global Compact
— personnel training in corporate ethics and code
of conduct
— segregation of incompatible powers through
the organisational structural measures,
as well as through the access rights, implementation
of the access rights matrix
— transaction control by the Financial Directorate
— inspection of potential candidates for vacant positions
by the Security Directorate
— comprehensive elaboration of the identified violations.
— 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
— maintainance of the required level of personnel
qualification, responsibility of managers to support
the proficiency level of employees
— assessment of working conditions
— compliance with the Environmental Protection
and Industrial Safety Policy, Fire Safety Policy of the
Magnit Group
— insurance of facilities against force majeure factors
— vaccination, revaccination, transfer of employees
to remote work.
Risks and factors
Risk management
Likelihood
Impact
YoY change
YoY change
Risks of making poor investment decisions
— return on investment of new stores
and reconstructions is below the WACC
— growth of the number of unprofitable stores
— excess CAPEX per facility (excess requirements,
excessive standards, low-quality construction
and installation works).
— 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.
3
4
№
13
14
Type of risk: strategic
Source of risk: internal and external
Impact: CAPEX, EBITDA, ROIC
Risks associated with the quality of goods sold
and produced
— inconsistency of quality 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.
Type of risk: operational
Source of risk: internal
Impact: revenue, EBITDA, LFL
— functioning of the system selecting suppliers of goods
and services, “green” procurement of products and raw
materials
— audit of suppliers
— compliance with the Responsible Supply Chain Policy
of Magnit
— compliance with the Food and Non-Food Quality
and Safety Policy of PJSC Magnit
— 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
— audit of stores, own production facilities
and distribution centers, including remote monitoring
— processing and analysis of inquiries (customers, stores
and distribution centres, regulatory authorities, media
and nonprofit organisations).
— 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
— vaccination and revaccination
— disinfection of premises
— performance of labour functions by employees working
remotely.
2
5
2
3
15
Risks of negative epidemiological situation impact
on the Company's activities
— introduction of severe restrictive measures
to prevent the spread of COVID-19 may have
a negative impact on supply chains
— in case of significant spread (occurrence) of new
variants (“omicron”) of COVID-19, the rate
of infection among employees is likely to increase.
3
4
Type of risk: operational
Source of risk: external and internal
Impact: all parameters
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Risk Management
(continued)
Risks description
№
16
Risks and factors
Risk management
Likelihood
Impact
YoY change
YoY change
Reputation risk
— incidents causing significant damage to customers'
— availability and operation of a crisis centre
— timely provision of full information about its activities
health, various violations of laws and other
regulations
— risks of dissemination in the media of information
discrediting the Company's image, disclosure
of confidential business information, high-profile
litigations
by the Company
— implementation 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
— the ability to maintain the stated level of social
and sustainability requirements
responsibility.
Type of risk: strategic
Source of risk: internal and external
Impact: all parameters
— 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
№
18
Risks and factors
Risk management
Likelihood
Impact
YoY change
YoY change
Climate-related risks
— physical climate-related risks (natural phenomena
occurring as a result of the climate change: urgent
risks (hurricanes, floods, fires, etc.) and systematic
risks associated with long-term changes of the
climatic characteristics and conditions (e.g. global
warming)
— elaboration of a plan of measures for the
implementation and development of a system for
identification, assessment, management and monitoring
of climate-related risks
— analysis and amendment (if necessary) of the
Company's regulations with regard to climate-relarted
risk management
2
4
factors associated with the transition to a low-carbon
economy).
of the climate-related risk assessment and business
opportunities
— transitional climate-related risks (risks and their
— analysis of the potential application of the results
2
2
Type of risk: regulatory
Source of risk: external
Impact: all parameters
— establishment of a team to assess climate-related risks
and opportunities, hiring consultants
— hiring an external auditor to assess the quality and
effectiveness of the Company's climate-related risk
management activities.
17
Risks associated with changes in tax legislation
— making amendments to or supplementing the
legislative acts on taxes and levies regarding
an increase in tax rates, introduction of new types
of taxes
— 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
— changes in the Russian tax system providing
with external auditors.
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.
Type of risk: regulatory
Source of risk: external
Impact: revenue
2
3
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Sustainable
Development
The Russian National Rating Agency
called Magnit the leader of ESG
integration among Russian non-
financial public companies in retail,
thus acknowledging our progress
in corporate governance, assurance
of product quality and safety, carbon
footprint reduction, and development
of staff relations.
With the acquisition of Dixy in 2021,
Magnit experienced a major change
in its corporate structure. We
seek to fully integrate Magnit’s
sustainability principles into
the business processes of Dixy, while
also fine-tuning the company’s current
business practices.
Our ESG achievements would
have been impossible without
the concerted efforts of Magnit’s
team, suppliers and partners. I would
like to take this opportunity to thank
each stakeholder for their significant
contribution to Magnit’s sustainability
efforts.
Despite all the accomplishments so
far, we still have a lot of ambitious
goals ahead. They are mostly about
integrating ESG principles into all our
business processes and operations.
Our commitment to sustainability
goes far beyond the topics that are
of material significance for Magnit
and its immediate stakeholders. As
part of our ESG Strategy, we strive
to contribute to all UN Sustainable
Development Goals (SDGs), while also
placing a particular emphasis on the
following: Zero Hunger (SDG 2),
Decent Work and Economic Growth
(SDG 8), Responsible Consumption
and Production (SDG 12), and Climate
Action (SDG 13).
There is no doubt that it will take
us some time to deliver on our
strategic goals in the selected areas,
but we take pride in the progress
made against the Strategy and are
happy to present the interim results
achieved by Magnit’s sustainability
team in 2021.
In the reporting year, we focused
on programmes designed to promote
healthy lifestyles, collection
and processing of waste, and creation
of a sustainable sourcing system.
We also continued our efforts
to reduce direct and indirect GHG
emissions by buckling down to the
renewal and gradual transformation
of Magnit’s car fleet and boosting
energy efficiency across the Company.
Our sustainability pursuits in 2021
helped Magnit improve its positions
in a variety of ESG ratings.
The Company’s ambition to become
the best employer in the Russian retail
sector was endorsed by the platinum
award given by Forbes and KPMG
to recognise Russia’s
top employers in terms of their
ESG record.
Jan Dunning,
Chairman of the Sustainability
Steering Committee
Dear stakeholders,
As Russia’s No. 1 retailer
by the number of stores
and geographic outreach,
we feel not only obliged to retain
and strengthen our market
leadership, but also responsible
for the Company’s sustainable
development and its contribution
to sectoral and social sustainability.
That is why our annual report
focuses on the key results achieved
by the Company as part of its ESG
Strategy goals for 2025.
Striving to become a leading
Russian retailer in sustainability,
Magnit has set ambitious goals
that include leadership in the
environmental impact reduction in
the retail sector, having positive
impact on the quality of life of the
Russian consumers, becoming
a number one employer in the
industry, as well as creating a
100% responsible supply chain
and the “best in class” Corporate
Governance.
As part of the ESG Strategy,
we set out a variety of quantitative
and qualitative targets
in environmental stewardship,
sustainable sourcing, employees,
communities, and health
and wellbeing.
Overview
In 2020, focused on issues that
matter most to its stakeholders,
Magnit set its sustainability strategy
goals for 2025. Now in its second
year, the Company has made
considerable progress across its five
priorities, fine-tuning its work to drive
even greater improvements across
environmental and social goals.
Magnit changed gears in 2021,
growing significantly through
a major acquisition, launching
numerous stores and new formats,
and building the e-commerce
business. This was achieved against
a continued backdrop of uncertainty
around the COVID-19 pandemic
and supporting customers
and employees to a ‘return to normal’.
At the heart of this is a strong
commitment to grow the business
sustainably and continue to reduce
the Company’s impacts.
Key highlights for 2021
72 %
employee satisfaction
8 thous.
volunteers/events1
16 %
increase in purchases
from local suppliers
27 %
of private label sales falls
on healthy lifestyle products
>99 %
of the total volume of plastic
generated in the distribution
centres is sent for recycling
8 %
decrease in specific electricity
consumption (kWh/mln RUR) since
2019
19 %
reduction of specific GHG emissions
(t CO2 eq/mln RUR) since 2019
RUB 641 mln
allocated for social and charity
projects
1 the iNdicAtor is cAlculAted BAsed oN the NumBer of voluNteers divided By the NumBer of eveNts, siNce it
is curreNtly Not possiBle to cAlculAte the ABsolute NumBer of voluNteers
Interaction
with stakeholders
While improving Magnit's
sustainability management
and reporting, we consider the views
of all stakeholder groups. We
determine the most important
issues to enhance communication
and develop engagement with our
stakeholders on these issues.
Magnit engages in an open
dialogue with all stakeholder
groups, both internal, such as
employees and shareholders,
and external, such as suppliers
and customers. The Company's
interaction with stakeholders
is built on the principles
of respect for stakeholders,
transparency, regularity,
and compliance with obligations.
Read more about our
stakeholder engagement
on p. 112.
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Sustainable Development
(continued)
Environmental Stewardship
To be а Leader
in environmental impact reduction in the industry
— CO2 emissions
— Packaging waste
— Food waste
— Energy and water use
50% Private labels and
own production packaging
be recyclable, reusable
or compostable
100% Recyclable
plastics in own operations
are recovered and recycled
50% Food waste
reduction
30% Greenhouse gas
emissions reduction
25% Water and energy
consumption reduction
Private label (24.5% of the total number of SKU was checked):
25% of packaging is recyclable,
36% – partially recyclable
Own production: 30% of packaging is recyclable,
44% – partially recyclable
>99% of plastic packaging generated during shipping activities
was recycled in 2021
Reduction by 46% of specific food waste generation
(167.66 kg/mln RUR) since 2019
Reduction by 8% in specific electricity consumption
(1,825.6 kWh/mln RUR) since 2019
Reduction by 19% (2.37 t СО2 eq/mln RUR)
of specific greenhouse gas emissions (scope 1 and 2) since 2019
Sustainable Sourcing
To strive towards a 100%
responsible supply chain
100% Responsible
sourcing for socially
important categories
100% Responsible own
production and agriculture
Partnership
Programmes for local
suppliers & farmers
— Products and raw materials from responsible sources
— Best local products
— Food and non-food safety
— Responsible own agriculture and production
— Private labels
— Green marketing
Development of a pilot project for ESG certification
of suppliers of socially important goods
The Company obtained certification for the compliance
with the international food safety management system
according to FSSC 22000-2018 standards
Launch of the initiative to switch private label goods
to eco-friendly packaging
Opening of the first vertical ecological greenhouse
Magnit received more than 100 awards for the quality
of its own production in various quality competitions in 2021
Increased by 16% the total volume of purchases
from local suppliers
Sustainability Strategy
Magnit’s sustainability 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 outlined 5 key areas and sets quantitative
and qualitative targets for 2025:
Our goals for 2020-2025
2021 Indicators
Employees
To be the #1 employer in the industry
— Fair, safe and rewarding workplace
— Training and development
70% Rate of employee
satisfaction
50% Injury rate reduction
and zero fatalities
40% Turnover rate
72%
0.91 Injury rate
(per 1,000 employees)
53%
Communities
To make a Positive impact
on the quality of life of all Russians
— Corporate volunteering
— Emergency help
— Charity
10%
Employee volunteers
Community Programmes for all
the regions of the Company’s presence
2.5%
In 2021, all 67 regions of the Company’s presence
regions were covered with social projects
Health & Wellbeing
To Improve the quality of life
for consumers and local communities
— Promoting healthy lifestyle: nutrition
and sports
— Availability of health-related services
and products
Healthy lifestyle
Information about healthy
lifestyle and nutrition
is available to all of consumers
Healthy food
Related products are available
to all of consumers
Implementation of new partnership projects aimed at promoting
healthy lifestyles, as well as active development of own
initiatives, led to the increase of consumers’ coverage across the
country
The number of Health Cubes
in the supermarkets has reached 228,
while the category’s popularity has increased by 9%
Revenue of RUB 41,487 mln
from Magnit's healthy lifestyle
private label products, which accounts fo 27%
of private label sales
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Stategic Report
Corporate Governance
Consolidated Financial Statements
Appendices
Sustainable Development
(continued)
Fuel consumption by the Group’s enterprises in 2018–20211
Energy expenditures by the Group’s enterprises in 2018–2021, RUB mln1
2018
2019
2020
2021
Fuel types
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
Diesel fuel, l
199,843,095
Gasoline, l
12,645,506
-
-
215,820,780
13,168,980
-
-
191,462,410
13,123,330
-
-
150,276,040
15,519,030
-
-
Type of
energy
resource
Thermal
energy
2018
2019
2020
2021
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
1,944.9
0.8
2,083.3
0.8
2,201.4
1.0
1.6
0.2
2,537.8
19,043.3
1,443.5
0.8
1.3
0.1
Electricity
Natural gas
13,762.9
1,067.8
1.1
0.2
15,066.8
1,548.3
1.4
0.1
17,295.9
1,229.1
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 by the Group’s enterprises in 2018–2021, RUB mln1
2018
2019
2020
2021
Fuel types
Diesel fuel
Gasoline
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
All companies
of the Group Magnit PJSC
6,825.0
433.3
-
-
7,713.4
472.7
-
-
6,649.1
460.3
-
-
5,781.9
557.5
-
-
Energy consumption by the Group’s enterprises in 2018–20211
Type of
energy
resource
Thermal
energy, Gcal
Electricity,
KW per hour
Natural gas,
cbm
2018
2019
2020
2021
All companies
of the Group
Magnit
PJSC
All companies
of the Group
Magnit
PJSC
All companies
of the Group
Magnit
PJSC
All companies
of the Group
Magnit
PJSC
1,246,351
516
1,201,925
469
1,232,174
561
1,369,486
462
,564,578,505
217,587
2,725,130,567
241,101
2,839,098,541
266,604
3,155,928,433
202,163
170,739,126
24,903
234,939,230
18,937
187,787,159
29,386
216,570,229
23,442
1 excludiNg dixy.
dAtA for 2019 ANd 2020 differ from the dAtA iN the 2019 ANNuAl report due to improved dAtA collectioN.
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C
I
T
S
A
L
P
R
E
P
A
P
Chairman’s Review
The strengthened Board composition increases
the number of independent directors, making
the Company’s approach significantly ahead
of current Russian practices. I would like to take
this opportunity to thank our former Board
members, Evgeny Kuznetsov and Gregor Mowat,
for their contribution to Magnit.
Following the Board changes, the members
of Committees of the Board of Directors were
reformed to best reflect relevant professional
experience and knowledge. The Committees
continue to be headed by Non-Executive
Directors and consist of only Independent
Directors. Towards the end of the year, we also
published a new edition of the Regulations
on Committees of the Board of Directors.
The changes are part of Magnit’s continuous
development of a strong corporate governance
system complying with Russian and international
best practices.
In parallel, we strengthened the Management
Board from nine to 13 members, in line
with the Company’s strategic priorities
and development in the retail market. New
appointments to the Management Board
in 2021 include Francesco Fiamingo (Commercial
Director for Formats and Dry/Non-Food),
Pavel Lokshin (Chief Marketing Officer), Andrey
Lukashevich (Director for E-Commerce), Yuri
Misnik (Chief Digital and Technology Officer)
and Egor Shumilin (Commercial Director
for Fresh / Ultra Fresh and Regions). We also
welcomed Fedor Pavlovsky as Chief Supply
Chain and Logistics Officer.
Dear shareholders,
In 2021 we continued to improve our
corporate governance systems,
responding to queries and concerns
raised by shareholders.
The continued rapid growth of Magnit
prompted us to reevaluate our Board in order
to make sure we have a broad range of skills
and knowledge needed to support our growth
ambitions, whilst ensuring greater diversity.
The new edition of the Articles of Association
stipulates an increase in the size of the Board
of Directors from nine to eleven members.
As a result, and after shareholder approval,
the Board was extended, with seven out
of eleven members having served on the Board
in the last Board cycle.
We welcome four new Board members
including Sergey Zakharov, Pierre-Laurent
Wetli, Vsevolod Rozanov as well as our first
female Board member, Naira Adamyan,
supporting our gender diversity principles.
We continued to develop our long-term
and short-term incentive (LTI & STI)
programmes to ensure an optimal and fair
method of motivation and compensation
for top management, adding new members
to the LTI and setting KPIs for the STI against
which performance was evaluated in 2021.
In April 2021 we published our second
sustainability report, presenting our progress
on commitments to 2025. Now in its third
year, our Sustainability Strategy is fully
embedded in Magnit’s day-to-day operations,
underpinning many of our non-financial KPIs
and long-term environmental and social
aspirations. Led by our President and CEO,
Jan Dunning, our sustainability approach
is supporting the Company’s corporate
governance.
The Audit Fees Policy stipulates that Magnit will
limit the total fees for non-audit services in a
calendar year to an amount not exceeding 50%
of the total fees for the audit and audit-related
services in the relevant year with effect from
1 January 2022.
We maintained a high level of engagement
throughout the year, holding virtual and face-
to-face meetings, as well as issuing regular
announcements as part of increased intensity
of activity at Magnit as we pursue our
strategy. A milestone in our development was
the acquisition of Dixy, which strengthens
our market position in the Moscow
and St. Petersburg regions in particular. We
also reviewed our Company Policies, updating
them to maintain the latest standards; these are
available on the Company’s website.
The Board is committed to maintaining open
and constructive dialogue with investors
and responding to any concerns raised.
A major outcome of our interactions in 2021
highlighted dissatisfaction with non-audit fees
for consultancy work being charged by our
auditors, E&Y, which were higher than audit-
related fees in 2020.
We continue our work in strengthening
our corporate governance and endeavour
to comply with the UK Corporate Governance
Code. We are continuing to build a sustainable
business in line with the best corporate
governance practices and look forward
to updating our shareholders with details
on ongoing improvements.
In response, we engaged independent
consultants to investigate the reasons
for these concerns and to provide
recommendations. The result of this exercise
is the creation of the Audit Fees Policy which
oversees the approval process for services
provided to Magnit by the Company’s external
auditors and assures auditors’ independence.
Charles Ryan
Chairman of the Board of Directors
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Board of Directors
The Annual General Meeting of shareholders of Magnit
on 10 June 2021 approved changes to the Company’s Articles
of Association increasing the size of the Board of Directors
from 9 to 11 people. The Extraordinary General Meeting
of shareholders of Magnit on 9 September 2021 elected
the first Board comprised of 11 people, as follows:
Full composition of the Board of Directors
Status
Name
Key experience
Naira Adamyan
Sanofi (consumer goods)
Walter Koch
Management consulting
Vsevolod Rozanov
Sistema PJSFC (finance)
Charles Ryan
UFG Asset Management
James Simmons
Mazovia Capital (finance)
Citizenship
Russia
Germany
Russia
USA
USA
Pierre-Laurent Wetli
Consulting (ex-Bain)
Switzerland
Tim Demchenko
Alexey Makhnev
VTB Capital
VTB Capital
Alexander Vinokurov
Marathon Group
Sergey Zakharov
Marathon Group
UK
Russia
Russia
Russia
Jan Dunning
Magnit President and CEO
Netherlands
Independent
Non-executive
Executive
Born
1961
1962
1971
1967
1978
1976
1973
1976
1982
1980
1959
Members of the Board of Directors
Charles Ryan’s distinguished financial
career combines top-level expertise
and deep knowledge of both
Russian and international markets.
Mr. Ryan began his professional
career in 1989 with CS First Boston,
where he was a Financial Analyst.
From 1991 to 1994, Mr. Ryan
was an Associate and Principal
Banker with the European Bank
for Reconstruction and Development
in London, where he played a crucial
role in the city of St. Petersburg’s
privatisation programme for industry
and real estate. In 1994, Mr. Ryan
co-founded the United Financial
Group, an independent investment
bank in Moscow.
Naira Adamyan is a physician
by training with a PhD
in immunology and began her
career in 1997 at Janssen Russia &
CIS (the pharmaceutical division
of Johnson and Johnson).
Over the following 18 years she
held various leadership positions
within the Group with increased
responsibilities, including Managing
Director Janssen Russia & CIS,
General Manager Johnson & Johnson
LLC and Board member of EMEA
region at Janssen.
In 2005, when Deutsche Bank
acquired 100% of UFG’s investment
banking business, Mr. Ryan was
appointed 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.
In 2015, Ms. Adamyan joined
Sanofi as Country Chair of Russia
and General Manager of Eurasia.
She was later appointed Head
of Eurasia, Middle East, before
becoming Head of Strategy
and Innovation in 2020. Naira was
Chair of the Board of Directors
of AIPM (Association of more than 60
Pharma companies) and co-Chaired
InPharma (association of 14
research-based global Pharma
companies). She was also a Board
Member of the American Chamber
of Commerce. Ms. Adamyan received
the EY Business Women Russia 2015
award and is listed in RBC’s Top 25
CEO Women of Russian Business.
Charles Ryan,
Chairman of the Board
of Directors
Naira Adamyan,
Member of the Board
of Directors
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Board of Directors
(continued)
Members of the Board of Directors
Tim Demchenko has over twenty
years of international private
equity and corporate investment
experience. Based in London,
Tim has worked for global
technology companies (Siemens,
IBM) and international investment
banks.
Tim has served as a Board Director
on multiple private and public
companies helping to steer
companies development and
expansion strategy, operational
performance optimization and
corporate governance.
Jan Dunning joined Magnit in January
2019 as President and Member
of the Management Board. After
joining the Board of Directors
in May 2019, Jan was elected Chief
Executive Officer in June 2019.
Prior to joining Magnit, Jan spent
over 25 years in the retail industry
working in a broad range of retail
functions including leadership roles
in operations, development, sales,
marketing, purchasing and finance.
In 2011−2018, Jan worked as the
Chief Executive Officer of Lenta.
Tim holds a Masters in Finance
degree from London Business School
and completed executive courses
at Harvard Business School.
Previously, he served as the 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 the General Manager
of the Lukas Klamer wholesale business,
a subsidiary of the Metro Group in the
Netherlands, and over ten years with
Aldi North.
Tim Demchenko,
Member of the Board
of Directors
Jan Dunning,
Member of the Board
of Directors, Chairman
of the Management Board,
President and CEO
Since 1999 Walter Koch has held
senior positions at some of the
largest European home appliance
manufacturers such as AEG
and Electrolux, being in charge
of Logistics, SCM and After Sales
Service.
During 2007 to 2010 Walter
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.
Alexey Makhnev has over two
decades of expertise and experience
within the Russian consumer
and retail sector. In 2006,
Mr. Makhnev was a lead member
of the Deutsche Bank investment
banking team that carried out
Magnit’s IPO. For six years from
2009 to 2015 Mr. Makhnev served
on Magnit’s Board of Directors.
Currently, Walter owns and operates
an independent consulting firm
and in May 2019 he got elected
as an Independent Director
of PJSC Magnit, Russia.
Over the past twenty years,
Mr. Makhnev has worked on a large
number of consumer and retail
transactions in Russia and the CIS,
including Magnit, Lenta, Okey,
Dixy, Mvideo, LSR, Etalon, PIK,
and Rusagro.
Vsevolod Rozanov began his career
at Bain & Company in 1993. In 2002,
he moved on to join the leading
Russian public investment company
Sistema, holding CFO roles
consecutively at MTU-Inform,
Comstar UTS and MTS JSC. In 2008,
he became CEO of Sistema’s Indian
greenfield telecom venture, SSTL
(under the MTS India brand).
In 2013, Mr. Rozanov moved back
to Moscow to become Sistema
Group's CFO.
From 2018 to 2021 he was Managing
Partner in charge of Sistema’s
financial assets as well as the South
Asian businesses. He has served
as a board member at various
companies within the Sistema Group
(telecom, banking, pulp & paper, etc.)
He currently serves as the Chairman
of the Board of Directors of Sistema
Capital, as well as member of the
boards of MTS Bank, Fortenova
Grupa and Volga-Dnepr Logistics B.V.
Walter Koch,
Member of the Board
of Directors
Alexey Makhnev,
Member of the Board
of Directors
Vsevolod Rozanov,
Member of the Board
of Directors
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Board of Directors
(continued)
Members of the Board of Directors
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 has an MBA from Harvard
Business School, where he was
a Baker Scholar.
Alexander Vinokurov began his
career in 2004 with the investment
banking division of Morgan Stanley
(London).
In 2006, he returned to Russia
as Vice President of TPG Capital,
co-founding the company's Russian
office.
logistics, engineering, construction,
telecommunications, oil and gas,
oil trading and agriculture.
In 2014, he became CEO of A1, Alfa
Group's investment arm specialising
in the acquisition of the assets that
are undervalued due to challenging
economic situations.
In 2011, Mr. Vinokurov assumed
the post of President of Summa
Group, which has significant
investments in port and rail
In May 2017, Mr. Vinokurov left his
post as President of A1 to co-found
Marathon Group.
Pierre-Laurent Wetli has spent
the past 20 years of his career
working at Bain & Company, one
of the Big Three management
consulting firms.
Mr. Wetli worked at Bain’s Moscow
office from 2008 until recently,
leading projects for Bain’s retail
and consumer goods clients in Russia
and the CIS.
He has a strong understanding
of the food value chain in Russia
and its transformation over the last
15−20 years and brings relevant
expertise in regard to strategy
development, post-merger
integration and commercial activities
in the retail space.
Mr. Wetli is currently also chairing
the advisory committee of one
of Russia’s leading consumer goods
companies.
James Simmons,
Deputy Chairman of the
Board of Directors
Alexander Vinokurov,
Member of the Board
of Directors
Pierre-Laurent Wetli,
Member of the Board
of Directors
Mr Zakharov is currently Partner,
Chairman of the Management Board
at Marathon Group.
Starting 2004 Sergey Zakharov
spent eight years working with
M&A and capital markets in Moscow
and London at the international
law firm Clifford Chance, where
he advanced to a counsellor.
In 2012, Mr. Zakharov was appointed
Vice President at Summa Group.
In 2014, he joined A1, the investment
arm of Alfa Group, as Executive
Director, after which he left
to co-found Marathon Group in 2017.
Sergey Zakharov,
Member of the Board
of Directors
Composition of Board Committees
Name
Status
Audit
Committee
HR & Remuneration
Committee
Strategy
Committee
Capital Markets
Committee
Charles Ryan1
Naira Adamyan
Independent
Non-Executive
Independent
Non-Executive
Pierre-Laurent Wetli
Independent
Non-Executive
Alexander Vinokurov
Non-Executive
Tim Demchenko
Non-Executive
Jan Dunning
Executive Director
Sergey Zakharov
Non-Executive
Walter Koch
Independent
Non-Executive
Alexey Makhnev
Non-Executive
Vsevolod Rozanov
Independent
James Simmons
Non-Executive
Independent
Non-Executive
Participation in Committees
1 chAirmAN of the BoArd of directors
Chairman
Chairman
Chairman
Chairman
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Management Board
Over the course of 2021, there were
a number of changes in Magnit’s
senior team to support the Group’s
continued growth.
On 22 July 2021 PJSC Magnit
increased the size of its Management
Board to 13 people to make decision-
making more efficient. Chief Digital
and Technology Officer Yuri Misnik,
Chief Marketing Officer Pavel Lokshin
along with Commercial Directors
Francesco Fiamingo and Egor Shumilin
were all added to the Management
Board.
Chief Supply Chain and Logistics
Officer Fedor Pavlovsky and Director
for E-commerce Andrey Lukashevich1
also joined the Management Board,
replacing respectively Maria Dei
and Florian Jansen, who both left
the Company.
Full composition of the Management Board as of 31 December 2021
Management Board
Name
Jan
Dunning
Anna
Bobrova
Andrey
Bodrov
Francesco
Fiamingo
Ruslan
Ismailov
Pavel
Lokshin
Andrey
Lukashevich
Position
Joined
Background
President & CEO
2019
Metro, Lukas Klamer,
Aldi North, Lenta
Human Resources Director
2019
Metro, X5, JSC SIA
International Ltd
Chief Investment and Strategy
2019
Lenta, Investment banks
Officer
Commercial Director for formats
2019
Metro, Lenta
and Dry/ Non-Food
Deputy CEO – Retail Chain
2019
Lenta, Metro, Mosmart
Director
Chief Marketing Officer
2021
Metro, K-rauta,
Perekrestok Express,
O’Key
Director for E-commerce
2021
Delivery Club, Vezet
Anna
Corporate Relations and
2019
Coca-Cola, Heineken,
Meleshina
Sustainability Director
Lenta
Yuri
Misnik
Fedor
Pavlovsky
Maxim
Chief Digital and Technology
2021
Microsoft, AWS, banks
Officer
Chief Supply Chain and Logistics
2021
Lenta, Adidas, X5
Officer
Director for Chain Development,
2020
Lenta, O’Key
Shchegolev
Real Estate and Maintenance
Egor
Shumilin
Elena
Zhavoronkova
Commercial Director for Fresh/
2018
X5
Ultra Fresh and Regions
Chief Legal Officer
2018
Polyus, Evraz, TMK
Jan Dunning joined Magnit in January
2019 as President and Member
of the Management Board. After
joining the Board of Directors
in May 2019, Jan was elected Chief
Executive Officer in June 2019.
Prior to joining Magnit, Jan spent
over 25 years in the retail industry
working in a broad range of retail
functions including leadership roles
in operations, development, sales,
marketing, purchasing and finance.
In 2011−2018, Jan worked as the
Chief Executive Officer of Lenta.
Previously, he served as the
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 the General
Manager of the Lukas Klamer
wholesale business, a subsidiary
of the Metro Group in the
Netherlands, and over ten years
with Aldi North.
Anna has almost 20 years
of experience in HR, particularly
within the retail sector, and has
successfully implemented projects
aimed at the development
and performance enhancement
of line staff and management
and increasing the service level
in stores. She has also built
and managed modern IT systems
in employee management.
Prior to joining Magnit,
in 2003−2009 Anna worked in the
HR department of Metro, from 2011
to 2013 was the Director of HR
and Organisational Development
in X5 Retail Group.
She held managerial positions
in HR at JSC SIA International
Ltd (2015−2019), Rimera Group
(2013−2015) and Rosatom
(2009−2011).
From August 2019 Anna has held
the position of HR Director. Anna
was appointed Member of the
Management Board of PJSC Magnit
on 10 September 2019.
Andrey Bodrov has 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
more than ten years in investment
banking, 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 at Lenta from February
2016.
Since September 2019 Andrey has
held the role of Chief Investment
and Strategy Officer of PJSC Magnit
and is responsible for Magnit’s
investments, strategy, capital
allocation and M&A. Andrey
was elected as a Member of the
Management Board of PJSC Magnit
on 13 December 2019.
Jan Dunning,
President and CEO
Anna Bobrova,
HR Director
Andrey Bodrov,
Chief Investment
and Strategy Officer
1 oN 12 April 2022 Adrey lukAshevich left the compANy for fAmily reAsoNs. the BoArd of directors decided to remove ANdrey lukAshevich from the mANAgemeNt BoArd.
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Management Board
(continued)
Management Board
Francesco was appointed
a Member of the Management
Board of PJSC Magnit from
28 October 2021.
In 2009, Ruslan held the position
of Deputy Chief Executive Officer
of the Mosmart multi-format retail
chain. Prior to joining the Company,
he worked as a divisional director
and headed the Supermarket format
for four years in Lenta.
Ruslan was appointed Member of the
Management Board on 4 June 2019.
Prior to joining Magnit, Pavel worked
as the Chief Operating Officer
at O’Key Group.
From June 2021 occupies the
position of the Chief Marketing
Officer. Pavel was appointed
Member of the Management Board
of PJSC Magnit starting 22 July 2021.
Francesco Fiamingo has over 20
years of experience in retail across
different fields. He began his career
at Metro Cash & Carry in Italy
and has held senior positions at the
company in Russia and Serbia, where
he was in charge of procurement.
Prior to joining Magnit in 2019,
Francesco was the Commercial
Director for the Hypermarket format
at Lenta. He occupied the position
of the Commercial Director for the
Supermarket format at Lenta during
the period from 2014 to 2017.
Ruslan Ismailov joined Magnit
as the Retail Chain Director
on 27 May 2019.
Ruslan has over 15 years
of experience in managing consumer
companies.
He started his career in 2003 in
the Metro Cash & Carry retail chain,
working his way from a department
manager to a hypermarket director.
Pavel Lokshin has more than 20
years of management experience
in international and Russian retail
companies.
For more than 12 years he worked
at Metro Cash & Carry in various
positions in Moscow, Samara,
Novosibirsk, and Guangzhou.
From 2013 to 2018, he was the
first CEO of K-rauta Rus, a DIY
hypermarket chain, part of the
Finnish Kesko group, and then
of Perekrestok Express.
Francesco Fiamingo,
Commercial Director for formats
and Dry/ Non-Food
Ruslan Ismailov,
Deputy CEO – Retail Chain
Director
Pavel Lokshin,
Chief Marketing Officer
Andrey Lukashevich has had
a successful career holding
managerial positions in web
services development companies.
From 2015 to 2018, he held various
executive positions in Delivery
Club and became its CEO in 2016,
where, during his tenure, Andrey
increased the size of the business
of the company several times
and developed its strategy.
Andrey Lukashevich,
Director for E-commerce
In 2017, he was included in the Young
Media Managers of Russia Rating
in the Web Service CEO category.
In May 2018, Andrey headed
the Mail.Ru Foodtech Ventures,
a division created specifically
for investments in online sales
and food delivery projects.
In early 2019, he became the CEO
of Vezet taxi aggregator, a position
he held until the deal with Yandex.
Since July 2021 Andrey held
the position of the Director
for E-commerce. He was appointed
Member of the Management Board
of PJSC Magnit on 22 July 2021.
Anna Meleshina joined Magnit
in May 2019 as Director
for Government & Public Relations
and was subsequently appointed
Director for Corporate Relations &
Sustainability. Prior to Magnit,
Anna served as a Public Affairs &
Communications Director
for Coca-Cola in Russia and Belarus
from 2017 till 2019. From 2013
until 2017 Anna held the position
of Public Relations & Government
Affairs Director and was a member
of the Management Board at Lenta.
From 2002 until 2013 Anna took
different roles in HEINEKEN,
becoming the Corporate Relations
Director for the company in Russia
and a member of the HEINEKEN
global corporate relations
leadership team. After that, Anna
held senior positions in non-
commercial organisations, 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 was appointed Member
of the Management Board
from 20 November 2020.
Anna Meleshina,
Corporate Relations
and Sustainability Director
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Management Board
(continued)
Management Board
Yuri Misnik has more than 20
years’ experience in IT, having
worked in leading companies such
as Microsoft, Amazon Web Services,
HSBC, and National Australia
Bank (NAB). He has been a Cloud
pioneer, leading the development
and integration of Azure and AWS
services in large international
corporations.
In 2012, he joined the team
of Amazon Web Services to work
on the implementation of Amazon
Cloud (AWS) services in the UK
and Europe. From 2015 to 2019,
Yuri served as the Digital Chief
Information Officer at HSBC
and later as a CIO at National
Australia Bank.
He pioneered the implementation
of Cloud, Agile, DevOps,
and product teams in financial
services, and worked on bringing
a combination of modern solution
development methods and cutting-
edge implementations of cloud
services.
From late 2019, Yuri served
as the Group Chief Technology
Officer at First Abu Dhabi Bank
(FAB), where he was responsible
for driving the group’s technology
strategy to ensure that FAB was
ready for the next generation
of digital banking services.
Yuri is the Chief Digital
and Technology Officer. He
was appointed Member of the
Management Board of PJSC Magnit
starting 12 November 2021.
Fedor Pavlovsky has over 10-years'
experience in retail. He spent
most of his career working in the
field of supply chain management
and logistics.
Before joining Magnit Fedor was
managing Supply Chain function
of Pyaterochka (X5 Retail Group)
in 2020−2021, where he was
in charge of all logistics and supply
chain processes. Earlier, in
2018−2020, he worked as a Senior
Director for Supply Chain at Adidas
in charge of the CIS supply chain
(Russia, Ukraine, Kazakhstan),
focusing on omni-channel
and e-commerce growth.
Prior to that, Fedor spent over
10 years working at LLC Lenta.
Since May 2021 he has held
the position of the Logistics
Director and supervises supply chain
and logistics. He was appointed
Member of Management Board
of PJSC Magnit starting 22 July 2021.
Yuri Misnik,
Chief Digital
and Technology Officer
Fedor Pavlovsky,
Chief Supply Chain
and Logistics Officer
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
for eight years at O’KEY Group,
where, for the most part, he
was responsible for store chain
development. At earlier stages of his
career, Maxim occupied various
management positions in companies
dealing in electronics and household
appliances, including Megatekhnika
and Partiya.
Egor Shumilin joined the Magnit
team in June 2018 as the Director
for Category Management
Transformation before being
appointed the Director of Category
Management in August that year.
On 1 February 2021, Egor was
appointed the Fresh / Ultra Fresh
Commercial Director, from
22 June 2021 – Commercial Director
for Fresh / Ultra Fresh and Regions.
Elena Zhavoronkova joined Magnit
in June 2018 as the Director
for Legal Affairs and Corporate
Governance. Previously, she served
as Vice President for Legal Affairs
at PJSC Polyus. From July 2021 Elena
is the Director of DIXY HOLDING
LIMITED and from August 2021 −
the Head of the representative
office of DIXY HOLDING LIMITED
in Moscow (a company of Magnit
Group).
Since April 2020 he has been the
Director for Chain Development,
Real Estate and Maintenance. Maxim
was appointed Member of the
Management Board of PJSC Magnit
starting 14 April 2020.
Prior to joining the Company,
Egor worked at X5 Retail Group
(Pyaterochka, Perekrestok, Karusel
retail chains), where since 2008
he successfully worked his way up
from Procurement Specialist to the
Head of the Department. Since 2013
within the Pyaterochka retail chain
he participated in the formation
and implementation of the strategy
for updating the concept of stores
and the implementation of category
management. Egor was appointed
Member of the Management Board
starting 26 April 2021.
In 2010-2014, Elena held a similar
position at Evraz. From 2008 to 2010
Ms. Zhavoronkova headed the legal
department at United Industrial
Corporation. In 2000−2008, worked
her way from legal consultant
to the Head of Legal Department
at TMK. Elena was appointed
Member of the Management Board
on 22 June 2018.
Maxim Shchegolev,
Director for Chain Development,
Real Estate and Maintenance
Egor Shumilin,
Commercial Director for Fresh/
Ultra Fresh and Regions
Elena Zhavoronkova,
Chief Legal Officer
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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, as
well as international best practices.
The Company continually enhances its
corporate governance and ensures
the protection of shareholders
and other stakeholder rights.
Governance, management and control
at the Company are divided among
the shareholders (via the General
Meeting of Shareholders), the Board
of Directors, the Collective
Executive Body (the Management
Board) and the Sole Executive
Bodies (the President and the
Chief Executive Officer) pursuant
to applicable Russian corporate
law, Magnit’s Articles of Association
and internal policies.
Structure of corporate
governance bodies
PJSC Magnit has built robust
systems of corporate governance
and internal controls over 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, ensures
the efficient operation of the
remaining corporate governance
bodies and is responsible for all
necessary disclosures.
Election, establishment
Accountability
Administrative
subordination.
Department Director
is appointed by 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
Regulations
Internal 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.
The Company’s activities
are governed by its Articles
of Association approved in a
new edition by the annual
General Meeting of Shareholders
of PJSC Magnit held on 10 June 2021
and internal regulations2, including:
Document
Regulations on the Board of Directors
Effective date
11 June 2021
Regulations on the Committees of the Board of Directors
10 November 2021
Code of PJSC Magnit On Terms and Conditions
25 June 2019
of Transactions with Financial Instruments
Regulations on the Sole Executive Bodies (President and CEO)
31 May 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
Audit Fees 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
Charity, Sponsorship and Volunteer Policy
Environmental protection and occupational health
and safety policy
25 December 2020
24 March 2019
31 October 2018
11 June 2021
17 January 2022
30 May 2016
30 May 2016
13 December 2019
6 September 2021
25 February 2014
24 April 2021
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
1 January 2020
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1 for the report oN compliANce with the priNciples ANd recommeNdAtioNs of the code see AppeNdix 1.
2 for more detAils, see the weBsite of the compANy At https://www.mAgNit.com/eN/corporAte-goverNANce/corporAte-documeNts/.
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Corporate Governance Framework
(continued)
Compliance with the principles and recommendations of the Corporate Governance Code
(hereinafter, the “CGC”)1
2017
2018
2019
2020
2021
Number
of principles
recommended
by the Code
13
9
2
2
9
2
2
8
2
3
8
2
3
10
1
2
36
31
2
10
2
7
6
6
7
5
4
3
3
0
2
0
3
2
79 62
12
2
0
1
0
0
0
5
33
2
7
6
4
3
1
0
3
0
3
2
64
11
2
0
0
0
0
0
4
33
2
8
6
4
3
1
0
2
0
3
2
64
10
2
0
0
0
0
0
5
33
2
8
6
4
3
1
0
2
0
3
2
64
10
- 78%
81%
81%
81%
2
0
0
0
0
0
5
2
0
1
0
2
1
7
33
2
9
6
5
4
69
87%
1
0
0
0
0
0
3
Complied with
Partially complied with
Not complied with
Corporate governance principles
Shareholder rights and equal
conditions for shareholders
to exercise their rights
Board of Directors
Corporate Secretary
Remuneration system for members
of the Board of Directors
and senior Company executives
Risk Management and Internal
Control System
Corporate disclosure
Significant corporate actions
Total grade
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 compliance with the principles
and recommendations of the Code,
see Appendix 1 on p. 219.
Corporate Governance
Framework Development
PJSC Magnit continues to steadily
develop its corporate governance
system in accordance with 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.
In 2021, the Company further
improved its corporate governance
system. The main changes
and innovations are listed below.
— Shareholders approved a new edition
of the Articles of Association, which
stipulates an increase in the size
of the Board of Directors from nine
to eleven members
— Reorganised and elected
— The practice of liability insurance
members to the four Board
Committees following changes
to the composition of the Board
of Directors
— Continued to strengthen
the Management Board to improve
decision-making. The Management
Board was expanded to 13 members
— Published a new edition of the
Regulations of the Board
of Directors and Regulations
on Committees of the Board
of Directors
— Published new Regulations on the
General Shareholder Meeting
— Published new Regulations on the
information policy
— Reviewed and approved the short-
term incentive programme
and the KPIs of members of the
Management Board
of members of the Board
of Directors was continued
— Introduced the Audit Fees Policy
to oversee the approval process
of external auditors, assure
independence and manage fees.
In 2022, the Company plans to:
— further improve the efficiency
of and consistently follow corporate
governance processes
— continue to increase the number
of implemented recommendations
of the CGC
— take the necessary measures
to implement the recommendations
of the CGC.
— Further strengthened the Board
— Included new participants into
of Directors, including appointing
a female Independent Non-Executive
Director to the Board
the list of the long-term incentive
programme
Addressing shareholders’ concerns
The AGM held on
10 June 2021 amended
the Company’s Regulation
on the General Shareholders
Meetings (clause 5 article
53) stipulating that if more
than 20 percent of the
shareholders vote against
the decisions recommended
by the Board of Directors,
the Company is obliged
to engage with shareholders
through consultations.
At the AGM more than
20 percent of Magnit
shareholders voted
against the ratification
of the auditor under IFRS.
Although the majority
of shareholders voted
in favour of the ratification,
in line with the above
amendment, the Board
instructed the management
team to consult with
Magnit’s shareholders
on the decision.
The management
hired an independent
agency and conducted
a perception study among
its shareholders. The study
identified that the main
rationale for those voting
against the decision was
due to the non-audit fees
awarded to the auditor
over the past fiscal year.
These additional fees
raised concerns among
shareholders around
the auditor’s independence.
In response to the
findings of the
perception study, the Board
introduced the Audit
Fees Policy to oversee
the approval process
of external auditors, assure
independence and manage
fees. The policy limits
the sum of non-audit fees
it pays to the approved
auditor to no more than
50% of its audit fees with
effect from 1 January 2022.
1 stAtistics provided Are BAsed oN A report oN compliANce with the priNciples ANd recommeNdAtioNs of the cgc,
prepAred oN the BAsis of BANk of russiA recommeNdAtioN letters No. iN-06-52/8 dAted 17 feBruAry 2016
(iN relAtioN to stAtistics for 2017-2020) ANd No. iN-06-28/102 (iN relAtioN to stAtistics for 2021).
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Corporate Governance Framework
(continued)
Board Responsibilities
Composition and Evaluation of Effectiveness
General Meeting
of Shareholders
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.
At the Annual General Shareholders
Meeting held on 10 June 2021,
shareholders approved new
Regulations on the General
Shareholders Meeting.
The key capabilities of the General
Meeting of Shareholders include:
— approval of the Company’s annual
report
— approval of the Company’s annual
accounting (financial) statements
— election of the Company’s Board
of Directors
General Meeting resolutions
GM1
AGM,
10 June 2021
Quorum, % Key resolutions
73.38
— Approval to re-elect the nine members
of the Board of Directors
— Approval of the annual report and annual financial
report for 2020
— Approval of the distribution of profit (including
the payment (declaration) of dividends) based
on the 2020 results
— Approval of the Articles of Association
— Approval of the Regulations on the General
Shareholders Meeting and Regulations
on the Board of Directors in the new editions
EGM,
9 September
2021
75.09
— Approval to terminate powers of the Board
of Directors that consisted of nine members,
reflecting the decision of the AGM held on
10 June 2021 to extend the Board to eleven members
— Four new members of the Board of Directors were
appointed; seven of the nine original members of the
Board were re-elected to the extended Board
EGM,
71.78
— Approval of the dividend payment based
— distribution of profits, including
16 December
dividend payments
2021
on the 9M 2021 financial results
— approval of major and related party
transactions and
— approval of the Company’s auditor.
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
three General Meetings in 2021:
one annual General Meeting (AGM)
and two extraordinary General
Meetings (EGM), all meetings were
in the form of absentee voting.
Composition of the Board
of Directors
— The Board of Directors of the Company shall
consist of eleven (11) members and be elected
by the General Shareholders Meeting
— At least three members of the Board
of Directors shall be independent directors
— The members of the collective executive
body (Management Board) may not account
for more than one fourth of the members
of the Company’s Board of Directors. The sole
executive bodies (President and Chief
Executive Officer) may not simultaneously
serve as Chairman of the Board of Directors.
The current composition of the Board
of Directors is based on the principle
of diversity and inclusiveness and has all
the necessary competencies for the effective
management of the Company.
Members of the Board of Directors all
have impeccable professional and personal
reputations.
The 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.
Board of Directors Responsibilities
The Board of Directors is the collective
governing body responsible for the overall
management of the Company, except for the
matters reserved to the General Shareholders
Meeting in accordance with the federal laws
and the Company’s Articles of Association.
The Board of Directors shall also be
responsible for the strategic management
of the Company, risk management
and internal control frameworks, oversight
over the executive bodies of the Company,
and other key functions
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.
Induction and training of members
of the Board of Directors
When newly elected, members of the Magnit
Board of Directors undergo an induction
programme, which includes:
— meetings with members of the Management
Board and the Company’s senior executives
— an introduction to the Company’s history,
strategy, corporate governance system, risk
management and internal control systems,
the distribution of responsibilities among
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.
1 https://www.mAgNit.com/eN/shAreholders-ANd-iNvestors/shAreholders-meetiNg/.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Board Responsibilities, Composition
and Evaluation of Effectiveness (continued)
The Board of Directors’ activities
in 2021
External assessment of the Board
of Directors
In the reporting year, the Board of Directors
held 18 meetings and considered 133 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, etc.
Held
Considered
18 meetings
133 issues
100%
average attendance at meetings
of the Board of Directors
As part of the external assessment,
the following components of the activities
of the Board of Directors were analysed:
— the structure, composition and independence
of the Board of Directors and its Committes
— the organisation of work of the Board
of Directors and its Committes
— the effectiveness of the Board of Directors
and its Committes
— the role and performance of the Board
Chairman
— the overall performance, involvement
and contribution as well as skills
and competencies of each director.
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.
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 analysed for compliance
with the provisions of 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 a 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 formed
the basis of the plan to improve the efficiency
of the Board of Directors in 2021. During
2021 we followed the plan, i.e. the Board
of Directors has been extended, strengthening
its independence and gender diversity as well
as expanding the skills and competences
of the Board members.
1 orgANisAtioN for ecoNomic co-operAtioN ANd developmeNt
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
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; and
— 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 dated 12 December 2019, minutes
of 13 December 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
Board
of Directors
Strategic
level
— approving the strategic framework for the
establishment and operation of the internal
control and risk management system
— integration of the internal control and risk
management system into the Company’s
organisational processes, including
the drafting of policies, and the process
of managing changes
— identifying perceptions of the internal control
and risk management system among employees
— organisation of the operation and continuous
monitoring of the effectiveness of the internal
control and risk management system
CEO,
President
and executive
bodies
Internal Audit
Department
Heads of units,
employees
— implementation of control procedures and risk
management measures, monitoring of their
effectiveness
Operational
level
Control
level
administrative subordination
functional subordination
The internal control system is based on the
principles of the COSO concept recommended
by the Corporate Governance Code.
According to the COSO model1, 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 among the participants
in the internal control and risk management
system, as well as decision-making
in corresponding areas, is implemented
via the Company’s information systems.
The relevant information is defined, recorded
and transmitted in such a form as 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.
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
1 the committee of spoNsoriNg orgANisAtioNs of the treAdwAy commissioN (coso) is A voluNtAry privAte orgANisAtioN estABlished iN the
uNited stAtes thAt 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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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Internal Control
and Risk Management System (continued)
— preparing reports on the results of the
Efficiency assessment
Department’s work and regularly submitting
them to the Company’s management, Board
of Directors, and Audit Committee to discuss
results and recommendations
— timely notifying the Audit Committee
and Board of Directors about any disputes
or difficulties that arise in the process
of implementing the internal audit plan
— preparing information for the Company’s
management, Audit Committee, or Board
of Directors based on special requests
(including unscheduled performance
evaluations and recommendations on ways
to improve individual components of the
internal control and risk management
system).
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.
On 10 September 2021 the changes were made
in the management of the Department. A new
Director of the Internal Audit Department was
appointed.
In 2021, 21 audits were conducted by employees
of the Internal Audit Department. Based
on the results of the audits, 217 corrective
actions were developed and approved. Some
of them were implemented in 2021, the rest
will be implemented from the beginning of 2022.
At the beginning of 2022, changes were
made in the structure of the Internal Audit
Department due to the Company's acquisition
of the Dixy chain. Within the organisational
structure of Dixy, an internal audit unit was
formed that functionally reports to the
Director of the Internal Audit Department
of PJSC Magnit.
In 2021, 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, risk assessment, control
procedures, information, communications,
and monitoring.
According to the assessment, the current level
of organisation and functioning of the internal
control and risk management system was
deemed to be in line with the Company’s needs.
External audit
To verify and confirm the reliability of its annual
financial statements, each year the Company
hires a professional audit organisation that
has no connection to the Company or its
shareholders through ownership interests,
chosen from among the major international
audit companies.
The Company’s auditor is approved by the
General Meeting of Shareholders based on a
proposal from the Board of Directors. The Audit
Committee conducts a preliminary assessment
of the audit firm candidates.
IFRS Auditor
Ernst & Young Limited Liability Company,
a member of Self-regulatory Organisation
of Auditors Association "Sodruzhestvo"
(SRO AAC) (Ernst & Young LLC is included
in the control copy of the register of auditors
and audit organisations 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 10 June 2021 as the auditor of the Company’s
consolidated financial statements prepared
in accordance with the International Financial
Reporting Standards.
— other audit-related services ("non-audit
services") – RUB 40.14 mln (32.38% of the total
volume of services and 47.89% of the total
volume of audit and related services).
The bulk of the “non-audit” services for the
provision of which the Group hired the auditor
in 2021 are consulting services related to the
implementation of IT solutions for inventory
forecasting and replenishment.
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 10 June 2021 as the auditor
of the Company’s accounting (financial)
statements for 2021 prepared in accordance
with the Russian Accounting Standards.
AF Faber Lex LLC is a member of the Self-
Regulatory Organisation of Auditors Association
SODRUZHESTVO (SRO AAS) No. 441 dated
20 March 2020 with the main registration number
entry (ORNZ) 12006114232.
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 total remuneration paid by the Group’s
companies to AF Faber Lex LLC in 2021 amounted
to RUB 6.59 mln (excluding VAT), including:
— remuneration for the audit services –
RUB 6.095 mln (92.49% of the total amount
paid), including RUB 316.2 thousand paid
for the audit of the PJSC Magnit accounting
(financial) statements for 2020
— remuneration for other audit-related services
(“non-audit services”) – RUB 495 thousand
(7.51% of the total amount paid).
Ernst & Young LLC has been auditing
the consolidated statements of PJSC Magnit
and its subsidiaries prepared in accordance with
the international Financial Reporting Standards
since 2010. The partner of Ernst & Young LLC
since 2020 is Ilya Ananyev.
The auditor inspected the 2021 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 2021,
prepared in accordance with IFRS.
The auditor’s total remuneration paid by the
Group in 2021 amounted to RUB 134.96 mln
(excluding VAT), including:
— remuneration for the audit and audit-related
services – RUB 76.64 mln (56.79% of the
total amount paid), including RUB 61.85 mln
paid for the statutory audit and review of the
consolidated financial statements of the
Company
— remuneration for other audit-related
services (“non-audit services”) – RUB 58.32
mln (43.21% of the total amount paid).
These amounts include payments made for the
services for the provision of which the auditor
was hired in 2020, and which were completed
in 2021.
In September 2021 the Audit Committee of the
Company’s Board of Directors approved
the Audit Fees Policy.
For more details on this Policy
and measures taken by the Company
following the results of the AGM in 2021,
see Corporate Governance Framework
Development.
Therefore, aggregate volume of services
for which the auditor was engaged by the Group
in 2021 amounted to RUB 123.96 mln (excluding
VAT), including:
— audit and audit-related services –
RUB 83.82 mln (67.62% of the total volume
of services), of which RUB 77.85 mln relate
to the statutory audit and review of the
consolidated financial statements of the
Company
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Committees
of the Board of Directors
The Board of Directors has four
Committees:
— Audit Committee
— HR and Remuneration Committee
— Strategy Committee
— Capital Markets Committee.
The Committees are formed from
among the members of the Board
of Directors, who are elected based
on their relevant professional
experience and knowledge. When
electing members of the Committees
(including the chairmen of the
Committees), the following aspects
must be taken into consideration:
the education and professional
training of the candidates,
their work experience within
the Committee’s area of activity,
their document handling skills, as
well as other necessary proficiencies
and experience.
The Regulations on the Committees
of the Board of Directors
of PJSC Magnit regulate
the composition and activities of the
Committees.
In 2021, the Committees held
17 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 the management
in order to increase the efficiency
of cooperation between
the executive bodies of the Company
and the Board of Directors.
The following independent directors sit on the following Committees:
Name
Status
Audit
Committee
HR & Remuneration
Committee
Strategy
Committee
Capital Markets
Committee
Charles Ryan
Naira Adamyan
Independent
Non-Executive
Independent
Non-Executive
Pierre-Laurent Wetli
Independent
Walter Koch
Non-Executive
Independent
Non-Executive
Vsevolod Rozanov
Independent
James Simmons
Non-Executive
Independent
Non-Executive
Participation in Committees
Chairman
Chairman
Chairman
Chairman
Audit Committee
Key functions:
— verification and monitoring
of financial statements’ integrity
— verification of the internal control
and risk management systems
— monitoring the effectiveness
of internal audits
— monitoring relations with
the external auditor.
Members: Vsevolod Rozanov
(Chairman), James Simmons,
Pierre-Laurent Wetli
Key results:
— Evaluation of the auditor's report
on the financial statements
of PJSC Magnit for 2021, compiled
in accordance with Russian
accounting standards
— Evaluation of the auditor’s report
on the consolidated financial
statements of PJSC Magnit
and its subsidiaries for 2021
prepared in accordance
with Federal Law No. 208-FZ dated
27 July 2010 “On Consolidated
Financial Statements”
— Preliminary consideration of the
report on transactions concluded
by PJSC Magnit in 2021, in which
there was an interest
— Development of proposals for the
appointment of an external auditor,
payment for its services and terms
of engagement
— Approval of the remuneration
of the head of the internal audit
unit based on the results of work
in 2021
— Consideration of the internal
audit conclusion based on the
results of assessing the reliability
and effectiveness of the
risk management, control
and corporate governance
processes of PJSC Magnit in 2021
— Development of proposals for the
head of the structural unit that
carries out internal audit
— Development of proposals
for payment for the services
of an external auditor
— Approval of the Audit Fees Policy
— Consideration of the report
on evaluation of the efficiency
of the internal control
and risk management system
of PJSC Magnit and its subsidiaries
for 2021
— Consideration of the results
of performance of the structural
unit that carries out internal audit
in 2021
— Approval of the plan of operation
of the structural unit that carries
out internal audit in 2022
— Approval of the budget of the
structural unit that carries out
internal audit in 2022.
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.
Members: James Simmons
(Chairman), Naira Adamyan,
Walter Koch
Key results:
— Evaluation of candidates to the
Board of Directors in terms
of having the necessary experience,
knowledge, business reputation,
absence of a conflict of interest,
and compliance of candidates
for members of the Board
of Directors with the independence
criteria determined by the
current Regulations on the Board
of Directors of the Company
(including the Listing Rules
of the Moscow Exchange)
— Preliminary approval
of remuneration for members of the
Management Board of PJSC Magnit
and other key employees of the
group of companies of PJSC Magnit
based on the results of work in 2021
— Change in the total number
of participants in the Long-
term Remuneration Programme
for Key Employees of JSC Tander
and PJSC Magnit and approval
of the List of positions of employees
of PJSC Magnit and JSC Tander
that are covered by the Long-
term Remuneration Programme
for Key Employees of JSC Tander
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Committees of the Board of Directors
(continued)
Corporate
Secretary
Strategy Committee
Capital markets Committee
Key functions:
— strategic and investment planning
— identification of priority focus areas
— endorsement and verification of the
business plan and budget.
Members: Vsevolod Rozanov,
James Simmons, Naira Adamyan,
Pierre-Laurent Wetli, Walter Koch
(Chairman)
Key results:
In the reporting year, the Strategy
Committee reviewed the plan
for opening stores and the budget
for 2021, actively interacted
with the management team
on further development of the
Corporate Strategy of the Company
for 2021−2025 and oversaw its
implementation.
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.
Members: Vsevolod Rozanov,
Walter Koch, Charles Ryan
(Chairman)
Key results:
— Consideration of the results of the
evaluation of the work of the Board
of Directors of PJSC Magnit
— Preliminary consideration
of recommendations to the General
Meeting of Shareholders of the
Company on the distribution
of profits and losses of the
Company based on the results
of the 2020 reporting year,
including the dividend amount
from the Company's shares,
the procedure for its payment
and the date on which the persons
entitled to receive dividends are
determined
— Formation of recommendations
to the Board of Directors
on amendments to the Articles
of Association of PJSC Magnit
and internal documents
of PJSC Magnit
— Discussion of issues of priority areas
of activities of PJSC Magnit.
The Corporate Governance
Department of PJSC Magnit
performs the function
and responsibilities of the
Corporate Secretary.
The main objective of the
Department is to maintain effective
communication with the shareholders,
coordinate the Company’s actions
to protect the rights and interests
of the shareholders and ensure
the effective operation of the Board
of Directors.
The main functions of the Corporate
Governance Department are:
— to participate in improving
the Company’s corporate
governance system and practices
— to participate in preparing for,
and conducting, general meetings
of shareholders
— to support the work of the Board
of Directors and its Committees
— to participate in implementing
the Company’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
— 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.
Ekaterina Kister
(born in 1978)
Corporate Governance
Director
Education:
2000 – Kuban State University
(Faculty of Law).
Experience:
Corporate Governance Department
reports to the President and CEO
and is accountable to the Board
of Directors.
Joined PJSC Magnit in 2016,
from JSC Tander (subsidiary
of PJSC Magnit) where she had
worked for 11 years.
On 27 May 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.
and PJSC Magnit, in a new edition.
— Inclusion of New Participants into
the Long-term Remuneration
Programme for Key Employees
of JSC Tander and PJSC Magnit
— Approval of additional agreements
to the Securities Purchase and Sale
Agreements under the Long-
term Remuneration Programme
for key employees of JSC Tander
and PJSC Magnit with individual
Programme Participants
— Recommendations regarding
the formation and composition
of the collegial executive body
(Management Board) of PJSC Magnit
— Development of proposals for the
head of the structural unit that
carries out the internal audit
— Recommendations regarding
the approval of changes to the short-
term incentive programme (STI)
for the President and members of the
Management Board of PJSC Magnit
for 2021, as well as key performance
indicators (KPI) for the President
and members of the Management
Board of PJSC Magnit
— Recommendations regarding
the approval of key performance
indicators for the head of the
structural unit performing internal
audit in 2021
— Recommendations regarding
the approval of the List of positions
of employees of PJSC Magnit
and JSC Tander, which are subject
to the Long-term remuneration
programme for key employees
of JSC Tander and PJSC Magnit,
in a new edition
— Recommendations regarding
the inclusion of New Participants
in the Long-term Remuneration
Programme for Key Employees
of JSC Tander and PJSC Magnit
— Approval of changes to the short-
term incentive programme (STI),
as well as key performance indicators
(KPIs) for individual members of the
Management Board of PJSC Magnit
for 2021.
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Remuneration
Report
Directors' Remuneration
In 2021, 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 (EUR 150,000)
— additional remuneration.
The structure of the annual remuneration of members of the Board
of Directors
Title
Basic
Additional
Compensation
of expenses related to
Chairman
of the Board
of Directors
Chairman
of the Audit
Committee
Chairman
of the Strategy
Committee
Chairman
of the Capital
Markets Committee
EUR
150,000
EUR
150,000
EUR
150,000
EUR
150,000
Chairman of the HR
EUR
and Remuneration
150,000
EUR
75,000
Committee
EUR
— travel to and from the venue
200,000
EUR
100,000
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 2021,
RUB mln
174.1
Total3
124.5 Remuneration Basic
47.6 Additional
2.0 Compensation of expenses
Remuneration of the sole
executive bodies
(CEO and President)
In 2021, the policy of remuneration
and compensation of expenses of
the CEO and the President was
regulated by the Regulations on the
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 the employment
agreement, Jan Dunning received
a signing bonus and 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. This number of shares
was transferred in three tranches:
on 21 May 2019 (50%), 23 March 2020
(25%) and 8 February 2021 (25%).
Remuneration of members
of the Management Board
In 2021, the policy of remuneration
and compensation of expenses to
members of the Management Board
was regulated by the Regulations
on the collective executive body
(Management Board), approved
by the EGM on 24 December 2020
(minutes of 25 December 2020).
Remuneration paid to members
of the collective executive body
in 2021: RUB 872.5 mln.
The structure of the annual remuneration of the CEO
and the President
Base salary
Bonus
LTI
Compensation
of expenses
According
The motivation programme
The remuneration
— VHI policy for
to the
sets the targeted value
amount depends on
terms of the
of the bonus equal to the
the Group’s financial
employment
annual salary. The actual
results, share price,
contract
amount of the bonus
time worked during
depends on the fulfillment
the programme, as
of the Corporate KPIs and
well as the planned
individual KPIs approved by
number of shares
the Board of Directors for
approved by the
the reporting year
Board of Directors
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
Base salary
Bonus
JSC Tander
LTI
Compensation
of expenses
According
The motivation
The remuneration
— VHI policy for
to the
programme sets the
amount depends on
terms of the
target value of the bonus
the Group’s financial
employment
as a percentage of salary.
results, share price,
contract
The actual amount of
time worked during
the bonus depends on
the programme, as
the fulfillment of the
well as the planned
Corporate KPIs and
number of shares
individual KPIs approved
approved by the
by the Board of Directors
Board of Directors for
for the reporting year
each participant of the
programme
an employee and
family members
(partner and
children)
— accident
insurance
— business trips
— communication
— transport
— rental housing.
1 regulAtioNs were Approved At the Agm oN 10 JuNe 2021 (miNutes of 11 JuNe 2021).
2 the issue of compeNsAtioN for expeNses of 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 of the sole executive Body
iN the specified period ANd At the sAme time wAs A memBer of the BoArd of directors.
4 regulAtioNs were Approved At the Agm oN 30 mAy 2019 (miNutes of 31 mAy 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
iN the specified period ANd At the sAme time wAs A memBer of the mANAgemeNt BoArd.
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Remuneration of members of the Management Board, total,5 RUB mln
Remuneration
All companies of the Group
PJSC Magnit
Base Salary
Bonus
Compensation of expenses
Total
324.4
539.0
9.1
872.5
4.7
–
–
4.7
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Remuneration Report
(continued)
KPI
LTI
In 2021 the Company had targets
against the following triggers to
calculate the annual bonus:
— LFL retail sales (%)
— EBITDA (RUB bln)
— Inventory (days).
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:
— LFL retail sales (%)
— EBITDA (RUB bln)
— OMNI revenue (RUB bln).
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 the CEO-1
level.
In addition to the short-term
incentive scheme, the Group
has a long-term remuneration
programme. The programme
objectives are:
— motivation of participants
to increase the share price
of the Company
— motivation of participants
towards the cumulative growth
of the consolidated EBITDA of the
Group in the amount of at least 10%
CAGR relative to 2018
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 the right to receive
shares of the option-based part
if the market share price exceeds
RUB 4,700 per share.
Programme structure
Share-based part
Option-based part
Order
Shares are provided in annual tranches based
Shares provided within the option-based part
on the results of the year, each representing 20% of
are based on the results of each year and are delivered in
the total shareholder part. Shares are delivered in three
three stages within the period of seven years:
stages within the period of seven years: 1/3 at the end of
1/3 based on the results of the first year + 1/3 the
the first year + 1/3 the following year + 1/3 in two years.
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 December 2018. The programme participant continues to work in the Group on the exercise date of the option.
— retention of highly skilled employees
— increasing the attractiveness
of the Company for new employees.
Payments are made if the target
EBITDA is reached and the terms
of the contract are met.
The programme started in 2018
and will last seven 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 2021, the Board of Directors
changed the total number
of programme participants.
The amount of payments
to programme participants depends
on the period worked during
the execution of the programme.
In 2021, the Company transferred
222,449 shares to 53 employees as
part of the long-term remuneration
programme, including 31,914 shares
transferred to 11 employees who left
the Company in 2021.
Number of employees who received shares
including employees who left the Сompany
Shares transferred
including to employees who left the Сompany
2021
53
11
222,449
31,914
LTI remuneration in 2021
Name
Management Board
Jan Dunning
Anna Bobrova
Andrey Bodrov
Position
Chairman of the Management Board, President, CEO
HR Director
Chief Investment and Strategy Officer
Francesco Fiamingo
Commercial Director for formats and Dry/Non Food
Ruslan Ismailov
Pavel Lokshin
Deputy CEO – Retail Chain Director
Chief Marketing Officer
Andrey Lukashevich
Director for E-commerce
Anna Meleshina
Yuri Misnik
Fedor Pavlovsky
Maxim Shchegolev
Egor Shumilin
Elena Zhavoronkova
Other employees of the Company
Employees who left the Company in 2021
Corporate Relations and Sustainability Director
Chief Digital and Technology Officer
Chief Supply Chain and Logistics Officer
Director for Chain Development, Real Estate and Maintenance
Commercial Director for Fresh/Ultra Fresh and Regions
Chief Legal Officer
Shares
72,928
4,960
4,813
2,597
12,979
0
0
1,492
0
0
2,542
9,693
7,063
71,468
31,914
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Stakeholder
Management
Key stakeholder groups
Magnit engages in an open dialogue with each of its stakeholders 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.
Stakeholder
Why they are important
How we engage
Key concerns
How we respond
Engagement is achieved via customer purchases both offline and online.
— Quality of products and service
Our customers are our number
one priority as we drive
improvement in our value
proposition. We have a customer-
centric approach to our decision-
making.
Customers
Our suppliers are key to helping
us deliver variety, value
and quality to our customers. We
aim to build long-term mutually
beneficial relationships that
are based on trust and mutual
respect to help them grow.
Suppliers
We have plenty of physical touch points with customers:
— Offline business (cash desks, info screens, price tags, in-store communications,
consultations by beauty experts at Magnit Cosmetic and pharmacists, etc.)
— Loyalty programme and Loyalty App (MAU)
— Delivery App (Number of online orders)
— Digital (social media, etc.)
— Call centre
We collect data and feedback from these touch points, which serve as a basis
for personalisation and proposition improvement.
We work to continuously improve our offering based on customer feedback
and various surveys (GFK reports, focus groups on various topics, mystery
customer). Based on the findings, we launch internal discussions and action plans.
Interaction with partners is of daily, but we also identify and develop separate
formats: regional procurement conferences, an annual conference of partners,
strategic sessions, JBP ( joint business planning) and JVC ( joint value creation)
programmes.
We invest in communication platforms with partners: supplier portal, SRM system
and logistics programmes.
The Company’s employees
are our main asset, ensuring
the execution of all business
processes.
Employees
We strive to be the employer of choice, to attract and retain talent.
Each year, we aim to increase our employer Net Promoter Score (eNPS) and measure
Magnit’s ‘Brand Health’ on a quarterly basis by monitoring social media.
We engage directly with employees through dedicated employee social platforms,
internal email newsletter, and our dedicated employer website.
Business information and broader information sessions are made available online
for employees on non-work and social issues.
We pay attention to all elements of CVP both online and offline and have various analytical tools
to help category managers tailor our offering. We have a dedicated quality department which
constantly monitors quality standards compliance and introduces improvements.
— Choice (assortment)
We follow trends and work across four directions in our category management to provide
and optimise choice, including rationalisation & harmonisation, clustering, best in local
and personalisation enabled by the loyalty programme.
— Inflation (prices)
We offer a value for money concept to our customers based on affordability, price monitoring,
promos, personalisation and through the development of the discounter concept.
— Health & Safety (including
measures against COVID-19)
The Company undertakes additional measures to protect customers and employees in the
pandemic environment. Magnit follows hygiene programmes and cleaning procedures developed
as a response to the COVID-19 pandemic.
Our partners are primarily
concerned with the sustainable
development of joint business
– from sales volumes to the
assessment of the quality of their
products by consumers and the
impact on the environment.
At the centre of interaction is our category management team, which engages other specialised
services to address the issues facing us and our partners.
We integrate our suppliers into Magnit’s internal business processes to improve interaction
and sales performance, and exchange logistics data through the ‘Magnit Service’ portal.
In 2021, we introduced digital supplier contracts, significantly reducing the time for document
verification.
We require our suppliers to adhere to our Code of Business Conduct which sets out
the standards for interaction. Food suppliers are required to adhere to the Code of Good
Practice which sets out the principles of mutual respect and good faith among market
participants.
— Fair pay
— Working conditions
— Rewards and benefits
— Training, skills and development
— Diversity and inclusion
— Health and safety
— Mental health
We engage with our employees to understand their concerns using both research and analytics.
In 2021, we evolved our EVP to attract and retain staff. Our focus has been to promote a culture
of a work family and develop a strong eco-system around employees both in work and outside.
Magnit offers employees a broad system of benefits, including, amongst others, voluntary health
insurance, accident insurance, partial compensation for meals.
We look to increase the number of survey participants each year and gather comments
and suggestions, conduct workshops to develop solutions.
We motivate staff through a wide range of opportunities for professional development, including
competitions, rewards, individual and departmental awards and education.
We offer regular and ongoing training and development.
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Stakeholder Management
(continued)
Key stakeholder groups
Stakeholder
Why they are important
How we engage
Key concerns
How we respond
Magnit plays an essential role
in society by feeding the nation
and being one of the largest
private employers in the country
either directly or indirectly
through its supply chain.
Our position enables us
to address wider societal
issues such as food poverty,
health and wellbeing, healthy
living, responsible consumption
and education.
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.
We aim to responsibly engage with our communities and many of our community
initiatives are carried out at the local level through our store presence.
We use a variety of mediums and formats to engage with communities, either
through on-the-ground presence, via the media, social media, video, and our
website.
We carry out educational programmes aimed at children of school age, provide
direct investment into community projects (such as building playgrounds)
and volunteering.
The Company uses various formats of interaction, including distributing press
releases announcing operational and financial results, organising conference
calls, face-to-face and virtual meetings; conducting road shows and site visits;
and participating in investment conferences and other events.
Society
and local
community
Investors
and
shareholders
More
information
can be found
on p. 130.
Public authorities set many
business regulations according
to which we build and develop
our business.
Governments
(authorities)
We strive to become the No. 1 expert for the Russian authorities in the field of trade
by:
— sharing our expertise at public events organised by the authorities (for instance,
SPIEF, Russian Retail Week or Russian Agricultural Exhibition "Golden Autumn")
— membership in joint working groups ("regulatory guillotine"), public and expert
council under the Ministry of Industry and Trade, Federal Service for Alcohol
Market Regulation – Rospotrebnadzor amongst others
— preparing expert opinions on government initiatives in trade and food security
using regulatory impact assessment (RIA) and ex post impact assessment tools
— heading Committees, commissions and working groups in business associations
such as RUIE Commission on Trade and Consumer Markets, ACORT1 Quality
Committee, and working groups on regulation of excisable products by ACORT.
— Local employment
opportunities
— Local charitable causes
and investment in national
social projects
— Economic contribution
— Environmental factors
— Food security
We respond to needs both on a pre-planned basis through engagement with communities
and also take action on immediate needs when required. Local and regional managers coordinate
local activities, while our central marketing teams manage activities on the national level.
The Company supports many local and national charity campaigns such as the “United
for a Healthier Future” campaign, which encompasses educational programmes, research,
partnerships, and making healthier products available. Amongst others, Magnit local charitable
campaigns support blood donor programmes, orphanages, charitable clothing and food
collections, voluntary environmental working days, tree planting and promoting the benefits
of volunteering.
— Performance against set
strategy and targets
— Changes in strategy
— Dividends / capital growth
— COVID-19 pandemic impact
— Macro-economic environment,
inflation and promo activity
— Status of business
transformation
In 2021, our emergency response focused on fulfilling basic human needs where vulnerable
groups required food, clothing, environmental, infrastructure or emergency assistance.
On 18 February 2021, Magnit held its Capital Markets Day and presented its 2025 Strategy.
This event covered about 300 institutional and individual investors as well as media
representatives.
In addition, in 2021 we:
— created a corporate video aimed at investors,
— hosted seven conferences with individual investors,
— expanded content and improved structure of press releases, presentations and documents
with reference information,
— Expansion plans and M&A
— introduced an up-to-date consensus of key financial indicators based on analysts’ forecasts.
opportunities
— Sustainability of margins
— Working capital improvements
— Management KPIs and incentive
schemes
— Management team changes
— Changes in shareholder
structure
— Food security in the country
— Regulation that provides access
to quality goods and food
for all residents of the country
regardless of income level
— Import substitution policy
— Access to the shelves
for Russian manufacturers
— Spread and prevention
of COVID-19
In 2021, the key issues related to regulatory restrictions as a result of the pandemic, including
mandatory vaccination of employees, tougher preventative measures for COVID-19 in retail
outlets, introduction of QR codes and bans on the utilisation of retail facilities in some regions
and rising food prices.
The state restrained the growth of prices for socially important products by reducing retail
margin and price fixing, and by reducing the number of intermediaries in the supply chain.
The industry had to look for compromises that would allow for fulfilling the state's social role,
and would not be a burden for business.
1 russiA AssociAtioN of retAiliNg compANies
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and Investor Engagement
Authorised and issued share capital
As of 31 December 2021, the authorised
capital of Public Joint-Stock Company Magnit
amounted to RUB 1,019,113.55 and consisted
of 101,911,355 ordinary registered uncertified
shares1 with a par value of RUB 0.01 each.
In addition to its outstanding shares,
the Company had the right to place 98,938,645
ordinary registered shares with a par value
of RUB 0.01 each (declared shares).
Marathon Group had 29,791,196 votes which
is 29.23% of the total number of ordinary
registered shares, including shares held
by VTB Group under repurchase agreements
(as of 14 January 2022).
As of 31 December 2021, PJSC Magnit
does not hold any treasury shares. As
of 31 December 2021, JSC Tander, owned
by the Company, held 3,982,871 voting shares
in PJSC Magnit, which amounts to 3.91% of the
total number of ordinary registered shares,
which were acquired in 2018–2019 in order
to implement its LTI programme.
As of 31 December 2021, no other
organisations controlled by the Company
owned voting shares in PJSC Magnit.
205,905 shares and 24,427 GDRs (0.21% of the
total registered shares) are owned by the
Members of the PJSC Magnit Management
Board.
As of 31 December 2021, 37 entities were
registered in the share register, including
33 individuals, one nominal holder (National
Settlement Depositary) and three other legal
entities.
Information on persons who hold, dispose
of votes accounted for and/or are
beneficiaries of PJSC Magnit shares2, %
Structure of share capital as at the end of 20213
Title
Legal entities
Including nominal holders
Individuals
Other (unidentified persons)
Total
Number
of registered entities
Share of authorised
capital, %
4
1
33
1
38
97.58
97.58
2.42
0.00004
100
66.65 Free float
29.23 Marathon Group
3.91 JSC Tander
0.21 Management
The Company has both an ordinary share
listing on the Moscow Exchange (MOEX)
and a GDR listing on the London Stock
Exchange (LSE). According to Moscow
Exchange as of 31 December 2021, the share
of the free-float in the Company’s shares
was 66.65%3. As at the end of 2021, Magnit’s
market capitalisation was RUB 554.6 bln 4
on MOEX and USD 7,643 mln5 on the LSE.
Significant changes in the share capital structure in 2021
Date of change
Change
VTB Group announced the sale of its stake in PJSC “Magnit”, including
the sale of approximately 12.4% of the PJSC “Magnit” shares
November 2021
to Marathon Group.
As a result of the transaction with VTB Group, Marathon Group increased
the share of votes accounted for voting shares in the charter capital
of PJSC “Magnit” to 24.99%.
January 2022
Marathon Group increased its share of votes accounted for voting shares
in the charter capital of PJSC “Magnit” to 29.23%.
1 stAte registrAtioN NumBer: 1-01-60525-p of 4 mArch 2004
2 AccordiNg to iNformAtioN AvAilABle to pJsc mAgNit As of 14 JANuAry 2022
3 the shAre of the free-floAt is determiNed BAsed oN AN ANAlysis of the shAre cApitAl owNership structure, ANd By deductiNg the NumBer of shAres
which Are Not iN the free-floAt from the totAl NumBer of the issuer’s shAres. the cAlculAtioN is mAde iN AccordANce with the listiNg rules
of the moscow exchANge ANd the Approved methodologies for cAlculAtiNg the free-floAt rAtio.
4 cApitAlisAtioN iN ruB is cAlculAted usiNg the followiNg formulA: NumBer of shAres outstANdiNg * shAre price As At the eNd of 2021.
5 cApitAlisAtioN iN usd is cAlculAted usiNg the followiNg formulA: 5* NumBer of shAres outstANdiNg * gdr price As At the eNd of 2021.
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Shareholder and Investor Engagement
(continued)
Breakdown by geography of free-float, %
2021
2020
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.
As of 31 December 2021, Magnit shares were
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.
2020
2021
Share price and trading volume on the Moscow Exchange in 1Q–4Q 2021
27.9 United States of America and Canada
27.5
24.2 19.0 Russian Federation
22.3 21.5 United Kingdom
11.8 15.5 European Union
14.2
16.1 RoW
source: shAreholder ideNtificAtioN report
Authorised and issued share capital history
Share price, RUB
Volume, RUB mln1
Period
2021
Min.
Max.
As at end
of period
Period
total
Daily
average
Daily
median
Market capitalisation
at end of period, RUB bln
1Q
2Q
3Q
4Q
4,874
5,749
5,334
164,603
5,065
5,657
5,313
131,302
5,091
6,085
6,085
119,239
5,431
6,920
5,441
163,148
2,572
2,020
1,807
2,472
2,401
1,659
1,533
2,097
543.6
541.4
620.1
554.6
source: BloomBerg, compANy ANAlysis
The Company completed the process of an initial
public offering in the Russian Trading System
(RTS) and on the Moscow Interbank Currency
Exchange (MICEX).
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.
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 approved the
total amount of funds allocated for share buybacks as
follows (taking into account the changes approved by
the Board on the 4 October 2018):
— up to RUB 16,500,000,000 – for LTI programme
— up to RUB 5,700,000,000 – as payment for
transactions related to acquisition of SIA Group
The programme was launched on 5 September 2018
and completed on 1 March 2019.
24 April 2006
13 February 2008
22 April 2008
2 September 2009
6 October 2011
15 November 2017
21 August 2018
28 November 2018
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.
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 7,350,000 additional shares. The public
placement was completed on 15 January 2018.
JSC Tander concluded an agreement with Serengate
Advisors Limited under which the latter received
1,513,601 shares, which amounted to 1.485213% of the
total number of shares of PJSC Magnit, as payment
for the transaction related to the acquisition of SIA
Group.
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119
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.
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Shareholder and Investor Engagement
(continued)
Share trading on the Moscow Exchange in 2021
ADTV
08.01.2021
9M 2020 Dividend
Record Date
04.02.2021
4Q/12M 2020
Trading Update
and Financial
Highlights
15.03.2021
FY 2020 Audited
Financial Results
26.04.2021
Board of Directors
recommendation
to the AGM on the
second tranche
of 2020 dividend
payment
18.05.2021
Magnit reached
an agreement
to acquire Dixy
with 2,651 stores
in Moscow,
St. Petersburg
and other regions
10.06.2021
Approval of the
second tranche
of 2020 dividend
payment by AGM
29.07.2021
2Q/6M 2021
Trading Update
and Financial
Highlights
19.08.2021
1H 2021 Reviewed
Financial Results
09.09.2021
Approval of a
new 11-member
Board of Directors
following
the results
of the EGM
of shareholders
28.10.2021
3Q/9M 2021 Trading
Update and Financial
Highlights
10.11.2021
Board of Directors
recommendation
to the EGM on the
9 months of 2021
dividend payment
16.12.2021
Approval of the
9 months 2021
dividend payment
by EGM
Price,
IMOEX
index
14
12
10
8
6
4
2
0
12.01.2021
Holiday Sales
Update1
29.04.2021
1Q 2021
Trading Update
and Financial
Highlights
25.06.2021
2020 Dividend
Record Date
End of November
VTB & Marathon deal
agreement
31.12.2021
9M 2021 Dividend
Record Date
Junuary
February
March
April
May
June
July
August
September
October
November
December
1 mAgNit defiNes “pre-New yeAr sAles” As sAles mAde Across All the chAiN’s formAts from 17 decemBer to 31 decemBer.
ADTV, RUB bln
IMOEX Index, RUB
Price, RUB
source: BoomBerg
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7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
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(continued)
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 2021, 27.78%
of the Company’s total shares were listed
on the London Stock Exchange in the form
of GDRs.
GDR price and trading volume on LSE
GDR price, USD1
Volume, USD mln2
Period
2021
1Q
2Q
3Q
4Q
Min.
13.57
13.74
13.62
14.58
Max.
18.41
15.42
16.85
19.26
As at end
of period
Period
total
Daily
average
Daily
median
Market capitalisation at
end of period, USD mln
14.99
330.40
14.51
308.40
16.85
246.65
15.00
378.95
5.16
4.74
3.74
5.74
4.98
3.63
3.21
4.63
7,638.26
7,391.12
8,586.03
7,643.35
GDR quotes on London Stock Exchange in 2021
35
30
25
20
15
10
5
0
Jun
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
ADTV, USD mln
Price, USD
source: BloomBerg, compANy ANAlysis
1 mAximum ANd miNimum Are cAlculAted BAsed oN quotes At the eNd of the trAdiNg sessioN.
2 СAlculAtioNs Are BAsed oN dAily trAdiNg volumes iN curreNcy, which Are cAlculAted As the dAily trAdiNg volume iN securities multiplied
By the closiNg price.
20
10
0
Indices
As of 31 December 2021, Magnit
was included in a broad number
of different indices.
VanEck
SPDR
iShares
vaneck.com
ssgafunds.com
ishares.com
Columbia Threadneedle
columbiathreadneedleus.com
Investments
Vanguard
S&P
MSCI
STOXX
investor.vanguard.com
spglobal.com
msci.com
stoxx.com
MOEX and RTS
moex.com/ru/index/IMOEX
FTSE
WisdomTree
ftserussell.com
wisdomtree.com
Analyst coverage and consensus forecasts
As of 31 December 2021, 17 investment banks produced equity research on Magnit.
Bank
Alfa Bank
Aton
Analyst
Phone
E-mail
Evgeniy Kipnis
+7 (495) 795-3713
ekipnis@alfabank.ru
Victor Dima
+7 (495) 213-0344
victor.dima@aton.ru
Bank of America
Ilya Ogorodnikov
+7 (495) 662-6073
ilya.ogorodnikov@bofa.com
Merrill Lynch
BCS
Citi
Maria Sukhanova
+7 (495) 213-1505
MSukhanova@bcsgm.com
Nick Coulter
+44-20-7500-7266
nick.coulter@citi.com
Gazprombank
Marat Ibragimov
+7 (495) 980-4187
marat.ibragimov@gazprombank.ru
Goldman Sachs
Maxim Nekrasov
+7 (495) 645-4013
maxim.nekrasov@gs.com
HSBC
Bulent Yurdagul
+90 (212) 376-4612
bulentyurdagul@hsbc.com.tr
JP Morgan
Elena Jouronova
+7 (495) 967-3888
elena.jouronova@jpmorgan.com
Morgan Stanley
Henrik Herbst
+44 2076 77-1309
henrik.herbst@morganstanley.com
Raiffeisen
Egor Makeev
+7 (495) 221-9851
egor.makeev@raiffeisen.ru
Renaissance Capital
Kirill Panarin
+7 (499) 956-4216
kpanarin@rencap.com
Sberbank CIB
Mikhail Krasnoperov
+7 (495) 933-9838 mikhail_krasnoperov@sberbank-cib.ru
SOVA Capital
Leonid Sinyutin
+7 (495) 223-2323
Leonid.Sinyutin@sovacapital.com
UBS
Ulyana Lenvalskaya
+7 (495) 648-2093
ulyana.lenvalskaya@ubs.com
VTB Capital
Maria Kolbina
+7 (495) 663-4648 maria.kolbina@vtbcapital.com
Wood & Company
Lukasz Wachelko
+48 22 222 15 60
lukasz.wachelko@wood.com
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Analyst recommendations and average target price, local shares
Company collected recommendations
and consensus on local shares for 2021, %
Company collected recommendations
and consensus on GDRs for 2021, %
%
90
80
70
60
50
40
30
20
10
0
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
8,162 RUB
Average Target
Price per share
21.0 $
Average Target
Price per GDR
Jun
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Buy
Hold
Price, RUB
Average target price, RUB
source: BloomBerg, compANy ANAlysis
100 Buy
0 Hold
90 Buy
10 Hold
source: compANy collected coNseNsus
Analyst recommendations and average target price, GDRs
Consensus for key financial indicators for 2021, RUB bln (IAS 17)
%
90
80
70
60
50
40
30
20
10
0
Jun
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Buy
Sell
Hold
Price, USD
Average target price, USD
source: BloomBerg, compANy ANAlysis
25
20
15
10
5
0
Consensus average
Reported
Sales
and growth
Gross profit
and margin
EBITDA
and margin
Net Income
and margin
1,844.5
18.7%
1,856.1
19.5%
434.8
23.6%
439.2
23.7%
130.6
7.1%
133.1
7.2%
48.9
2.7%
51.7
2.8%
Consensus for key financial indicators for 2021, RUB bln (IFRS 16)
Consensus average
Reported
Sales
and growth
Gross profit
and margin
EBITDA
and margin
Net Income
and margin
1,845.5
18.7%
1,856.1
19.5%
434.8
23.6%
439.2
23.7%
208.7
11.3%
214.2
11.5%
43.3
2.3%
48.1
2.6%
source: compANy collected recommeNdAtioNs ANd coNseNsus for 2021 BAsed oN opeN sources
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Shareholder and Investor Engagement
(continued)
Bonds
The Company uses bonded loans
as a form of debt financing for its
business, which are primarily
raised by issuing exchange bonds.
In 2021, PJSC Magnit had nine
outstanding issues of exchange
bonds (BO-003Р-02, BO-003Р-01,
BO-003Р-04, BO-003P-05,
BO-002P-01, BO-002P-02,
BO-002P-03, BО-002Р-04,
BО-001Р-05) with a total nominal
volume of RUB 100 bln (the volume
in circulation at the end of the
reporting year was RUB 90 bln,
bonds issue BO-003P-02
was repaid on 24 February 2021).
Parameters of the BO-003P-02, BO-003P-01, BO-003P-04, BO-003P-05
series bonded loans of PJSC Magnit
Parameters of the BO-002P-01, BO-002P-02, BO-002P-03, BО-002Р-04, BО-001Р-05
series bonded loans of PJSC Magnit
Issue
4B02-02-
4B02-01-
4B02-04-
4B02-05-
Issue identification
4B02-01-60525-P-
4B02-02-60525-P-
4B02-03-60525-P-
4B02-04-60525-P-
4B02-05-60525-P-
identification
60525-P-003P,
60525-P-003P,
60525-P-003P,
60525-P-003P,
number and
002P, 04.03.2020
002P, 27.04.2020
002P, 19.05.2020
002P, 02.06.2021
001P, 02.06.2021
number and
21.02.2019
1.02.2019
29.10.2019
23.12.2019
assignment date
assignment date
Volume of issue,
10,000,000,000
10,000,000,000
10,000,000,000
10,000,000,000
RUB
(ten bln)
(ten bln)
(ten bln)
(ten bln)
Volume of issue, RUB
15,000,000,000
10,000,000,000 (ten
15,000,000,000
10,000,000,000 (ten
10,000,000,000 (ten
(fifteen bln)
bln)
(fifteen bln)
bln)
bln)
Number of securities
15,000,000 (fifteen
10,000,000 (ten mln)
15,000,000 (fifteen
10,000,000 (ten mln)
10,000,000 (ten mln)
Number of
securities
10,000,000 (ten
10,000,000 (ten
10,000,000 (ten
10,000,000 (ten
mln)
mln)
m ln)
mln)
mln)
Nominal value of each
1,000 (one
security, RUB
thousand)
1,000 (one
thousand)
mln)
1,000 (one
thousand)
1,000 (one
thousand)
1,000 (one
thousand)
Nominal value
1,000 (one
of each security,
thousand)
1,000 (one
thousand)
1,000 (one
thousand)
1,000 (one
thousand)
RUB
Placement price
100% of nominal
100% of nominal
100% of nominal
100% of nominal
value
value
value
value
Placement date
26.02.2019
05.02.2019
05.11.2019
26.12.2019
Placement
public
public
public
public
method
placement
placement
placement
placement
Maturity date
728th day from
1,092th day from
910th day from
1,092th day from
the placement
the placement
the placement
the placement
date
4
date
6
date
5
date
6
Number of
coupons
ISIN code
RU000A1004G9 RU000A1002U4 RU000A100ZS3
RU000A1018X4
Coupon rate
8.50 %
8.70%
6.90%
6.60%
Placement price
100% of nominal
100% of nominal
100% of nominal
100% of nominal
100% of nominal
value
value
value
value
value
Placement date
05.03.2020
29.04.2020
22.05.2020
02.06.2021
02.06.2021
Placement method
public placement
public placement
public placement
public placement
public placement
Maturity date
1,092th day from the
1,092th day from the
1,092th day from the
1,092th day from the
1,092th day from the
placement date
placement date
placement date
placement date
placement date
Number of coupons
6
6
6
6
6
ISIN code
RU000A101HJ8
RU000A101MC3
RU000A101PJ1
RU000A1036H9
RU000A1036M9
Coupon rate
6.20%
6.70%
5.90%
7.05%
7.05%
Credit ratings
In 2021, leading rating agencies
assigned credit ratings to the
Company. ACRA affirmed its ratings
of the Company and bonds. S&P
upgraded its rating of the Company
to BB+ (Outlook Stable).
Credit ratings of PJSC Magnit
as of 31 December 2021 are provided
in the table.
Rating
agency
Rating recipient
Rating
Forecast
Date of rating
(issued /
reaffirmed)
Standard&
Issuer at international scale
BB+
Stable
17.12.2021
Poors
Issuer at national scale
AA (RU)
Stable
02.06.2021
Bonds
ACRA
BO-003Р-01; BO-003Р-04;
BO-003Р -05; BO-002Р-01;
AA (RU)
—
02.06.2021
BO-002Р-02; BO-002P-03;
BО-002Р-04; BО-001Р-05.
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Dividends
Report on announced and paid dividends in 2008–2021
Total Dividends Paid, RUB bln
Total dividends
announced, RUB bln
Total dividends paid,
RUB bln
Dividend per share,
RUB
0.1
1.3
0.6
2.1
7.7
12.8
34.3
29.4
26.3
24.7
31.0
31.0
50.0
30.0
8.7
8.9
8.7
Year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
9M 2021
The key objective of the Company’s
dividend policy is to provide
increasing shareholder returns
and ensure further growth
of the Company’s capitalisation.
The dividend policy is also focused
on optimising the balance between
retained profit and shareholder
returns.
The core principles underpinning
Magnit’s dividend policy are as
follows:
— Transparency: identifying
and disclosing information about
the duties and responsibilities
of the parties involved in carrying
out the dividend policy, including
the procedure and conditions
for deciding on the payment
and amount of dividends.
— Timeliness: establishing time limits
for dividend payments.
— Justifiability: the decision
on the payment and the amount
of dividends may only be made
if the Company achieves a positive
financial result taking into account
development plans and investment
programmes.
— Fairness: equal rights
for shareholders in acquiring
information about the decisions
on payment, size and procedures
for payment of dividends.
— Consistency: strict implementation
of the procedures and principles
of the dividend policy.
— Progression: continuous
improvement of the dividend policy
in line with the evolution of the
Company’s strategic goals.
— Sustainability: commitment
to ensuring a stable level of dividend
payments.
0.1
1.3
0.6
2.1
7.7
12.8
34.3
29.4
26.3
24.7
31.0
31.0
50.0
30.0
0.1
1.3
0.6
2.1
7.7
12.8
34.3
29.4
26.3
24.7
31.0
31.0
50.0
30.0
1.46
14.82
6.57
22.93
81.35
135.21
362.94
310.47
278.13
251.01
304.16
304.19
490.62
294.37
A dividend payment in the amount
of RUB 245.31 on the ordinary
registered shares of PJSC Magnit
in relation to the 2020 financial
results was approved by the Annual
General Meeting of Shareholders
on 10 June 2021 (minutes
dated 11 June 2021). Earlier,
on 24 December 2020,
the Extraordinary General Meeting
of Shareholders approved a decision
to pay dividends based on the
results of 9 months 2020 in the
amount of RUB 245.31 on the
ordinary registered shares (minutes
dated 25 December 2020).
Thus, the total payment of dividends
for 2020 amounted to RUB 50 bln
or RUB 490.62 per ordinary share,
which is 61% higher compared to the
amount paid for the previous year.
The Extraordinary General Meeting
of Shareholders on 16 December 2021
(minutes dated 17 December 2021)
approved the payment of an interim
dividend in the amount of RUB 294.37
on the ordinary registered shares
of PJSC Magnit which corresponds
to the total payment of RUB 30 bln,
based on the results of nine months
of 2021.
0.3
0.7
0.2
0.8
3.7
4.0
2.8
2.5
1.7
1.5
362.94 310.47
135.21
278.13
251.01
304.16
1.46
14.82
6.57
81.35
22.93
5.4
490.62
304.19
294.37
2008 2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020 9M 2021
Dividend Yield, %
Dividends per Share, RUB
Total Dividends Paid, RUB bln
Regulations on the dividend policy of PJSC Magnit
(new edition) dated 27 May 2016
https://www.magnit.com/en/shareholders-and-investors/
dividends/
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Shareholder and Investor Engagement
(continued)
Shareholder 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 and virtual meetings;
conducting road shows and site
visits; and participating in investment
conferences and other events.
Eight conference calls and six
publications regarding the financial
and operational results were
conducted by senior management
in 2021, including dedicated investor
calls focusing on the rationale,
strategy and progress of discounter,
private label initiatives and the Dixy
acquisition. In 2021 the IR team also
participated in a number of virtual
conferences, including the ones with
retail investors.
On 18 February 2021 Magnit held its
Capital Markets Day and presented
its 2025 Strategy. This event
covered about 300 institutional
and individual investors as well as
media representatives.
The Company’s management held
six roadshows and together with
the IR team participated in 199
different investor events covering
211 institutional investors in 2021.
Seven conferences for individual
investors were also held.
IR department activity
6
Financial and operational
results releases
8
Calls with senior
management
6
Roadshows
7
individual
investor events
211
institutional
investors covered
4
ESG events/
calls with investors
199
institutional investor events (e.g. conferences,
consumer days, tours, forums, etc.), where
Magnit participated
Magnit continued to develop its
website to improve disclosure
and the accessibility of information,
including maintaining an
up-to-date consensus forecast
of key financial indicators based
on analysts' forecasts. The Company
also produced a corporate
video highlighting its operations
and achievements.
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
— Macroeconomic environment,
inflation and promo activity
— CVP implementation including
— Status of business transformation
— Changes in strategy
— Digital transformation, including ERP
implementation and e-commerce
initiatives
— Innovations and efficiency gains
— Expansion plans and M&A
opportunities, including Dixy
acquisition and status of integration
— Discounter pilot
— Sustainability of margins
— Working capital improvements
— Management KPIs and incentive
schemes
assortment, redesign programme,
loyalty programme, organisational
model, etc.
— Management team changes
— Changes in the shareholder
structure
Responding to our investors’ concerns
In 2021 we established an audit fee policy
in response to investor concerns.
This important issue was highlighted
at our AGM, a number of investors voted to
not re-elect our auditors, E&Y, on the basis
that non-audit related fees exceeded audit
fees for the year ended 31 December 2020.
We took this issue seriously and sought
to understand the reason why investors
saw this issue as important.
We hired an external consultant to carry
out a review to understand their concerns
and expectations going forward.
This resulted in the creation
of the Audit Fee Policy, which states
that Magnit will limit the total fees
for non-audit services in a calendar
year to an amount not exceeding 50%
of the total fees for the audit and audit-
related services in the relevant year
with effect from 1 January 2022.
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Investor Calendar
2021-2022
2021
2022
19 January 2021
16 March 2021
2–4 June 2021
29 July 2021
Retail Investor Call (VTB
Capital)
HSBC Central & Eastern
Europe Conference
BAML Emerging Markets
Debt & Equity Conference
2021
2Q/1H 2021 Trading Update
and Financial Highlights and
Conference Call
Virtual
Virtual
Virtual
Krasnodar
4 February 2021
17 March 2021
4Q&FY 2020 Unaudited
Results & Conference Call
CFO Conference Call
Virtual
9 June 2021
19 August 2021
Retail Investor Call (Finam)
1H 2021 Reviewed Financial
Results
Krasnodar
Virtual
11–12 February 2021
WOOD's EM Consumer &
Industrials Virtual Conference
29 April 2021
1Q 2021 Trading Update
and Financial Highlights
Conference Call
Virtual
Krasnodar
18 February 2021
11–13 May 2021
Capital Markets Day 2021
Morgan Stanley EEMEA
Conference
Virtual
22–25 June 2021
RenCap Russia conference
Virtual
7 July 2021
Discounters | Virtual Investor
Meeting with Magnit COO
Krasnodar
1 September 2021
UBS Investor Trip
Virtual
7 September 2021
Retail Investor Call
(Gazprombank)
9 March 2021
UBS Global Consumer &
Retail Virtual Conference
Virtual
Virtual
Virtual
18 May 2021
8 July 2021
8–9 September 2021
Retail Investor Call (Aton)
Retail Investor Call (BCS)
Virtual
Virtual
Virtual
15 March 2021
19–21 May 2021
26 July 2021
FY 2020 Audited Financial
Results
Sberbank CIB "The Inside
Track" Virtual Conference
Dixy Acquisition Conference
Call
Krasnodar
Virtual
Virtual
Citi’s GEMS Virtual
Conference
Virtual
9–10 September 2021
GS Global Retail Conference
4–7 October 2021
HSBC Global Emerging
Markets Forum
Virtual
30 November–
2 December 2021
10–11 January 2022
17 February 2022
Citi's 1st Emerging Europe
Virtual Conference
Capital Markets Day
UBS Global Emerging
Markets One-on-One Virtual
Conference
Virtual
Virtual
4 March 2022
FY 2021 Audited Financial
Results
Krasnodar
20 October 2021
Virtual
18–20 January 2022
Retail Investor Call
(Sberbank CIB)
8–10 December 2021
JP Morgan CEEMEA
Opportunities Conference
Virtual
WOOD's Winter Wonderland
EME Conference
Virtual
28 October 2021
Virtual
25–26 January 2022
BofA EEMEA Stars
Conference 2022
Virtual
4 February 2022
FY 2021 Unaudited Results
and Conference Call
Krasnodar
3Q/9M 2021 Trading Update
and Financial Highlights and
Conference Call
Krasnodar
8–9 November 2021
Goldman Sachs CEEMEA
One-on-One Conference
Virtual
16 November 2021
Retail Investor Call
(VTB Capital)
Virtual
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Independent auditor’s report
on the consolidated financial statements
of PJSC Magnit and its subsidiaries
for 2021
March 2022
134
141
142
144
145
147
148
Independent auditor’s report on the consolidated financial statements
of PJSC Magnit and its subsidiaries for 2021
Statement of management’s responsibilities for the preparation and approval
of the consolidated financial statements
for the year ended 31 December 2021
Consolidated statement of financial position as at 31 December 2021
(In thousands of Russian rubles)
Consolidated statement of comprehensive income for the year ended 31 December 2021
(In thousands of Russian rubles)
Consolidated statement of cash flows for the year ended 31 December 2021
(In thousands of Russian rubles)
Consolidated statement of changes in equity for the year ended 31 December 2021
(In thousands of Russian rubles)
Notes to the consolidated financial statements for the year ended 31 December 2021
(In thousands of Russian rubles)
Independent auditor’s report
To the Shareholders
and Board of Directors
of PJSC Magnit
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 2021,
and the consolidated statement
of comprehensive income,
consolidated statement of changes
in equity and consolidated statement
of cash flows for 2021, 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 2021 and its
consolidated financial performance
and its consolidated cash flows
for 2021 in accordance with
International Financial Reporting
Standards (IFRSs).
Basis for opinion
Key audit matters
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.
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.
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Independent auditor’s report
(continued)
Key audit matter
How our audit addressed the key audit matter
Recognition of vendors allowances
The Group receives various types of allowances from vendors
We compared a sample of accruals of volume rebates and other
Key audit matter
How our audit addressed the key audit matter
Provisional purchase price allocation in business combination
On 22 July 2021, the Group acquired control of DIXY Holding
Limited through the purchase of 100% of ordinary shares.
We considered assessing the provisional purchase price
allocation to be one of the matters of most significance
In the course of the audit procedures, we read the sale-
purchase agreement between the Group and the seller of DIXY
Holding Limited shares, and other transaction documentation
affecting the accounting of the business combination.
in the audit of the consolidated financial statements, due
We evaluated the methodology and assumptions behind
to the fact that the goodwill from this acquisition, represented
the significant judgments involved in the determination
by the excess of the remuneration paid over the fair value
of the provisional fair values of the identifiable assets acquired.
of identifiable net assets of the acquired company in the amount
We involved our valuation specialists to assess the methodology
of 65,411,968 thousand rubles, is the significant asset
and assumptions used by management to value certain
in the form of volume rebates and other forms of payments that
rebates, recorded based on management assumptions,
for the Group.
effectively reduce the cost of goods purchased from the vendor.
to supporting documents from vendors and vendor agreements.
We considered this matter to be of most significance in our audit
We also compared the outstanding allowances receivable
because the recognition of vendor allowance requires judgement
to the direct confirmations from vendors on a sample basis.
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.
We tested cut-off of vendor allowances recorded during
a period shortly before and after year-end to supporting
documents from vendors.
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
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
value of goods for resale and the amount of handling costs to be
factors. We compared carrying values of goods for resale with
included in the carrying amount of goods for resale. As a result,
subsequent sales proceeds by certain type of goods. We verified
we believe that this matter is one of most significance in our
the mathematical accuracy of goods for resale net realisable
audit. Information on goods for resale is disclosed in Note 13
value calculation. We assessed the process of allocation
to the consolidated financial statements.
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-
Our audit procedures included an assessment of key management
to-use assets was one of the key audit matters because
assumptions used by the Group, including those in respect
the balance of property, plant and equipment and right-to-
use assets forms a significant portion of the Group’s assets
at the reporting date, and the process of management’s
assessment of the recoverable amount is complex and requires
significant judgments, including judgements about future cash
flows, capital expenditures and the discount rate.
Information about property, plant and equipment, right-to-use
assets and results of impairment testing is disclosed in Notes 8
and 9 to the consolidated financial statements.
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.
Determining the fair value of assets and liabilities acquired
in business combination involves significant judgments
categories of assets and liabilities of the acquired subsidiary,
and tested, on a sample basis, mathematical accuracy of the fair
values of assets and liabilities of the subsidiary acquired.
and estimates by the management and is performed with
We assessed the disclosure of business combination
participation of an independent appraiser.
in the consolidated financial statements.
Information about this acquisition is disclosed in Note 7
to the consolidated financial statements.
Impairment testing of goodwill from acquisition of the SIA Group and the DIXY Group
As at 31 December 2021, the balance of goodwill
Our audit procedures included an assessment of assumptions
is 92,291,285 thousand rubles, including 25,511,824 thousand rubles
related to acquisition of MF-SIA LLC (hereinafter SIA Group),
and 65,411,968 thousand rubles related to acquisition of DIXY
Holding Limited (hereinafter DIXY Group). As a result of these
transactions, the Group obtained control over the SIA Group
and the DIXY Group.
Impairment testing of goodwill was one of the key audit matters
because assessment of the recoverable amount of cash
generating units to which goodwill is allocated 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 and other.
Information about goodwill is disclosed in Note 11
to the consolidated financial statements.
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 units.
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 units to which goodwill is allocated.
Application of IFRS 16 Leases
The application of IFRS 16 was one of the key audit
We analyzed the list of lease agreements to which IFRS 16
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 9 to the consolidated financial statements.
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.
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Independent auditor’s report
(continued)
Other information included in the Annual report of PJSC Magnit for 2021
Other information consists of the information included in the Annual report of PJSC Magnit
for 2021 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 2021 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 the 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.
The 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 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 the 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 the 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.
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Independent auditor’s report
(continued)
From the matters communicated with the 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.
Statement of management’s
responsibilities for the preparation
and approval of the consolidated
financial statements
for the year ended 31 December 2021
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 2021 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”).
I.Y. Ananyev,
In preparing the consolidated financial statements, management is responsible for:
acting on behalf of Ernst & Young LLC
on the basis of power of attorney dated 1 March 2022
partner in charge of the audit resulting in this
independent auditor’s report
(main registration number 21906101744)
3 March 2022
— 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 2021 were
approved by management on 3 March 2022.
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..
Details of the audited entity
Name: PJSC Magnit
Record made in the State Register of Legal Entities on 12
November 2003, State Registration Number 1032304945947.
Address: Russia 350072, Krasnodar, Solnechnaya street, 15/5..
On behalf of the management as authorised
by the Board of Directors.
The Chief Executive Officer of PJSC Magnit
J.G. Dunning
3 March 2022
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Consolidated statement
of financial position
as at 31 December 2021
(In thousands of Russian rubles)
Assets
Non-current assets
Property, plant and equipment
Advances paid for the purchase and construction of property, plant and equipment
Right-of-use assets
Intangible assets
Long-term net investments in sublease
Goodwill
Long-term financial assets
Current assets
Inventories
Trade and other receivables
Advances paid and other prepaid expenses
Taxes receivable, excluding income tax
Short-term net investments in sublease
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
2021
31 December
2020 (Note 4.1)*
8
9
10
11
12
13
14
15
377,302,570
336,125,498
1,614,644
387,846
397,835,247
308,444,695
19,249,279
5,506,252
18,635
—
92,291,285
26,879,317
1,033,846
1,117,551
889,345,506
678,461,159
224,873,040
205,949,194
11,726,775
8,563,822
9,198,907
6,663,337
164,084
8,404
289,748
438,559
75,650
—
317,672
661,791
16
73,398,608
44,699,581
320,098,125
266,931,047
1,209,443,631
945,392,206
17
17
17
32
1,020
1,020
87,326,641
87,390,921
(15,028,071)
(16,021,596)
1,877,419
2,055,322
104,808,170
109,463,257
178,985,179
182,888,924
Non-current liabilities
Long-term payables
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
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
2021
31 December
2020 (Note 4.1)*
19
21
9
22
30
19
20
18
23
22
21
9
2,553,058
—
205,286,600
147,694,926
396,043,533
316,141,855
57,080
—
2,363,865
2,167,641
9,114,787
12,225,590
615,418,923
478,230,012
240,771,082
184,324,892
14,718,445
11,854,351
28,829,503
24,094,729
888,397
955,732
4,176,829
2,592,558
253,475
627,304
65,139,311
18,391,601
60,262,487
41,432,103
415,039,529
284,273,270
1,030,458,452
762,503,282
1,209,443,631
945,392,206
* some of the ABove AmouNts Are Not coNsisteNt with coNsolidAted fiNANciAl stAtemeNts for 2020 ANd reflect the AdJustmeNts descriBed iN Note 4.1.
* some of the ABove AmouNts Are Not coNsisteNt with coNsolidAted fiNANciAl stAtemeNts for 2020 ANd reflect the AdJustmeNts descriBed iN Note 4.1.
the AccompANyiNg Notes oN pAges 14-79 Are AN iNtegrAl pArt of these coNsolidAted fiNANciAl stAtemeNts.
the AccompANyiNg Notes oN pAges 14-79 Are AN iNtegrAl pArt of these coNsolidAted fiNANciAl stAtemeNts.
142
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143
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Consolidated statement of comprehensive
income for the year ended
31 December 2021
(In thousands of Russian rubles)
Consolidated statement of cash flows
for the year ended 31 December 2021
(In thousands of Russian rubles)
Revenue
Cost of sales
Gross profit
Rental and sublease income
Selling, general and administrative expenses
Other income
Other expenses
Operating profit
Interest income
Finance costs
Foreign exchange gain/(loss)
Profit before income tax
Income tax expense
Profit for the year
Total comprehensive income for the year, net of tax
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
Notes
2021
2020
(Note 4.1)*
24
25
26
29
27
28
1,856,078,950
1,553,777,351
(1,416,814,680)
(1,188,021,688)
439,264,270
365,755,663
4,110,784
3,153,243
(356,961,600)
(296,425,439)
24,742,259
17,069,195
(2,258,726)
(1,129,018)
108,896,987
88,423,644
2,547,456
504,476
(49,125,469)
(44,772,274)
280,745
(1,453,331)
62,599,719
42,702,515
Cash flows from operating activities
Profit before income tax
Adjustments for:
Depreciation and impairment of property, plant and equipment and right-of-use assets
Amortization of intangible assets
Loss/(gain) from disposal of property, plant and equipment
Loss from disposal of intangible assets
Changes in expected credit losses for receivables
Impairment and write-offs of advances paid
Provision for expected credit losses on financial assets
Expenses for inventories carried at net realizable value
Share-based payments reserve
Gain from cancellation of lease contracts
30
(14,493,857)
(9,709,223)
Gain from Covid-19 related rent concessions
48,105,862
32,993,292
48,105,862
32,993,292
48,105,862
32,993,292
48,105,862
32,993,292
48,105,862
32,993,292
48,105,862
32,993,292
Income from government grants
Foreign exchange (gain)/loss
Finance costs
Interest income
(Increase)/decrease in trade and other receivables
Increase in advances paid and other prepaid expenses
(Decrease)/increase in advances received
Decrease in taxes receivable
(Increase)/decrease in inventories
Notes
2021
2020
(Note. 4.1)*
62,599,719
42,702,515
101,936,190
88,061,585
3,387,190
1,703,793
494,079
(1,165,190)
4,035
(103,510)
132,090
—
2,904,292
840,399
45,065
451,920
132,207
247,436
597,351
876,076
(1,070,698)
(1,687,459)
(1,819,124)
(1,481,968)
(242,801)
(664,257)
(280,745)
1,453,331
49,125,469
44,772,274
(2,547,456)
(504,476)
8, 9,
26
10, 26
10
14, 26
15, 26
13
32
9, 29
9, 29
22
28
27
(769,807)
4,021,037
(2,156,435)
(369,376)
(44,244)
14,583
76,435
1,388,557
(3,073,283)
12,327,041
22,600,579
4,098,609
542,720
7,563,344
1,323,063
1,535,847
233,858,157
206,119,845
Operating profit before changes in operating assets and liabilities
215,359,129
175,540,203
Earnings per share (in RUB per share)
Increase in long-term and short-term trade and other payables
– basic profit for the year attributable to the shareholders of the parent
– diluted profit for the year attributable to the shareholders of the parent
31
31
491.69
488.78
337.95
336.07
Increase in tax payables
Increase in contract liabilities
Cash generated from operations
the AccompANyiNg Notes oN pAges 14-79 Are AN iNtegrAl pArt of these coNsolidAted fiNANciAl stAtemeNts.
the AccompANyiNg Notes oN pAges 14-79 Are AN iNtegrAl pArt of these coNsolidAted fiNANciAl stAtemeNts.
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* some of the ABove AmouNts Are Not coNsisteNt with coNsolidAted fiNANciAl stAtemeNts for 2020 ANd reflect the AdJustmeNts descriBed iN Note 4.1.
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Consolidated statement of cash flows
for the year ended 31 December 2021
(In thousands of Russian rubles) (continued)
Consolidated statement of changes
in equity for the year ended
31 December 2021
(In thousands of Russian rubles)
Proceeds from sale of property, plant and equipment
1,050,808
2,069,928
Dividends declared
Acquisition of a subsidiary, net of cash acquired
7
(68,148,804)
Share-based payments
876,076
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
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
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
22
34
34
18
9
16
16
* Some of the above amountS are not conSiStent with conSolidated financial StatementS for 2020 and reflect the adjuStmentS deScribed in note 4.1.
(11,495)
230,674
65,196
—
—
196,832
190,269
(126,689,032)
(29,019,801)
169,505,660
452,555,765
(88,752,694)
(471,761,619)
(48,115,232)
(29,871,472)
(46,719,526)
(35,715,802)
(14,081,792)
(84,793,128)
28,699,027
35,798,283
44,699,581
8,901,298
73,398,608
44,699,581
Notes
2021
2020
(Note. 4.1)*
(18,213,507)
(13,088,683)
(48,632,139)
(43,820,851)
2,457,340
400,901
169,469,851
149,611,212
Notes
Attributable to shareholders of the parent
Share
capital
Share
premium
Treasury
shares
Provision
for share-
based
payments
Retained
earnings
Equity
attributable
to shareholders
of the parent
Balance at 1 January 2020
1,020
87,379,413
(16,454,110)
1,623,268
115,983,223
188,532,814
(52,781,645)
(28,136,397)
for the year
(7,093,766)
(3,340,433)
Profit for the year
Total comprehensive income
—
—
—
—
—
—
—
—
—
—
32,993,292
32,993,292
32,993,292
32,993,292
—
(39,513,258)
(39,513,258)
—
—
876,076
—
11,508
432,514
(444,022)
Balance at 31 December 2020
1,020
87,390,921
(16,021,596)
2,055,322
109,463,257
182,888,924
Balance at 1 January 2021
1,020
87,390,921
(16,021,596)
2,055,322
109,463,257
182,888,924
—
—
—
—
—
—
—
—
—
—
—
18
32
Transfer of rights to equity
instruments for share based
17, 32
payments
Profit for the year
Total comprehensive income
for the year
Dividends declared
Share-based payments
18
32
Transfer of rights to equity
instruments for share based
17, 32
payments
Canceled rights to equity
instruments for share based
payments
Balance at 31 December
2021
—
—
—
—
—
—
—
—
—
—
48,105,862
48,105,862
48,105,862
48,105,862
—
(52,850,006)
(52,850,006)
(64,280)
993,525
(929,245)
840,399
—
—
840,399
—
—
—
—
(89,057)
89,057
1,020
87,326,641
(15,028,071)
1,877,419
104,808,170
178,985,179
the AccompANyiNg Notes oN pAges 14-79 Are AN iNtegrAl pArt of these coNsolidAted fiNANciAl stAtemeNts.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Notes to the consolidated financial
statements for the year ended
31 December 2021
(In thousands of Russian rubles)
1. Corporate information
Company name
Principal activity
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, the DIXY and the Megamart names. 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
Principal activity
Ownership
interest as at
31 December
2021
Ownership
interest as at
31 December
2020
JSC Tander
Food retail and wholesale
LLC Retail Import
Import operations
LLC BestTorg
Food retail in Moscow and the Moscow region
LLC MFK
LLC Selta
Other activities
Transportation services for the Group
LLC TK Zelenaya Liniya
Greenhouse complex
LLC Tandem
Rent operations
LLC Alkotrading
Other operations
LLC ITM
IT services
LLC Logistika Alternativa
Import operations
LLC Zvezda
Assets holder, vehicles maintenance services for the Group
LLC TD–holding
Production and processing of
food for the Group
LLC MagnitEnergo
Buyer of electric power for the Group
LLC Management Company
Industrial Park Krasnodar
Management of production assets
LLC Kuban Confectioner
Production of food for the Group
LLC Kuban Factory
of Bakery Products
148
Production of food for the Group
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%
LLC Volshebnaya svezhest
Production of household chemicals for the Group
LLC Zelen Yuga1
Production of agricultural products for the Group
LLC Moskva na Donu
Production of agricultural products for the Group
LLC Magnit Pharma
LLC Magnit IT Lab
LLC MF-SIA
LLC SIA International – Vladivostok2
LLC SIA International – Nizhniy Novgorod2
LLC SIA International – Khabarovsk2
Pharmaceutical license holder
Innovative software product development
Management activities
Commission trade of medicines
and medical products
Commission trade of medicines
and medical products
Commission trade of medicines
and medical products
Stellary Cosmetic GmBH
Holder of intangible assets
LLC Gastronom Media3
DIXY Holding Limited4
JSC DIXY Group4
JSC DIXY Ug4
LLC Mit4
LLC DIXY Snezhinsk4
LLC Argument4
Marketing services
Investment holding
Investment holding
Food retail and wholesale
IT services
Assets holder
Assets holder
Ownership
interest as at
31 December
2021
Ownership
interest as at
31 December
2020
100%
100%
100%
100%
100%
100%
—
—
—
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
—
—
—
—
—
—
—
1 iN 2021, morozNye pripAsy llc wAs reNAmed to zeleN yugA llc; the compANy Also chANged its core Activities from food productioN to productioN of AgriculturAl goods
for the group.
2 2021, the mANAgemeNt of the group decided to liquidAte A NumBer of the siA group compANies eNgAged iN commissioN trAde of mediciNes ANd medicAl products. liquidAtioN
of these compANies did Not hAve A sigNificANt impAct oN the coNsolidAted fiNANciAl stAtemeNts of the group ANd its operAtioNs.
3 duriNg the 12 moNths eNded 31 decemBer 2021, the compANy gAstroNome mediA llc wAs estABlished, the mAiN Activity of which is the provisioN of mArketiNg services. this
chANge did Not hAve ANy sigNificANt impAct oN the coNsolidAted fiNANciAl stAtemeNts of the group ANd its operAtioNs.
4 duriNg the 12 moNths eNded 31 decemBer 2021, the group oBtAiNed coNtrol over 100% of ordiNAry shAres of dixy holdiNg limited, more detAils oN BusiNess comBiNAtioN
Are disclosed iN Note 7.
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
2. Basis of preparation of the financial statements
3. Summary of significant accounting policies
Statement of compliance
Basis of consolidation
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 or business acquisition
date.
Functional currency
The Russian ruble is the functional currency of the main 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 2022, 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 (Note 34).
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.
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.
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
3. Summary of significant accounting policies (continued)
Fair value measurement
Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date.
Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within
equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope
of IFRS 9 Financial Instruments, is measured at fair value with the changes in fair value recognized in the statement
of comprehensive income in accordance with IFRS 9. Other contingent consideration that is not within the scope
of IFRS 9 is measured at fair value at each reporting date with changes in fair value recognized in profit or loss.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred
and the amount recognized for non-controlling interests and any previous interest held over the net identifiable
assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate
consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired
and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized
at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over
the aggregate consideration transferred, then the gain is recognized in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each
of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether
other assets or liabilities of the 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/ non-current
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 values of financial instruments measured at amortised cost are disclosed in Note 34.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes place either:
— in the principal market for the asset or liability; or
— in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate
economic benefits by using the asset in its highest and best use or by selling it to another market participant that
would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data
are available to measure fair value, 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 re-assessing categorization (based on the lowest
level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
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.
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
3. Summary of significant accounting policies (continued)
The estimated useful economic lives of the related assets are as follows:
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 specially for the purpose of promotion and not
sold in the retail chain, are recognized in selling expenses and classified as advertising expenses.
Revenue from advertising services and packaging materials
Revenue from advertising services is recognized in the reporting period, when the services were provided, because
the customer simultaneously receives and consumes the benefits provided to them by the Group. Revenue from
packaging materials is recognized when control of the goods are transferred to the customer at an amount that
reflects the consideration to which the Group expects to be entitled in exchange for those goods. The Group
classifies such types of revenue within other income.
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.
Buildings
Machinery and equipment
Vehicles
Useful life in years
10-50
>1-14
>1-10
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.
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3. Summary of significant accounting policies (continued)
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.
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 disposa
proceeds and the carrying amount of the asset) is included in the consolidated statement of comprehensive income.
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 from 1 to 28 years;
— land from 1 to 54 years.
Depreciation of right-of-use assets is charged to profit or loss, except for depreciation of right-to-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 and leases of low-value assets
The Group applies the short-term lease recognition exemption and exemption for lease of low-value assets to its
leases contracts (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 or leases agreement of low-value assets). Lease payments on short-term leases
and leases of low-value assets 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.
The Group classifies a sublease contract as a finance lease if the lease term constitutes a major part of the useful
life of the underlying asset or at the inception date, the present value of the lease payments amounts to at least
substantially all of the fair value of the underlying asset even if title is not transferred upon expiry of the lease.
Finance leases under sublease contracts are capitalized at the commencement date of the lease at the fair value
of future minimum lease payments as receivables within “Net investments in sublease” in the Group’s consolidated
statement of financial position.
Lease payments are apportioned between interest (recognized as finance income) and a reduction in sublease
receivables. At the same time, the Group recognizes a partial disposal of right-of-use assets related to leased
premises at the proportionate share of subleased premises in total leased trade space.
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.
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3. Summary of significant accounting policies (continued)
Vendor allowances
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use,
the estimated future cash flows are discounted to their present value, using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset.
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.
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.
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.
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3. Summary of significant accounting policies (continued)
Borrowing costs
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 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).
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 (equity-settled transactions).
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using
an appropriate valuation model. That cost is recognized in employee benefits expense, together with a corresponding
increase in equity (Share-based payments reserve), over the period in which the service conditions and, where
applicable, the performance conditions are fulfilled (the vesting period).
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3. Summary of significant accounting policies (continued)
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.
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.
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.
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3. Summary of significant accounting policies (continued)
Financial liabilities and equity instruments issued by the Group
Impairment of financial assets
The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value
through profit or loss.
ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all
the cash flows that the Group expects to receive, discounted at an 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.
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.
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.
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.
Treasury shares are used to settle share-based payments during the period.
Share premium
Share premium represents the difference between the fair value of consideration received and nominal value
of the issued shares. Share premium also includes a difference between the carrying amount of treasury shares
and fair value of consideration transferred in business combination.
Earnings per share
Earnings per share have been determined using the weighted average number of the Group’s shares outstanding
during the 12 months ended 31 December 2021 and 2020. 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 2021
and 2020 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.
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; and insolvency or bankruptcy of the Group or any of counterparties.
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Impact on the condensed consolidated statement of financial position as at 31 December 2020 (increase/(decrease)
per line item):
Notes to the consolidated financial
statements
(In thousands of Russian rubles) (continued)
3. Summary of significant accounting policies (continued)
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.
Non-current assets
Property, plant and equipment
4. Summary of changes in accounting policies and disclosures
4.1
Reclassification in the consolidated financial statements
The Group changed the presentation of certain items in the Group’s consolidated statement of financial position
as of 31 December 2021, the consolidated statement of comprehensive income for 2021, and the consolidated
statement of cash flows for the year ended 31 December 2021. The comparative amounts as at 31 December 2020
and for the year ended 31 December 2020 have been aligned with the newly adopted format of presentation.
The Group made the following changes with respect to comparative data in the consolidated statement of financial
position as at 31 December 2020:
— RUB 23,252,598 thousand were reclassified from “Accrued expenses” to “Trade and other payables”;
— “Prepaid expenses” and “Advances paid” were combined into “Advances paid and other prepaid expenses”;
— RUB 387,846 thousand were reclassified from “Property, plant and equipment” to “Advances paid for the purchase
and construction of property, plant and equipment”.
The Group made the following changes with respect to comparative data in the consolidated statement
of comprehensive income for the year ended 31 December 2020:
— sub-title operating profit has been presented. Operating profit includes other income and other expenses, as these items
relate to the Group’s main operating activities;
— “Selling expenses” and “General and administrative expenses” were combined into “Selling, General and administrative
expenses”.
The Group made the following changes with respect to comparative data in the consolidated statement of cash flows
for the year ended 31 December 2020:
— RUB 132, 207 thousand were reclassified from “Decrease in advances paid” to “Impairment and write-off of advances paid”;
— RUB 6,232,493 thousand were reclassified from “Increase in accrued expenses” to “Increase in long-term and short-term
trade and other payables”;
— “Increase in prepaid expenses” and “Decrease/increase in advances paid” were combined into “Increase in advances paid
and other prepaid expenses”.
Advances paid for the purchase and construction of property,
plant and equipment
Total non-current assets
Current assets
Advances paid and other prepaid expenses
Advances paid
Prepaid expenses
Total current assets
Total assets
Current liabilities
Trade and other payables
Accrued expenses
Total current liabilities
Total liabilities
Total equity and liabilities
31 December
2020
as previously
reported
Effect
of eclassification
31 December
2020
as restated
336,513,344
(387,846)
336,125,498
—
387,846
387,846
678,461,159
—
678,461,159
—
5,581,366
1,081,971
266,931,047
945,392,206
6,663,337
(5,581,366)
(1,081,971)
6,663,337
—
—
—
—
266,931,047
945,392,206
161,072,294
23,252,598
184,324,892
23,252,598
(23,252,598)
—
284,273,270
762,503,282
945,392,206
—
—
—
284,273,270
762,503,282
945,392,206
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
4. Summary of changes in accounting policies and disclosures (continued)
4.2
New and amended standards and interpretations
Impact of the changes on comparative data in the consolidated statement of comprehensive income for the year
ended 31 December 2020 is presented below:
Selling expenses
(16,887,124)
16,887,124
General and administrative expenses
(279,538,315)
279,538,315
—
—
Selling, general and administrative expenses
—
(296,425,439)
(296,425,439)
2020
as previously
reported
Effect of
restatement
2020
as restated
Except for the changes mentioned above and the adoption of new standards and interpretations effective
as of 1 January 2021, the accounting policies adopted in the preparation of the annual consolidated financial
statements for 2021 are consistent with those followed in the preparation of the Group’s annual consolidated financial
statements for the year ended 31 December 2020.
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not
yet effective.
Interest Rate Benchmark Reform – Phase 2 – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered
rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR).
The table below shows the effect of changes on the consolidated statement of cash flows for the year ended 31
December 2020:
The amendments include the following practical expedients:
2020
as previously
reported
Effect of
restatement
2020
as restated
Cash flows from operating activities
Adjustments for:
Impairment and write-off of advances paid
—
132,207
132,207
Cash flows from operating activities before changes
in working capital
175,407,996
132,207
175,540,203
Increase in long-term and short-term trade and other payables
(2,133,884)
6,232,493
4,098,609
Increase in accrued expenses
Decrease/(increase) in advances paid
Increase in prepaid expenses
Increase in advances paid and other prepaid expenses
6,232,493
(6,232,493)
188,592
(425,761)
—
(188,592)
425,761
(369,376)
—
—
—
(369,376)
Cash flows from operating activities
206,119,845
—
206,119,845
— a practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform,
to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest;
— permit changes required by IBOR reform to be made to hedge designations and hedge documentation without
the hedging relationship being discontinued;
— provide temporary relief to entities from having to meet the separately identifiable requirement when an risk-free interest
rate instrument is designated as a hedge of a risk component.
These amendments had no impact on the consolidated financial statements of the Group. The Group intends to use
the practical expedients in future periods if they become applicable.
Covid-19-Related Rent Concessions beyond 30 June 2021 – Amendments to IFRS 16
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 was intended to apply until 30 June 2021, but as the impact of the Covid-19 pandemic is continuing,
on 31 March 2021, the IASB extended the period of application of the practical expedient to 30 June 2022.
The amendment applies to annual reporting periods beginning on or after 1 April 2021. The Group applied this
practical expedient in the consolidated financial statements.
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.
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4. Summary of changes in accounting policies and disclosures (continued)
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 IFRS 17 Insurance Contracts: Initial Application of IFRS 17 and IFRS 9 Comparative Information
The amendments are a transition option relating to comparative information about financial assets presented on initial
application of IFRS 17. The amendments are aimed at helping entities to avoid temporary accounting mismatches
between financial assets and insurance contract liabilities, and therefore improve the usefulness of comparative
information for users of financial statements.
IFRS 17 incorporating the amendments are effective for annual reporting periods beginning on or after 1 January
2023.
IFRS 17 is not applicable to the Group.
The IASB expects that these proposals will improve the information a company provides about non-current liabilities
with covenants by enabling investors to assess whether such liabilities could become repayable within 12 months.
The proposals also address feedback from stakeholders about the classification of debt as current or non-current
when applying requirements introduced in 2020 that are not yet in effect. Consequently, the IASB is also proposing
to defer the effective date of those requirements to align with the proposed amendments.
The IASB proposed to defer the effective date to no earlier than 1 January 2024. Comments are due to be received
by the IASB by 21 March 2022.
Amendments to IAS 12 Income Taxes: Deferred Tax related to Assets and Liabilities arising from a Single Transaction
The IASB has amended IAS 12, Income Taxes, to require companies to recognise deferred tax on particular
transactions that, on initial recognition, give rise to equal amounts of taxable and deductible temporary differences.
The proposed amendments will typically apply to transactions such as leases for the lessee and decommissioning
obligations.
Paragraphs 15 and 24 of IAS 12 were amended to include an additional condition where the initial recognition
exemption is not applied. According to the amended guidance, a temporary difference that arises on initial
recognition of an asset or liability is not subject to the initial recognition exemption if that transaction gave rise
to equal amounts of taxable and deductible temporary differences. Paragraph 22A has been added to provide further
clarification of this principle. Paragraphs 22(b) and 22(c) of IAS 12 have also been amended.
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:
These amendments might have a significant impact on the preparation of financial statements by companies that
have substantial balances of right-of-use assets, lease liabilities, decommissioning, restoration and similar liabilities.
The impact for those affected would be the recognition of additional deferred tax assets and liabilities.
— 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.
In November 2021 the IASB proposed amendments to IAS 1 Presentation of Financial Statements to improve
the information companies provide about long-term debt with covenants.
IAS 1 requires a company to classify a liability as non-current only if the company has a right to defer settlement
of the liability for at least 12 months after the reporting date. However, such a right is often subject to the company
complying with covenants after the reporting date. For example, a company might have long-term debt that could
become repayable within 12 months if the company fails to comply with covenants after the reporting date.
These amendments should be applied for annual periods beginning on or after 1 January 2023. Earlier application
is permitted. The amendments should be applied on a modified retrospective basis. The Group is currently assessing
the impact on the consolidated financial statements.
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 proposed amendments would specify that, in such a situation, covenants would not affect the classification
of a liability as current or non-current at the reporting date. Instead, a company would:
The amendments are effective for annual reporting periods beginning on or after 1 January 2022 and apply
prospectively.
— present non-current liabilities that are subject to covenants on the statement of financial position separately from other
non-current liabilities; and disclose information about the covenants in the notes to its financial statements, including their
nature and whether the company would have complied with them based on its circumstances at the reporting date.
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.
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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 material impact on the consolidated financial statements of the Group.
Amendments to IAS 8 Definition of Accounting Estimates
In February 2021, the IASB issued amendments to IAS 8, in which it introduces a definition of ‘accounting estimates’.
The amendments clarify the distinction between changes in accounting estimates and changes in accounting policies
and the correction of errors. Also, they clarify how entities use measurement techniques and inputs to develop
accounting estimates.
The amendments are effective for annual reporting periods beginning on or after 1 January 2023 and apply
to changes in accounting policies and changes in accounting estimates that occur on or after the start of that period.
Earlier application is permitted as long as this fact is disclosed. The amendments are not expected to have material
impact on the consolidated financial statements of the Group.
Amendments to IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies
In February 2021, the IASB issued amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements,
in which it provides guidance and examples to help entities apply materiality judgements to accounting policy
disclosures. The amendments aim to help entities provide accounting policy disclosures that are more useful
by replacing the requirement for entities to disclose their ‘significant’ accounting policies with a requirement
to disclose their ‘material’ accounting policies and adding guidance on how entities apply the concept of materiality
in making decisions about accounting policy disclosures.
The amendments to IAS 1 are applicable for annual periods beginning on or after 1 January 2023 with earlier
application permitted. Since the amendments to the Practice Statement 2 provide non-mandatory guidance
on the application of the definition of material to accounting policy information, an effective date for these
amendments is not necessary.
The Group is currently assessing the impact of the amendments to determine the impact they will have
on the Group’s accounting policy disclosures.
4. Summary of changes in accounting policies and disclosures (continued)
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.
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.
The amendment is not applicable to the Group.
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 material impact on the consolidated financial statements
of the Group.
Amendments to 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.
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
5. Significant accounting judgements and estimates
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.
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.
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5. Significant accounting judgements and estimates (continued)
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.
Marathon Retail LLC is the Group’s shareholder having a significant influence on the Group starting from
26 November 2021. Marathon Group companies are included in other related parties of 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 2021 and 31 December 2020 are presented as follows:
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;
— in a similar economic environment.
6. Balances and transactions with related parties
The Group enters into transactions with related parties in the ordinary course of business.
The Group purchases materials, information and consulting services from related parties, receives loans from
them, places deposits, receives income from renting premises, and performs transactions with financial assets
and recognizes income on them.
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).
As at 31 December 2020 and for the period from 1 January 2021 to 26 November 2021, Bank VTB PJSC was
a shareholder of the Group and had a significant influence over the Group.
On 26 November 2021 the share of votes held by Bank VTB PJSC on the Company’s shares was reduced to 7.727%,
of which 7.72% is held by VTB Group companies under the repurchase agreement with Marathon Retail LLC. Starting
from the above date, Bank VTB PJSC and VTB Group companies ceased to be related parties of the Group.
On 26 November 2021, the share of votes held by Marathon Group on the Company’s shares was increased to 24.99%,
of which Marathon Retail LLC owns 18.94%. In respect of 3.49% of the Company’s voting shares the right to dispose
votes is held by Marathon Retail LLC on the basis of the repurchase agreements concluded with VTB Group. Marathon
Group will also receive right to dispose 4.23% of the Company’s voting shares after the Federal Antimonopoly Service
(FAS) of Russia upholds the respective motion of Marathon Retail LLC on the basis of the above mentioned repurchase
agreements.
Long-term financial assets (Note 12)
Other receivables (Note 14)
Short-term financial assets (Note 12)
Other payables (Note 19)
Advances received
Shareholders
Other related parties
31 December
2021
31 December
2020
31 December
2021
31 December
2020
—
—
—
—
—
—
2,567
—
20,583
11,890
1,014,994
—
200,000
—
—
—
3,114
—
165,670
492
The Group’s transactions with related parties for the years ended at 31 December 2021 and 31 December 2020 are
presented as follows:
Interest income (Note 27)
Selling, general and administrative expenses
Rent and utilities income
Other income
Purchases of inventory
Loans receivable repayment
Finance costs
Repayment of loans received, incl. finance costs
Shareholders
Other related parties
2021
702,834
91,329
35,105
4,378
—
—
—
—
2020
49,429
91,134
28,839
61
—
—
309,193
33,509,193
2021
9,282
734,420
442
38,579
1,241,667
200,000
7,909
—
2020
—
79,228
2,041
23,998
564,472
—
—
—
No guarantees have been given to or received from related parties.
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 2021
amounted to RUB 2,101,606 thousand (2020: RUB 1,733,030 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 2021, information on these accruals is disclosed in the Note 32.
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
7. Business combination
Acquisition of holding company “DIXY Holding Limited”
On 22 July 2021, the Group acquired control over DIXY Holding Limited by purchasing 100% of its ordinary shares.
DIXY Holding Limited is registered in the Republic of Cyprus, has a permanent establishment and tax residence
in the Russian Federation. DIXY Holding Limited is a holding company of DIXY Group, which includes the following
legal entities: “DIXY Group” JSC, “DIXY-Yug” JSC, “DIXY-Snezhinsk” LLC, “MIT” LLC, “Argument” LLC which are
located in the Russian Federation (“DIXY Group”). Shares and securities of DIXY Group companies are not admitted
to organized trading.
DIXY Group is primarily engaged in food retail in the Russian Federation. As at the acquisition date, DIXY Group
operated 2,438 convenient stores under the “DIXY” brand and 39 supermarkets under the “Megamart” brand.
The Group’s management expects that acquisition of the retail business of DIXY will significantly increase
the Group’s competitiveness in the Russian food retail sector. Strong presence in the strategically important Moscow
and Northwestern regions will significantly enhance the market position, including a significant growth of the market
share in Moscow and St. Petersburg. The Group also expects to enjoy synergy gains in purchases, category
management and business processes, leading to an increase in the shareholder value of the Group taken as a whole.
Assets acquired and liabilities assumed
The assets and liabilities of the DIXY Group, recognised in the financial statements as at 31 December 2021, were
based on a provisional assessment of their fair value, since independent appraisal of DIXY Group’s property, plant
and equipment, intangible assets, and assessment of the favorable and unfavorable terms of the lease when compared
to market for the following adjustments of the right-of-use assets and assessment of the other assets and liabilities
had not been completed by the date when the 2021 financial statements were approved for issue by the Board
of Directors.
In connection with this the Group was in the process of completion of assessment and purchase price allocation
at the reporting date. The Group plans to complete its fair value measurement of assets and liabilities of DIXY Group
by July 2022.
The information about provisional fair values of identifiable assets and liabilities of DIXY Group at the date
of acquisition is disclosed below:
Provisional fair value
recognized on acquisition
Assets
Property, plant and equipment (Note 8)
Advances paid for the purchase and construction of property, plant and equipment
Right-of-use assets (Note 9)
Intangible assets (Note 10)
Long-term net investments in sublease
Short-term net investments in sublease
Inventories
Trade and other receivables
Advances paid and other prepaid expenses
Taxes receivable, excluding income tax
Cash and cash equivalents
Liabilities
Long-term loans and borrowings
Long-term lease liabilities (Note 9)
Deferred tax liabilities (Note 30)
Trade and other payables
Taxes payable, excluding income tax
Income tax payable
Short-term advances received
Contract liabilities
Short-term loans and borrowings
Short-term lease liabilities (Note 9)
Total identifiable net assets measured at fair value
Goodwill arising on acquisition (Note 11)
Consideration transferred on acquisition
36,140,434
445,933
76,676,831
7,189,391
16,730
11,519
18,754,855
2,298,083
511,225
164,869
27,967,922
170,177,792
236,741
69,143,140
771,108
30,094,440
2,321,374
60,971
33,989
261,208
22,858,887
13,691,176
139,473,034
30,704,758
65,411,968
(96,116,726)
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The fair value of trade and other receivables is RUB 2,298,083 thousand. The gross amount of trade and other
receivables under the contract is RUB 2,757,330 thousand, the amount equaled to RUB 459,247 thousand is not
expected to be received at the acquisition date.
Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
7. Business combination (continued)
The Group measured the acquired lease liabilities using the present value of the remaining lease payments
as at the acquisition date. Right-of-use assets were measured in the amount equal to the amount of lease liabilities
adjusted to reflect favorable and unfavorable terms of the lease when compared with market.
A deferred tax asset consists mainly of the asset recorded in respect of right-of-use assets and lease liabilities.
The deferred tax asset will be realized in subsequent periods upon recognition of depreciation of the right-of-use
asset and finance expenses related to the lease liability within profit or loss for the period. A deferred tax liability
resulted mainly from a difference between the carrying amounts of property, plant and equipment and intangible
assets determined for tax and financial reporting purposes. The deferred tax asset and deferred tax liability are
presented in the consolidated financial statements on a net basis.
The goodwill of RUB 65,411,968 thousand is attributable to the business concentration in the strategically important
Moscow and Northwestern regions and expected synergies arising from the acquisition. The total amount of goodwill
is allocated to the Group’s activities under the next groups of cash generating units: “Magnit convenience”, “Magnit
Semeyniy”, “DIXY” and “Megamart”, including stores and warehouses related to them. None of the goodwill recognized
is expected to be deductible for income tax purposes.
From the date of acquisition, DIXY Group contributed RUB 133,940,617 thousand of revenue
and RUB 2,382,943 thousand of profit before tax of the Group.
If the business combination had taken place at the beginning of the year, the Group’s revenue would have been
RUB 2,019,502,746 thousand. The effect of this factor on the Group’s profit before tax cannot be estimated, as DIXY
Group did not report under the Group’s accounting policies before the merger.
Cash flow analysis for acquisitions
Transaction support costs (included in cash flows from operating activities)
Net cash acquired in business combination (included in cash flows from investing activities)
Cash paid
Net cash flows on acquisition
Transaction costs of RUB 778,191 thousand were included in selling, general and administrative expenses.
Fair value of each type of consideration paid on acquisition
Cash paid on acquisition
Adjustment of transaction price
Total consideration paid
(778,191)
27,967,922
(96,116,726)
(68,926,995)
87,575,153
8,541,573
96,116,726
At the date of obtaining control the Group paid RUB 87,575,153 thousand in cash for the shares acquisition of DIXY
Holding Limited. This amount represented the initial consideration under the contract for the purchase of DIXY
Holding Limited’s shares (the “Contract”) reduced by RUB 1,424,847 thousand due to the exclusion of the 148 DIXY
Group’s stores from the transaction in order to comply with legislation on competition protection and trade.
In addition, the Contract provided for an adjustment of the consideration depending on the difference
between the target and actual values of net debt and net working capital according to DIXY Holding Limited’s
consolidated financial statements at the time of completing the transaction. The adjusted consideration amounted
to RUB 8,541,573 thousand and was fully paid by the Group in cash to the previous owner.
The Contract also provided a condition about contingent consideration, the fair value of which the Group estimated
as insignificant.
8. Property, plant and equipment
Property, plant and equipment as at 31 December 2021 consisted of the following:
Land
Buildings
Machinery
and equipment
Vehicles
Assets under
construction
Total
Cost
At 1 January 2021
14,004,986
338,225,881
145,154,891
31,422,940
10,544,806
539,353,504
Business combination (Note 7)
1,780,495
23,174,463
7,828,741
3,183,630
173,105
36,140,434
Additions
Transfers
Disposals
7,965
—
27,089,474
7,720,440
21,443,872
56,261,751
—
21,932,653
—
—
(21,932,653)
—
(28,151)
(7,050,674)
(7,986,901)
(3,500,811)
(69,469)
(18,636,006)
At 31 December 2021
15,765,295
376,282,323
172,086,205
38,826,199
10,159,661
613,119,683
Accumulated depreciation
and impairment
At 1 January 2021
Depreciation for the year
—
—
(81,519,114)
(101,032,702)
(19,966,404)
(709,786)
(203,228,006)
(21,311,126)
(20,959,033)
(4,514,778)
—
(46,784,937)
Impairment for the year
(95,059)
(2,677,689)
(45,049)
Reversal of impairment losses
Disposals
—
—
307,322
8,210
6,909,170
7,322,178
2,859,771
—
—
(393,610)
(3,211,407)
586
—
316,118
17,091,119
At 31 December 2021
(95,059)
(98,291,437)
(114,706,396)
(21,621,411)
(1,102,810)
(235,817,113)
Net book value
At 1 January 2021
14,004,986
256,706,767
44,122,189
11,456,536
9,835,020
336,125,498
At 31 December 2021
15,670,236
277,990,886
57,379,809
17,204,788
9,056,851
377,302,570
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
8. Property, plant and equipment (continued)
Property, plant and equipment as at 31 December 2020 consisted of the following*:
Land
Buildings
Machinery
and equipment
Vehicles
Assets under
construction
Total
Cost
At 1 January 2020
14,013,576
327,078,060
136,281,849
37,228,490
10,183,421
524,785,396
Additions
Transfers
Disposals
—
—
—
12,972,082
1,301,557
15,486,523
29,760,162
14,965,156
—
—
(14,965,156)
—
(8,590)
(3,817,335)
(4,099,040)
(7,107,107)
(159,982)
(15,192,054)
At 31 December 2020
14,004,986
338,225,881
145,154,891
31,422,940
10,544,806
539,353,504
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
—
—
—
—
—
—
(65,460,025)
(85,932,297)
(22,288,558)
— (173,680,880)
(18,795,931)
(18,657,366)
(4,539,806)
—
(41,993,103)
(1,315,750)
(13,064)
288,314
11,904
—
—
(812,743)
(2,141,557)
—
300,218
3,764,278
3,558,121
6,861,960
102,957
14,287,316
(81,519,114)
(101,032,702)
(19,966,404)
(709,786)
(203,228,006)
At 1 January 2020
14,013,576
261,618,035
50,349,552
14,939,932
10,183,421
351,104,516
At 31 December 2020
14,004,986
256,706,767
44,122,189
11,456,536
9,835,020
336,125,498
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 for 2021,the Group recognized impairment losses in the consolidated statement
of comprehensive income of RUB 3,211,407 thousand for the tested assets, the total amount of the impairment losses
is attributable to the Group’s property, plant, and equipment (as for 2020: in the amount of RUB 2,973,036 thousand,
including impairment of property, plant and equipment in the amount of RUB 2,141,557 thousand, right-of-use
assets in the amount of RUB 831,479 thousand rubles). As for 2021 the amount of reversals of impairment losses
of property, plant and equipment amounted to RUB 316,118 thousand, right-of-use assets – RUB 524,004 thousand
(as for 2020: the amount of reversals of impairment losses of property, plant and equipment in the amount
of RUB 300,218 thousand, right-of-use assets in the amount of RUB 303,769 thousand).
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 makes 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 the 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 of the main assumptions applied in the model of the expected cash flows is increase of revenue by 4.6% (mainly
driven by CPI) (2020: 4.2%).
Cash flow forecasts for capital expenditure are based on the past experience and include ongoing capital expenditure
required to maintain the level of economic benefits from CGU in its current position.
* the group hAs chANged the clAssificAtioN ANd disclosure By group of property, plANt ANd equipmeNt As At 31 decemBer 2020, ANd for the yeAr eNded 31 decemBer 2020
iN order to preseNt more AccurAte ANd relevANt iNformAtioN to users.
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 13.63%. (2020: 12.81%).
The rate used to determine the amount of borrowing costs eligible for capitalization was approximate to weighted
average effective interest rate for the period.
The information on interest expenses included in the cost of qualifying assets is disclosed in Note 28.
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
2021, the Group made a conclusion on the unfavourable market and economic conditions in the market where
the Group operated.
The Group’s management believes that all of its estimates are reasonable and consistent with the way 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 215,959 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 165,022 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 227,541 thousand.
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
9. Lease
Group as a lessee
Right-of-use assets and lease liabilities
As at 31 December 2021, right-of-use assets consisted of the following:
Cost
As at 1 January 2021
Business combination (Note 7)
Additions
Modification
Indexation*
Derecognition
Buildings
Land
Other assets
Total
516,163,117
4,871,966
—
521,035,083
76,155,720
50,127,475
16,238,489
2,401,868
314,473
128,908
(4,143)
26,633
(7,224,184)
(29,688)
206,638
76,676,831
1,035
2,438
—
—
50,257,418
16,236,784
2,428,501
(7,253,872)
As at 31 December 2021
653,862,485
5,308,149
210,111
659,380,745
Accumulated depreciation and impairment
As at 1 January 2021
Depreciation for the year
Reversal of impairment losses (Note 8)
Derecognition
As at 31 December 2021
Net book value
As at 1 January 2021
(211,716,722)
(873,666)
—
(212,590,388)
(53,133,875)
(141,250)
(25,321)
(53,300,446)
524,004
3,815,483
—
5,849
—
—
524,004
3,821,332
(260,511,110)
(1,009,067)
(25,321)
(261,545,498)
304,446,395
3,998,300
—
308,444,695
In 2021 depreciation of a right-of-use assets in the amount of RUB 520,478 thousand was capitalized to the value
of property, plant and equipment.
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 8)
Reversal of impairment losses (Note 8)
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
5,872,964
487,704,814
36,623,382
100,272
36,723,654
10,554,431
(148,910)
10,405,521
1,373,791
17,664
1,391,455
(14,220,337)
(970,024)
(15,190,361)
516,163,117
4,871,966
521,035,083
(173,221,982)
(916,620)
(174,138,602)
(43,811,248)
(152,540)
(43,963,788)
(831,479)
303,769
—
—
(831,479)
303,769
5,844,218
195,494
6,039,712
(211,716,722)
(873,666)
(212,590,388)
308,609,868
4,956,344
313,566,212
304,446,395
3,998,300
308,444,695
As at 31 December 2021
393,351,375
4,299,082
184,790
397,835,247
* revAluAtioN of reNtAl pAymeNts thAt depeNd oN the iNdex (liNked to cpi).
* revAluAtioN of reNtAl pAymeNts thAt depeNd oN the iNdex (liNked to cpi).
In 2020 depreciation of a right-of-use assets in the amount of RUB 264,355 thousand were capitalized to the value
of property, plant and equipment.
The information about impairment test performed is disclosed in Note 8.
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
9. Lease (continued)
Lease liabilities
Set out below are the carrying amounts of Group’s lease liabilities and their movements during the period:
Set out below are the are the amounts recognized in the consolidated statement of comprehensive income ((income)/
expenses):
At 1 January
Business combination (Note 7)
Additions and other increase
Modification
Indexation*
Payments
Interest accrued (Note 28)
Interest paid
Derecognition
Rent concessions due to Covid-19 pandemic (Note 29)
Foreign exchange loss
At 31 December
* revAluAtioN of reNtAl pAymeNts thAt depeNd oN the iNdex (liNked to cpi).
Short-term liabilities
Long-term liabilities
Total
Short-term liabilities
Long-term liabilities
Total
2021
2020
357,573,958
357,210,159
82,834,316
—
50,252,704
36,459,462
16,236,784
10,405,521
2,428,501
1,391,455
(46,719,526)
(35,715,802)
33,613,620
30,771,302
(33,613,620)
(30,771,302)
(4,503,238)
(10,838,108)
(1,819,124)
(1,481,968)
21,645
143,239
Depreciation and impairment of right-of-use assets (Note 26)
Interest expenses on the lease (Note 28)
Foreign exchange loss
Gain from cancelation of lease contracts (Note 29)
Gain from Covid-19 related rent concessions (Note 29)
Lease expenses related to short-term lease (Note 26)
Lease expenses related to lease of low-value assets (Note 26)
Variable lease payments (Note 26)
10. Intangible assets
456,306,020
357,573,958
As at 31 December 2021, intangible assets consisted of the following:
2021
52,255,964
33,613,620
21,645
(1,070,698)
(1,819,124)
653,668
78,306
2,006,546
2020
44,227,143
30,771,302
143,239
(1,687,459)
(1,481,968)
267,715
79,410
1,081,701
85,739,927
73,401,083
Year of maturity
31 December 2021
2022
60,262,487
2023-2071
396,043,533
456,306,020
Year of maturity
31 December 2020
2021
41,432,103
2022-2069
316,141,855
357,573,958
Cost
At 1 January 2021
Business combination (Note 7)
Additions
Disposals
Licenses
Software
Trademarks
Other
Total
301,620
6,861,127
34,180
99,345
7,296,272
70,755
241,631
(65,192)
1,577,879
5,540,757
—
7,189,391
9,604,561
(1,371,284)
7,087
(176)
91,582
9,944,861
(41,813)
(1,478,465)
At 31 December 2021
548,814
16,672,283
5,581,848
149,114
22,952,059
Accumulated amortisation
and impairment
At 1 January 2021
(125,306)
(1,600,621)
Amortisation for the year
(111,674)
(2,418,208)
(12,559)
(815,197)
(51,534)
(1,790,020)
(42,111)
(3,387,190)
Disposals
63,184
1,369,257
176
41,813
1,474,430
At 31 December 2021
(173,796)
(2,649,572)
(827,580)
(51,832)
(3,702,780)
Net book value
At 1 January 2021
176,314
5,260,506
21,621
47,811
5,506,252
At 31 December 2021
375,018
14,022,711
4,754,268
97,282
19,249,279
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
10. Intangible assets (continued)
11. Goodwill
Part of the Group’s software is under development and integration as at 31 December 2021.
Goodwill as at 31 December 2021 and 2020 consisted of the following:
As at 31 December 2020, intangible assets consisted of the following:
Licenses
Software
Trademarks
Other
Total
Cost
At 1 January 2020
503,881
4,622,012
32,592
99,373
5,257,858
Additions
Disposals
81,115
3,220,423
(283,376)
(981,308)
1,606
(18)
37,289
3,340,433
(37,317)
(1,302,019)
At 31 December 2020
301,620
6,861,127
34,180
99,345
7,296,272
Accumulated amortisation
and impairment
At 1 January 2020
(160,946)
(1,125,834)
Amortisation for the year
(233,281)
(1,427,274)
(9,190)
(3,387)
(47,211)
(1,343,181)
(39,851)
(1,703,793)
Disposals
268,921
952,487
18
35,528
1,256,954
At 31 December 2020
(125,306)
(1,600,621)
(12,559)
(51,534)
(1,790,020)
Goodwill as at 1 January
Goodwill arising on acquisition (Note 7)
Goodwill as at 31 December
Carrying amount of goodwill allocated to each of the cash generated units:
Stores “Magnit convenience”, “Magnit Semeyniy”,
“DIXY” and “Megamart”
Stores “Magnit Cosmetic” and “Magnit Pharmacy”
Manufactory company TD-holding LLC
Total
2021
2020
26,879,317
26,879,317
65,411,968
—
92,291,285
26,879,317
As at 31 December
2021
As at 31 December
2020
65,411,968
25,511,824
1,367,493
—
25,511,824
1,367,493
92,291,285
26,879,317
Net book value
At 1 January 2020
342,935
3,496,178
At 31 December 2020
176,314
5,260,506
23,402
21,621
52,162
47,811
3,914,677
5,506,252
As at the reporting date, the Group performed annual impairment testing of goodwill arising on acquisition of DIXY
Group. For impairment testing purposes, goodwill was allocated to the groups of CGUs comprising “Magnit
convenience”, “Magnit Semeyniy”, “DIXY: and “Megamart” formats.
Groups of CGUs comprising next stores “Magnit convenience”, “Magnit Semeyniy”, “DIXY” and “Megamart”
Amortization expense is included in selling, general and administrative expenses (Note 26). The information about
impairment test performed is disclosed in Note 8.
In assessing goodwill impairment, the carrying value of the assets of the groups of CGUs, to which the amount
of goodwill was attributable was compared to the 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.
The pre-tax discount rate was determined based on the weighted average cost of capital of the Group and amounted
to 13.63%.
As a result of the analysis no impairment was identified for the goodwill.
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.
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
11. Goodwill (continued)
Gross margin
The gross margin included in the forecast of the Group’s activities in the “Magnit convenience”, “Magnit Semeyniy”,
“DIXY” and “Megamart” stores is in accordance with the approved strategic development plans 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 free cash flow, but would not cause an impairment
losses.
Discount rate
An increase in the pre-tax discount rate by i.e. + 0.5%, to 14.13%, would reduce the expected discounted cash flows
but would not cause an impairment loss.
Revenue growth
Revenue growth for the forecast period being in the range from 2.0% to 7.4%. The forecast is based on Group’s
activities in the “Magnit convenience”, “Magnit Semeyniy”, “DIXY” and “Megamart” stores. 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 4.6%. The Group’s
management believes that all of its estimates are reasonable and consistent with the internal reporting and reflect
management’s best knowledge.
Gross margin
The gross margin included in the forecast of the 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 14.13%, would reduce the expected discounted cash flows
but would not cause an impairment loss.
Revenue growth
Revenue growth for the forecast period being in the range from 3.1% to 5.8% (2020: 2.2% to 10.7%). 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 4.6% (2020: 4%).
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.
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
Groups of CGUs comprising next stores “Magnit Cosmetic” and “Magnit Pharmacy”
As at the 31 December 2021 and 2020, the Group performed annual impairment testing of goodwill arising
on acquisition of SIA Group. For impairment testing purposes, goodwill was allocated to the groups of CGUs
comprising “Magnit Cosmetic” and “Magnit Pharmacy” formats. In assessing goodwill impairment, the current carrying
amounts of assets of the CGU group comprising “Magnit Cosmetic” and “Magnit Pharmacy” stores, to which the entire
amount of goodwill was allocated, were compared to the estimated value in use.
The Group performed its annual impairment test of goodwill related to the acquisition of
TD-holding LLC as of 31 December 2021 and 2020. 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 approved by the management of the Group, plus terminal value,
and by taking into account inflation 4.6% (2020: 4%), demand for goods produced by TD-holding 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 13.63% (2020: 12.81%).
Future cash flows were determined based on the forecast of free cash flows for five years subject to the effect
of their terminal value.
The impairment test did not reveal any impairment of goodwill.
The pre-tax discount rate was determined based on the weighted average cost of capital of the Group and amounted
to 13.63% (2020: 12.81%).
The Group’s management believes that all of its estimates are reasonable and consistent with the internal reporting
and reflect management’s best knowledge.
As a result of the analysis no impairment was identified for the goodwill.
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.
190
2021
magnit.com
191
Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
12. Long-term financial assets
14. Trade and other receivables
As at 31 December 2021 non-current financial assets comprise the long-term loan issued amounted
to RUB 1,014,994 thousand (as at 31 December 2020: RUB 1,117,551 thousand) and other financial assets in the amount
of RUB 18,852 thousand. As at 31 December 2021, the amount of the long-term loan issued is classified as a loan
issued to the related party (Note 6), as at 31 December 2020 this amount was not related to balances with related
parties. As at 31 December 2021 and 31 December 2020 the current portion of the long-term loan amounted
to RUB 200,000 thousand (Note 6).
Interest income recognized with respect to the long-term loan issued for the year ended 31 December 2021
amounted to RUB 97,645 thousand (for the year ended 31 December 2020 to RUB 95,992 thousand), including
RUB 9,282 thousand reflected as operations with other related parties (Note 6).
The long-term loan is recognized at amortized cost. The contract expires on 31 December 2024, accrued interest
is payable on the specified date.
The Group did not recognize any expected credit loses for impairment of the long-term loan issued.
13. Inventory
Inventory as at 31 December 2021 and 2020 consisted of the following:
Goods for resale (at lower of cost and net realisable value)
Materials and supplies (at cost price)
2021
2020
211,925,870
194,944,876
12,947,170
11,004,318
224,873,040
205,949,194
Trade and other receivables as at 31 December 2021 and 2020 consisted of the following:
Other receivables – third parties
Trade receivables – third parties
Other receivables – related parties (Note 6)
Expected credit losses
2021
6,738,519
6,399,234
—
(1,410,978)
11,726,775
2020
5,224,320
4,848,309
5,681
(1,514,488)
8,563,822
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 wholesale customers of the Magnit Pharma.
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.
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 2021 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 2,904,292 thousand (2020: RUB 597,351 thousand).
As at 31 December 2021 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 2021:
Current
Overdue
Total
<90 days
90-180 days
180-360 days
>360 days
2021
ECL rate
0.1-3%
3-5%
10-20%
50%
100%
Carrying amount before ECLs
7,805,827
3,835,113
223,697
196,116
1,077,000
13,137,753
ECLs
76,127
115,053
44,740
98,058
1,077,000
1,410,978
192
2021
magnit.com
193
Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
14. Trade and other receivables (continued)
15. 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 2020:
Cash and cash equivalents as at 31 December 2021 and 2020 consisted of the following:
Current
Overdue
Total
<90 days
90-180 days
180-360 days
>360 days
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%
100%
354,015
1,073,813
10,078,310
177,007
1,073,813
1,514,488
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
2021
2,761,656
6,078,224
4,632
5,068,673
16,130,000
2020
2,080,093
9,348,609
935
1,599,303
9,160,000
43,355,423
22,510,641
73,398,608
44,699,581
As at 1 January
Accrual of provision for expected credit losses
Reversal
Receivables written off as uncollectable
As at 31 December
2021
2020
(1,514,488)
(1,062,568)
(296,251)
351,310
48,451
(668,262)
186,314
30,028
(1,410,978)
(1,514,488)
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 2021 and 2020.
As at 31 December 2021, cash of RUB 43,355,423 thousand was placed in rubles deposits, and cash
of RUB 16,130,000 thousand in rubles was placed on accounts with minimum account balance maturing in January
2022. Interest accrued as at 31 December 2021 was immaterial.
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.
15. Advances paid and other prepaid expenses
17. Share capital, share premium and treasury shares
Advances paid and other prepaid expenses as at 31 December 2021 and 2020 consisted of the following:
Advances to third party suppliers
Other prepaid expenses
Advances for customs duties
Impairment of advances paid
2021
7,946,501
1,213,862
962,755
(924,211)
2020
5,694,059
1,143,496
617,903
(792,121)
9,198,907
6,663,337
Authorized share capital (ordinary shares with a par value
of RUB 0.01)
Issued and fully paid share capital (par value of RUB 0.01 each)*
Treasury shares
* All shAres, iNcludiNg treAsury shAres, hAve the sAme votiNg ANd divideNd rights.
Share premium at 1 January
2021
No. (‘000)
2020
No. (‘000)
200,850
200,850
101,911
3,983
101,911
4,246
2021
2020
87,390,921
87,379,413
Transfer of rights to equity instruments under share-based payments program (Note 32)
(64,280)
11,508
Share premium at 31 December
87,326,641
87,390,921
194
2021
magnit.com
195
Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Notes to the consolidated financial
statements
(In thousands of Russian rubles) (continued)
17. Share capital, share premium and treasury shares (continued)
In 2020, the Group declared dividends to shareholders relating to 2019 and the 9 months of 2020.
Balance of shares outstanding at beginning of financial year
Transfer of treasury shares under share-based payments program (Note 32)
Transfer of treasury shares under employment contract with the Company’s President
(Note 32)
2021
No. (‘000)
97,665
222
41
2020
No. (‘000)
97,550
74
41
Dividends declared for 2019 and for 9 months 2020 (RUB 157 and RUB 245.31 per share)
In 2021, the Group paid dividends of RUB 48,115,232 thousand (2020: RUB 29,871,472 thousand).
As at 31 December 2021, dividends payable were RUB 28,829,503 thousand (31 December 2020:
RUB 24,094,729 thousand). Dividends payable as at 31 December 2021 were paid in January 2022.
2020
39,513,258
Balance of shares outstanding at the end of financial year
97,928
97,665
In 2021, the Group did not acquire any treasury shares on the open market.
In 2021, the Group transferred 222,449 treasury shares to key management personnel as compensation
under the Long-term management incentive program (Note 32). The fair value of the compensation was
RUB 756,794 thousand. The difference of RUB 81,558 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 2021, the Group transferred 41,177 treasury shares to the Company’s President under his employment
contract (Note 32). 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 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 32). 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 Company’s President under his employment
contract (Note 32). 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.
19. Short-term and long-term trade and other payables
Short-term trade and other payables consisted of the following as at 31 December 2021 and 2020:
Trade payables to third parties
Accrued expenses and other payables to third parties
Accrued staff costs
Accrued expenses and other payables to related parties (Note 6)
As at 31 December 2021 and 2020 long-term payables consisted of the following:
Other long-term payables
2021
2020
182,054,322
145,281,458
36,758,261
21,958,499
—
21,530,784
17,326,397
186,253
240,771,082
184,324,892
2021
2,553,058
2,553,058
2020
—
—
Average trade payables turnover was 42 days in 2021 and 43 days in 2020. 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.
18. Dividends declared
As at 31 December 2021 and 2020 trade and other payables denominated in foreign currencies totaled:
In 2021, the Group declared dividends to shareholders relating to 2020 and the 9 months of 2021.
Dividends declared for 2020 and for 9 months 2021
(RUB 245.31 and RUB 294.37 per share)
2021
52,850,006
US dollars
Euros
Pounds sterling
2021
7,960,592
4,211,822
366
2020
8,488,173
1,910,746
—
12,172,780
10,398,919
196
2021
magnit.com
197
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Notes to the consolidated financial
statements
(In thousands of Russian rubles) (continued)
20. Taxes payable excluding income tax
22. Government grants
Taxes payable excluding income tax as at 31 December 2021 and 2020 consisted of the following:
Value added tax
Social insurance contributions
Personal income tax
Property tax
Other taxes
2021
8,210,562
4,194,626
1,642,159
598,069
73,029
2020
8,251,995
1,790,088
1,226,450
520,401
65,417
14,718,445
11,854,351
At 1 January
Received during the year
Recognized in profit or loss
At 31 December
Short-term
Long-term
2021
2020
2,794,945
3,268,933
65,196
(242,801)
2,617,340
253,475
2,363,865
190,269
(664,257)
2,794,945
627,304
2,167,641
21. Loans and borrowings
Long-term and short-term loans and borrowings as at 31 December 2021 and 2020 consisted of the following:
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.
Long-term loans and borrowings
Unsecured bonds
Unsecured bank loans
Year
of maturity
2021
2021
Year
of maturity
2020
2020
23. Contract liabilities
Contract liabilities as at 31 December 2021 and 2020 consisted of the following:
2023-2024
60,553,270
2022-2023
70,897,128
2023-2027
147,857,070
2022-2027
79,614,330
Short-term liabilities to the customers under loyalty program
Short-term advances received from customers
2021
2,775,444
1,401,385
2020
2,148,681
443,877
4,176,829
2,592,558
Less: current portion of long-term loans and borrowings
Total long-term loans and borrowings
(3,123,740)
205,286,600
Short-term loans and borrowings
Unsecured bonds
Unsecured bank loans
Current portion of long-term loans and borrowings
Total short-term loans and borrowings
2022
2022
30,467,826
31,547,745
3,123,740
65,139,311
2021
2021
(2,816,532)
147,694,926
10,296,260
5,278,809
2,816,532
18,391,601
The Group’s loans and borrowings as at 31 December 2021 and 31 December 2020 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 2021 and 31 December
2020.
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
2021
2,148,681
13,450,995
2020
810,214
12,235,191
(12,824,232)
(10,896,724)
2,775,444
2,148,681
198
2021
magnit.com
199
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
24. Revenue from contracts with customers
26. Selling, general and administrative expenses
Revenue for the years ended 31 December 2021 and 2020 consisted of the following:
Selling, general and administrative expenses for the years ended 31 December 2021 and 2020 consisted
of the following:
Retail
Wholesale
2021
2020
1,807,751,911
1,510,070,771
48,327,039
43,706,580
1,856,078,950
1,553,777,351
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 29) and for the 2021 amounted
to RUB 1,872,793,927 thousand (2020: RUB 1,562,939,358 thousand).
25. Cost of sales
Cost of sales for the years ended 31 December 2021 and 2020 consisted of the following:
Cost of goods sold
Transportation expenses
2021
2020
1,371,109,693
1,149,730,128
45,704,987
38,291,560
1,416,814,680
1,188,021,688
Staff costs
2021
2020*
166,606,430
139,885,603
Depreciation and impairment of right-of-use assets (Note 9)
52,255,964
44,227,143
Depreciation and impairment of property, plant and equipment (Note 8)
49,680,226
43,834,442
Utilities and communication services
34,252,210
28,826,999
Advertising
Bank charges
Repair and maintenance
Packaging and raw materials
Amortisation of intangible assets (Note 10)
Taxes, other than income tax
Rent (Note 9)
Security
Accrual of expected credit losses and impairment of advances paid (Notes 14, 15)
Other expenses
11,474,781
9,022,470
8,192,322
5,500,153
3,387,190
2,944,221
2,738,520
1,659,216
28,580
9,219,317
7,627,912
7,108,373
6,731,558
4,861,131
1,703,793
2,924,806
1,428,826
1,790,229
584,127
4,890,497
356,961,600
296,425,439
Cost of goods sold is reduced by rebates and promotional bonuses received from suppliers.
Cost of goods sold includes losses due to inventory shortages, as well as transportation costs.
In 2021, staff costs, including payroll, social contribution expenses and related provisions totaling
to RUB 32,519,074 thousand (2020: RUB 28,727,412 thousand) were included in cost of sales.
* the group hAs chANged the compArAtive historicAl dAtA for the yeAr eNded 31 decemBer 2020 for clAssificAtioN ANd disclosure of selliNg, geNerAl ANd AdmiNistrAtive
expeNses iN order to preseNt more AccurAte ANd relevANt iNformAtioN to the users.
In 2021 staff costs include payroll amounted to RUB 130,825,254 thousand (2020: RUB 109,078,576 thousand), social
contribution expenses amounted to RUB 34,572,909 thousand (2020: RUB 30,104,070 thousand) and also other staff
costs in amount RUB 1,208,267 thousand (2020: RUB 702,957 thousand).
200
2021
magnit.com
201
Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
27. Interest income
29. Other income
Interest income for the years ended 31 December 2021 and 2020 consisted of the following:
Other income for the years ended 31 December 2021 and 2020 consisted of the following
Interest on deposits
Interest on loans issued
2021
2,442,234
105,222
2,547,456
2020
392,391
112,085
504,476
In 2021, interest on deposits in the amount of RUB 702,834 thousand (2020: RUB 49,429 thousand), interest on loans
issued in the amount of RUB 9,282 thousand are reflected as transactions with related parties (Note 6).
28. Finance costs
Finance costs for the years ended 31 December 2021 and 2020 consisted of the following:
Sales of packing materials
Advertising income
Fines and penalties
Gain from Covid-19 related rent concessions (Note 9)
Gain from cancellation of lease contracts (Note 9)
Gain from the sale of property, plant and equipment
Other income
2021
8,885,560
7,829,417
4,260,095
1,819,124
1,070,698
—
877,365
2020
3,790,327
5,371,680
2,626,926
1,481,968
1,687,459
1,165,190
945,645
24,742,259
17,069,195
Interest on loans and borrowings
Interest on bonds
Interest on lease liabilities (Note 9)
Other finance costs
Total interest expense for financial liabilities
Less amounts included in the cost of qualifying assets
2021
9,821,407
5,687,902
2020
8,462,099
5,669,013
33,613,620
30,771,302
211,467
—
49,334,396
44,902,414
(208,927)
(130,140)
49,125,469
44,772,274
30. Income tax
The Group’s income tax expense for the years ended 31 December 2021 and 2020 was as follows:
Consolidated statement of comprehensive income
Current tax
Adjustments in respect of current income tax of previous year
Deferred tax
2021
2020
18,341,283
13,728,393
34,485
(171,081)
(3,881,911)
(3,848,089)
Income tax expense reported in the consolidated statement of comprehensive income
14,493,857
9,709,223
202
2021
magnit.com
203
Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Notes to the consolidated financial
statements
(In thousands of Russian rubles) (continued)
30. Income tax (continued)
The tax effect of main temporary differences that give rise to deferred tax assets and liabilities as at 31 December
2021 is as follows:
The tax effect of main temporary differences that give rise to deferred tax assets and liabilities as at 31 December
2020 is as follows:
At 1 January
2021
Recorded
in the consolidated
statement
of comprehensive
income, 2021
Business
combination
(Note 7)
At 31 December
2021
At 1 January
2020
Recorded
in the consolidated
statement
of comprehensive
income, 2020
At 31 December
2020
(1,248,647)
(14,117,786)
Right-of-use assets / lease liabilities
(10,915,536)
(1,190,334)
(12,105,870)
Deferred tax assets
Deferred tax assets
Right-of-use assets / lease liabilities
Accrued expenses
Inventory
Advances paid
Other
(12,105,870)
(1,879,458)
(1,475,351)
(188,570)
(564,183)
(763,269)
(743,102)
(544,008)
(3,166,568)
Accrued expenses
(3,536,078)
(107,809)
(5,119,238)
6,652
13,476
—
(427,524)
(181,918)
(978,231)
Inventory
Advances paid
Other
(834,430)
(962,839)
(131,884)
(258,737)
(1,045,028)
(512,512)
(56,686)
(305,446)
(1,879,458)
(1,475,351)
(188,570)
(564,183)
Total deferred tax asset
(16,213,432)
(5,022,321)
(2,327,988)
(23,563,741)
Total deferred tax asset
(13,103,426)
(3,110,006)
(16,213,432)
Including offset with deferred tax liability
16,213,432
5,022,321
2,327,988
23,563,741
Net deferred tax asset
—
—
—
—
Including offset with deferred tax liability
13,103,426
3,110,006
16,213,432
Net deferred tax asset
—
—
—
Deferred tax liabilities
Property, plant and equipment
27,885,979
918,754
1,744,203
30,548,936
Deferred tax liabilities
Property, plant and equipment
Prepaid expenses and intangible assets
223,169
1,354,893
1,968,463
Trade and other receivables
Intangible assets and other prepaid
expenses
Trade and other receivables
390,401
162,642
Total deferred tax liability
28,439,022
1,140,410
3,099,096
32,678,528
Including offset with deferred tax asset
(16,213,432)
(5,022,321)
(2,327,988)
(23,563,741)
Net deferred tax liability
12,225,590
(3,881,911)
771,108
9,114,787
(1,513)
—
161,129
Other
Total deferred tax liability
Including offset with deferred tax asset
Net deferred tax liability
28,608,661
(722,682)
27,885,979
319,556
173,278
75,610
29,177,105
(13,103,426)
16,073,679
70,845
(10,636)
(75,610)
390,401
162,642
—
(738,083)
28,439,022
(3,110,006)
(16,213,432)
(3,848,089)
12,225,590
204
2021
magnit.com
205
Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
30. Income tax (continued)
31. Earnings per share
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:
Earnings per share for the years ended 31 December 2021 and 2020 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.
Profit before tax
Theoretical income tax expense at 20%
Adjustments for:
2021
2020
62,599,719
42,702,515
(12,519,944)
(8,540,503)
Non-taxable income or non-deductible expenses for tax purposes
(1,585,999)
(1,141,221)
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
48,105,862
32,993,292
2021
2020
Unrecognized deferred tax assets related to losses
carried forward of Group companies
(Charge)/reversal of income tax liability as a result of filing
amended tax returns
Income tax expense
Effective income tax rate
(353,429)
(198,580)
Basic earnings per share (in RUB)
Weighted average number of shares (in thousands)
(34,485)
171,081
(14,493,857)
(9,709,223)
Effects of dilution from share options on number of shares (in thousands)
Weighted average number of ordinary shares adjusted
for the effect of dilution (in thousands)
23.15%
22.74%
Diluted earnings per share (in RUB)
97,838
491.69
582
98,420
488.78
97,629
337.95
545
98,174
336.07
As at 31 December 2021 unrecognized deferred tax assets in respect of previous years losses received by the Group
companies amounted to RUB 4,179,305 thousand (as of 31 December 2020: RUB 3,825,876 thousand).
Temporary taxable differences associated with investments in associates, disclosed in Note 7, for which no deferred
tax liability has been recognized, as for 31 December 2021 amounted to RUB 1,867,875 thousand (as for 31 December
2020: none). The Group doesn’t expect to sell its investments in subsidiaries in the foreseeable future, all investments
in subsidiaries are controlled by the Group.
The Group intends to apply 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
(except for DIXY Group, see Note 7 for information about business combination).
32. Share-based payments
Long-term incentive program for key management personnel
The Group has a long-term incentive program for its key management (“Program”). 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).
The maximum number of shares that can be purchased by participants during the period of the Program is 3,510,638.
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.
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.
206
2021
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207
Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
32. Share-based payments (continued)
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 fair value of the consideration transferred was RUB 756,794 thousand (2020: RUB 271,571 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 81,558 thousand reflected as a decrease in share premium
(2020: RUB 5,770 thousand recorded as an decrease in share premium).
The weighted average fair value per share at the execution was RUB 3,350 in 2021 (2020: RUB 3,690).
The date of granting the right corresponds to the date of conclusion of the contract with the Program participant.
Share-based payments under the employment contract with the Company’s President
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.
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:
According to the terms of the employment contract concluded with the Company’s President, the President
is entitled to the Company’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 Company to which the rights will be transferred is fixed and amounts to 164,710 ordinary
shares of the Company.
In 2021 the Group recognized an expense in the consolidated statement of comprehensive income in respect
of share-based payments of RUB 19,161 thousand (2020: RUB 106,681 thousand).
During 2021, the Group transferred 41,177 treasury shares (2020: 41,177 shares) repurchased from shareholders
under the terms of the employment agreement entered into with the Company’s President. The fair value of equity
instruments provided during the period was RUB 172,451 thousand (2020: RUB 172,451 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 (2020: RUB 17,278 thousand) was recorded as an increase
in share premium.
2021
9
25.65
8.20
4
4,893
2020
6
30.27
4.42
5
4,637
Monte-Carlo
Monte-Carlo
The weighted average price per share at the execution date was RUB 4,188 in 2021 (2020: RUB 4,188).
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
Movement for the period
For the year ended 31 December 2021, the Group recognized an expense in respect of share-based payments
in the amount of RUB 821,238 thousand (2020: RUB 971,718 thousand) in the consolidated statement of comprehensive
income.
33. Contingencies, commitments and operating risks
Operating environment
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 2021, the Group transferred 222,449 treasury shares (2020: 73,597 treasury shares) repurchased from
shareholders as a compensation to key management personnel under the Long-term remuneration of key employees
of the Group.
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.
208
2021
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209
Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
33. Contingencies, commitments and operating risks (continued)
Capital commitments
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.
As at 31 December 2021 and 2020, the Group entered in a number of agreements related to the acquisition
of property, plant and equipment. Capital commitments are presented net of VAT:
In a number of Russian regions, retail companies were required to ensure that employees are vaccinated against
Covid-19. The Magnit Group is taking every effort to encourage vaccination in order to keep its employees healthy
and its business running smoothly. Covid-19 vaccination statistics and restrictions differ from region to region
in Russia.
Within 1 year
31 December
2021
31 December
2020
5,538,208
2,536,645
5,538,208
2,536,645
The Group’s management continuously assesses the risks, as well as the consequences of the pandemic
and the measures taken by the government. 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.
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 as at 31 December 2021 and 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 2021 and 2020, 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.
34. Financial risk management objectives and policies
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while
maximising the return to stakeholders through the optimisation of debt to equity ratio.
The capital structure of the Group consists of loans and borrowings disclosed in Note 21, cash and cash equivalents
disclosed in Note 16 and equity attributable to shareholders of the parent, comprising issued capital, reserves
and retained earnings as disclosed in Note 17.
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 2021 of 3.65 (2020: 2.62).
The debt-to-equity ratio as at 31 December 2021 and 2020 was as follows:
Loans and borrowings (Note 21)
Long-term and short-term lease liabilities (Note 9)
Cash and cash equivalents (Note 16)
Net debt
Equity
Net debt-to-equity ratio
2021
2020
270,425,911
166,086,527
456,306,020
357,573,958
(73,398,608)
(44,699,581)
653,333,323
478,960,904
178,985,179
182,888,924
3.65
2.62
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 an increase in net debt in 2021.
210
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
34. Financial risk management objectives and policies (continued)
Information about changes in lease liability are presented in Note 9.
Fair values
Set out below is a comparison by class of carrying amount and fair value of the Group’s financial instruments that are
recorded in the consolidated financial statements.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could
be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale.
Long-term loans (Note 21)
Bonds (Note 21)
Carrying amount
Fair value
2021
2020
2021
145,376,171
59,910,429
77,795,398
138,170,569
69,899,528
57,953,500
2020
79,179,985
70,373,951
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 2021 and 2020, 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:
2021
Dividends payable (Note 18)
2020
Dividends payable (Note 18)
Foreign currency risk management
As at
1 January
Dividends
declared
Dividends
paid
As at
31 December
24,094,729
52,850,006
(48,115,232)
28,829,503
14,452,943
39,513,258
(29,871,472)
24,094,729
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because
of changes in foreign exchange rates. The Group’s exposure to the risk of changes in foreign exchange rates
relates primarily to the Group’s operating activities (when purchases are denominated in a different currency from
the Group’s functional currency).
As at 31 December 2021 and 2020 the foreign currency balances were presented by trade and other payables
disclosed in Note 19.
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.
1 January
(Note 21)
Proceeds
from
loans and
borrowings
Business
combination
(Note 7)
Repayment
of loans and
borrowings
Finance
costs
(Note 28)
Interest
paid
31
December
(Note 21)
166,086,527
169,505,660
23,095,628
(88,752,694)
15,509,309
(15,018,519)
270,425,911
2021
2020
Change in USD
exchange rate
Effect on profit
before tax
Change in euro
exchange rate
Effect on profit
before tax
+15.00%
-15.00%
+16.00%
-16.00%
(1,194,089)
1,194,089
(1,381,542)
1,381,542
+15.00%
-15.00%
+16.00%
-16.00%
(631,773)
631,773
(339,500)
339,500
184,210,818
452,555,765
— (471,761,619)
14,131,112
(13,049,549)
166,086,527
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.
2021
Short-term and long-term
loans and borrowings
2020
Short-term and long-term
loans and borrowings
212
2021
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
34. Financial risk management objectives and policies (continued)
Offsetting of financial assets and financial liabilities
Interest rate risk management
The Group is exposed to insignificant interest rate risk as the Group’s entities borrow funds at the fixed rates.
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 2021:
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.
As at 31 December 2021
Financial assets
Trade and other receivables
Financial liabilities
Trade and other payables
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
22,975,111
22,975,111
(252,019,418)
(252,019,418)
(11,248,336)
(11,248,336)
11,248,336
11,248,336
11,726,775
11,726,775
(240,771,082)
(240,771,082)
The effect of the offsetting as at 31 December 2020:
As at 31 December 2020
Financial assets
Trade and other receivables
Financial liabilities
Trade and other payables
Liquidity risk management
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
(195,526,228)
(195,526,228)
(11,201,336)
(11,201,336)
11,201,336
11,201,336
8,563,822
8,563,822
(184,324,892)
(184,324,892)
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.
214
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
34. Financial risk management objectives and policies (continued)
35. Subsequent events
On 14 January 2022 the share of votes held by Marathon Group on the Company’s shares increased to 29.23%.
the increase of share occurred as the result of the acquisition of additional 4.23% of votes due to the satisfaction
of the corresponding application of Marathon Retail LLC by the FAS of Russia. This amount includes votes
on the Company’s shares transferred to VTB Group under the repurchase agreements concluded between Marathon
Retail LLC and VTB Group.
In February 2022, certain countries announced new packages of sanctions against the public debt of the Russian
Federation, a number of Russian banks and organizations, as well as personal sanctions against a number
of individuals.
Due to the growing geopolitical tensions, since February 2022, there has been a significant increase in volatility
on the securities and currency markets, as well as a significant depreciation of the ruble against the US dollar
and the euro. It is expected that these events may affect the activities of Russian enterprises in various sectors
of the economy.
The Group regards these events as non-adjusting events after the reporting period, the quantitative effect of which
cannot be estimated at the moment with a sufficient degree of confidence. Currently, the Group’s management
is analyzing the possible impact of changing micro- and macroeconomic conditions on the Group’s financial position
and results of operations.
Liquidity risk management (continued)
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.
Less than
1 month
1-3 months
3 months
to 1 year
1-5 years
More than
5 years
Total
2021
Trade and other payables
and long-term payables
165,814,593
74,956,489
Dividends payable
28,829,503
—
—
—
2,913,008
— 243,684,090
—
—
28,829,503
Long-term and short-term lease
liabilities
Long-term and short-term loans
and borrowings
2020
8,131,999
16,239,147
73,312,099
329,070,610
196,635,694
623,389,549
942,770
21,230,436
57,303,441
218,725,131
203,103
298,404,881
203,718,865
112,426,072
130,615,540
550,708,749
196,838,797
1,194,308,023
Trade and other payables
146,749,260
37,575,632
Dividends payable
24,094,729
—
—
—
—
—
—
—
184,324,892
24,094,729
Long-term and short-term lease
liabilities
Long-term and short-term loans
and borrowings
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
176,984,347
66,318,039
61,916,804
415,633,651
166,350,425
887,203,266
As at 31 December 2021, the Group has net current liabilities of RUB 94,941,404 thousand (31 December 2020:
RUB 17,342,223 thousand), including the carrying amount of short-term loans and borrowings in the amount
of RUB 65,139,311 thousand (31 December 2021: RUB 18,391,601 thousand).
Additionally to the current loans the Group has access to financing facilities of RUB 261,811,137 thousand remained
unused at 31 December 2021 (2020: RUB 280,612,664 thousand). The Group expects to meet its other obligations from
operating cash flows and proceeds from maturing financial assets.
216
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Notes to the consolidated financial statements (In thousands of Russian rubles) (continued)Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
Appendices
to the Annual Report
219
Appendix 1. Report on complying with the principles and recommendations
of the Corporate Governance Code
220
Appendix 2. Major transactions
221
Appendix 3. Related party transactions
222
Appendix 4. Management Statement of Responsibility
Report on complying
with the principles and recommendations
of the Corporate Governance Code
The Board of Directors confirms that the data provided in this report contains complete and reliable information
on the Company’s compliance with the principles and recommendations of the Corporate Governance Code for 2021.
Complied with
Partially complied with
Not complied with
#
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
1.1.3
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. 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 above means
of communication were organized by the
company and made available to shareholders
in the course of preparation for each general
meeting held in the reporting period.
1. In the reporting period the notice of an
upcoming general meeting of shareholders is
posted (published) on the company’s website
on the Internet no later than 30 days prior
to the date of the general meeting, unless a
longer period is required by law
2. The notice of an upcoming meeting
indicates 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 (if its establishment is stipulated
by the company’s Articles of Association).
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 the course of
preparation for, and during, the general
meeting.
2. The position of the board of directors
(including dissenting opinions (if available)
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.
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.
—
—
—
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Stategic ReportCorporate GovernanceConsolidated Financial StatementsAppendices
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
1.1.4
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
1.1.5
Each shareholder was able to freely
exercise their voting right in the
simplest and most convenient way
1. The company’s Articles of Association
defines the deadline for shareholders to
submit proposals to the agenda of the annual
general meeting which shall be 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. The company’s Articles of Association
provides for an opportunity to fill in the
electronic form of the ballot online the
web address of which is specified in the
notice on holding of the general meeting of
shareholders.
—
The criterion for compliance
with this paragraph of the
Report is new, the specified
amendments have not yet been
reflected in the Company’s
corporate governance practice.
The possibility and necessity
of introducing the relevant
amendments to the Company’s
Articles of Association is
planned to be considered
before the annual general
meeting of shareholders, which
will be held for 2023.
However, the majority of the
Company’s 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.
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.
Shareholders had an opportunity to express
their opinions and to ask questions on the
agenda.
2. The company invited candidates to the
company’s governing and control bodies
and took all necessary measures to ensure
their participation in the general meeting of
shareholders at which their nominations were
put to vote.
The candidates to the company’s governing
and control bodies who were present at
the general meeting of shareholders were
available to answer questions of shareholders.
3. The sole executive body, the person
responsible for the accounting, the chairman
or the other members of the board of
directors’ audit committee were available
to answer shareholders’ questions at the
general meetings of shareholders held in the
reporting period.
4. In the reporting period the company
used telecommunication means to ensure
the remote participation of shareholders at
general meetings, or the board of directors
made a reasonable decision on the fact there
was no need (opportunity) to use such means
in the reporting period.
Criteria 2 and 3 are only
partially not complied with.
Criterion 4 is not complied with.
Company's internal documents
set out the possibility for
candidates to the management
and supervision bodies of the
Company, as well as for the
sole executive body, a person
responsible for the accounting,
and other 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. 17-FZ dated 24 February
2021, the general shareholder
meetings were held in the form
of absentee.
However, these persons are
always available to answer
questions – shareholders are
able to address their questions
regarding the Company’s
operation through the Investor
Relations department or
the Corporate Governance
department.
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 the Company’s
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 2023.
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1.2
Shareholders are given equal and fair opportunities to share profits of the company in the form of dividends.
1.2.1
The company has developed and
put in place a transparent and clear
mechanism to determine the dividend
amount and payout procedure
1. The company’s regulations on the dividend
policy have been approved by the board of
directors and disclosed on the company’s
website on the Internet.
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 the company’s
controlling persons did not abuse their rights
with respect to the company’s shareholders,
there were no conflicts between the
company’s controlling persons and
shareholders, and if such conflicts occurred,
the board of directors paid due attention to
them.
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.
2. If the company’s dividend policy that
prepares the consolidated financial
statements uses reporting figures to
determine the dividend amount, then
relevant provisions of the dividend policy
take into account the consolidated financial
statements.
3. The explanation of the proposed net
profit distribution, including payment of
dividends and the company’s own needs,
and the assessment of its compliance
with the dividend policy adopted by the
company, with clarifications and economic
explanation of the requirement to direct a
certain part of net profit to the company’s
needs in the reporting period, were included
in the materials for the general meeting of
shareholders, the agenda of which contains
an item on profit distribution (including the
payment (declaration) of dividends).
1.2.2
1.2.3
1.2.4
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. In addition to the restrictions established
by law, the company’s regulations on the
dividend policy identify financial/ economic
circumstances under which the company shall
not make decisions on the dividend payment.
The company does not allow for
dividend rights of its existing
shareholders to be impaired
The company makes every effort to
prevent its shareholders profiting from
the company through any means other
than dividends and liquidation value
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.
1. In the reporting period the means of
profiting from the company by the controlling
persons, other than dividends (for example,
through the transfer pricing, unjustified
provision of services to the company by the
controlling person at inflated prices, through
internal loans replacing dividends to the
controlling persons and (or) its controlled
persons) were not used.
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Since 2018 the Company has a
long-term incentive programme
for executive bodies and other
key employees of the Company
with the use of the Company’s
shares, it has been planned for
5 years.
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’s 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 2023.
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Compliance criteria
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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 technologies and terms of provided
services used by the company’s registrar
meet the needs of the company and its
shareholders and ensure the account
of rights for shares and realization of
shareholders’ rights in the most efficient way
—
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.
1.4
1.4.1
2.1
2.1.1
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
2.1.2
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.
2.1.3
The board of directors defines the
company’s principles of, and approaches
to, setting up a risk management and
internal control system
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. In the reporting period the nomination
(appointments and HR) committee reviewed
the compliance of the professional expertise,
skills and experience of the members of the
executive bodies with the company’s current
and expected needs determined by the
company’s approved strategy.
3. In the reporting period the board of
directors reviewed the report(s) by the sole
executive body or the collective executive
body (if available) on the implementation of
the company’s strategy.
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 company’s principles of, and
approaches to, setting up a risk management
and internal control system were defined by
the board of directors and specified in the
company’s internal documents determining
the risk management and internal control
system policy.
2. In the reporting period the board of
directors approved (revised) the appropriate
amount of risks (risk appetite) of the
company, or the audit committee and (or)
risk management committee (if available)
considered if it was reasonable to submit the
issue of revising the company’s risk appetite
for consideration by the board of directors.
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2.1.4
2.1.5
2.1.6
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, the
company’s 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
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
1. The company has developed, approved
by the board of directors and put in
place a remuneration and reimbursement
(compensation) policy (policies) 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.
1. Persons responsible for implementing
the information policy are identified in the
company’s internal documents.
2.1.7
The board of directors controls the
company’s corporate governance
practices and plays a key role in material
corporate events of the company
1. In the reporting period the board of
directors reviewed the results of self-
assessment and (or) external assessment
of 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
2.2.2
The chairman of the board of directors
is available to communicate with the
company’s shareholders
1. The company’s annual report for the
reporting period includes the information
on attendance of the board of directors and
committee meetings by each member of the
board of directors.
2. The annual report discloses key
performance assessment (self-assessment)
results of the board of directors in the
reporting period.
1. The company has a transparent procedure
in place enabling its shareholders to forward
inquiries to the chairman of the board of
directors (and, if applicable, to the senior
independent director) and receive feedback
on them.
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2.3
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.
2.4
The board of directors includes a sufficient number of independent directors.
2.3.1 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
2.3.2
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. 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 assessment of the
compliance of the professional expertise,
skills and experience of the nominees
with the company’s current and expected
needs, 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 information on availability of the
nominees’ written consent to be elected to
the board of directors.
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
1. In the reporting period the board of
directors reviewed its requirements to
professional expertise, experience and skills
and defined expertise essential to the board
of directors in the short and long term.
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
1. In the reporting period the board of
directors considered whether the number
of directors met the company’s needs and
shareholders’ interests.
—
—
—
—
2.4.1
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
2.4.2
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 prevails 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 issue on
independence of incumbent directors (after
their election).
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.
2.4.3
2.4.4
Independent directors make up at least
one third of elected directors
1. Independent directors make up at least one
third of 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 (with no conflicts
of interest) run a preliminary assessment
of material corporate actions implying a
potential conflict of interest in the reporting
period and submitted the results to the
board of directors.
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2.5
The chairman of the board of directors ensures that the board of directors discharges its duties in the most efficient way.
2.6.4 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. Under the company’s internal documents,
directors are entitled to receive information
and documents necessary for the board of
directors’ members to perform their duties
and related to the company and its controlled
entities, while executive bodies of the
company should ensure the provision of the
relevant information and documents.
2. The company carries out a formalised
induction programme for newly elected
members of the board of directors.
—
2.7
Meetings of the board of directors, preparation for such meetings, and participation of directors ensure efficient performance by the
board of directors.
2.7.1 Meetings of the board of directors are
held as needed, taking into account the
scale of operations and goals of the
company at a particular time
1. The board of directors held at least six
meetings in the reporting year
2.7.2
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
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.
2. In the reporting period members of the
board of directors who were not able to
attend the meeting of the board of directors
were provided with an opportunity to
participate in the discussion of agenda
items and voting remotely – by means
of conference and video conference
communication.
—
—
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
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. Performance of the chairman of the
board of directors was assessed as part of
assessment (self-assessment) of the board
of directors’ performance in the reporting
period.
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 complete and
reliable information for the agenda of a board
meeting.
—
—
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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.
2.5.1
2.5.2
2.5.3
2.6
2.6.1
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.
2.6.2
The rights and duties of directors are
clearly stated and incorporated in the
company’s internal documents
1. The company has adopted and published
an internal document that clearly defines the
rights and duties of directors.
2.6.3 Directors have sufficient time to
perform their duties
1. Individual attendance at board and
committee meetings, as well as the sufficiency
of time for work on the board of directors,
including its committees, was analysed
as part of the procedure of assessment
(self-assessment) of the board of directors’
performance 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 the company), and of
their election to such bodies.
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2.7.3
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 (including those listed
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 over the past
few years 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
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
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, and conditions (events), upon
the occurrence of which the remuneration
committee considers the revision of the
company’s remuneration policy for members
of the board of directors, executive bodies
and other key executives.
2.8.3
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 has set up a
nomination committee (or its tasks listed
in Recommendation 186 of the Code are
fulfilled by another committee) predominantly
comprised of independent directors.
2. The company’s internal documents set out
the tasks of the nomination committee (or
the tasks of the committee with combined
functions), including those listed in
Recommendation 186 of the Code.
3. For the purpose of forming the board of
directors that meets the company’s goals
and objectives most fully, in the reporting
period the nomination committee, on its
own or jointly with other board of directors’
committees or the company’s authorised
shareholder relations unit, organised the
engagement with shareholders, not limited
to the largest shareholders, in the context of
choosing nominees to the company’s board
of directors.
Criterion 3 is only partially
complied with.
The Company’s internal
documents do not specify
the specific conditions, upon
the occurrence of which the
remuneration committee
considers the issue of revising
the Company’s remuneration
policy for the members of
the Board of Directors,
executive bodies and other key
executives.
The criterion for compliance
with this paragraph of the
Report is new, therefore
the specified amendments
have not yet been reflected
in the Company’s corporate
governance practice.
The possibility and necessity
of introducing the relevant
amendments to the internal
documents is planned to
be considered before the
annual general meeting of
shareholders, which will be held
at the end of 2023.
However, the HR and
Remuneration Committee
considers remuneration issues
on a regular basis.
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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
provides for resolutions on the most
important matters, including those 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
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.
—
2.7.4
2.8
2.8.1
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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
structure of the board of directors was in
line with the scale and scope, business goals
and requirements, and the risk profile of the
company. Additional committees were either
set up or not deemed necessary.
1. The audit committees, remuneration
committee, nomination committee (or the
relevant committee with a combined function)
were headed by independent directors in the
reporting period.
2. The company’s internal documents
(policies) include provisions stipulating that
persons who are not members of the audit
committee, the nomination committee (or
the relevant committee with a combined
function), 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.
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—
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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
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
1. The procedures of conducting the
assessment (self-assessment) of the board of
directors’ performance are determined in the
company’s internal documents.
2. Assessment (self-assessment) of the board
of directors’ performance carried out in
the reporting period included performance
assessment of committees, individual
assessment of directors, and the board of
directors in general.
3. Results of assessment (self-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.
Criterion 1 is not complied with.
This criterion is new, the
procedures of conducting the
assessment (self-assessment)
of the Board of Directors’
performance are not formalized
in the internal documents.
However, the assessment of
performance of the Board of
Directors and Committees
of the Board of Directors is
carried out annually by the
Board of Directors’ HR and
Remuneration Committee
on a regular basis. Also, an
independent assessment
of the Board of Directors’
performance was carried out
in 2021.
The possibility and necessity
of introducing the relevant
amendments to the internal
documents is planned to
be considered before the
annual general meeting of
shareholders, which will be held
at the end of 2023.
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. 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.
—
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.
2.9.2
3.1
3.1.1
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
3.1.2
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 biographical data of the corporate
secretary are published on the corporate
website and in the company’s annual report
(including information on age, education,
expertise, experience), and information on
positions in the governing bodies of other
legal entities held by the corporate secretary
for at least the last five years.
1. The company has adopted and published
an internal document – regulations on the
corporate secretary.
2. The board of directors approves the
nominee to the position of the corporate
secretary and terminates his powers,
considers the additional remuneration to him.
3.The company’s internal documents stipulate
the right of the corporate secretary to
request, receive documents and information
from the company’s governing bodies,
structural units and officials.
—
—
4.1
4.1.1
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.
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
1. Remuneration of members of the board of
directors, executive bodies, and other key
executives of the company is determined
based on the results of a comparable analysis
of the level of remuneration in comparable
companies.
—
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#
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Compliance criteria
Compliance status
Reasons for non-compliance
#
Corporate governance principles
Compliance criteria
Compliance status
Reasons for non-compliance
The company considers its performance and the personal contribution of each executive to the achievement of such performance when
determining the amount of a fee payable to members of executive bodies and other key executives of the company.
4.1.2
4.1.3
4.1.4
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
1. In the reporting period the remuneration
committee considered the remuneration
policy (policies) and (or) its (their)
introduction practices, carried out the
assessment of its (their) efficiency and
transparency and provided relevant
recommendations on the revision of the
policy (policies) to the board of directors as
required.
The company’s remuneration policy
includes transparent mechanisms
for determining the amount of
remuneration due to directors,
executive bodies, and other key
executives of the company, and
regulates all types of expenses, benefits,
and privileges provided to such persons
1. The company’s remuneration policy
(policies) includes (include) transparent
mechanisms for determining the amount of
remuneration due to directors, executive
bodies, and other key executives of the
company, and regulates (regulate) all types of
expenses, benefits, and privileges provided to
such persons.
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
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.
—
—
—
4.2
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. 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
1. In the reporting period the company
paid remuneration to the board of
directors’ members in accordance with the
remuneration policy adopted by the company.
2. In the reported period the company did
not apply any forms of short-term motivation,
additional financial motivation, the payment
of which depends on the results (indicators)
of the company’s performance in relation to
the board of directors’ members. Payment
of remuneration for the participation in
meetings of the board of directors or
committees of the board of directors were
not made.
4.2.2
Long-term ownership of the company’s
shares helps align the financial interests
of directors with long-term interests
of shareholders to the utmost. At the
same time, the company does not
link the right to dispose of shares to
performance targets, and directors do
not participate in stock option plans
1. If the company’s internal document(s) –
the remuneration policy (policies) stipulates
(stipulate) provision of the company’s shares
to members of the board of directors, clear
rules for share ownership by board members
shall be defined and disclosed, aimed at
stimulating long-term ownership of such
shares.
4.2.3
The company does not provide for any
extra payments or compensations in the
event of early termination of directors’
tenure resulting from the change of
control or any other reasons
1. The company does not provide for any
extra payments or compensations in the
event of early termination of directors’ tenure
resulting from the change of control or any
other reasons.
—
—
—
4.3
4.3.1
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
4.3.2
The company has in place a long-term
incentive programme for members
of executive bodies and other key
executives of the company with the use
of the company’s shares (options and
other derivative instruments where the
company’s shares are the underlying
asset)
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. When determining the amount of
remuneration to be paid to the members
of the executive bodies and other key
executives of the company, the risks incurred
by the company are taken into account in
order to avoid incentives to take excessively
risky management decisions.
1. If 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), the programme implies
that the right to dispose of shares and
other financial instruments 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.
—
The Board of Directors
approved the Long-Term
Incentive Programme.
The Programme is designed
to motivate management
to increase the market
capitalisation of the Company
supported by EBITDA growth.
The Programme includes
remuneration in the form of
shares and options in annual
tranches. Remuneration will
depend on the share price. The
Programme is designed for five
years. There are no restrictions
on the disposal of shares
received under the Programme
Instead of a restriction of the
disposal of shares (and the
dependance of the right of
disposal on the achievement
of indicators), it provides for
a dependance of the granting
of shares on the achievement
of certain indicators and the
deferred provision of shares in
each of the annual tranches in
parts over 3 years, and the loss
of participants’ right to receive
tranches (parts of tranches) in
case of resignation from the
Company.
The Company finds this
approach to the provision of
shares as part of the long-term
incentive most reasonable and
plans to follow it in the future.
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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
4.3.3 The compensation (“golden parachute”)
payable by the company in case of early
termination of powers of members of
executive bodies or key executives
at the company’s initiative, provided
that there have been no actions in bad
faith on their part, shall not exceed the
double amount of the fixed part of their
annual remuneration
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.
—
The company has in place an effective risk management and internal control system providing reasonable assurance in the achievement of
the company’s goals.
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
5.1.2
The company’s executive bodies ensure
establishment and continuous operation
of an efficient risk management and
internal control system at the company
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. 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.
1. The company’s executive bodies
ensured the distribution of duties,
powers, responsibilities related to risk
management and internal control between
the heads (managers) of business units and
departments accountable to them.
1. The company has in place an approved anti-
corruption policy.
2. The company established a safe,
confidential and 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 (the audit committee and (or) the
risk management committee (if available)
organized the assessment of the reliability
and efficiency of the risk management and
internal control system.
2. In the reporting period the board of
directors reviewed the results of assessment
of the reliability and efficiency of the
company’s risk management and internal
control system. Information on the results
consideration is included in the company’s
annual report.
—
—
—
—
The company performs internal audits for regular independent assessment of the reliability and efficiency of its risk management and
internal control system, as well as corporate governance practice.
The company has set up a separate
business unit or engaged an
independent external organisation to
carry out internal audits.
Functional and administrative reporting
lines of the internal audit unit are
delineated. The internal audit unit
functionally reports to the board of
directors.
1. To perform internal audits, the company
has set up a separate business unit – internal
audit division, functionally reporting to
the board of directors, or engaged an
independent external organization with the
same line of reporting.
—
5.1
5.1.1
5.1.3
5.1.4
5.2
5.2.1
236
5.2.2
The internal audit division assesses
the reliability and efficiency of the
risk management and internal control
system, as well as the corporate
governance system, applies generally
accepted standards of internal audit
1. In the reporting period the reliability
and efficiency of the risk management and
internal control system were assessed as part
of the internal audit procedure.
2. In the reporting period the corporate
governance practice (certain practices) was
(were) assessed as part of the internal audit
procedure, including the procedures of the
information interaction (including internal
control and risk management issues) at all
levels of the company’s management, as well
as stakeholders engagement.
6.1
The company and its operations are transparent for its shareholders, investors, and other stakeholders.
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
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’s board of directors
approved an information policy
developed in accordance with the Code’s
recommendations.
2. In the reporting period the board
of directors (or one of its committees)
considered the issue on the efficiency
of information engagement of the
company, shareholders, investors and
other stakeholders, and considered if it
was reasonable (necessary) to revise the
company’s information policy.
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.
—
—
—
6.2
6.2.1
The company makes timely disclosures of complete, updated, and reliable information to allow shareholders and investors to make informed
decisions.
The company discloses information
based on the principles of regularity,
consistency, and promptness, as well as
availability, reliability, completeness, and
comparability of disclosed data
1. The company has a procedure ensuring
coordination of work of all structural units
and employees of the company who are
related to information disclosure or whose
operation may result in the requirement to
disclose 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.
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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
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
determines approaches to the disclosure of
information on other events (actions) that
have a significant impact on its securities’
prices, the disclosure of which is required
by law.
2. The company discloses information
on its capital structure, as stated in
recommendation 290 of the Code, in its
annual report and on the corporate website.
3. The company discloses information on
the controlled entities which are material
for the company, including key areas of their
operation, on tools ensuring accountability
of the controlled entities, authorities
of the company’s board of directors in
terms of determination of the strategy
and assessment of the performance of the
controlled organization.
4. The company discloses a non-financial
report – sustainability report, environmental
report, corporate social responsibility report
or other report containing non-financial
information, including factors related to
the environment (including environmental
and climate change factors), society (social
factors) and corporate governance, except
for the report of the issuer of securities and
the company’s annual report.
Criterion 2 is only partially
complied with.
The obligation to disclose
information, including in the
form of the issuer’s report
(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 Сompany
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 authorised
capital or ordinary shares of the
Сompany and other information
required by applicable law,
in the form of statements of
material facts and as part
of annual, quarterly reports
(issuer’s 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. 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.
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 results of the assessment of
the efficiency of external and internal audit.
2. The company’s annual report contains
information on the company’s environmental
protection and safety policy, social policy of
the company.
—
The company provides information and documents requested by its shareholders in accordance with the principles of fairness and ease of
access.
6.2.3
6.2
6.3.1
Shareholders’ rights to access the
company’s documents and information
are not exercised with any unreasonable
difficulties.
1. The company’s information policy (internal
documents determining the information
policy) establishes (establish) the procedure
for providing shareholders with easy access
to information and documents of the
company, as requested by shareholders.
2. The company’s information policy (internal
documents determining the information
policy) contains (contain) provisions
stipulating that if a shareholder requests
information on the entities controlled by
the company, the company shall make the
necessary efforts to obtain such information
from the relevant entities controlled by the
company.
Criterion 2 is not complied with.
This criterion of compliance
with the Report is new.
This recommendation of the
Corporate Governance Code
is not directly specified in the
Company’s information policy.
However, in the reporting year
the Company adopted a new
edition of the Regulations on
the information policy which,
among other issues, takes into
account the recommendations
of the Corporate Governance
Code.
In practice, the Company
provides information on the
Company’s performance at
the requests of shareholders,
makes necessary efforts to
obtain information from the
relevant entities controlled by
the Company, and in addition to
the information, the disclosure
requirements of which are
stipulated by the current
legislation, the Company on its
own initiative discloses a large
amount of information on the
legal entities controlled by
the Company that are material
for the Company. In practice,
access to the information on
the Company’s performance is
not hindered.
The Company finds this
approach most reasonable and
plans to follow it in the future.
—
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.
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Report on complying with the principles
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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
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.
7.2
7.2.1
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. The company’s Articles of Association
include a list (criteria) of transactions
or other actions classified as material
corporate actions. Resolutions on material
corporate actions are referred by the
company’s Articles of Association 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.
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 delisting 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.
7.1.2
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
7.1.3 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.
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 include the approval of
other transactions that are material to
the company, in addition to transactions
established by law, to the board of directors’
authorities.
2. All material corporate actions in the
reporting period were duly approved before
they were taken.
7.2.2
Rules and procedures related to
material corporate actions taken by the
company are set out in the company’s
internal documents
—
—
—
1.If in the reporting period the company
performed material corporate actions, the
company disclosed information on such
actions in due time and in detail, including
the grounds for, and of, such actions
and consequences of such actions for
shareholders.
1. The company’s internal documents
determine cases and a procedure for
engaging an 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 appraiser
to estimate the value of shares acquired and
bought back by the company.
3. If there is no formal interest of a member
of the board of directors, the sole executive
body, a member of the collegial executive
body of the company or a controlling person
of the company, or a person entitled to give
instructions obligatory for the company, in
the company’s transactions, but there is a
conflict of interests or other actual interest,
the company’s internal documents specify
that such persons shall not participate in
voting on the approval of such transaction.
—
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).
The possibility and necessity of
bringing the Company’s internal
documents in compliance with
the Code’s recommendation
is planned to be considered
before the annual general
meeting of shareholders, which
will be held at the end of 2023.
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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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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 27 April 2022.
Average ticket
a figure calculated by dividing total sales at all stores during the relevant year by the number
of tickets in that year
CAPEX
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
a responsible attitude in managing a company’s impact on a range of stakeholders: customers,
Responsibility)
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
integrated management of main business processes, often in real time and mediated
Planning)
EVP
by specialised software and technology
Employer Value Proposition
Federal state informational system
automated system for electronic certification of goods subject to state veterinary control
“Mercury”
in Russian Federation
LFL (like–for–like)
the method of comparing current year sales figures to prior year’s sales figures excluding
the expansion effect
Net debt
a liquidity metric used to determine how well a company can pay all of its debts if they were due
immediately
Platon Electronic Toll Collection
a Russian electronic toll collection system which collects tolls from trucks over 12 tonnes, with
(ETC) system
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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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
a profitability or performance ratio measuring the percentage return that investors in a
(ROIC)
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
the revenue generated for a given area of sales space, presented as a monetary value per
square metre
Selling space
the area inside stores used to sell products, excluding areas rented out to third parties, own–
production areas, storage areas and the space between store entry and the cash desk line
SKU (stock keeping unit)
a number assigned to a particular product to identify the price, product options
and manufacturer of the merchandise
Sustainable development
development that meets the needs of the present without compromising the ability of future
generations to meet their own needs
Traffic
the number of tickets issued for the period under review
WACC (weighted average cost
the rate that a company is expected to pay on average to all its security holders to finance its
of capital)
assets
Abbreviations
ACRA
AGM
BPs
CAGR
CEO
CRM
Accounting and Corporate Regulatory Authority
Annual General Meeting
Basis points
Compound annual growth rate
Chief Executive Officer
Client Relationship Management
EBITDA
Earnings before interest, taxes, depreciation and amortization
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
YoY
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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Contact
Information
Address
350072, 15/5, Solnechnaya street, Krasnodar, Russian Federation
Investor Relations Department
Albert Avetikov
Chief Investor Relations Officer
Dina Chistyak
Director for Investor Relations
+7 (861) 210 98 10 (ext. 46200)
+7 (861) 210 98 10 (ext. 15101)
avetikov_am@magnit.ru
dina_chistyak@magnit.ru
Disclaimer
The Annual Report should be read as a whole taking into
account the content of all sections as well as the notes
and the explanations herein, including the information
set forth in this section.
The Annual Report was prepared based on the
information available to Magnit and the Group
as of 31 December 2021, unless otherwise implied by the
meaning or content of the information provided. When
using the information in this Annual Report, please note
that the information on S&P and MSCI ratings assigned
to Magnit is given as of 31 December 2021, whereas as of
the date of actual publication of the Annual Report such
ratings have been revised and/or withdrawn due to the
general change/withdrawal of ratings of Russian issuers
and entities.
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 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.
Since February 2022 we are witnessing growing
geopolitical tension and certain countries have
announced and imposed and subsequently expanded
various sanctions against the Russian Federation's
sovereign debt, certain Russian banks, organizations and
individuals. The Russian Federation has taken a number
of retaliatory measures, including those drastically
changing the regulation of Russian business compared
to what it was as of 31 December 2021. These events,
separately or jointly with other known and unknown
circumstances, including those arising after
31 December 2021, may affect the Company's strategy
and business plans.
In addition to official information on the activities
of Magnit, this Annual Report contains information
obtained from third parties and from sources which
Magnit finds to be reliable. However, the Company
does not guarantee the accuracy of this information,
as it may be abridged or incomplete. Magnit 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 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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