Annual Report 2019
& QUALITY
FOR EACH FAMILY
& QUALITY
FOR EACH FAMILY
Contents
Overview
Overview
About O’KEY Group
About O’KEY Group
Financial and Operational Highlights
Financial and Operational Highlights
Our Key Strengths
Our Key Strengths
Highlights 2019
Highlights 2019
Strategic Report
Strategic Report
CEO’s statement
CEO’s statement
Our Geography & History
Our Geography & History
Delivering on Our Strategy
Delivering on Our Strategy
Russia’s Food Retail Market
Russia’s Food Retail Market
Economic Environment
Economic Environment
Operational Review
Operational Review
O’KEY City Hypermarket Format
O’KEY City Hypermarket Format
DA! Discounter Format
DA! Discounter Format
0202
0202
0404
0606
0808
1010
1212
1414
1616
1818
2020
2222
2424
3636
Financial Review
Financial Review
Risk Management
Risk Management
Corporate Social Responsibility
Corporate Social Responsibility
Our Employees
Our Employees
Health and Safety
Health and Safety
Human Rights and Diversity
Human Rights and Diversity
Our Communities
Our Communities
Environmental Responsibility
Environmental Responsibility
Corporate Governance
Corporate Governance
Our Corporate Governance Principles
Our Corporate Governance Principles
The General Meeting of Shareholders
The General Meeting of Shareholders
Board of Directors
Board of Directors
Committees of the Board of Directors
Committees of the Board of Directors
Executive Management
Executive Management
Information for Shareholders and Investors
Information for Shareholders and Investors
4040
4646
5454
5656
6060
6060
6262
6363
6464
6666
6666
6868
7272
7474
7676
Financial Statements
Financial Statements
Management & Directors Responsibility Statement
Management & Directors Responsibility Statement
Independent Auditors’ Report
Independent Auditors’ Report
Consolidated Financial Statements
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Notes to Consolidated Financial Statements
Glossary
Glossary
Abbreviations
Abbreviations
Contacts
Contacts
7878
8080
8282
8989
9595
142142
143143
144144
ABOUT THE REPORT
This Annual Report 2019 (the ”Report”)
has been prepared by O’KEY GROUP
S.A. (“O’KEY Group”, the ”Group”,
or the ”Company”).
This Report discloses information on
the implementation of the Group’s strategy
in 2019, presents the Group’s operating
and financial results, describes the Group’s
corporate governance framework and
corporate social responsibility. The Report
has been prepared based on consolidated
IFRS financial statements for 2019.
The Report has been prepared based
on the information available to the Group
as at the time when this Report was
prepared, including information obtained
from third parties. The Company
reasonably believes that this information
is complete and accurate as at
the publication date of this Report; however,
it does not make any representation
or warranty that this information will not
be updated, revised, or otherwise amended
in the future.
This Report includes estimates or forward-
looking statements related to operating,
financial, economic, social and other
measures that can be used to assess
the performance of O’KEY GROUP S.A.
The Company does not make any
representation or warranty that the results
anticipated by such forward-looking
statements will be achieved. The Company
shall not be liable to any individual or legal
entity for any loss or damage which may
arise from their reliance on such forward-
looking statements.
FURTHER INFORMATION
Further information
regarding O’KEY Group’s
strategy, our business and
performance, approach
to governance and risk can
be found on our corporate
website
An archive of
annual and
strategic reports
as well as a full
suite of additional
information
materials is
available at
www.okeygroup.lu
2
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
3
O’KEY Group is one of the leading Russian food retailers. Since the opening of our first hypermarket
in St. Petersburg in 2002, we have continued to strive for excellence. We have grown to 178 stores across Russia
under two major formats: hypermarkets under the O’KEY brand and discounters under the “DA!” brand.
OUR VISION
We are the first among Russian major food retailers to launch and successfully develop e-commerce operations
in St. Petersburg and Moscow, offering a full range of hypermarket products for home delivery.
The best city hypermarket
The best value for money discounter
2019 AT A GLANCE:
TOTAL GROUP
REVENUE
RUB165.1bn
NEW STORE
OPENINGS
19
TOTAL NUMBER
OF HYPERMARKETS
TOTAL NUMBER
OF DISCOUNTERS
ONLINE ORDERS IN 2019
OUR MISSION
78
100
>600k
ORGANIC GROUP
REVENUE GROWTH1/
LFL DISCOUNTERS
REVENUE GROWTH
NET PROFIT
3.0 %
14.9 %
RUB 0.7bn
We strive for excellence
We offer fresh and high quality
products to each family
We provide a simple
and easy shopping experience
We aim to create an effective
working environment
m
Effective te a
I
n
n
o
v
a
t
i
v
e
n
e
s
s
1/ Organic revenue (underlying revenue) – revenue excluding the effect of supermarket business sale.
Outstanding re
s
ults
OUR VALUES
e
c
i
v
r
e
s
t
n
e
ell
c
x
E
Atmosphere o f p r o f e s
m
a lis
n
s i o
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY OverviewAboutO’KEY Group02 About O’KEY Group04 Financial and Operational Highlights06 Our Key Strengths08 Highlights 2019
4
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
5
FINANCIAL HIGHLIGHTS
TOTAL REVENUE
2.3%
O’KEY REVENUE
0.3%
DA! REVENUE
31.5%
RUB165.1bn
RUB147.2 bn
RUB17.9 bn
17.9
175.5
176.0
162.5
161.3
165.1
169.7
167.1
161.8
13.6
10.4
147.7
147.2
5.8
0.7
2015
2016
20171/
2018
2019
2015
2016
20171/
2018
2019
2015
2016
2017
2018
2019
OPERATIONAL HIGHLIGHTS
GROUP EBITDA2/
62.7%
O’KEY EBITDA2/
37.1%
DA! EBITDA2/
87.8%
NET RETAIL REVENUE
2.4%
TRAFFIC
2.1%
RUB 14.1bn
10.1
9.3
9.3
RUB14.3 bn
11.7
11.8
11.4
(RUB0.2 bn)
14.9
14.3
14.1
14.1
RUB163.1bn
201.7mln
172.5
160.3
174.3
163.1
207.4
159.4
226.8
227.7
198.3
201.7
More about
Operational
Results
on page 22
2015 2016 2017 2018 2019
2015
2016
20171/
2018
2019
2015
2016
20171/
2018
2019
(1.6)
(0.8)
(0.2)
(2.6)
(2.0)
2015
2016
20171/
2018
2019
2015
2016
20171/
2018
2019
NET PROFIT/LOSS
RUB0.7bn
3.2
1.9
0.7
2016 2018
More about
Financial Results
on page 40
TOTAL SELLING SPACE
2.3%
NUMBER OF STORES
11.3%
598.3k m2 178 stores
593.0
622.9
577.8
584.9
598.3
146
145
164
160
178
2015
(0.1)
2017
1/
2019
1/ In 2017 the Group sold its supermarket business, comprising of 32 supermarkets.
(1.0)
2/ EBITDA 2018-19 are presented under IFRS 16 lease standard. EBITDA 2015-17 are presented under IAS 17.
2015
2016
20171/
2018
2019
2015
2016
20171/
2018
2019
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Overview02 About O’KEY Group04 Financial and Operational Highlights06 Our Key Strengths08 Highlights 2019Financial and OperationalHighlights Overview
Overview
Strategic Report
Strategic Report
Operational Review
Operational Review
Financial Review
Financial Review
Risk Management
Risk Management
Corporate Responsibility
Corporate Responsibility
Corporate Governance
Corporate Governance
Financial Statements
Financial Statements
7
7
6
6
OUR KEY STRENGTHS:
A strong brand, well-
known in major
Russian cities
Two shopping
formats: hypermarkets
and discounters, tailored
to each customer’s
everyday needs
Strong e-commerce
platform: one of the
leading online stores
in Russia
Strong fast-
growing private
labels and own
products of high quality
at affordable prices, as
attested by multiple
industry awards
Wide selection
of high quality
fresh-category
products
Experienced
international
management team
with unique
multi-industry
expertise
Highly centralised
logistics: four
distribution centres
in Moscow and
St. Petersburg
Cutting edge
IT solutions
NUMBER OF STORES BY FORMAT (YEAR END)
HYPERMARKETS
DISCOUNTER STORES
22%
TOTAL
11.3%
178
145
160
78
78
78
67
82
100
20171/
2018
2019
2017
2018
2019
20171/
2018
2019
OUR FORMATS
Hypermarkets
Discounter stores
One of the retail market leaders in St. Petersburg, a strong presence in Moscow, Rostov-on-Don, Ekaterinburg, Krasnodar, Ufa
and other major cities in Russia.
Fast-growing chain of stores in the most convenient locations providing a wide range of products and non-food items
at the most attractive prices.
STORES
TOTAL SELLING SPACE
AVERAGE PRODUCT RANGE
STORES
TOTAL SELLING SPACE
AVERAGE PRODUCT RANGE
78
present in 26 cities in 6 Federal Districts
529k m2
>30k SKUs
100
+19 new stores in 2019
69.3k m2
2,520 SKUs
1/ Does not include the supermarket business consisting of 32 stores which was sold in 2017.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational ReviewEconomicEnvironment Strategic reportAnnual Report 2019O’KEY Group S.A.Our KeyStrengths Operational Review& QUALITY FOR EACH FAMILY
8
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
9
OPERATIONAL HIGHLIGHTS
CORPORATE GOVERNANCE HIGHLIGHTS
ruA-
Stable outlook
CREDIT RATING
19 DA! Discounter
stores were opened
in Moscow, Tver,
Kaluga, Tula, and
Ryazan regions,
bringing the
total number of
discounter stores
up to 100.
965 new Private Label products were
introduced, including 879 new PL SKUs in
”O’KEY” hypermarkets and 86 new PL SKUs
in “DA!” discounters, with the total number
of private label SKUs reaching 3,501.
The Assortment clusters were introduced
in O’KEY hypermarkets, to standardise
the assortment in stores and to increase
on-shelf availability. Assortment was
fully reviewed in all stores with focus
on strengthening fresh and ultra-fresh
categories.
The Axapta 12
(Microsoft
Dynamics) solution
was rolled out for
distribution centres.
8 July 2019: RAEX affirmed O’KEY LLC, the main operating
subsidiary of O’KEY Group S.A., a credit rating of ‘ruA-’ with a Stable
outlook, reflecting the Group’s stable position within the Russian
food retail market.
O’KEY Group focused on strengthening the top management
team and made some appointments to key positions, with all new
members possessing strong retail backgrounds.
SUSTAINABILITY HIGHLIGHTS
The “Fresh thinking” approach was
implemented throughout our businesses,
with improvement of internal processes,
new standards and employee education.
The Hot Bread project within the O’KEY
Bakery segment was launched in O’KEY
Hypermarkets to provide our customers
with freshly baked bread three times a day.
O’KEY private label products and own
products were highly commended by the
international Quality Guarantee awards.
July 2019: O’KEY
Group dispatched
humanitarian aid
to flood victims in
Irkutsk.
October 2019: The Company launched
its fourth “Kind Purchase” charitable
fundraising campaign aimed at helping
seriously ill children, in partnership with
Rusfond, one of the oldest charitable
foundations in Russia.
December 2019:
O’KEY Group
introduced
a new Live Green
corporate policy.
December 2019: The Company held its
second “100% professional” contest for
O’KEY employees which included its chief,
baker and cashiers, with approximately
7,000 participants.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY OverviewHighlights201902 About O’KEY Group04 Financial and Operational Highlights06 Our Key Strengths08 Highlights 2019 10
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
11
REPORT
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Strategic Report12 CEO’s Statement14 Our Geography & History16 Delivering on Our Strategy18 Russia’s Food Retail Market20 Economic Environment 12
The Group’s business is based on
two well-balanced pillars, O’KEY city
hypermarkets and DA! discounters,
fulfilling the needs of different customer
segments. We continued developing our
ambitious DA! discounter business that
has been delivering strong and stable
growth in recent years, in line with our
expectations. I am happy to announce
that with the opening of 19 new DA! stores
in 2019 we have reached a new milestone,
increasing the total number of our
discounters to 100, and the discounter
business accounted for 11% of our overall
revenue. As for the O’KEY brand, it has been
the key pillar of our business since 2002.
We believe the city hypermarkets format
has excellent potential and we have the
right strategy and management expertise
to fully capitalise on the opportunities
in the changing market landscape.
Our two-format business model enables
us to exploit synergies such as joint
procurement and import to generate
economies of scale – both for the
Company and our customers. Engaging in
joint product development also supports
our search for the best suppliers on the
market and enables us to profit from cost
sharing without compromising product
quality.
As a Group, we strive to offer the best
shopping proposition for our customers
and to become a retailer of their choice.
We aim to deliver the best value for the best
possible prices, with quality as our first
priority.
During the reporting year, we upgraded
the “fresh thinking” approach throughout
our businesses, from the supply
chain to the shelves. This required
the improvement of internal processes,
the implementation of new standards for
freshness and additional training for our
employees. In order to successfully reach
our strategic goals, we strengthened our
management team with highly experienced
professionals with proven retail expertise.
O’KEY Group is committed to sustainability
and considers the views and needs of all
stakeholders when developing the business.
We maintain mutually beneficial relationships
with the main social groups affected by our
operational activity, make timely disclosures
of significant information about our business,
and strictly comply with all regulatory
requirements. We are also developing long-
term partnerships with charities and NGOs
such as Rusfond to deliver value to vulnerable
groups amongst our population.
O’KEY review
O’KEY hypermarkets produced satisfying
sales results and we were able to achieve
a general recovery in operating processes
in 2019 in a stagnating macroeconomic
environment. The organic net retail revenue
of our hypermarkets increased by 0.3% YoY
to RUB 145,298 mln in 2019. We returned to
a positive sales trend in our most valuable
Federal district – the North-West, delivered
one of the best sets of LFL results in the
market. The business showed positive
dynamics for the better part of the year,
driven both by average ticket growth and
traffic.
The current strategic priority for our
hypermarkets business is to focus on our
competitive advantages, such as the wide
choice we provide for all types of consumers,
the freshness of our assortment and our
excellent service.
In 2019 we significantly grew direct imports
of fresh fruits and vegetables and introduced
a “Hot Bread” project within the O’KEY bakery
segment. We also expanded the private label
range by 917 SKUs, across various price
categories including private labels such as
That’s What You Need, O’KEY and Selection
of O’KEY. We introduced new assortment
clusters which depend on various parameters
of our stores and enable us to standartise
assortment thus improving overall efficiency.
DEAR STAKEHOLDERS,
2019 was a year of continued growth
for O’KEY Group, as we steadily developed
our business to achieve our strategic goals.
Our customers are at the heart of our
strategy and we retained a keen focus on
meeting their needs and providing excellent
service as we worked to enhance our
offering.
I am happy to report that despite
the challenging macroeconomic
environment and increasing competition
in the retail sector, we maintained our
market position and continued to deliver
growth. O’KEY Group exhibited positive
sales dynamics with 3.0% YoY growth
in organic Group total revenue, supported
by remarkable growth in our DA! discounter
business, where LFL net retail revenue rose
14.9% YoY. We also maintained a stable
financial position with overall net profit
amounting to RUB 0.7 bn.
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
Throughout the year, O’KEY Group
worked diligently to optimise internal
processes and embed new IT solutions
in the business. As a result, the links
between our departments improved
our overall efficiency. We were steadily
making our business “greener”, utilising
new recyclable packaging and working to
reduce CO2 emissions by optimising the
utilisation of the delivery fleet.
In the near future we plan to introduce and
pilot a new O’KEY hypermarket concept
which is intended to be more efficient from
an operational and environmental point
of view. Furthermore, we plan to renovate
several stores and implement additional
initiatives concerning IT solutions,
logistics operations and internal process
optimisation which will contribute to our
future growth.
DA! review
We are happy to confirm that 2019 has
been another successful year for DA!,
in spite of certain pressures exerted by
the market environment. The value-for-
money concept continued to show its
efficiency: net retail revenue of DA! grew
by 31.7% YoY, supported by a steady
increase in traffic and the average ticket
(up 24.5% YoY and 5.8% YoY respectively).
The opening of 19 new discounters allowed
us to increase the total selling space
by 13.4 k m2.
In 2019 we particularly focused
on developing the DA! private label
assortment: we introduced 86 new
SKUs, and upgraded our existing recipes
and packaging to make products more
attractive for customers. Currently our DA!
private label brand accounts for 1,019 SKUs
and 40% of our total SKU number.
13
We believe that city
hypermarkets have a bright
future as this retail format
provides customers with
the freshest food and the
best shopping experience,
at a reasonable price.
Given the highly competitive
market environment, deep
expertise in managing
hypermarkets is a necessity
for success. We believe that
our experience, along with
our programme of constant
business improvement, give
us the right tools to succeed
and vindicate our optimistic
outlook.
In line with our strategy, we plan to
maintain low pricing strategy and rapidly
develop the discounter business. We will
continue the expansion of DA! stores in
the Central Federal District of Russia with
the opening of up to 30 new discounters
in 2020.
Outlook
We see the development of our retail
business as an ongoing process, with
ongoing improvements required to keep
pace with customers changing needs.
Due to the current impact of oil prices
decline and the coronavirus pandemic it is
expected that the Russian economy slows
down with customers remaining cash-
constrained, this will present challenges
for all market players. Therefore, in
line with our strategic priorities in both
segments, O’KEY Group will mainly focus
on optimising its costs base, continue
to enhance our assortment, recalibrate
internal processes, provide extensive
training to employees and increase
synergies between the two businesses.
We will do our best to fulfill our obligations
to all our major stakeholders.
The Group will continue to deliver the best
quality products at a reasonable price
to our customers. We will strive to become
a leader in certain product categories,
including fresh and ultra-fresh, wines
and non-food. As for our private label
development, we will maintain strict and
robust quality control systems and use all
synergies in cooperation with our suppliers.
I would like to commend the O’KEY
management team and all of our
employees for their vital contribution in
achieving our common goals. It’s their
professionalism, enthusiasm and
commitment to the Group’s values that
enable us to satisfy our customers, deliver
good results, maintain our market position
and look positively towards the future.
Armin Burger
Chief Executive Officer
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Strategic Report12 CEO’s Statement14 Our Geography & History16 Delivering on Our Strategy18 Russia’s Food Retail Market20 Economic EnvironmentCEO’sStatement 14
7
Tver region
13
17
6
Kaluga region
7
Moscow
59 Moscow region
Tula region
1
Lipetsk
3
Ryazan
region
1
Yaroslavl region
1
Ivanovo
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
DISCOUNTERS
100
HYPERMARKETS
78
TOTAL STORES
178
23
1
Murmansk
St. Petersburg
NORTH-WEST FD
CENTRAL FD
3
Nizhny Novgorod
1
Syktyvkar
2
Voronezh
GROUP RETAIL SPACE
598.3k m2
3
2
1
4
1
Rostov-on-Don
1
Saratov
Togliatti
VOLGA FD
3
Ufa
Sochi
Krasnodar
Volgograd
1
Stavropol
2
SOUTH FD
1
Orenburg
CENTRAL and VOLGA region
251.3
69.3
DA!
182.9
O’KEY
NORTHWEST region
180.4
SOUTH region
75.9
URALS and
SIBERIA region
89.8
2
URALS FD
3
Ekaterinburg
Surgut
3
Tyumen
1
Omsk
2
Novosibirsk
SIBERIA FD
2
Krasnoyarsk
1
Irkutsk
DA! SELLING SPACE
O’KEY SELLING SPACE
69.3k m2
529k m2
Our
History
15
2019
2018
2017
2016
2015
2014
-
2009
2009
-
2007
2007
-
2003
2003
-
2001
100 DISCOUNTER STORES
under the DA! brand operating
across Russia
2,482 AND 1,019 PRIVATE
LABEL SKUs presented in
our O’KEY hypermarkets and
“DA!” discounters respectively
DISCOUNTER’S REVENUE
under the DA! brand reached
8.5% of the Group revenue
OMNICHANNEL MOBILE APP
launched providing a unified
approach to communications
with customers in stores and
online
O’KEY-auto and 24 hour
delivery service launched
for the hypermarket segment
Sale of supermarket business
including 32 supermarkets
across Russia
Mobile app for iOS and Android
launched in 2016
Online sales platform launched
for market-leading hypermarket
DA! BRAND
New discounter format
RAPID EXPANSION in Moscow
and key regional markets
IPO on the London Stock
Exchange
Top-3 retailer by revenue
Focus on EXPANSION
in Russia’s key regional markets
TOP-10 retailer by revenue
6 new regions
Strategy to establish
regional market leadership
O’KEY Group founded
First O’KEY hypermarket
opened in St. Petersburg
O’KEY Group S.A.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Strategic Report12 CEO’s Statement14 Our Geography & History16 Delivering on Our Strategy18 Russia’s Food Retail Market20 Economic EnvironmentOurGeographyAstrakhan 16
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
17
O’KEY Group’s operational activity is based on two pillars, hypermarkets and discounters.
The strategic priorities depend on the retail format, however in each business we do
our best to provide customers with high quality goods, an outstanding value proposition
and excellent service.
DELIVER
THE BEST
VALUE
PROPOSITION
PROVIDE
UNIQUE
CUSTOMER
SERVICE
ENSURE
THE BEST
QUALITY
CONTROL
IMPROVE
EFFICIENCY
ENHANCE
SUPPLY
CHAIN
GROWTH
AND
EXPANSION
STRONG
PRIVATE
LABELS
THE BEST
VALUE
PROPOSITION
PRIORITIES
Strengthen
quality standards
for suppliers
Introduce new
quality standards
for our own
production
Conduct regular
and thorough audits
of suppliers
Maintain an excellent
shopping experience
with the help of our
modern design
and well-trained
personnel
Further develop
the e-commerce
format with a wide
range of SKUs,
attractive pricing and
convenient delivery
services
Upgrade the loyalty
programme enabling
customers to engage
with us on the most
attractive terms
Focus on providing
our customers
excellent value
for money
Introduce new
products and expand
our assortment with
a focus on fresh and
ultra-fresh products
Delist non-
performing
assortment or SKUs
Increase the share
of private label
products and own
products in total
sales
Improve product
layout to offer
the best customer
experience
Recalibrate internal
processes with
a focus on efficiency
and implementing
cutting edge
IT solutions
Elaborate the new
hypermarkets
concept of better
operational
efficiency and
sustainability
Develop synergies
with the discounter
business in joint
procurement and
import thus securing
better terms with
suppliers
Maintain high on-
shelf availability and
optimal inventory
levels
Develop a smart
supply chain
with optimal
centralisation level
Improve the
efficiency of logistics
by implementing
state-of-the-art
IT technologies
Maintain a balance
between a high
standard of service,
stock management
and logistical costs
Optimise sales
forecasting and
replenishment
Open up to 30 new
stores in 2020
in Moscow and
the surrounding
regions
Focus on
developing
the “every day low
price” concept
Offer the most
competitive
pricing on
the market
without
compromising
the quality
Expand our
assortment
in the fresh
and ultra-fresh
categories
PRIORITIES
Maintain and
enhance a wide
portfolio of private
label brands
Improve the recipes
and packaging
of private label
goods
Benefit from
synergies with O’KEY
hypermarkets
Ensure the best
possible quality
by carefully selecting
our private label
producers
Increase the share
of private labels
in the product range
and in total sales
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Strategic Report12 CEO’s Statement14 Our Geography & History16 Delivering on Our Strategy18 Russia’s Food Retail Market20 Economic EnvironmentDelivering onOur Strategy 18
THE MARKET IN 2019
The Russian food retail market is
the world’s 8th largest in monetary terms.
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
19
TOP 10 GROCERY RETAIL MARKET
SIZE IN 2019, USD BN
TOP 10 FOOD RETAILERS IN RUSSIA
(BY NET RETAIL REVENUE),1/ %
Online grocery market in Russia
TOP ONLINE GROCERY RETAILERS
IN RUSSIA, %
Globus
0.6%
Svetofor
0.7
Monetka
0.7
O’KEY
1.0
Metro
1.1%
Auchan
1.5%
Lenta
2.5%
DKRB
Mega Retail Group Ltd.
5.7%
32.9%
Magnit
7.6%
X5 Retail Group
11.5%
In 2019, the share of the top 10 FMCG
retailers in the grocery retail market
increased by 1.9 p.p. to 32.9% (growth was
also 1.9 p.p. in 2018).
Mexico
211.8
United Kingdom
252.2
Russia
261.2
France
263.5
Germany
285.3
Brazil
324.3
Japan
468.1
India
531.3
China
1,429.2
USA
1,520.4
According to Infoline, in 2019 the
total selling space of the top 200
Russian food retailers increased by
7.8% YoY to 26.9 mln m2, while their
total number of stores amounted to
approximately 65.5 thous. The speed
of expansion showed continuous
deceleration, unlike nominal food retail
turnover (up 6.7% YoY): alongside
a withdrawal of smaller retailers from the
market that supported the LFL sales of
existing retailers.
1.3 % annually
EXPECTED GROWTH
OF THE RUSSIAN FOOD RETAIL
MARKET BETWEEN 2019 AND 2024
32.9%
SHARE OF TOP 10 FOOD RETAILERS
IN RUSSIA
In 2019, the online grocery retail market
in Russia was on the verge of a rapid surge,
driven by demand growth in big cities
where customers are actively switching
to online shopping.
According to Infoline, the online grocery
market rocketed by 64% in the reporting
year and approached RUB 37.8 bn,
excluding food baskets and ready meals.
In the reporting year, the online grocery
retail market in Russia accounted for 0.2%
of the total grocery market compared
with 0.15% in 2018. The market has
the potential to increase 5-8x by 2025
to RUB 186-300 bn, and from a food retail
contribution of almost zero to 1.3% vs.
the 2-5% seen in more developed markets.
RUB37.8bn
TOTAL ONLINE MARKET VOLUME
Others
11.5%
Instamart
4.9%
O’KEY
5.6%
Detsky mir2/
6.3%
Azbuka Vkusa
6.3%
iGoods
6.9%
Wildberries
9.0%
OZON
9.2%
Perekrestok
13.2%
Utkonos
27%
1/ Other – 67.1%.
Source: IGD research
Source: Infoline
2/ Includes grocery on-line retail.
Source: Infoline
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Strategic Report12 CEO’s Statement14 Our Geography & History16 Delivering on Our Strategy18 Russia’s Food Retail Market20 Economic EnvironmentRussia’s FoodRetail Market 20
In 2019, food retail sales in
Russia outstriped general
economic growth, with nominal
food retail turnover increasing
by 6.7% YoY, while nominal GDP
growth was 4.8% YoY.
In real terms, food retail sales saw a slower
rate of growth of 1.4% YoY (vs 1.3% YoY
real GDP growth) and amounted to
RUB 16.08 tn. Meanwhile, the consumer
confidence index marginally grew
throughout 2019 from the initial drop
shown during the fourth quarter of 2018
and reached –13% in the fourth quarter
of 2019.
The macroeconomic factors which
added to the positive dynamics
in retail were:
a considerably lower level of inflation
(3% YoY in 2019 vs 4.3% YoY in 2018);
low food price inflation (2.6% YoY
in 2019 vs 4.7% YoY in 2018);
recovery of income: the nominal wage
grew 7.8% YoY, the real wage showed
growth of 2.9% YoY and real disposable
income slightly increased by 0.8% YoY,
after four consecutive years of falling
and one year of stagnation;
an increase in social spending
(pension income, accounting for 12%
of Russians’ total income, grew by 6%
YoY, while other social payments
making up 7% of total household
income were up 4.6%).
According to the Sberbank “Ivanov
Consumer Confidence Index”, customers
became less price-sensitive due to the
above-mentioned factors.
Freshness and a high quality of goods
have become a necessity for retailers: 83%
of respondents said they would visit a store
with an increased fresh offering more
often, and 50% were likely to buy some
other items besides fresh category during
their shopping. An in-house bakery is also
seen as an advantage: 47% respondents
would visit a grocery store for fresh bread.
In order to keep up to date with the most
recent trends, O’KEY Group is continuously
developing its freshness approach and
own production assortment (e.g. bakeries
and prepared food) in the stores, both
in hypermarkets and discounters.
REAL GDP IN 2015–2019
1.3%
REAL DISPOSABLE INCOME AND REAL WAGES IN 2015-2019, %
RUB90,556bn
85,372
85,616
87,152
89,361
90,556
15
10
5
0
-5
-10
-15
Real
wage
Real disposable
income
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
21
OUTLOOK
RUSSIA’S CONSUMER PRICE INDEX, %
At the time of writing this report, various
events of global significance are taking
place, such as the COVID-19 pandemic and
a sharp decline in oil prices, which in turn
is leading to further ruble devaluation.
These factors are certain to impact
the Russian economy at large and the retail
industry: we expect a major slowdown
in the economy which will lead to a more
competitive and price sensitive market.
16
12
8
4
0
CPI,
% YoY
Food CPI,
% YoY
2015
2016
2017
2018
2019
We therefore remain cautious on the
outlook on Russian retail market and its
existing growth opportunities. We will
continue to grow our business in both
segments with a focus on operational
efficiency and quality, ensuring a wide
assortment of goods are available
at the competitive prices in our stores.
83%
OF RESPONDENTS SAID THEY WOULD
VISIT A STORE WITH AN INCREASED
FRESH OFFERING MORE OFTEN
47%
RESPONDENTS WOULD VISIT
A GROCERY STORE FOR FRESH BREAD
4K
3K
2K
1K
0
Source: Infoline
RUSSIA’S CONSUMER CONFIDENCE INDEX IN 2015-2019, Q YOY, %
0
-5
-10
-15
-20
-25
-30
-35
2015
2016
2017
2018
2019
Source: Infoline
REAL RETAIL AND FOOD SALES IN 2018–2019, RUB BN
Retail sales
Food sales
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Source: Rosstat
Source: Rosstat
Source: Rosstat
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Strategic Report12 CEO’s Statement14 Our Geography & History16 Delivering on Our Strategy18 Russia’s Food Retail Market20 Economic EnvironmentEconomicEnvironment 22
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
23
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational Review24 Hypermarkets36 DiscountersREVIEW 24
24
O’KEY Group has a strong
commitment to providing
customers with the best fresh
products and to ensuring the
highest quality of service in our
stores. In our hypermarkets,
customers may find everything
they need in one location,
at reasonable prices. Due to
our well-balanced customer
value proposition, we are able
to maintain our position as one
of the key players in the Russian
food retail market. In 2019
we updated our strategy, with
hypermarket remaining the
prospective format.
KEY PERFORMANCE INDICATORS
WE REMAIN DEDICATED TO OUR STRATEGIC PRIORITIES:
1
Excellent
service
2
Freshness
and a high quality
of goods
3
The best
assortment
4
A strong
private label
offering
5
Attractive
promotional
campaigns
Overview
Overview
Strategic Report
Strategic Report
Operational Review
Operational Review
Financial Review
Financial Review
Risk Management
Risk Management
Corporate Responsibility
Corporate Responsibility
Corporate Governance
Corporate Governance
Financial Statements
Financial Statements
New Fresh Zone
at hypermarkets
demonstrates
our commitment
to freshness
NUMBER OF STORES
SELLING SPACE, K M²
NET RETAIL REVENUE, RUB BN
78
78
78
532
528
529
164.1
145.8
145.3
2017
2018
2019
20171/
2018
2019
20171/
2018
2019
LFL NET RETAIL REVENUE, %
LFL TRAFFIC, %
LFL AVERAGE TICKET, %
2017
2018
2019
2017
2018
2019
1.9
1.4
0.4
(0.4)
(3.2)
(4.3)
(5.0)
(4.8)
(1.8)
2017
2018
2019
1/ In 2017 the Group sold its supermarket business, comprising of 32 supermarkets.
PERFORMANCE OVERVIEW
In 2019, we continued to focus on
operational efficiency and service
improvement, assortment management,
including the development of fresh and
ultra-fresh categories. We maintained
the high quality of our assortment,
strengthened our presence in the Fresh
and Ultra-Fresh segments and enhanced
our internal processes efficiency by
implementing new IT solutions in our
logistics system.
In the reporting year, we were especially
focused on developing our fresh and
ultra-fresh categories. This included the
roll-out of new standards and operational
procedures to guarantee the freshness
of goods. We also improved our own
production, upgraded our recipes and
reviewed our ingredients. Furthermore,
in 2019 we improved our promo offers,
significantly increased direct imports of
fruits and vegetables and continued the
private label development programme.
The above-mentioned measures enabled
us to show stable operational and financial
results in 2019 and maintain our market
position despite the tough food retail
environment: O’KEY’s underlying net
retail revenue increased by 0.3% YoY to
RUB 145,298 mln, LFL net retail revenue fell
by 0.4% for the year on the back of a 1.8%
decrease in LFL traffic and a 1.4% increase
in LFL average ticket. The weaker-than-
expected LFL performance was primarily
attributable to lower LFL in December,
which was in turn triggered by one-off
factors, namely the renovation of one of
our shopping malls (to be completed in Q2),
and abnormal warm weather conditions,
leading to weaker-than-expected sales in
seasonal categories.
In 2019, the Company did not open new
hypermarkets: as at 31 December 2019,
the total number of hypermarkets remained
78, with the total selling space
at 529 k m2.
25
25
HYPERMARKET BUSINESS
2019 AT A GLANCE
AVERAGE STORE SELLING
SPACE
6.8k m²
AVERAGE PRODUCT
RANGE, SKU
30 k
CLIENTS SHOPPED
WITH US
160.4 mln
HYPERMARKETS SHARE
IN SALES
89 %
NUMBER OF STORES
78
NET RETAIL REVENUE, RUB
145.3 bn
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational ReviewO’KEYCity Hypermarket Format Operational ReviewAnnual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY 26
Overview
Strategic Report
Operational Review
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Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
27
Plans
Launched in January 2020, the new
loyalty programme integrates innovative
IT solutions, such as machine learning
and personalisation analytics software,
providing customers with individual offers
based on their own spending patterns and
purchase history, ensuring they receive the
right offers at the right time.
The programme will also offer our
customers the facility to collect points
with each shop and exchange for product
or category discounts, both online and
offline. We will also work on the digital
customer experience to ensure that the
loyalty programme is at the heart of our
customer’s journey whether in the mobile
app, website or in one of our stores.
In 2020, we will focus on enhancing
our operational efficiency, reducing our
cost base and doing our best to provide
customers with excellent value for money.
We also expect to finalise the development
of our new O’KEY hypermarkets concept,
which is designed to be more sustainable
and attractive for customers.
LOYALTY PROGRAMME
Our loyalty programme provides our
customers with multiple options for
purchasing goods of the highest quality
on the most attractive terms. It is designed
to reward customer loyalty and enable
them to engage with us as their preferred
hypermarket of choice.
In 2019, we maintained a high level
of service in our loyalty programme
and introduced basic reporting on offers
and communication. We also focused
our efforts on the development of the
new loyalty programme, which included
thorough market research, both locally
and internationally. In 2019, our loyalty
programme did not presume accumulating
of award points by customers for
purchases made which entitle them to
price discount on future purchases.
Throughout 2020, we also plan to
collaborate with other non-food retailers,
financial service providers and restaurants
to extend the O’KEY experience beyond our
own network, by making co-promotions in
particular.
LOYALTY PROGRAMME IN 2019
MEMBERS
UP TO10.4 mln
LOYALTY TRANSACTIONS
117.6 mln
73%
OF ALL TRANSACTIONS
LOYALTY REVENUE, RUB
144.3 bn
88%
OF TOTAL REVENUE
PRIVATE LABEL
/O’KEY HYPERMARKETS PRIVATE LABEL PRODUCTS/1/
Wide selection of O’KEY private label (PL)
items is a competitive advantage of our
hypermarkets. We provide our customers
with products 15%-25% cheaper than
branded alternatives without compromising
in quality.
2019 was marked by an intensive
development of our private label product
lines. We actively worked to expand
assortment in of our “That’s What You
Need!” and “O’KEY” brands: in total,
833 new SKUs were added to the two
brands, including 423 seasonal non-food
products, while 101 SKUs were relaunched.
With the ultimate goal to offer the premium
goods in all categories we introduced
“Selection of O’KEY” with 84 SKUs.
This brand is distinguished by a better
affordability of premium products despite
the comparable quality.
The total share of the private label products
(including non-food PLs) within the
assortment range grew from 6.6% in 2018
to 7.1% in 2019. The share of private label
products under the brands That’s what you
need!, O’KEY and O’KEY Selection increased
to 6.7% (vs 6.3% in 2018).
That’s what you need!
O’KEY
Selection of O’KEY
914 SKUs
1.484 SKUs
84 SKUs
Entry segment
Medium segment
Premium segment
2,482 private label SKUs available in O’KEY hypermarkets
To ensure the high quality of our private
label goods, we conduct regular checkups
at the production facilities and test
samples in independent and accredited
laboratories under the “Trademark O’KEY –
Customers’ guarantee” programme.
In 2019, O’KEY continued to strengthen the
private label quality standards. Our efforts
in this area were recognised with various
quality awards received throughout the
year. Five O’KEY private label products,
Selection of O’KEY Roasted Almonds,
O’KEY Pilau Rice, O’KEY Brined Calamari,
Selection of O’KEY Honey-Roasted
Peanuts, and O’KEY Ukrainian Style Fried
Sausage, won top awards at the prestigious
international Quality Guarantee 2019
competition, and the O’KEY Ukrainian Style
Fried Sausage received the special “Meat
Oscar” award. Our private labels were also
rewarded by independent customer surveys
such as Roskontrol which named the O’KEY
private label ketchup the best in the rating
which included well-known brands.
Plans
In the end of 2019 we started to renew our
packaging of all three major PL brands. It is
planned that during 2020 all private label
SKUs will be relaunched in the new design.
We expect that this redesign will help us
to increase sales and brand awareness,
especially in the medium and premium
segments.
We will continue to ensure the highest
quality of private label goods and further
increase margins and profitability of O’KEY
private label products. We will continue the
mutually beneficial collaboration with DA!
discounters in terms of choosing common
producers of our private label goods.
1/ In O’KEY Hypermarkets, we offer customers an
extensive variety of private label products under
three major brands covering entry, medium and new
premium price segments.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational Review24 Hypermarkets36 DiscountersO’KEYCity Hypermarket Format 28
OWN PRODUCTION
In 2019 the Company continued to
enhance its own production unit, with the
aim of increasing the level of customer
satisfaction and improving operational
efficiency. The fast pace of life in a big city
creates demand for ready-to-eat food of
high quality and impeccable freshness.
To meet customers’ needs, O’KEY
hypermarkets provide a wide range of
freshly prepared salads, hot meals, pastries
and confectionery.
We strictly adhere to our “Ultra Freshness”
approach and offer evening promotions
and discounts every day. Inside and outside
our stores, O’KEY customers can also
benefit from the “sit and eat” format and
enjoy a hot drink or snack.
Own production unit 2019 at a glance:
we developed and implemented our
own production standards;
we’ve begun to educate our chefs and
technologists to improve their culinary
and baking skills;
we significantly upgraded our own
production assortment by introducing
a new variety of pizzas, and expanding
our range of meatloaves, breakfast
porridges, hot meals and salads;
we launched the “Hot Bread” project
within the O’KEY Bakery segment to
provide our customers with freshly
baked bread three times a day; and
we reviewed and launched planograms
to improve store layout and
convenience for our customers.
In September 2019, the Company
participated for the first time in the “Quality
guarantee 2019”1/ contest with own
production. Our products were awarded
two silver medals and diplomas, while our
grilled chicken was awarded a special prize
called the “Meat Oscar”.
Freshness approach
THE QUALITY CONTROL SYSTEM FOR
OUR OWN PRODUCTION INCLUDES:
We strictly control our own production at
all stages, including storage at distribution
centres where products are preserved
before reaching the customer, and in
hypermarkets. Quality control includes
daily optical and hygiene checks, as well as
employee control and education.
OWN PRODUCTION HIGHLIGHTS
UP TO 300SKUs
IN THE ASSORTMENT
160 products
INTRODUCED IN 2019
40 SKUs
UNIVERSAL SKUS
IN EVERY STORE
+0.2 % LFL
Control of raw
materials from
suppliers during
delivery
to hypermarkets
and storage
Degustation,
optical freshness
check, shelf-life
control
Staff education,
hygiene control
and process
control
System
of quality
checks
Plans
In 2020, we intend to:
review the assortment range in
accordance with recent trends;
increase the share of raw materials
and ingredients requiring little
preparation;
further improve the quality control
system for our own production;
continue our employee training
programme.
1/ The contest is held by the Federal science centre of food systems named after V.M Gorbatov under the Russian Academy of Sciences and supported by the
Committee of the Federation Council on agricultural and food policy and the Ministry of Agriculture of Russian Federation.
Overview
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Risk Management
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Financial Statements
29
QUALITY AND SAFETY
O’KEY Group does not accept any
compromises in the area of quality
management. Our top priority is maintaining
the high quality of goods in our stores, in
strict compliance with major quality and
food safety legislation. O’KEY’s quality
management system covers all stages
of our operations and complies with the
requirements of Russian laws and the
HACCP system. The Company also has
implemented internal quality standards
which often go beyond the necessary
requirements.
Quality and safety monitoring in O’KEY is
executed by our quality control department.
The standard procedures include
preliminary quality control measures,
assortment monitoring both in stores and
warehouses, and internal and external
auditing of stores and the supply chain.
We strictly pay attention to the quality of our
own production and private labels, which is
confirmed by laboratory control.
O’KEY Group participates in regional
and national initiatives, such as “Made
in Don Land”, “St. Petersburg Quality
Mark”, and North-Western and Central
regional voluntary certification initiatives.
This ensures the high quality of goods and
the Company’s conformity to international
standards. We also take part in ACORT
quality committee initiatives such as rolling
tests, a single checklist for supplier auditing
and communication with the authorities on
legislative initiatives.
In case of any incidents regarding
quality and safety occur, the Company
immediately reacts by a thorough audit
and all measures to prevent similar cases
in the future. If necessary, it may include
withdrawing the product from the stores,
returning it to the producer, and ceasing
a contract with a supplier.
Following the principle of continuous
quality improvement, in 2019 the Company
undertook the following actions:
Plans
In the future, the Company intends to
further improve its quality management
system and food safety control procedures.
We will continue to refine the quality of
our private label brands, develop our own
production certification and improve our
approach towards supplier auditing.
Improving our auditing of suppliers entails
educating audit specialists and conducting
our own audits of new suppliers of high risk
categories, as well as updating the auditing
checklist with a focus on our potential
risks.
O’KEY continued the transition to
electronic veterinary control under the
State information system “Mercury”.
Dairy products, including cheeses, were
added to the system, minimising the
risk of the fraud in these categories;
public catering facilities in Moscow and
St. Petersburg successfully underwent
surveillance audits;
the Company optimised its business
processes in accordance with the
legislative changes in the certification
and declaration of directly imported
goods; and
O’KEY successfully underwent planned
periodic audits under the “St. Petersburg
Quality Mark” and “Made in Don Land”
programmes and confirmed the validity
of the certificates.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational Review24 Hypermarkets36 DiscountersO’KEYCity Hypermarket Format
30
OPERATIONS
Our Hypermarkets business functions as
a single ecosystem with its own needs
and rhythms. Therefore it is necessary to
improve the business by taking a holistic
approach, encompassing different aspects
of operational activity. This ensures
we can deliver the best experience for
our customers and a satisfying level of
profitability for us.
In 2019, we continued to focus on
operational efficiency, implemented several
new initiatives and pursued the realisation
of previously launched projects:
we improved cashier zone
management, which enabled us to
avoid queues even in the high season
(the month of December);
we raised the on-shelf availability of
our goods by 1.1% while reducing
personnel involvement;
we piloted initiatives such as Retail
Daily Routines, control instruments,
operational standards and new store
structures;
we successfully continued to
develop an electronic veterinary
certification system “Mercury”,
which allows employees to receive
tasks via scanners and improve their
productivity;
we launched a new approach toward
the management of Fresh and Ultra
Fresh categories by developing and
rolling out improved operational
procedures and freshness standards.
Overview
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Risk Management
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Financial Statements
31
SUPPLY CHAIN
O’KEY has a well-balanced supply chain
which allows us to serve our customers’
needs in all regions of operation. In 2019,
we worked to improve it further with
a focus on efficiency and productivity.
In particular, we developed the warehouse
infrastructure, built mutually beneficial
partnerships with suppliers and transport
carriers, and introduced cutting-edge IT
solutions.
O’KEY hypermarkets operate three
distribution centres: one federal in Moscow
and two regionals in St. Petersburg.
The federal distribution centre located in
Moscow is specialised in the distribution
of fresh products, fruits and vegetables,
FMCG, non-food and alcohol products
to all stores across the country.
Both regional distribution centres are
based in St. Petersburg, with one of
them specialising in FMCG and the
other in fruits and vegetables and fresh
products. This supply chain organisation
is among O’KEY’s competitive advantages
as it enables the Company to keep
a balance between logistical costs, stock
management and high levels of service.
In 2019, we:
developed a system of centralised
forecasting and replenishment;
rolled out a new AXAPTA 12 IT solution
in our distribution centres;
launched the JDA solution used
in assortment and implantation
management;
expanded our storage capacities in line
with our assortment extension; and
optimised the number of transport
carriers and introduced a new system
for their evaluation.
Plans
In 2020, we plan to finalise the rollout of
ORACLE RPAS for all categories. We will
also increase centralisation in the fresh
category which will further contribute to the
overall rate of centralisation.
In addition, we plan to continue the
development of our warehouse
infrastructure and supply models to provide
our hypermarkets with service of the
highest quality.
LOCATION AND SERVICE AREAS OF O’KEY DISTRIBUTION CENTRES (DCS)
OVERALL NUMBER OF DCS
Plans
In 2020, we will continue improving our
operational efficiency and will fully roll-
out initiatives piloted the year before.
We will finalise the development of
new planograms and introduce a new
hypermarket concept which will require
updated equipment.
23
23
1
1
Murmansk
Murmansk
St. Petersburg – 2
St. Petersburg
St. Petersburg
Moscow – 1
NORTH-WEST FD
NORTH-WEST FD
1
1
Syktyvkar
Syktyvkar
13
13
CENTRAL FD
Moscow
CENTRAL FD
Moscow
3
3
3
3
2
2
1
1
4
4
1
1
Rostov-on-Don
Rostov-on-Don
1
1
Saratov
Saratov
Togliatti
Togliatti
Sochi
Sochi
Krasnodar
Krasnodar
Volgograd
Volgograd
1
1
Stavropol
Stavropol
2
2
SOUTH FD
SOUTH FD
1
1
Orenburg
Orenburg
3
3
Ufa
Ufa
Nizhny Novgorod
Nizhny Novgorod
VOLGA FD
VOLGA FD
2
2
URALS FD
URALS FD
3
3
Ekaterinburg
Ekaterinburg
Surgut
Surgut
3
3
Tyumen
Tyumen
1
1
Omsk
Omsk
2
2
Novosibirsk
Novosibirsk
SIBERIA FD
SIBERIA FD
2
2
Krasnoyarsk
Krasnoyarsk
1
1
Irkutsk
Irkutsk
Categories of products the distribution centre specialises in:
Fruits and vegetables
Fast Moving
Non-Food
Fresh
Alcohol
3
MOSCOW – 1
52 K m2
ST. PETERSBURG – 2
21.8 and 7.6 K m2
CENTRALISATION RATE
62 % (+2 p.p.)
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational Review24 Hypermarkets36 DiscountersO’KEYCity Hypermarket FormatAstrakhanAstrakhan 32
IT SOLUTIONS
O’KEY strives to be at the forefront of the
retail industry which is currently undergoing
a rapid transformation. We believe that
the implementation and development
of cutting-edge IT systems and mobile
applications is necessary to maintain
our market position and our level of
competitiveness. New digital technologies
allow us to deeply analyse customer
preferences, develop new ways to
communicate with customers and provide
other beneficial opportunities.
Our operational activity is supported by
various digital solutions covering the main
aspects of our business. Our multi-faceted
IT infrastructure allows us to achieve our
strategic goals, increase customer loyalty
and optimise our costs.
In 2019, we continued to implement
and improve our integrated IT platform
using cutting-edge solutions and widely
recognised software. The updates will
contribute to business efficiency, facilitate
sales forecasting and enhance general
business processes. In 2019, the Group did
not carry out any significant research and
development.
In 2019, we:
Plans
extended EDI by implementing the
internal document flow initiative, the
rollout of the automation of penalties,
facilitating the exchange of electronic
documents for service procurement
and extending functionality for
exchanging electronic invoices;
continued the implementation of the
new ERP platform and finished the roll-
out of Axapta 12 (Microsoft Dynamics)
for distribution centres, which will
enable an increase in operational
efficiency going forward;
finalised the Oracle RPAS rollout for
sales forecasting and replenishment
optimisation, which already covered
approximately 70% of our assortment;
upgraded the POS platform to the
newest version of CSI solution (SET
10), with an ongoing project to upgrade
store servers to SET 10;
fully implemented a Boss HR solution
with core HR functions, and extended
its functionality to employee self-
service.
In 2020, we plan to continue the
implementation and extension of innovative
IT technologies.
We will complement EDI functionality with
implementation of a vendor portal and with
extended services, such as Master data
information management, logistics and
finance vendor collaboration. This will further
reduce paper workflows.
We plan to extend Oracle RPAS to cover
UltraFresh and Non-Food categories. We will
also complete the implementation of a new
ERP platform, finalising master data and
finance functionality in Axapta 12. We will
also work to improve supply chain efficiency
by implementing Transport Management
and Yard Management solutions, as well as
upgrading store servers to SET 10.
In February 2020 we launched a new bonus
loyalty programme, with the use of modern
data analysis solutions and CRM Manzana.
All of this will allow O’KEY to provide
customers with targeted personalised offers.
/OUR MULTI-FACETED IT INFRASTRUCTURE/
ERP
Supply chain
Category
management
Microsoft
Dynamics
AXAPTA 2012
Manhattan WMS
JDA Software1/
Cash Register
Online Store
HR System
Crystal Service
Integration
IBM Web-Sphere
Commerce (CMS,
Promo)
Boss HR
application
Customer
relations
CRM Manzana
Oracle RPAS
Oracle RPAS
POS platform CSI
solution (SET 10)
1/ In the process of implementation.
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
33
E-COMMERCE
O’KEY Group is one of the leaders in
the Russian e-commerce food market.
Among our competitive advantages are
our wide assortment, affordablity and
high quality service. We use cutting-edge
IT solutions and constantly develop our
e-commerce system in order to provide
excellent service to our customers.
In 2019, e-commerce continued to grow
strongly in Russia, especially in the
food segment. Online grocery shopping
has become a daily routine for many
customers, who prefer online stores to
convenience stores or hypermarkets.
The popularity of grocery delivery services
is accelerating especially rapidly in
Moscow, St. Petersburg and in other big
cities of Russia.
New players in Russian retail are also
developing online stores, making the
market environment more competitive.
Fast market growth requires flexibility
and swiftness from retailers: currently,
one of the leading trends is customer
demand for delivery within 1-2 hours,
are ready to pay more to get their orders
which requires market players to develop
the logistics system, including the
deployment of cutting-edge IT solutions.
Another important trend is the unification
of the customer base, which means
retailers increasingly need to approach the
same customers through both online and
offline channels.
In 2019, O’KEY Group was among the top
eight market players by revenue in the
industry.
Despite strong competition in the sector, our
online revenue increased by 20% and reached
RUB 2 bn, while our online customer base
grew to 200 thous. people.
We strive to improve our quality of service
and facilitate the purchase process for our
customers. In the reporting year, we continued
to develop our omnichannel system, with
every initiative thoroughly reviewed before
implementation. We automated and optimised
several business processes, fully modernised
our e-commerce platform, updated our
website, increased productivity in our logistics
and thus established a strong platform for
further development.
The Company is a member of the Association
of Internet Trade Companies, which strives to
promote fair competition, innovation and the
positive development of the industry in Russia.
O’KEY GROUP E-COMMERCE 2019 VS. 2018
ORDERS VIA
WWW.OKEYDOSTAVKA.RU
118 k orders
2018
484 k
TONNES DELIVERED
4k tonnes
11.000
2019
602 k
ORDERS MADE
VIA THE MOBILE APP
30 %
E-COMMERCE REVENUE
>15,000
6 %
OF HYPERMARKET REVENUE WHERE
ECOMMERCE IS PRESENT
ORDERS VIA
WWW.OKEYDOSTAVKA.RU
602k
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational Review24 Hypermarkets36 DiscountersO’KEYCity Hypermarket Format 34
Overview
Strategic Report
Operational Review
Financial Review
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Corporate Responsibility
Corporate Governance
Financial Statements
35
Logistics and infrastructure
/MOSCOW AND ST. PETERSBURG DELIVERY ZONE MAPS/1/
The Company has 12 pick up points
in Moscow and St. Petersburg, spread
equally between the two cities.
Over 100 transport vehicles go on routes
each day in two cities.
In 2019, the Company continued to
develop its logistics IT system. The most
ambitious initiative of the year was the
launch of the latest version of the Web
Sphere Commerce 9 platform, which uses
modern technology and opens up new
opportunities for business development.
As a result, our website loading speed
increased significantly.
As for the logistics function, in 2019 we
started to use new software systems
which enabled us to increase efficiency
in the following ways:
A new system for planning and
optimisation of delivery routes helped us
to reduce route planning times by 30%
and delays to customers by 20%, meaning
couriers began to spend more time with
the client than on the road. This also
resulted in better energy efficiency:
mileage and fuel consumption decreased
by 20%.
An order delivery management system
and mobile app monitors the location and
work of couriers. This application enabled
us to promptly respond to changes in
instructions by the client and to build
an objective motivation system for our
couriers.
Moscow delivery zone
St. Petersburg delivery zone
MOSCOW
ST. PETERBURG
1. HM “Vesna Altufevo”
4. HM “Svyatoozerskaya”
1. HM “Vyborgskoye”
4. HM “Bolshevikov”
2. HM “Putilkovo”
5. HM “GOOD ZONE”
3. HM “Rostokino”
6. HM “Kirovograd
Columbus”
2. HM “Bogatyrskiy
Yakhtennaya”
3. HM “Ladozhskaya”
5. HM “Pulkovskoye”
6. HM “Tallinskoe shosse”
12 pick points in Moscow and St. Petersburg
MOBILE APP AND WEBSITE
The popularity of the O’KEY mobile app is
increasing among our customers: in 2019,
over 30% of orders were made through
the application. In 2019, we continued
to develop the mobile app and launched
a voice assistant in the Android version
which can search for products and add
them to the cart as well as showing
detailed product information.
Customers tend to prefer smartphones
over laptops and computers. To meet
this trend, in 2019 we adapted the
okeydostavka web-site for mobile devices
which increased conversion for mobile
users. We also launched push notifications
which proved successful with customers.
Furthermore, our website page loading
speed was more than doubled, allowing us
to reduce the bounce rate.
We actively developed the personal
accounts of users and improved overall
usability. In particular, in their personal
accounts customers can now view
available coupons (valid both online and
in offline stores), check their purchase
statistics (with categorisation), and
add their loyalty cards to Apple Wallet.
We also prepared to launch a new bonus
system which will cover all O’KEY stores.
Customers can accumulate bonus
points with online and offline purchases,
and check statistics, active balance
and promotion goods in their personal
accounts.
1/ In 2019, the Rostokino pick point was temporary closed for reconstruction until 2020.
Plans
In 2020 the development of e-commerce
and expansion of both online and offline
will remain our priority. We plan to further
improve the usability of the website
including the optimisation of product
search. For the convenience of online store
customers, we plan to launch an English
version of the okeydostavka site.
We will update the mobile app and expand
the range of services in personal accounts.
We will test an express delivery service and
launch sales of additional assortments
from our distribution centres.
O’KEY mobile app allows customers to:
purchase
goods
use search
and filters
share
basket
between
users
view
promotions
pay
online
view
order
history
view offline
catalogues
locate the
nearest
store;
create an
electronic
loyalty
card;
access the
shopping
history;
check
accumulated
loyalty;
NEW!
use the
voice
assistant
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational Review24 Hypermarkets36 DiscountersO’KEYCity Hypermarket Format
36
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
DA! discounters profit
from synergies with O’KEY
hypermarkets in procurement,
imports, and relations with
suppliers and producers.
This creates economies
of scale, increasing our
purchasing power and
supporting a high level of
quality in the goods we source.
STRATEGIC PRIORITIES OF DA!:
O’KEY Group’s
discounter business
continued its
expansion
1
Growth
and expansion
2
Strong
private labels
3
The best value
proposition
KEY FIGURES OF 2019
NUMBER OF STORES, 2019
SELLING SPACE, K M²
NET RETAIL REVENUE, RUB BN
100
82
67
46.2
56.8
69.3
17.9
10.3
13.6
2017
2018
2019
2017
2018
2019
2017
2018
2019
In 2019, O’KEY Group’s discounter business
continued its expansion, with a significant
31.7% increase in net retail revenue and
continuous growth in average ticket and
traffic. We are delighted to see the great
appreciation customers have for our DA!
stores, which underpins our motivation
to further expand the discounter chain.
In 2019, we opened 19 new DA! stores
across the Central Federal district, bringing
the total number of discounters to 100.
The affordability of goods in stores is
guaranteed by our well-developed private
label offering and regular promotions with
leading brands. The convenient locations of
DA! Stores helps to facilitate the shopping
experience.
Our commitment is to maintain the high
efficiency of our internal operations and
logistics and provide customers with
the best assortment and supply solutions.
NET RETAIL REVENUE, %
LFL NET RETAIL REVENUE, %
LFL TRAFFIC, %
+31.7%
+14.9%
+8.6%
+32.0%
+81.8%
+12.7%
+52.0%
+9.5%
+34.8%
Our discounters adhere to the “every
day low price” principle, maintaining
a high quality of goods and ensuring
an excellent level of service.
2017
2018
2019
2017
2018
2019
2017
2018
2019
37
DISCOUNTERS BUSINESS
AT A GLANCE
NET RETAIL REVENUE
IN 2019
RUB17.9 bn
AVERAGE STORE SELLING
SPACE
693 m2
PRODUCT RANGE, SKUS
2,520
PRIVATE LABEL SKUS
1,019
PERCENTAGE OF OWNED
SPACE
27 %
DISCOUNTER SHARE
IN GROUP SALES 2019
11 %
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational Review24 Hypermarkets36 DiscountersDA! Discounter Format 38
PERFORMANCE
In 2019, net retail revenue generated by
DA! grew by 31.7% YoY to RUB 17,856 mln,
supported by a steady growth in traffic
(up 24.5% YoY) and the average ticket (up
5.8%) which reached 17.856 RUB by the
end of the reporting year. This significant
growth was achieved in all major
segments.
To ensure robust growth, we continued
to effectively manage our assortment
and maintain a competitive pricing policy,
including our private labels. We focused on
optimisation and extention of ultra-fresh
and fresh products, such as dairy, fresh
meat and poultry, fruits and vegetables.
A total of 182 SKUs were added to our
portfolio throughout the year, including
86 private label SKUs.
OUR PEOPLE
At DA!, we aim to hire the best
professionals in the field, creating a team
consisting of loyal employees who are
passionate about their work. Due to our
continued expansion, in 2019 we grew the
total number of our employees by more
than 19.8% compared to the previous year.
As of 31 December 2019, DA! discounters
employed 2,331 people.
We adhere to the principles of gender
diversity and provide equal opportunities
to both men and women: 58% of our
employees are female. We treat our
employees equally regardless of their
age, gender or nationality and make hiring
decisions based on candidates education,
qualifications and readiness to develop
their professional skills.
WIDE RANGE OF GOODS
OF THE HIGHEST QUALITY
AT THE MOST ATTRACTIVE PRICES
DA! keeps up with the latest trends to make
our stores the best value for money for our
customers. In 2019, we:
Every day
low price
DA! NET RETAIL
REVENUE GROWTH YOY
+31.7%
introduced local pricing for fresh fruits
and vegetables;
improved logistics to provide
customers with the freshest goods;
expanded our assortment in the fresh
and ultra-fresh categories;
improved our standard planograms to
provide more consumer friendly layouts
and to profit from better stock rotation;
intensified our direct import efforts
regarding goods that need to be
obtained from abroad;
equipped our stores with chillers
for cold drinks;
optimised the bulk food facilities in
our confectionery and frozen sections,
introduced nuts and dried fruits in the
bulk food section;
remodelled our merchandising
equipment at the check-out tills.
DA! EMPLOYEES BY AGE
Age
Number of employees
Share, %
TOTAL 2,331
388
1,009
< 25 YEARS
25-35 YEARS
35-45 YEARS
743
>55 YEARS
191
17%
43%
32%
8%
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
39
PRIVATE LABELS AND OWN PRODUCTION
According to our research, retail customers
tend to appreciate products at attractive
prices and of high quality, which are
a close equivalent to branded products.
Therefore, one of our strategic priorities
is strengthening our private label products.
While developing the PL assortment,
we follow the latest trends in the retail
industry and seek to meet customers’
changing preferences.
The frequency of such audits depends
on previous audit results and the
potential risk factors of the particular
goods. In addition, we initiate checks
in independent accredited laboratories
to evaluate and ensure the quality of the
product. The frequency of laboratory
checks depends on the risk parameters for
different product categories and may vary
from one to twelve checks per year.
Private label products significantly
contribute to our turnover: they comprise
40% of our total number of SKUs.
In 2019, PL sales grew slightly better than
branded products. In the reporting year
we introduced 86 new private label SKUs,
some of them under the “farm label” which
represents regional and traditional high
quality production. Meanwhile, we also
revised 125 existing private label SKUs
with regard to their layout and design.
Our total number of private label SKUs
reached 1,019 SKUs. For our private label,
we use 84 registered brands which are
used as umbrella brands for different
categories and quality levels.
The quality of our private label goods
is ensured by strictly following legal
requirements and imposing additional
quality checks at the supplier and product
levels. Producers of our private label
products have to undergo external audits
which are based on GFSI (Global Food
Safety Initiative) requirements.
Our goal is to keep the private label
assortment modern and trendy, and in
the future we will continue to introduce
new private label SKUs and improve the
packaging layout.
Plans
In 2020, we will continue the expansion
of the discounter chain and plan to open
up to 30 new DA! stores. We will do our
upmost to progress the development of
private label products in terms of quality,
packaging layout and number of SKUs.
We strive to be a fast-mover in a
competitive environment, identifying trends
and reacting quickly to meet customer
needs. We strive to develop relationships
with regional producers and in 2020
we will test local supplies of traditional
dairy products in the Ryazan, Kaluga
and Tula regions. We will focus on the
productivity improvement of our stores,
developing the product layout schemes,
merchandising and logistics.
PRIVATE LABEL, SKUs
1,019
OF TOTAL NUMBER
OF SKUs, %
40%
TWO-LEVEL QUALITY CHECK:
Supply level –
GFSI certification
Product level –
laboratory checks
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Operational Review24 Hypermarkets36 DiscountersDA! Discounter Format
40
Overview
Strategic Report
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41
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial ReviewREVIEW 42
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43
Cost of goods sold and gross profit
The table below provides a breakdown of the cost of goods sold in 2019 and 2018:
REVENUE
In 2019, total Group revenue increased by
2.3% YoY to RUB 165,086 mln. The revenue
increase was primarily triggered by
the continuing expansion of DA! and
higher shelf inflation. At the same time,
organic Group total revenue, excluding
the effect of the supermarket business
sale, increased by 3.0% YoY, on the back
of continuing double-digit growth in
the discounter business.
KEY FINANCIAL RESULTS
The value-for-money concept continued
to show its efficiency: LFL revenue of DA!
grew by 14.9% YoY, supported by a steady
increase in LFL traffic and average ticket
(up 8.6% YoY and 5.8% YoY respectively).
IFRS 16 IMPLEMENTATION
under IAS 17. The associated right-of-use
assets for leases were measured at their
carrying amounts as if the standard had
been applied since the commencement
date, but discounted using the Group’s
incremental borrowing rate at the date of
initial application.
The Group has applied IFRS 16 since
1 January 2019. Upon adopting IFRS 16,
the Group recognised its lease liabilities
in relation to leases which had previously
been classified as “operating leases”
Upon implementing the standard,
the Group’s management began to assess
its performance based on the figures
presented in accordance with IFRS 16.
12M
2019
% of
revenue
12M 2018
(IFRS 16 unaudited)
% of
revenue
∆ YoY,
bps
12M 2018
(IAS 17)
% of
revenue
∆ YoY,
bps
165,086
100%
161,303
100.0%
—
161,303
100.0%
RUB mln
Total revenue
Cost of trading stock
(less supplier bonuses)
Inventory shrinkage
Logistics costs
Cost of goods sold
(125,987)
76.3%
(123,400)
76.5%
(19)
(123,922)
76.8%
(118,330)
71.7%
(115,981)
71.9%
(22)
(115,981)
71.9%
(3,127)
(3,896)
1.9%
2.4%
0.4%
(2,875)
(3,902)
(642)
1.8%
2.4%
0.4%
Labelling and packaging costs
(633)
Gross profit
39,100
23.7%
37,904
23.5%
11
(6)
(1)
19
(2,875)
(4,424)
(642)
1.8%
2.7%
0.4%
37,382
23.2%
—
(51)
(22)
11
(38)
(1)
51
The Group’s gross profit margin increased
by 19 bps YoY on a comparable basis
while increasing in absolute terms by
RUB 1,196 mln, driven by better sales and
optimisation of assortment matrix and
continuing improvement of purchasing
conditions.
Increase of import of own brand
assortment in different categories also
positively affected gross margin.
Shrinkage costs increased by 8.8% YoY,
mainly due to cancelling supplier returns
of products with a shelf-life of less
than 30 days.
Logistics costs remained flat at 2.4%
of revenue in 2019, as two opposing factors
offset one another: as quality standards
were increased, processing costs also
grew, however that was compensated for
by a substantial decrease in delivery tariffs
through a tender process.
RUB mln
Total Group revenue
O’KEY
DA!
Organic Group revenue
O’KEY
DA!
Gross profit
Gross profit margin
Group EBITDA
Group EBITDA margin
EBITDA O’KEY
EBITDA margin O’KEY
EBITDA DA!
EBITDA margin DA!
Net profit (loss)
Net profit (loss) margin
12M
2019
12M 2018
(IFRS 16 unaudited)
∆ YoY
2019 / 18
12M 2018
(IAS 17)
∆ YoY
2019 / 18
GENERAL, SELLING, AND ADMINISTRATIVE COSTS
165,086
147,175
17,911
165,086
147,175
17,911
39,100
23.7%
14,061
8.5%
14,277
9.7%
(215)
-1.2%
747
0.5%
161,303
147,688
13,616
160,322
146,706
13,616
37,904
23.5%
14,133
8.8%
14,926
10.1%
(793)
-5.8%
(1,047)
-0.6%
2.3%
-0.3%
31.5%
3.0%
0.3%
31.5%
3.2%
19
-0.5%
(24)
-4.4%
(41)
-72.8%
462
-171.3%
110
161,303
147,688
13,616
160,322
146,706
13,616
37,382
23.2%
8,644
5.4%
10,416
7.1%
(1,772)
-13%
(599)
-0.4%
2.3%
-0.3%
31.5%
3.0%
0.3%
31.5%
4.6%
51
62.7%
316
37.1%
265
-87.8%
1,181
-224.7%
82
The table below provides the general, selling, and administrative expenses breakdown for 12M 2019 and 12M 2018:
RUB mln
Personnel costs
Depreciation and amortisation
Communication and utilities
Advertising and marketing
Repairs and maintenance
Operating taxes
Insurance and bank commissions
Security expenses
Legal and professional expenses
Expense relating to variable lease
payments / Operating lease expense
Materials and supplies
Other costs
Total
12M
2019
% of
revenue
12M 2018
(IFRS 16 unaudited)
% of
revenue
∆ YoY,
bps
12M 2018
(IAS 17)
% of
revenue
∆ YoY,
bps
14,672
8,100
3,656
2,268
1 317
638
918
713
656
347
321
24
8.9%
4.9%
2.2%
1.4%
0.8%
0.4%
0.6%
0.4%
0.4%
0.2%
0.2%
0.0%
14,068
7,782
3,503
2,012
1,228
803
817
736
630
461
294
29
8.7%
4.8%
2.2%
1.2%
0.8%
0.5%
0.5%
0.5%
0.4%
0.3%
0.2%
0.0%
33,630
20.4%
32,362
20.1%
17
8
4
13
4
(11)
5
(2)
1
(8)
1
(0)
31
14,068
4,367
3,503
2,012
1,230
803
817
736
630
5,426
294
29
8.7%
2.7%
2.2%
1.2%
0.8%
0.5%
0.5%
0.5%
0.4%
3.4%
0.2%
0.0%
33,915
21.0%
17
220
4
13
4
(11)
5
(2)
1
(315)
1
(0)
(65)
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial ReviewFinancialReview 44
In 2019, personnel costs as a percentage
of revenue increased by 17 bps to 8.9%
or by RUB 604 mln YoY. This increase
was largely attributable to necessary
wage increases at the hypermarkets
business in the second half of 2018 and
to new discounter openings, partly offset
by the sale of the supermarket business.
Communications, utilities, repairs,
and maintenance expenses increased
as a percentage of revenue by 8 bps
YoY or by 5.1% in absolute amount.
The increase was primarily caused by
indexing utility tariffs in the second
half of 2019, rising tariffs for cleaning
services and planned equipment repairs
in 2019. The Group continues to work
towards optimising related costs and
efficiency improvements.
Advertising and marketing expenses as
a percentage of revenue increased by
13 bps driven mostly by higher expenses
related to promotional campaigns and
introduced regular issuance of leaflets
for Fresh categories.
Insurance and banking expenses
as a percentage of revenue increased
by 5 bps due to the growing usage of cards
for payment by our clients and increase
in traffic.
Depreciation and amortisation increased by
85.5% YoY in comparison with 2018 figure
under IFRS 17 due to the implementation of
new IFRS 16 standard.
OTHER OPERATING INCOME
AND EXPENSES
In June 2019, the Group signed
an agreement with a third party
for the sale of subsidiaries holding
rights for lease of land plots and other
related non-current assets in Moscow.
According to the agreement, the total
proceeds are RUB 1,553 mln.
Additionally, the Group recognised
an impairment loss in the amount
of RUB 821 mln (vs RUB 369 mln in 2018),
primarily in respect of mature low-
performing stores, including some stores
in both the O’KEY and DA! segments.
FOREIGN EXCHANGE
GAIN /(LOSS)
The foreign exchange gain was due
to a substantial difference in exchange
rates at both the end and the beginning
of the reporting period, arising primarily
from intragroup USD-denominated loans.
NET FINANCE COSTS
Finance costs on loans and borrowings
decreased as a percentage of revenue
by 0.3% YoY, driven by a decline
in the weighted average interest rate from
8.8% in 12M 2018 to 8.5% in 12M 2019.
At the same time, total finance costs
increased by 58.3% YoY as a result of
additional interest costs on lease liabilities
in the amount of RUB 2,223 mln under
the new IFRS 16 standard.
45
RUB mln
Net cash from operating activities
Net cash (used in) / from investing activities
Net cash used in financing activities
Net (decrease) / increase in cash and cash
equivalents
Effect of exchange rate on cash and cash
equivalents
FINANCIAL LIABILITIES
12M 2019
(IFRS 16)
12M 2018
(IAS 17)
11,078
(1,352)
(12,922)
(3,196)
(9)
4,762
3,479
(7,248)
993
(31)
By 31 December 2019, net debt had
increased by 1.9% YoY to RUB 26,212 mln.
With its major creditors, the Group
negotiated a new covenant calculated
as total interest-bearing liabilities (net
debt and lease liabilities) divided by
the EBITDA based on IFRS 16. The Group
complies well with all bank covenants
as of 31 December 2019.
RUB mln
EBITDA LTM
Total debt
Short-term debt
Long-term debt
Cash & cash equivalents
Net Debt
Total Lease Liabilities
Short-term lease liabilities
Long-term lease liabilities
As of 31 December
2019 (IFRS16)
As of 31 December
2018 (IAS17)
14,061
31,719
1,629
30,090
5,507
26,212
25,122
3,950
21,173
8,644
34,425
2,461
31,964
8,712
25,713
—
—
—
Total Interest-Bearing Liabilities
(Net of сash & сash equivalents)
Total Interest-Bearing Liabilities
(Net of сash & сash equivalents) / EBITDA
51,334
25,713
3.7
2.97
Overview
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Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
CASH FLOW
AND WORKING CAPITAL
Net cash from operating activities
during the reporting period improved
from RUB 4,762 mln in 12M 2018 to
RUB 11,078 mln in 12M 2019, due to,
amongst other factors, the implementation
of IFRS 16. Repayment of the principal
amount of lease liabilities and interest paid
on them in the amount of RUB 6,370 mln
were presented in cash flows from
financing activities, while in 2018 under
IAS 17 all lease payments were presented
in cash flows from operating activities.
Net cash used in investing activities
amounted to negative RUB 1,352 mln
in 2019. This was primarily a result of
RUB 1,553 mln in proceeds received
from the sale of subsidiaries owning
lease rights for two land plots and other
non-current assets, which partly offset
the Group’s 2019 capital expenditures
(CAPEX) of RUB 2,919 mln (excluding VAT).
During the reporting period, the Group paid
RUB 1,004 mln (excluding VAT) for the
development of its hypermarket business
and RUB 1,915 mln (excluding VAT) for the
development of its discounter business.
Net cash used in financing activities in
12M 2019 amounted to RUB 12,922 mln.
Over the reporting period, the Group
attracted RUB 13,253 mln in financing
and made repayments of loans and
borrowings totalling RUB 15,844 mln.
As at 31 December 2019, the Group had
RUB 15,947 mln of undrawn, committed
borrowing facilities available in Russian
roubles on a fixed and floating basis, in
respect of which all conditions have been
met. Proceeds from these facilities may
be used to finance operating and investing
activities as necessary.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial ReviewFinancialReview 46
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
47
MANAGEMENT
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Risk Management 48
RISK MANAGEMENT SYSTEM
Our risk management system is aimed
at providing a reasonable guarantee that
the Company’s strategic goals will be
achieved in a timely manner and that
the level of risks faced by the Group
remains acceptable for management
and shareholders. We operate a unified
approach to risk management through the
Group Risk Standard, which comprises a
range of relevant tools and methodologies
aimed at early risk detection and risk
mitigation.
Internal Audit undertakes both regular
and ad hoc reviews of risk management
controls and procedures, the results
of which are reported to the Audit
Committee. The Group, through its
training and management standards and
procedures, aims to develop a disciplined
and constructive control environment in
which all employees understand their roles
and obligations. Identified risk areas are
monitored quarterly and followed by a
coordinated improvement programme.
The Board of Directors has overall
responsibility for the establishment and
oversight of the Group’s risk management
framework. The Group’s Audit Committee
oversees how management monitors
compliance with the Group’s risk
management policies and procedures,
and reviews the adequacy of the risk
management framework in relation to the
risks faced by the Group. Internal Audit
assists the Group’s Audit Committee in its
oversight role.
In 2019, Company ensured the effective
functioning of its risk management
system by identifying and assessing
risks in a timely manner, developing and
implementing measures to manage
those risks. Senior management devoted
significant attention to managing key
risks that have a high impact and a high
probability. The Board of Directors reviewed
information on managing the Company’s
key risks on a quarterly basis.
In 2019, the Company continued to develop
its risk management system:
A declaration and provision on the
Company’s risk appetite were approved
by the Board of Directors. Risk appetite
establishes the level of risk that is
acceptable in terms of achieving
the Company’s goals and facilitates
effective decision-making while taking
risks into account.
The Company’s bylaws establishing
a unified methodology and procedure
for cooperation and responsibility
regarding risk management were
updated. No significant changes were
made to the Company’s corporate
governance system in 2019 overall
as a result of changes to the risk
management system.
The Board of Directors
• Overall responsibility for the
establishment and oversight of
the Group’s risk management
framework
The Audit Committee
• Oversees how management monitors
compliance with the Group’s risk
management policies and procedures
• Reviews the adequacy of the risk
management framework in relation to the
risks faced by the Group
Executive management
(CEO and Management Board)
• Oversees implementation of, and
adherence to, risk management policies
• Monitors and manages risks relevant to job
function
• Carries out risk identification and reporting
• Performs operational risk management
Internal Audit
• Assists the Group’s Audit
Committee in its oversight role
• Undertakes both regular and ad
hoc reviews of risk management
controls and procedures, the
results of which are reported to
the Audit Committee
49
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
/MAP OF PRINCIPLE RISKS/
High
k
s
i
r
e
h
t
f
o
y
t
i
l
i
b
a
b
o
r
P
4
1
2
5
6
14
9
11
7
8
12
3
10
13
Low
Strategic risks
1. Economic outlook
2. Competition risk
3. Political risk
4. Regulatory risk
Materiality (affect) of the risk
High
Operational risks
5. Changing customer expectations
Financial risks
10. Providing sufficient level of financing
6. Employee recruitment and retention
11. Tax regulations
7. Supply chain risk
12. Changes in working capital
8. IT platform developpment
13. Risk of misstatements in financial statements
9. IT security threats
14. Risks of currency and interest rates volatility
– estimated likelihood /risk impact
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Risk ManagementRiskManagement
50
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
51
Below we describe the key risks that could have a material adverse effect on our business, our financial and operational performance and, as
a result, could affect our share price and our reputation. Additional risks not known to us or those risks that we currently consider immaterial,
may also impair our business operations. We do not expect to incur any risks that may jeopardise the continuity of our business.
/PRINCIPLE RISKS/
Name of Risk
Definition & Potential Impact
Mitigating Actions
Name of Risk
Definition & Potential Impact
Mitigating Actions
STRATEGIC RISKS
1.
Economic
outlook
2.
Competition
risk
Our business is affected by uncertainties associated
with changing economic conditions, particularly
in the current environment of global economic
instability. Therefore, we may face reduced customer
demand as the income and purchasing power of
our customers decreases under the impact of the
weaker macroeconomic environment exacerbated by
declining oil prices and sustained rouble volatility, as
well as the coronavirus pandemic.
We closely monitor the changes in the macroeconomic
environment, income levels, consumer confidence index and other
indicators. Therefore, if significant unfavourable developments
occur, we are ready to take corrective steps and adjust our
business model.
In order to avoid potential supply disruption due to the coronavirus
pandemic, we strengthen the loading of our distribution centres.
We also take various preventive measures against the virus
spreading, such as regular disinfection and employees’ daily
temperature checks.
The retail sector in Russia is highly competitive.
We face strong competition from other retailers
(Russian and international), some of which are larger
and have greater resources. Retail chains compete
mainly over store locations, product ranges, price,
service and store conditions. Some competitors might
be more effective and faster in capturing certain
market opportunities, which in turn may negatively
impact our market share and our ability to achieve our
performance and expansion targets.
We focus on enhancing our customer value proposition
through the introduction of a competitive pricing policy, the
implementation of effective marketing initiatives and assortment
structure improvement.
We put considerable effort into aligning our hypermarket price
perceptions with the “best value for money” concept.
In 2019 we also launched several projects such as the redesign
of our private labels package (“That’s what you need!”, “O’KEY”),
development & implementation of new brands in the “O’KEY
Selection” private label line (“Farmers collection”, “Organic”).
3.
Political risk
Although political stability in Russia has improved,
Russia is still a state whose political, economic and
financial systems are rapidly developing and changing.
Although these risks are outside the control of the Group,
O’KEY monitors political developments closely
and maintains strong relationships with various national
industry bodies.
4.
Regulatory risk Our operations are subject to various government
regulations and industry specific legislation
with respect to quality, packaging, health and
safety, labelling, distribution and other standards.
Some regulations are still being developed in Russia.
Current and future government regulations or changes
thereto may require us to change the way we run
our operations and could result in cost increases.
Failure to comply with regulations can also lead to
reputational damage.
We aim to ensure compliance with all applicable regulations by
monitoring regulatory developments and changes, and following
up and responding to changes in regulations and standards in
a timely manner.
The new requirements for the marking of products (tobacco
products, shoes and clothing) and for digital veterinary certificates
had a significant influence on all players on the market.
For this reason, during 2019, we developed and implemented
timely and essential changes in Company’s main business
processes (such as goods ordering/receiving/return, stocktaking),
and updated relevant internal policies, procedures and
information systems.
Additionally, on its own initiative, O’KEY Group S.A. was the first
Russian food retailer to fully stop selling primary oil plastic bags.
This step was inspired by O’KEY’s environmental concerns and the
introduction of new Live Green corporate policy requirements.
To maximise the efficiency and relevance of such assessments,
we monitor internal and external reports on retail market
development and changes in O’KEY positioning.
As the result of these activities, in 2019, product of our private
label “O’KEY” received six gold and three silver medals on
international competition “Quality guarantee 2019”.
Additionally, during the FY 2019, we enhanced the volume and
quality of our promo campaign. In this context, we launched the
new promo concept, "Fresh weekly offers", that will propose fresh
goods that meet expectations of our clients in part of prices,
volume and quality.
To improve motivation we have developed coaching in our stores,
the Performance Appraisal system that is conducted on a regular
basis and rewards employees based on their individual results.
We also promote internal opportunities for career development
via regular trainings and special programmes.
During 2019, we continued to increase the effectiveness of
operations at distribution centres, stores and head office levels.
We finished the implementation of the new system Axapta 12
(Microsoft Dynamics) in our distribution centres and optimised
the number of transport carriers with introducing a new evaluation
system for them.
We also implemented Oracle RPAS for sales forecasting and
replenishment optimisation (70% of core categories are covered).
OPERATIONAL RISKS
5.
Changing
customer
expectations
We strive to provide our customers with a wide
range of goods and services, at competitive prices.
However, we recognise that our customers’ shopping
habits and expectations are influenced by the
economic environment and will change over time.
6.
Employee
recruitment
and retention
7.
Supply chain
risk
Competition for highly qualified management
and store personnel remains intense in Russia.
To meet our expansion plans we need highly skilled
employees. Our future success depends in part on our
continued ability to hire, and retain new employees.
We understand that any inability to attract and retain
highly qualified employees and key personnel in the
future could have a material adverse effect on our
business.
Our financial performance depends in part on reliable
and effective supply chain management. We rely
on third parties to supply us with merchandise
and services. The third parties that supply us with
merchandise and services also have other customers
and may not have sufficient capacity to meet all of
their customers’ needs, including ours, during periods
of excess demand. Shortages and delays could
materially harm our business. Unanticipated increases
in prices could also adversely affect our performance.
Furthermore, we may be exposed to risk of delays and
interruptions to our supply chain because of natural
disasters, in case we are unable to identify alternative
sources of supply in a timely manner.
– estimated likelihood /risk impact
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Risk ManagementRiskManagement 52
/PRINCIPLE RISKS/
Overview
Strategic Report
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Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
53
Name of Risk
Definition & Potential Impact
Mitigating Actions
Name of Risk
Definition & Potential Impact
Mitigating Actions
8.
IT Platform
Development
Execution of our strategic targets requires adaptation
of current IT infrastructure to the changing business
needs. As the business grows the complexity of
processes supporting it and diversity of tasks around
such growth are increasing. Delayed or inappropriate
decisions on development of the infrastructure can
lead to failures in meeting Group goals and impede
attainment of longer-term goals.
In 2019, we completed the implementation of several key
applications and systems in accordance with our strategy:
• Axapta 12 (Microsoft Dynamics) for distribution centres;
• Boss HR solution with core HR functions,
and extended its functionality to employee self-service;
• Upgrade of the POS platform to the newest version
of CSI solution (SET 10).
9.
IT security
threats
FINANCIAL RISKS
10. Providing
sufficient level
of financing
Already by the end of 2019, we noticed positive improvements in
our store and head office processes.
We employ a number of measures, including employee training,
comprehensive monitoring of our networks and systems, and
maintenance of backup and protective systems (such as firewalls,
virus scanners and others) in attempt to reduce the threats to our
IT & business infrastructure.
We are observing an increase in IT security threats
and higher levels of professionalism in computer
crime. Our systems and solutions, as well as those
of our counterparties remain potentially vulnerable
to attacks. Depending on their nature and scope,
such attacks could potentially lead to the leakage
of confidential information, improper use of our
systems, manipulation and destruction of data, sales
downtimes and supply shortages, which in turn could
adversely affect our reputation, competitiveness, and
business, financial and operational performance.
Recent changes in the macroeconomic situation
might result in a liquidity squeeze and tightening
of lending policies by Russian banks. Given the
expansion programme in the coming periods, issues
with availability of external financing or significant
changes in its cost can negatively impact our Group’s
ability to execute its expansion programme.
We maintain available lines of credit to close potential liquidity gaps.
We diversify and enlarge the list of partnering banks to
increase our control over the availability and cost of financing.
Our securities are listed on the London Stock Exchange, allowing
us to utilise the secondary placement of shares as an alternative
source of financing.
11. Tax regulations Russian tax law has complex tax rules, which may be
interpreted in different ways and tax rules are subject
to frequent changes. Examinations by tax authorities
and changes in tax regulations could adversely
affect our business, and financial and operational
performance.
Our tax and legal specialists review compliance with applicable
tax regulations, current interpretations issued by the authorities
and judicial precedents resulting from tax disputes. This work
is conducted on a regular basis and in a consistent manner
and ensures we are aware of any changes that we may need
to enforce.
Changes in tax law could result in higher tax expense
and payments. Furthermore, legislative changes could
materially impact tax receivables and liabilities as well
as deferred tax assets and deferred tax liabilities.
12. Changes in
working capital
Inability to control and manage elements of the
working capital can result in negative changes for
the operating cash flow and lead to liquidity gaps and
excessive reliance on external financing.
We exercise constant control over working capital, which
is detailed in our monetary policy. The aim of this policy is
to minimise prepayment balances and control of overdue
receivables.
We are also taking steps to improve stock management efficiency
by establishing and monitoring KPIs and organising training
sessions for store employees.
13. Risk of
misstatements
in financial
statements
We face exposure to risks relating to failures in proper
financial reporting and the classification of accounting
entries, and risks of making inaccurate accounting
estimates.
We regularly monitor internal controls over financial reporting
to prevent misstatements in financial statements. We have
a qualified team of finance professionals who prepare our
financial statements, and our consolidated IFRS financial
statements preparation process is largely automated.
For a description of financial risks and exposure calculations,
please refer to the note 29 and 31 in the Group Consolidated
Financial Statements
14. Risks of
currency and
interest rates
volatility
We are exposed to fluctuations in exchange rates
because of loans received in USD and contractual
obligations in USD and EUR. Although measures are
taken to minimise this risk, it is likely that exchange
rate and interest rate fluctuations occurred in Q1 2020
will influence our results.
Certain currency risks are controlled through switching payments
into roubles, setting caps or hedged using derivative financial
instruments.
On 31 December 2019 more than 80% of the portfolio are fixed
interest rate loans and approximately 96% of the portfolio are RUB
loans.
Internal control and risk management
system
Regarding the internal controls in the area
of accounting and financial reporting,
the following should be noted:
Controls have been established in the
processing of accounting transactions
to ensure appropriate autorisations for
transactions, effective segregation of
duties and the complete and accurate
recording of financial information.
The Board also approves all significant
investments. The Board receives
monthly financial reports setting out
the company's financial performance
in comparison to the approved budget
and prior year figures.
Staff involved in the company's
accounting and financial reporting
are appropriately qualified and are
kept up-to-date with relevant changes
in International Financial Reporting
Standards (“IFRS”). Additionally, specific
training and written guidance on
particular matters is provided where
needed. Written guidance, regularly
updated for business developments
and regulatory changes, is available
to all relevant staff members and
provides a summary of the company's
accounting and financial reporting
policies and procedures.
– estimated likelihood /risk impact
Completeness and timely recording
of financial information is ensured
through regular reviews, monitoring of
specific key performance indicators,
validation procedures by functional
leaders and as an additional check, the
process of internal and external audit.
The company relies on
a comprehensive system of financial
information and oversight. Strategic
plans, business plans, budgets and
the interim and full-year consolidated
accounts of the company are drawn up
and brought to the Board for approval.
Any weaknesses in the system of
internal controls identified by either
internal or external auditors are
promptly and fully addressed.
The external auditors perform a limited
review of the company's half-year
consolidated financial statements and
a full audit of the annual consolidated
financial statements.
In accordance with the requirements of
IFRS, we disclose detailed information on
the market, credit and foreign exchange
risk to which it is exposed, as well as
strategy for managing the risks.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Risk ManagementRiskManagement 54
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
55
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate Responsibility56 Corporate Social Responsibility56 Our Employees60 Health and Safety60 Human Rights and Diversity62 Our Communities63 Environmental ResponsibilityRESPONSIBILITY 56
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
O’KEY believes that social responsibility is an essential factor
of long-term development for any business. Instead of considering
only financial and operational results, we develop a responsible
approach towards society.
57
THE NUMBER
OF EMPLOYEES
18,344
REDUCE OUR STAFF
TURNOVER
37%
BREAKDOWN OF STAFF
Breakdown of staff by gender, %
Breakdown of staff by age, %
MALE
28%
7%
29%
18-25 YEARS
26-35 YEARS
Our team in numbers
In 2019, average headcount of our
hypermarkets reached 18,344, which was
comparable to 2018. In 2019, we managed
to reduce our staff turnover for the retail
division of the Company by 37%.
FEMALE
72%
31%
36-45 YEARS
25%
46-55 YEARS
8%
>56 YEARS
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate ResponsibilityCorporate SocialResponsibility56 Corporate Social Responsibility56 Our Employees60 Health and Safety60 Human Rights and Diversity62 Our Communities63 Environmental ResponsibilityO’KEY SOCIAL RESPONSIBILITYO’KEY Group operates in different geographical areas of Russia, from large cities to small towns and affects various stakeholders, such as business partners, local communities, governmental bodies, media and NGOs. We continuously develop different communication tools with our stakeholders, which helps us to create and sustain mutually beneficial partnerships, ensures continuous progress and promotes general business development. Our key stakeholders are:customers and partners;shareholders and financial community; мemployees;government and local authorities; local communities;media. OUR EMPLOYEES O’KEY’s HR policy is focused on the continuous improvement its HR processes and services, including onboarding, training and development, and professional recognition of the Company’s specialists. We strive to create a productive working environment and open up new opportunities for employees to realise their professional and personal potential. We are aware of the impact that our corporate climate has on in-store service quality. Therefore, in 2019 we took the first steps in implementing the “HAPPY WORK” culture across the Company and will continue to do so in the following years.Key focus areas of the HR strategy: introducing modern technologies and automating HR services;building an effective organisational structure and management team;creating a positive image of the O’KEY brand in the Russian labour market;creating a culture of engagement and effectiveness;systematic staff turnover management;implementing the best HR practices.In 2019, we focused on quality and service ownership, reshaping our leadership role and building a mentoring culture in our stores. To achieve these goals the Company launched or expanded two major projects:”You are the face of the Company”, a project aimed at raising awareness of the significance of each employee for the Company’s successful performance, competitive edge, and attractiveness to its staff and customer base;The “100% Professional” competition, aimed at recognising professional excellence and increasing the social capital of linear careers, was first held in 2018 but was further expand in 2019, increasing its scale and impact and ensuring our culture recognises employee performance and professional skills.O’KEY seeks to improve labour productivity and effectiveness and to automate all pro-cesses, including HR. Therefore, in 2018–2019 the Company completed an ambitious transition to a new advanced “BOSS-Kadrovik” system. The new system automates all key HR processes, from HR activities and payroll calculations to managing compensation and benefits and employees’ online accounts. In 2020, we will add modules for managing per-sonnel costs and budgeting, and health and safety, and will integrate the HR system with recruitment and business trip management.Within the new HR system we implemented a tool designed especially for O’KEY which allows store management teams to easily and efficiently arrange the flexible planning of schedules. The need for such a tool arose as the Company uses various forms of employment and changes working hours depending on business needs. In 2020, we will concentrate on programmes supporting the further enhancement of our service culture and our employer brand. Our focus will be on:the quality of training and onboarding processes;developing non-directive management skills and a coaching leadership style for retail management;ensuring service excellence at stores for internal and external customers;employee health;managing skills development;occupational safety;committees for continuous improvement of processes.
58
/O’KEY VALUES/
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
Effective team
Outstanding results
Professional environment
Excellent service
Innovation
Corporate culture
In 2019, the key tasks of the Company
included enhancing customer-focused
service and building a mentoring culture in
our stores.
The “You are the face of the Company”
project is aimed at creating the right
environment for developing our mentoring
culture and improving conscious working
quality management. The main goal of the
project is to ensure high quality onboarding
and employee training.
To achieve this goal, each store has set up
and operates Mentoring Councils to work
on the continuous improvement of service
for internal and external customers.
As of now, these Mentoring Councils
cover 5% of retail staff across the
Company (80% – line personnel,
20% – management). Our Mentoring
Councils have already promoted 123 ideas
on board, with 53 of them developed and
introduced in our stores, 70 ideas being in
the pilot and development stage.
Due to higher personnel engagement
in pursuing the goals and objectives
of the Company, the project contributed
to a reduction of turnover.
In 2019 we also expanded the “100%
Professional” professional skills contest.
The second wave of the project included
four main retail professions – chef, baker,
sales assistant, cashier, and focused
on three pillars of a successful retail
business – service, technology, and skill.
In 2019, the “100% Professional” contest
engaged with the wider retail industry:
the Company invited external experts from
the V. M. Gorbatov Federal Research Centre
for Food Systems of RAS and the World
Association of Chefs’ Societies (WACS)
to sit on the jury of the final round.
The number of contestants almost tripled
in 2019 and amounted to 1,700 vs 755
in 2018.
Staff training and development
O’KEY puts a lot of effort into the personal
and professional growth of its employees
which ensures high efficiency in our
business activity.
In 2019, we continued to develop
an efficient system of training and
development, focusing on its economic
feasibility, flexibility and availability
in every city.
The key areas of personnel development
were:
functional training;
retail talent bench.
We continued to reinforce the blended
learning system, which allows every
employee to receive a high quality
education. The Company operates
the “O’KEY Academy” training portal
with 80 courses available. The content
is constantly updated through collaboration
with the business.
In order to develop the managerial staff
for each level of management, face-to-face
training pools have been created, where
managers can practice managing their
teams’ performance .
The Company maintained momentum
with its Leadership School where potential
store directors are detected and educated.
The Leadership School comprises three
faculties: Store Director, Deputy Store
Director, Head of Division. Our talent bench
currently has seven directors, 25 deputy
directors and 53 heads of divisions.
In 2019, the Company’s head office
conducted assessment processes
in the following divisions: Commercial
Department, Supply Chain Management
Department, Economic Security Service.
In total, the assessment measures
encompassed 180 employees.
“O’KEY ACADEMY”:
98 %
OF PERSONNEL WERE TRAINED
80
COURSES AVAILABLE ON THE PORTAL
68,549
TRAININGS WERE UNDERTAKEN
59
In particular, O’KEY provides the following
employee benefits:
voluntary health insurance policies
cofinanced at 80%-90%;
free meals for some employee
categories;
gift vouchers for the O’KEY retail chain
and holiday gifts for children;
financial assistance to employees
in a difficult life situations;
the opportunity to pay for gym
memberships in instalments.
Reporting violations
In order to promote an environment
of transparency and trust, O’KEY developed
a whistleblowing policy which regulates
violations of ethics, labour laws, and
interactions between employees and
managers. The Company has several
channels for reporting violations: a call
centre, dedicated manager–employee
meeting hours, and morning kick-offs.
Plans
Staff retention and motivation
WERE RECEIVED IN 2019
In 2020, our main focus will be on aligning
all regions to unified HR process standards
for staff training and assessment,
developing high quality guidelines and
processes. We plan to place a special focus
on developing line managers and heads
of HR divisions as well as onboarding
programmes, both in the head office and
retail. The head office will also prioritise
improvements in the recruitment process
by using different hiring tools.
In 2020, we will continue rolling out our
Freshness Experts project: an experienced
dedicated mentor will be appointed in
each region to educate and help the newly
appointed heads of divisions and heads of
low-performing divisions. We also plan to
launch an all-in e-platform where our best
managers will share their experience and
knowledge of the business.
O’KEY effectively uses advanced well-
balanced financial and non-financial
incentives, providing its employees with
competitive wages which allow the
Company to attract and retain the best
talents.
The Company has a KPI system that takes
into account both individual and corporate
goals. The bonus amount depends on the
results achieved against those KPIs.
Compensation and benefits
O’KEY provides necessary social support
to its employees in full compliance with
the requirements of applicable laws and
regulations, and also implements additional
programmes aimed at creating the most
comfortable environment for our staff.
202
REPORTS
WERE PROCESSED
AND GIVEN FEEDBACK
100 %
REPORTS
These results were made possible through
effectively raising staff awareness of
HR administration processes and the
Company’s standards.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate ResponsibilityCorporate SocialResponsibility56 Corporate Social Responsibility56 Our Employees60 Health and Safety60 Human Rights and Diversity62 Our Communities63 Environmental Responsibility
60
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
61
HEALTH AND SAFETY
O’KEY strives to constantly reduce work-related hazards, providing safe working conditions
for every employee and a comfortable experience for each customer.
/KEY 2019 RESULTS/
What we do:
monitoring workplace conditions;
monitoring employee health;
training employees in safe working practices;
investigate injury incidents;
take measures to prevent similar incidents in the future;
accompany labour protection inspections conducted
by governmental supervisory authorities.
all workplaces
25 occupational injuries
0 fatalities
working conditions
were specially assessed
-29% compared to 2018
The Group has an efficient occupational
health and safety management system,
which fully complies with Russian legislative
norms. The main regulating document is the
Labour Protection and Occupational Health,
Environmental, Industrial and Fire Safety
Policy, valid until 2023.
We conduct regular occupational health
audits in our stores and distribution centres.
In 2019, 305 comprehensive inspections
of our premises were conducted to assess
labour protection.
HUMAN RIGHTS AND DIVERSITY
All occupational injuries involving our
employees and customers are tracked
and systematically investigated. The total
number of accidents amounted 25 in 2019
(vs 35 in 2018), two of them severe (head
injuries in a fall).
In 2020, O’KEY Group plans to implement
a professional occupational risk
management system and conduct the
professional risks assessments throughout
the Company.
TRAINED IN OCCUPATIONAL SAFETY
1,976
PEOPLE TRAINED
TRAINED IN FIRE SAFETY
1,020
PEOPLE TRAINED
O’KEY Group commitments include adhering to the fundamental principles of human rights,
supporting diversity, and maintaining the highest standards of business ethics and integrity.
We strictly comply with relevant internal regulations as well as with Russian legislation and
international best practices.
Ethics and compliance
We treat our employees equally and
with respect, regardless of their gender,
background, ethnicity or nationality.
We understand the positive impact
of a multi-cultural working environment
on business productivity and aim to
increase ethnic diversity throughout
our business. The Company does not
tolerate discrimination, human trafficking
and slavery in any form and constantly
monitors its business operations to ensure
that no risks in these areas arise.
In building its team, O’KEY follows the
principles of partnership, mutual respect
and common goals. Our employees are
expected to abide by a set of clearly
communicated formal policies, which
include:
Supplier selection Policy;
Policy of choosing a counterparty;
Policy of interaction with state bodies;
Anti-corruption policy.
In all situations and under any
circumstances, the actions of employees
must comply with our high professional
and ethical standards and generally
accepted moral values.
Our employees regularly undergo special
training programmes on compliance
with legislation on consumer protection,
interaction with government agencies and
others. These programmes are regularly
updated to comply in a timely manner with
changes in Russian legislation and global
best practices.
Preventing Corruption
/ANTI-CORRUPTION MEASURES//
O’KEY Group has a zero-tolerance policy
towards any kind of corruption at all levels.
The Company strives to ensure a high
level of transparency in all operations
and procedures, continuously improves its
anti-corruption processes and promotes
training on the topic for the employees.
The Company’s corruption prevention
activities are regulated by its Anti-
corruption policy, which is imposed both
internally and externally. Any suspicious
behaviour, including information reported
inside the Company or from our partners
via a hotline, is thoroughly investigated
in line with our rules and policies,
and appropriate measures are taken.
In 2019 we also improved our commercial
secrets policy and deployed new
methodologies and tools to ensure the
security of the Company’s confidential
commercial information. This included
further development of control measures
in the IT network and infrastructure
to secure our commercial information from
unauthorised external and internal access
attempts and misuse. We also implemented
“Red flag” reports which enable instant
action on information security incidents and
are contributing to the rapid discovery of any
anomalies and violations to the Company’s
policies. We also renewed our information
posters about correct behavior in our offices
and reminded employees of contact details
to report any suspicious behavior.
All potential conflicts of interests are
immediately reported to our internal audit
and security departments.
Internal anti-corruption measures
External anti-corruption measures
all employees voluntarily sign
a commitment to follow
the Anti-Corruption policy;
prior to hiring, potential employees
are screened for risks of corruption;
the activity of employees in our
procurement and real estate
departments is constantly monitored;
contract development is monitored
and analysed every six months;
control procedures for critical business
processes (such as receiving, write-offs/
scraping and returns) are implemented
and conducted via IT monitoring
software;
thematic briefings and trainings are
held for employees in the procurement
and real estate departments and in our
stores.
all potential suppliers and service
providers are thoroughly checked before
obtaining any contracts, by verifying their:
• records and documentation,
• financial health (balance sheets, assets,
turnover, debts, credits, and court
proceedings,
• absence of affiliation to our other
suppliers or our employees,
• customer base, turnover matching
with the declared taxes history;
local suppliers are placed under
additional monitoring;
our suppliers sign an obligatory
agreement where they accept all the
clauses related to anti-corruption policy;
in the event that suppliers and
contractors do not comply with the
Policy, O’KEY is entitled to terminate their
contracts immediately.
Anonymous hotline numbers are displayed openly for all employees and service providers
in all our stores as well on our website.
For this purpose, we maintain a confidential
whistleblower e-mail address and hotline to
which anyone can report a complaint.
In 2019, we received several messages.
The messages related to violation of
Company’s rules and standards were
promptly investigated by the Risk
Department’s anti-corruption team.
Confirmed corruption cases were handed
over to the police for further proceedings.
In 2019, we investigated nine cases related
to the violation of our anti-corruption policy
in accordance with our standard process.
Three cases involving employees or
subcontractors were handed over to
the police; in the remaining cases we
took internal measures and appropriate
actions. Furthermore, we updated related
procedures to receive earlier warnings
and to eliminate further occurrences
of similar incidents.In 2020 we plan to
continue transferring the commercial
buying process for several categories onto
an automated trading platform to provide
more transparency and prevent hazardous
behaviour or attempts. This will also
simplify and speed up investigations related
to anonymous warnings, disputes or legal
requests, related to commercial purchasing.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate ResponsibilityCorporate SocialResponsibility56 Corporate Social Responsibility56 Our Employees60 Health and Safety60 Human Rights and Diversity62 Our Communities63 Environmental Responsibility
62
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
63
OUR COMMUNITIES
O’KEY strives to provide a better quality of life to local communities in the areas in which
we operate, including the most vulnerable groups in society. For this purpose, we support several
charity and social investment initiatives in partnership with different stakeholders, such as local
authorities, businesses, non-governmental organisations, the media and our customers.
Our social initiatives include supporting
sporting and cultural events, developing
social infrastructure and supporting
vulnerable groups in society, such as
orphans, children lacking parental care,
people in difficult situations in life, veterans
of the Great Patriotic war and seriously ill
children. These programmes enable the
O’KEY to support the population and ensure
the Company meets its commitments
as a responsible industry leader.
Treatment Support
In 2019, O’KEY Group continued its
cooperation with Rusfond to help children
with serious health conditions and held
the fourth national Kind Purchase
charitable campaign.
All of our customers could participate
in the charity campaign which ran from
24 October to 20 November 2019, simply
by purchasing any products under O’KEY
private labels (over 1,700 SKUs) at any
O’KEY hypermarket and on the
www.okeydostavka.ru online store.
The Company donated a proportion of the
revenue generated through sales of these
products to the charity.
The total amount of funds raised through
Kind Purchase in 2019 reached RUB 7 mln.
RUB 7 mln
RAISED THROUGH JOINT CHARITY
CAMPAIGNS WITH RUSFOND IN 2019
Priorities of O’KEY
charity programmes
Major charity partners
in 2019:
Outcomes
of our assistance:
help children with serious
illnesses;
Rusfond;
Advita;
help people in difficult
situations in life;
help veterans of the
Great Patriotic war.
service for Consumer
Market and Licensing of
the Irkutsk region.
targeted assistance;
heightened consumer
awareness about
issues and increased
participation in solutions;
the attraction of other
benefactors.
The money will be used for the treatment
and rehabilitation of seriously ill children
in Rusfond’s wards.
Another of O’KEY Group’s committed
charity partners is AdVita, a St. Petersburg-
based charity fund specialising in help for
children and adults suffering from cancer.
Throughout 2019 we organised a variety
of campaigns in our St. Petersburg stores
to raise funds for AdVita, including the
placement of donation boxes next to
counters so that our customers could
donate to help people in need.
Humanitarian aid
In July 2019, O’KEY Group dispatched
humanitarian aid to residents impacted by
flooding in the Irkutsk Region. The relief
effort included a 16-pallet container holding
more than 8,000 items, including household
items, clothing and textiles. The cargo
worth RUB 2.35 mln was delivered to
the disaster zone in Tulun and distributed
among flood victims in the affected area.
Supporting Vulnerable Groups
We have an ongoing programme aimed
at helping vulnerable groups.
O’KEY hypermarkets offer holders of state
social cards an additional 3% discount
at our stores in Moscow and the Moscow
region, and various discounts for retired
people in Krasnoyarsk, Murmansk,
Syktyvkar, Tyumen and two stores
in St. Petersburg. The discount does not
apply to alcohol and tobacco products.
In St. Petersburg, we also offer holders
of a special social card for new mothers
additional discounts on children’s goods.
In order to support families in difficult
situations and children from dysfunctional
families, before the New Year we held
a social campaign called “Blizzard of
Wonders” in the cities of Moscow, Rostov-
on-Don and Ekaterinburg. Our customers
could bring gifts for vulnerable population
groups, which were later sent to
foundations providing targeted assistance.
Overall, we gathered more than 500 gifts.
RUB 26 mln
RAISED SINCE 2017
RUB1.87 mln
RAISED THROUGH DONATION BOXES
RUB 9 mln
RAISED SINCE 2016
ENVIRONMENTAL RESPONSIBILITY
We believe that environmental responsibility of business is a necessity for keeping market
positions in the long-term perspective. This is proved by growing eco-awareness of customers
and changes in environmental legislation. We promote the responsible approach
and try to minimise our environmental footprint by implementing different measures.
We ensure the strict compliance with
Russian environmental legislation through
regular internal audits. We also perform
quarterly monitoring of atmosphere and
noise pollution in the buffer zone to make
sure that our stores have no negative
impact on the living conditions of local
communities.
In 2019, the Company implemented a new
Live Green corporate policy and plans
to follow its principles in 2020. In line
with the policy, O’KEY hypermarkets will
fully stop selling primary oil plastic bags
in Q1 2020. Instead, our customers will
be offered various packaging options
such as biodegradable corn starch and
100%-recycled plastic bags, reusable
shopping bags of different materials and
capacities, from heavy-duty paper bags to
jute, cotton, nylon and PVC durable items.
led-lights and led-signboards, replace
outdated refrigeration elements and
conditional systems with leading edge
energy-saving devices. As a result of
these measures, in 2019 the total energy
consumption YoY decreased by 3%.
Waste management
Waste management processes in
O’KEY Group are regulated by the Waste
management policy, which is implemented
in all our stores.
The amount of waste buried on the landfills
is reduced by separate waste collection
implemented in all our stores.
Furthermore, biological waste and lamps
are transported to special factories,
recyclable waste such as polythene film,
plastic boxes and wastepaper is pressed
and sold for further recycling. We collect
and sell for recycling banana boxes, waste
oil, pallets and metal scrap.
Our key operational locations have water-
treatment facilities, including petrol and
sand catchers, filtering stormwater from
parking zones and grease catchers filtering
waste from our own-production facilities
before it is disposed into the public sewers.
ENERGY CONSUMPTION
(NET), K KWT/H
PROCEEDS FROM SALES
OF RECYCLABLE
MATERIALS, RUB MLN
Energy efficiency
436,052
We care about energy efficiency of our
business and make efforts to gradually
reduce our total energy consumption.
O’KEY controls the energy use in its
supermarkets. We equip our stores with
modern recuperators and energy-efficient
401,116
389,648
267
233
215
2017
2018
2019
2017
2018
2019
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate ResponsibilityCorporate SocialResponsibility56 Corporate Social Responsibility56 Our Employees60 Health and Safety60 Human Rights and Diversity62 Our Communities63 Environmental Responsibility 64
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
65
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate Governance66 Our Corporate Governance Principles66 The General Meeting of Shareholders68 Board of Directors72 Committees of the Board of Directors74 Executive Management76 Information for Shareholders and InvestorsGOVERNANCE 66
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
67
We recognise our obligation to our shareholders to adopt
highest standards of governance and control, both at the Board
level and within our management teams, and aim to establish
and support a corporate governance framework that is
suitable for the development of our business and meets
the requirements of our shareholders.
Heigo Kera
Group Chairman
O’KEY Group S.A. is a company incorporated
under the Laws of the Grand Duchy
of Luxembourg with Global Depositary
Receipts (GDRs) listed on the London Stock
Exchange, and as such is not required
to comply with the UK Corporate Governance
Code.
The most significant decisions affecting
the life of the Company and the rights
of shareholders, including the approval of
financial statements and the Annual Report,
appointment of the Directors, amendments
of the Articles, approval of the final dividend
for the financial year, are subject to review
and approval at the Shareholders meeting.
O’KEY Group is committed to managing
and conducting its operations in accordance
with applicable regulations of Luxembourg
and the London Stock Exchange.
The Board of Directors and its committees
provide overall guidance for the business
and strategic planning for the Group.
It sets strategic goals and oversees their
implementation by the CEO and senior
Management of the Group.
The Management Board and the Chief
Executive Officer are responsible for the
day-to-day operations of the companies
of the Group and implement the strategy
approved by the Board of Directors.
OUR CORPORATE GOVERNANCE PRINCIPLES
PROFESSIONALISM
ACCOUNTABILITY
We strive to appoint individuals with
relevant skills and experience to the Board
of Directors and its committees in order to
enable them to discharge their respective
duties and responsibilities effectively.
The Board is supplied, in a timely manner,
with information in a form and of a quality
appropriate to allow it to discharge its
duties.
The Board of Directors is accountable
to O’KEY Group’s General Meeting of
Shareholders and is responsible for:
formulating the Group’s strategy;
establishing and maintaining systems,
which ensure due consideration of key
decisions by experienced individuals,
including in the areas of remuneration
and incentives, internal control and risk
management;
holding management accountable
for the successful implementation
of the Group’s strategy.
TRANSPARENCY
EQUALITY
We strive to ensure the appropriate
disclosure of reliable information on
all significant issues related to our
operations including financial status, social
performance, operating results
and ownership.
O’KEY Group’s corporate governance
system is designed to protect shareholders’
rights and ensure equal treatment of all
shareholders.
THE GENERAL MEETING
OF SHAREHOLDERS
The General Meeting of Shareholders is
O’KEY Group S.A.’s supreme governing
body. The General Meetings of Shareholders
are convened and held in accordance with
Luxembourg legislative requirements and
the Articles of O’KEY Group S.A. According
to the Articles of O’KEY Group S.A., the
annual General Meeting shall be held within
six (6) months of the end of each financial
year in the Grand Duchy of Luxembourg at
the registered office of the Company, or at
any such other place in the Grand Duchy
of Luxembourg as may be specified in the
convening notice of the meeting.
The next annual General Meeting will be
held before 30 June 2020. A convening
notice specifying the date, time, address of
the meeting and the agenda will be sent and
published no later than fourteen days before
the meeting.
Transfer Restrictions
As of 31 December 2019, and the date
hereof, to the knowledge of the Company
all shares in issue in the Company are freely
transferable, provided that the transfer
formalities set out under Article 6 of the
Articles are fulfilled.
The Company has no information about
any agreements between the shareholders
which may result in restrictions on the
transfer of securities or voting rights, as
mentioned under Article 11 (1) (g) of the
Directive 2004/25/EC of the European
Parliament and of the Council of 21 April
2004 on takeover bids.
Special Control Rights
All the issued and outstanding shares of the
Company have equal voting rights and there are
no special control rights attached to shares
of the Company.
The Caraden Shareholder (as defined in
the Articles) has, under the condition of holding
a minimum amount of shares in the Company,
a specific right with respect to the appointment
and removal of Directors as at least one
Director (designated as the Caraden Director)
must be appointed from a list of candidates
proposed by the Caraden Shareholder and
may be removed at the initiative of the Caraden
Shareholder (additional information may be
found under Article 8 of the Articles).
The supporting vote of the Caraden
Shareholder is required, under certain
conditions, to amend the provisions of
the Articles relating to: (i) the rights and
prerogatives of the Caraden Shareholder;
and (ii) the appointment, removal,
replacement, rights, prerogatives and
positive vote of the Caraden Director
(additional information may be found under
Article 16.4 of the Articles).
Control System in Employee Share
Scheme
Shareholders’ Agreements
with Transfer Restrictions
The Company has no information about any
agreements between shareholders, which
may result in restrictions on the transfer
of securities or voting rights.
The Company does not have an employee
share scheme allowing employees
to acquire equity in the Company.
Appointment of the Directors,
Amendment of the Articles
Voting Rights
Each share issued and outstanding
in the Company bears one vote.
The Articles do not provide for any voting
restrictions.
In accordance with the Articles, a record
date for the admission to a general meeting
may be set by the Board (Article 15 of the
Articles). Only those Shareholders as shall
be shareholders of record on any such
record date shall be entitled to be notified
of and to vote at any general meeting and
any adjournment thereof, or to give any
such consent as the case may be.
In accordance with the Articles, the Board
may determine such other conditions that
must be fulfilled by Shareholders for them
to take part in any meeting of shareholders
in person or by proxy (Article 15 of the Articles).
The rules governing the appointment
and replacement of the directors and the
amendment of the Articles are set out under
Luxembourg Company Law and the Articles
(in particular Articles 8, 15 and 16).
The consolidated version of the Articles is
published under the Shareholders section
of the Company website and is available
at: http://okeygroup.lu/sharedocs
Significant Agreements or Essential
Business Contracts
The Board is not aware of any significant
agreements to which O’KEY Group S.A.
is a party and which take effect, alter or
terminate upon a change of control of the
Company following a takeover bid. The Board
has considered essential business contracts
and concluded that there is none.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate GovernanceCorporateGovernance66 Our Corporate Governance Principles66 The General Meeting of Shareholders68 Board of Directors72 Committees of the Board of Directors74 Executive Management76 Information for Shareholders and Investors 68
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
69
BOARD OF DIRECTORS
The Company’s Board of Directors plays
the key role in organising an efficient
corporate governance system. The Board
is vested with the broadest powers to
manage the business of the Company
and to authorise and perform all acts of
disposal and administration falling within
the purposes of the Company.
The Board is responsible for taking
strategic decisions in respect of the
operation and development of the Group,
as well as overseeing the risk management
and internal audit functions of the Group.
The decisions related to the day-to-day
operations of the Group are delegated
to the management.
The repurchase by the Company of its
own shares is subject to the conditions
set out in the Company Law and the
Articles. By the resolution of the meeting
of the shareholders held on April 27,
2018, the board is authorised to start
a buyback programme with the parameters
set out in aforementioned resolution.
The authorisation is valid until April 27,
2020. As of March 27, 2020, the Company
has not started the buyback programme.
Our current Board of Directors was elected
at the General Meeting of Shareholders held
on 13 October 2015.
The Board is also a management body of
O’KEY Group S.A. and is authorised to take
all decisions in respect of O’KEY Group S.A.,
unless they are reserved for the General
Meeting. The Board is not authorised
to issue or buy back shares without
approval of the shareholders meeting.
There are five members of our Board,
including one independent director.
The General Meeting of Shareholders
appoints the Board members by a simple
majority of votes cast, for a period
not exceeding six years or until their
successors are elected1/.
Meetings of the Board of Directors
Meetings of Board of Directors are held
regularly in compliance with the approved
work schedule for the year. The Board’s
work schedule is determined on the basis
of strategic planning and the reporting
cycle. Whenever an urgent matter needs
to be considered, Extraordinary Board
meetings are organised, or, if a personal
meeting cannot be organised due to short
notice, the Board can adopt a circular
resolution by a unanimous vote. It is
the Board Chairman’s responsibility to
determine the Board’s work plan and
to include additional items in the plan.
In 2019, the Board of Directors
worked on the following key tasks:
Remuneration
Diversity
preparation of the financial statements
and annual report, and review of the
results for the year 2018;
approval of the budget and business
strategy for the year 2019;
review of the quarterly financial results,
approval of financial statements for
six months of 2019 and monitoring
of compliance with risk management
strategy;
determination of the Group’s strategic
and operational priorities;
Members of the Board of Directors of
O’KEY Group S.A. receive remuneration
of the amount approved by the General
Meeting of Shareholders. Members of
the Board and its Committees may be
compensated for the expenses they
incurred in the course of their duties, in
accordance with the business and travel
expenses policy of O’KEY Group S.A.
O’KEY Group is working on adoption
of a diversity policy. However, as can be
seen from the information on the senior
management team, O’KEY Group aims
to employ the members of the team most
suitable and qualified for their post and
function, irrespective of their age, gender
or origin. The requirements of educational
and professional backgrounds are such as
to ensure that the members of the team
possess the skills and experience
necessary to perform their functions
effectively.
/MEETINGS OF THE BOARD OF DIRECTORS/
/CHANGES MADE TO THE SENIOR MANAGEMENT TEAM IN 2019/
Member
Heigo Kera
Board of Directors
(3 meetings)
Audit Committee
(4 meetings)
Remuneration Committee
(1 meeting)
attended 3
attended 4
attended
Dmitrii Troitskii
3 by proxy
not a member
by proxy
Dmitry Korzhev
attended 3
attended 4
not a member
Name
Pavel Lokshin
Sergey Shadrin
Olga Surnina
Date
19/02/2019
20/05/2019
15/09/2019
Change
Operating
Director
Supply Chain Director
Marketing
Director
Boris Volchek
3 by proxy
attended 1,
3 by proxy
by proxy
Tatiana Bukanova
02/10/2019
Real Estate Director
Mykola Buinyckyi
attended 3
attended 4
not a member
1/ The rules governing the appointment and replacement of the Directors are set out under the Law of 10 August 1915 on Commercial Companies, as amended, and the
Articles (in particular Articles 8, 15 and 16). The consolidated version of the Articles is published under the Shareholders section of the Company website, available at:
http://okeygroup.lu/sharedocs
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate GovernanceCorporateGovernance66 Our Corporate Governance Principles66 The General Meeting of Shareholders68 Board of Directors72 Committees of the Board of Directors74 Executive Management76 Information for Shareholders and Investors
70
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
71
/MEMBERS OF THE BOARD OF DIRECTORS OF O’KEY GROUP S.A. AS AT 31 DECEMBER 2019/
Member
HEIGO KERA
Group Chairman
Member of the Audit Committee
Chairman of the Remuneration Committee
Election
Education
Skills and Experience
First elected to the Board of Directors
in June 2010 and repeatedly re-elected
since then.
University degree, Tallinn Technical
University (Estonia)
2015-2017: CEO of O’KEY effective 1 May 2015
2008-present: owner and a Member of the Board of Directors of Silverko Consult OU
2002-2008: consultancy services, including research on retail markets in Belarus,
Kazakhstan and China
Shares in O’KEY
Mr. Kera does not hold shares
of O’KEY Group S.A.
DMITRII TROITSKII
Director
Member of the Remuneration committee
First elected to the Board of Directors
in June 2010 and repeatedly re-elected
since then.
University degree, State Marine Technical
University of St. Petersburg
BORIS VOLCHEK
Caraden Director
Member of the Audit and Remuneration
Committee
First elected to the Board of Directors
in June 2010 and repeatedly re-elected
since then.
University degree, Leningrad Institute
of Railway Engineers (now St. Petersburg State
University of Communications)
DMITRY KORZHEV
Director
Member of the Audit Committee
First elected to the Board of Directors
in June 2010 and repeatedly re-elected
since then.
University degree, State Marine Technical
University of St. Petersburg
MYKOLA BUINYCKYI
Independent Director
Chairman of the Audit Committee
First elected to the Board of Directors
in June 2010 and repeatedly re-elected
since then.
University degree, The University
of Edinburgh, UK
A fellow of the Chartered Institute
of Management Accountants
A Member of the Institute of British
Management
Joint diploma in management accounting
2005-2007: Member of the Board of Directors of the Ochakovo Dairy Plant
Mr. Troitskii indirectly owns ca.
2005-2012: Member of the Supervisory Board of Bank St. Petersburg
2005-present: Development Director of Capital Group JSC (formerly Neva-Rus CJSC)
29.046%
of the shares of O’KEY Group S.A.
1995-present: President of the Union Group of companies
Mr. Volchek indirectly owns ca.
2000-present: General Director of St. Petersburg Automobile Museum
29.52 %
of the shares of O’KEY Group S.A.
2005-2009: Member of the Supervisory Board of Bank Saint Petersburg
Mr. Korzhev indirectly owns ca.
2005-present: General Director of Sovmestniy Capital CJSC
2015-2019: Director of Capital Group JSC
2019-present: Commercial Director of Capital Group JSC
10.31%
of the shares of O’KEY Group S.A.
Over 35 years in international financial management and over 20 years’ experience
in Russia.
Mr. Buinyckyi does not hold shares
of O’KEY Group S.A.
Seven years as a management consultant with Coopers & Lybrand.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate GovernanceCorporateGovernance66 Our Corporate Governance Principles66 The General Meeting of Shareholders68 Board of Directors72 Committees of the Board of Directors74 Executive Management76 Information for Shareholders and Investors
72
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
The primary role of the Committees is to provide assistance
to the Board in preparing and adopting decisions in its respective
functional areas, as well as to ensure that matters brought
for consideration by the Board of Directors are scrutinised
prior to the Board meetings.
There are two committees on the Board
of Directors: the Audit Committee
and the Remuneration Committee.
REMUNERATION COMMITTEE
Committee members
The Committee’s remit includes:
As of 31 December 2019, the Remuneration
Committee comprised:
reviewing the compensation policy;
reviewed the amount of remuneration
to be allocated to the management
of the Group in 2018;
advising on any benefit or incentive
schemes;
approved the Remuneration Committee
Report;
making proposals to the full Board
of Directors regarding the remuneration
of Executive Directors and management
(including Chief Executive Officer).
suggested the total maximum amount
of remuneration of Directors for 2019
to be submitted for the approval
of the shareholders of the Company.
Heigo Kera, Committee Chairman,
Chairman of the Board of Directors;
Boris Volchek, Committee Member,
Non-executive Director of the Board
of Directors;
Dmitrii Troitskii, Committee
Member, Non-executive Director
of the Board of Directors;
Ilya Ilin, Committee Member,
Non-director, external consultant;
Irina Nikiforova, Committee
Member, Non-director, external
consultant.
Committee members
The Committee’s remit includes:
As of 31 December 2019, the Audit
Committee comprised:
reviewing the IFRS financial statements
for integrity and transparency;
Mykola Buinyckyi, Committee
Chairman, Independent Director
of the Board of Directors;
Boris Volchek, Committee Member,
Non-executive Director of the Board
of Directors;
Dmitry Korzhev, Committee
Member, Non-executive Director
of the Board of Directors;
Heigo Kera, Committee Member,
Chairman of the Board of Directors;
Ilya Ilin, Committee Member,
Non-director, external consultant;
Irina Nikiforova, Committee
Member, Non-director, external
consultant.
analysing financial reporting processes,
including carrying out regular reviews
and making recommendations;
recommending appointment and
remuneration of the Company’s
external auditor to the Board of
Directors and maintaining an ongoing
relationship with the external auditor;
analysing and supporting the internal
audit system and risk management
procedures, including drafting
of recommendations for their
improvement.
Activities in 2019
Activities in 2019
Plans for 2020
Key areas
during the reporting period,
the Remuneration Committee held
one meeting;
In 2020 the Group plans to keep the
remuneration and bonus policy in line
with 2019.
reviewed the report on the
remuneration, bonuses and expenses
of the Board and its Committees;
The Audit Committee oversees the internal
audit function, the effectiveness of risk
management and the internal controls of
the Company and the Group. It also approves
and monitors the performance of the internal
audit plan for the year. The Audit Committee
assists the Boards of Directors in fulfilling
its oversights responsibilities relating to the
financial statements, including periodically
reporting to the Board of Directors on its
activities and the adequacy of internal control
systems over financial reporting.
According to the Statute of O’KEY Audit
Committee, the Audit Committee shall
consist of not fewer than three current
members of the Board of Directors and shall
be chaired by an independent director.
during the reporting period, the Audit
Committee held four meetings;
fulfilled oversight responsibilities
relating to integrity of the Company’s
annual financial statements;
fulfilled oversight responsibilities
relating to integrity of the Company’s
half yearly financial statements;
reviewed reports prepared by Internal
Audit department;
reviewed effectiveness of the
Company’s risk management and
internal control systems;
73
reviewed policies and procedures
published in the Company;
monitored reports per the Company’s
Whistleblowing Policy;
planned and agreed the scope of the
audit of financial statements for year
ended 2019 with the external auditor
of O’KEY Group;
reviewed and approved provisions
of non-audit services for the Company
by the external auditor;
approved the Internal Audit plan
for the year 2020.
Plans for 2020
The Audit Committee and the Company
continue to focus on following areas in
2020:
how the Company’s management
monitors compliance with the Group’s
risk management policies and
procedures, and reviews the adequacy
of the risk management framework in
relation to the risks faced by the Group;
optimising of internal business
processes involved in preparation
of financial reporting.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate GovernanceCorporateGovernance66 Our Corporate Governance Principles66 The General Meeting of Shareholders68 Board of Directors72 Committees of the Board of Directors74 Executive Management76 Information for Shareholders and Investors 74
EXECUTIVE MANAGEMENT
O’KEY Management
Board brings together
the best professionals
with broad
expertise and deep
understanding of the
Russian retail market.
Within the country and
worldwide, we recruit
the most enthusiastic
managers whose
vision and perspective
contribute to the
development
of our business.
In 2019, we further
strengthened our team
with professionals
with solid retail
backgrounds.
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
75
ARMIN BURGER
KONSTANTIN ARABIDIS
PAVEL LOKSHIN
IVAN DROPULJIC
SERGEY SHADRIN
ELENA POLOZOVA
OLGA SURNINA
Chief Executive Officer
Chief Financial Officer
Operating Director
Commercial Director
Supply Chain Director
Human Resources Director
Marketing Director
Member of the Management
Board since 2013
Member of the Management
Board since 2016
Member of the Management
Board since 2019
Member of the Management
Board since 2017
Member of the Management
Board since 2019
Member of the Management
Board since 2015
Member of the Management
Board since 2019
University of Freiburg,
Department of Economics .
2012-2013: CEO and a Member
of the Supervisory Board of
Praktiker AG
Peter the Great St.Petersburg
Polytechnic University,
Department of Technical
Cybernetics;
St. Petersburg University
Department of Economics;
Moscow Aviation Technological
University, Department of
Economics;
London Business School, Senior
Executive Programme.
2008-2011: Member of the
Supervisory Board Aldi Süd
Member of ACCA.
2016-2018: CEO
of Perekrestok Express
1999-2008: CEO of Hofer KG,
Sattledt, Austria
2012-2016: Various positions
in O’KEY Group
2013-2016: CEO of K-Rauta
Russia
1990-1998: Various positions
in Aldi GmbH
Before 2012: Various positions
in PwC
2001-2012: Various positions
in METRO Cash & Carry
The University of Zagreb,
Department of Economics.
2012-2017: Purchasing and
Marketing Director, Member
of the Board of Kaufland
Croatia
2007-2012: Fresh Food
Director at Kaufland Croatia
Plekhanov Russian University
of Economics, PhD degree in
Economics;
Moscow International Higher
School of Business (MIRBIS),
MBA;
Almaty Technological
University, Department
of Economics;
Vlerick Business School,
Belgium, MBA.
2017-2018: Supply Chain
Director of Auchan Moscow
Lipetsk State Technical
University, Department
of Psychology.
2013-2015: Senior HR, O’KEY
KIMEP, MA, Department
of Economics;
Chartered Institute of
Marketing, Post Graduate
Professional Diploma, UK.
Before 2007: Various positions
at Pik Vrbovec and Jamnica
2004-2018: various positions at
Danone Russia, Ukraine,
Saudi Arabia
2003-2013: HR Business
partner in Magnit
2018-2019: Marketing Director
Russia & CIS at JSC Arnest
2016-2018: Head of Own
Production at Magnit
2013-2016: Marketing
and PR Director at Nautica
2010-2013: Marketing Director
at Nokia International
South CIS Branch
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Corporate GovernanceCorporateGovernance66 Our Corporate Governance Principles66 The General Meeting of Shareholders68 Board of Directors72 Committees of the Board of Directors74 Executive Management76 Information for Shareholders and Investors 76
SHARE CAPITAL
Share Capital Structure –
Direct Holdings
O’KEY Group S.A. share capital
amounts to EUR 2,690,740 divided into
269,074,000 ordinary shares of a nominal
value of EUR 0.01 each. As at the date
of this report, the Company’s share
capital has remained unchanged since
30 November 2010.
All shares issued by the Company have
equal rights as provided for by the law
of 10 August 1915 on commercial
companies, as amended (the “Company
Law”) and as set forth in the Articles,
save for the special rights granted
to the Caraden Shareholder.
The Company does not hold any of its
own shares and has not acquired it during
the 2019 financial year.
Significant Shareholdings
The three major indirect shareholders
of the Group are its founders:
Mr. Dmitrii Troitskii (who indirectly
owns approximately 29.046% of
the outstanding share capital of
O’KEY Group S.A. and together with
Mr. Korzhev controls 44.79% in the
share capital of the Company);
Mr. Dmitry Korzhev (who indirectly
owns approximately 10.31% of
the outstanding share capital of
O’KEY Group S.A. and together with
Mr. Troitskiy controls 44.79% in the
share capital of the Company);
Mr. Boris Volchek (who indirectly
owns approximately 29.52% of the
outstanding share capital of O’KEY
Group S.A.).
NISE MAX Co Ltd
GSU Ltd
Freefloat
44.79%
29.52%
25.69%
Global Depositary Receipts (GDRs)
Stock Exchange
As of 31 December 2019, O’KEY Group S.A.
GDRs were traded on the London Stock
Exchange.
/TRADING FLOOR
OF O’KEY GROUP S.A. GDRS/
Trading floor
Ticker code
London Stock Exchange OKEY
Global Depositary Receipts (GDRs) are
issued in respect of ordinary shares at
a ratio of one ordinary share per one GDR.
The GDRs are traded on the London Stock
Exchange. The Company’s depositary bank
is The Bank of New York Mellon.
/O’KEY GROUP S.A. SECURITIES
IDENTIFICATION NUMBERS/
6CUSIP1/
Code
Regulation S GDRs
670866201
Rule 144A GDRs
670866102
As of 31 December 2019, GDRs
represented 38.172% of O’KEY Group S.A.
share capital.
No other securities have been issued
by the Company.
O’KEY Group S.A. GDRs Trading
Information (market transactions,
Bloomberg)
Annual maximum price, USD
Annual minimum price, USD
Year-end price, USD
2019
2018
2.7
1.4
1.4
2.7
1.8
2.5
Trading volume (mln units)
11.5
24.5
7ISIN2/
Code
Regulation S GDRs
US6708662019
Rule 144A GDRs
US6708661029
Credit Ratings
In July 2019 RAEX (Expert RA) affirmed
the Company’s credit rating of ‘ruA-’ with
a stable outlook. The rating reflects the
Group’s stable position within the Russian
food retail market, its strong liquidity and
debt repayment capacity as well as high
standards of corporate governance and risk
management.
Credit rating
Outlook
RAEX
ruA-
Stable
Last rating date
08 July 2019
Source: Bloomberg – applicable to all the tables
above
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
Analyst Coverage
9 equity research analysts from leading
banks, including Goldman Sachs,
JP Morgan, VTB Capital and Sberbank CIB,
follow the Company on a regular basis.
O’KEY’s IR team routinely monitors and
communicates analyst consensus to the
Company’s top management.
DIVIDENDS
Dividend Policy
77
Company
Aton
BCS
Analyst
Victor Dima
Maria Boyko
Phone number
+7 (495) 213-03-44
+7 (495) 213-15-94
Gazprombank
Marat Ibragimov
+7 (495) 980-41-87
Goldman Sachs
Maxim Nekrasov
+7 (495) 645-42-97
J. P. Morgan
Elena Jouronova
+7 (495) 967-38-88
Raiffeisen Bank
Egor Makeev
+7 (495) 221-98-51
Sberbank CIB
Sova Capital
VTB Capital
Mikhail Krasnoperov
+7 (495) 933-98-38
Mikhail Terentiev
+7 (495) 213-18-34
Maria Kolbina
+7 (495) 663-46-48
To determine the recommended amount of
dividends that will be payable, the Group’s
Board of Directors abides by the dividend
policy. The general meeting of shareholders,
upon recommendation of the Board of
Directors, determines how the remainder
of the annual net profits of the Company
should be disposed of, including by way of
stock dividend, it being understood that the
remaining net profits of the Company left
after payment of dividends shall be used
for business development of the Company
and its subsidiaries and the development of
the retail business of the Group in Russia.
Interim dividends may be declared and paid
(including by way of staggered payments)
by the Board of Directors, subject to
observing the terms and conditions
provided by law either by way of a cash
dividend or by way of an in kind dividend.
Taxation
As a general rule, the Company withholds
15% WHT from the dividend paid from
Luxembourg for distribution to the holders
of GDRs.
This information is provided for information
purposes only. Potential and current
investors should seek the advice of
professional consultants on tax matters
related to investments in the shares and
GDRs of the Company.
Period
Record date
Amount of dividend per GDR (USD cents, gross) Amount of accrued dividend (USD, gross)
Interim dividends 2011
12.09.2011
Interim dividends 2012
23.02.2012
Interim dividends 2013
15.02.2013
Interim dividends 2014
18.02.2014
Interim dividends 2014
17.10.2014
Interim dividends 2015
11.09.2015
Interim dividends 2016
08.07.2016
Interim dividends 2017
20.01.2017
Interim dividends 2018
25.01.2018
Interim dividends 2019
03.10.2019
9.9481
10.254
18.953
22.670
7.433
8.920
8.548
9.167
12.367
0.05635
26,767,750.594
27,590,847.96
50,997,595.22
60,999,075.80
20,000,270.42
24,001,400.80
23,000,445.52
24,666,013.58
33,276,381.58
15,162,319.90
1/ CUSIP (Committee on Uniform Security Identification Procedures) – identification number given to the issue of shares for the purposes of facilitating clearing.
2/ ISIN (International Securities Identification Number) – international identification number of the share.
*/ Information provided from page 4 to 77 of the Annual report fully corresponds to Consolidated Directors’ report.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILYInformationfor Shareholders and Investors66 Our Corporate Governance Principles66 The General Meeting of Shareholders68 Board of Directors72 Committees of the Board of Directors74 Executive Management76 Information for Shareholders and Investors Corporate Governance 78
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
79
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial Statements80 Management and Directors Responsibility Statement 81 Independent Auditors’ Report 89 Consolidated Financial Statements95 Notes to Consolidated Financial StatementsSTATEMENTS 80
MANAGEMENT & DIRECTORS
RESPONSIBILITY STATEMENT
We confirm, to the best of our knowledge, that the consolidated
financial statements which have been prepared in accordance
with the International Financial Reporting Standards as adopted
by the European Union, give a true and fair view of the assets,
liabilities, financial position and profit or loss of O’KEY Group
S.A., and the undertakings included in the consolidation taken as
a whole, and that the consolidated Directors’ report includes a fair
review of the development and performance of the business and
the position of O’KEY Group S.A. and the undertakings included in
the consolidation taken as a whole, together with a description of
the principal risks and uncertainties they face.
Luxembourg,
27 March 2020
DMITRY
KORZHEV
Member of the
Board of Directors
MYKOLA
BUINYCKIY
Member of the
Board of Directors
HEIGO
KERA
Chairman
ARMIN
BURGER
CEO of O’KEY
KONSTANTIN
ARABIDIS
CFO
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
CONTENTS
INDEPENDENT AUDITOR’S REPORT
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statement of Financial Position
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
1
Background
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Basis of preparation
Functional and presentation currency
Use of estimates and judgments
New and amended standards and interpretations adopted by the Group
Segment information
Principal subsidiaries
General, selling and administrative expenses
Other operating income and expenses, net
Personnel costs
Finance income and finance costs
Foreign exchange gain/(loss)
Income tax
Investment property
Property, plant and equipment and construction in progress
Right-of-use assets
Intangible assets
Prepayments
Other non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Equity
Earnings/(loss) per share
Loans and borrowings
Lease liabilities
Trade and other payables
Reconciliation of movements of liabilities to cash flows arising from financing activities
Financial risk management
Capital commitments
Contingencies
Related party transactions
Events subsequent to the reporting date
Fair value disclosures
Significant accounting policies
81
82
89
91
92
94
95
95
96
96
98
100
102
103
103
104
104
104
105
107
108
110
111
112
112
112
113
113
113
114
114
115
116
117
118
124
125
126
128
128
129
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial Statements80 Management and Directors Responsibility Statement 81 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial StatementsManagement and Directors Responsibility Statement 82
To the Shareholders
of O’KEY GROUP S.A.
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
83
REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
To the best of our knowledge and belief,
we declare that we have not provided
non-audit services that are prohibited
under Article 5(1) of the EU Regulation
No 537/2014.
The non-audit services that we have
provided to the Company and its controlled
undertakings, if applicable, for the year
then ended, are disclosed in Note 8 to the
consolidated financial statements.
Key audit matters
Key audit matters are those matters that,
in our professional judgment, were of most
significance in our audit of the consolidated
financial statements of the current period.
These matters were addressed in the
context of our audit of the consolidated
financial statements as a whole, and in
forming our opinion thereon, and we do
not provide a separate opinion on these
matters.
Our opinion
Basis for opinion
We conducted our audit in accordance
with the EU Regulation No 537/2014,
the Law of 23 July 2016 on the audit
profession (Law of 23 July 2016) and
with International Standards on Auditing
(ISAs) as adopted for Luxembourg by the
“Commission de Surveillance du Secteur
Financier” (CSSF). Our responsibilities
under the EU Regulation No 537/2014, the
Law of 23 July 2016 and ISAs as adopted
for Luxembourg by the CSSF are further
described in the “Responsibilities of the
“Réviseur d’entreprises agréé” for the audit
of the consolidated financial statements”
section of our report.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
We are independent of the Group in
accordance with the International Ethics
Standards Board for Accountants’ Code
of Ethics for Professional Accountants
(IESBA Code) as adopted for Luxembourg
by the CSSF together with the ethical
requirements that are relevant to our
audit of the consolidated financial
statements. We have fulfilled our other
ethical responsibilities under those ethical
requirements.
In our opinion, the accompanying
consolidated financial statements give
a true and fair view of the consolidated
financial position of O’KEY GROUP S.A.
(the “Company”) and its subsidiaries (the
“Group”) as at 31 December 2019, and of its
consolidated financial performance and its
consolidated cash flows for the year then
ended in accordance with International
Financial Reporting Standards (IFRSs) as
adopted by the European Union.
Our opinion is consistent with our
additional report to the Audit Committee
or equivalent.
What we have audited
The Group’s consolidated financial
statements comprise:
the consolidated statement of financial
position as at 31 December 2019;
the consolidated statement of profit or
loss and other comprehensive income
for the year then ended;
the consolidated statement of changes
in equity for the year then ended;
the consolidated statement of cash
flows for the year then ended; and
the notes to the consolidated financial
statements, which include a summary
of significant accounting policies.
Adoption of IFRS 16 'Leases'
We have performed the following audit procedures to address the key audit matter:
Refer to Notes 4, 5, 16, 26 and 35 to the
consolidated financial statements of the
Group.
The Group has adopted IFRS 16 ‘Leases’
from 1 January 2019 under the modified
retrospective approach, as permitted by the
standard’s transitional provisions. As the
result of the adoption on the transition date,
the Group recognised right-of-use assets
in the amount of RUB 25,226,179 thousand
representing its rights to use the underlying
leased assets and lease liabilities of
RUB 29,227,792 thousand representing its
obligations to make lease payments.
Adoption of the new lease standard was
considered by us to be one of the key audit
matters because of the large number of
the Group’s lease arrangements, variety
of underlying contractual terms and the
fact that recognition of the leases required
applying judgement by the Group, in
particular, in determining the lease term for
the leases that contain extension options,
and the discount rate.
We obtained an understanding of and evaluated the Group’s processes and relevant
control activities relating to identification of leases and their accounting under IFRS 16.
We gained understanding of the Group’s accounting policy for leases and the selected
transition approach and assessed their compliance with the requirements of the new
lease standard.
We assessed completeness of the Group’s listing of the lease contracts in place,
including through reading minutes of meetings and review of expense accounts.
For a sample of leases, we performed detailed testing of key inputs used in the
calculation of the right-of-use assets and lease liabilities recognised on the transition
date by tracing them to supporting lease contracts and other relevant documentation,
as well as independently recalculated the amounts selected.
We evaluated whether the Group’s approach to determination of the lease terms for the
leases that contain extension options is in line with the requirements of IFRS 16 and
whether the judgements applied therein are reasonable.
With involvement of our internal valuation experts, we considered adequacy of the
Group’s methodology for the calculation of the discount rates applied in the lease
calculations.
We evaluated reasonableness of application by the Group of IAS 36 ‘Impairment of
assets’ to the right-of-use-assets recognised at 1 January 2019.
We considered adequacy of IFRS 16 adoption disclosures in the consolidated financial
statements.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report 89 Consolidated Financial Statements95 Notes to Consolidated Financial StatementsIndependent Auditors’ Report 84
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
85
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
Recognition of bonuses from suppliers
Our audit procedures to address the key audit matter included the following:
Non-current assets impairment assessment
Our audit procedures to address the key audit matter included the following:
Refer to Notes 4 and 21 to the consolidated
financial statements of the Group.
Understanding, evaluation of design and testing of relevant control activities that the
Group has established in relation to recognition of bonuses from suppliers.
The Group receives various types of
bonuses from suppliers relating to
purchase of goods for resale. The bonuses
are provided in the form of volume
discounts, slotting fees and other counter
payments. Recognition of these bonuses
leads to a significant reduction to the
cost of goods sold and inventory value.
While the major portion of the bonuses
is recognised and settled within the year,
a material amount remains outstanding
within trade and other receivables as at the
reporting date.
Recognition of bonuses from suppliers was
one of the matters of most significance
in our audit because their impact on the
Group’s cost of goods sold, inventory
and trade and other receivable balances
is material, the number of underlying
contracts with suppliers is large and their
terms can be complex. Further, recognition
of amounts receivable from suppliers as
at the reporting date and allocation of the
bonuses to cost of goods sold and the
inventory balance requires a certain level
of judgement by the Group, including that
in relation to timing of fulfilment of the
performance conditions that entitle the
Group to the bonuses and evidence thereof.
Understanding and evaluation of the accounting policy applied by the Group for
accounting for bonuses from suppliers.
Reading significant contracts with suppliers and understanding if the Group complies
with the conditions that entitle the Group to bonuses from suppliers.
Retrospective analysis of prior year bonuses receivable against subsequent
settlements to assess accuracy of the Group’s estimates in the current year.
Analytical procedures over the accuracy and existence of the bonuses recognised in
the current year based on historical data.
Detailed testing, on a sample basis, of bonuses recognised and settled during the year
by agreeing to respective supporting documentation.
Agreeing bonuses receivable as at the reporting date to external confirmations
obtained from suppliers on a sample basis, or alternative procedures through
tracing the amounts recognised against underlying agreements and other relevant
documentation.
Performing analytical procedures to assess reasonableness of the allocation of
bonuses to the goods that remain in stock at the reporting date.
Confirming that accounting policy for offsetting of bonuses receivable from suppliers
against trade payables is in line with IFRS and that the factual offsetting is in line with
the accounting policy.
Considering adequacy of disclosures of information about the bonuses from suppliers
in the consolidated financial statements of the Group.
Refer to Notes 4, 15, 16 and 17 to the
consolidated financial statements of the
Group.
As at 31 December 2019, the carrying value
of the Group’s non-current assets that are
subject to impairment assessment under
IAS 36 approximates 70% of total assets.
These non-current assets are primarily
attributable to the Group’s stores.
As at the reporting date, the Group
assessed whether there is any indication
that the carrying value of the non-current
assets may not be recoverable and
carried out an impairment testing for
those individual assets or cash-generating
units (CGUs) represented by individual
stores where such indication was noted.
Impairment loss was identified in the
impairment testing performed.
This is one of the key audit matters due
to the magnitude of the carrying value
of these non-current assets, judgement
exercised by the Group in determining
whether or not there are specific indicators
of impairment and judgements applied in
the calculation of the recoverable amount
of these assets.
In addition, strong competition in the
Russian retail market and moderate
consumer behaviour underpin the
uncertainty of accounting estimates and
the risk of significant adjustments in future
periods to the carrying value of the Group’s
non-current assets recognised in the
consolidated financial statements.
We obtained understanding and evaluated the design of the Group’s relevant control
activities around the impairment review.
We also assessed whether the Group’s approach to determination of CGUs and
identification and use of the indicators that the Group’s stores and other non-current
assets may be impaired is reasonable.
For those significant CGUs where impairment indicators were identified, we assessed
whether the value in use or fair value less costs of disposal approach applied by the
Group to determine recoverable amount in each particular case is appropriate in the
circumstances. We further obtained and analysed underlying calculations prepared by
the Group for impairment testing.
Our audit procedures were carried out with the involvement of internal valuation experts
and included:
Reviewing the adequacy and consistency of methods applied to calculations of value in
use, and the calculations’ mathematical accuracy.
Evaluating the reasonableness of the Group’s key assumptions and forecasts in the
prior period, in order to assess the accuracy of the Group’s forecasts for future periods.
Verifying the appropriateness of budgets of the CGUs for projected periods used in
the value in use calculations through inquiries of the Group, corroborating the Group’s
explanations, examining supporting documentation and comparing inputs against
available external industry data.
Analysing and assessing in detail the key assumptions that significantly affect future
cash flows of the CGUs and the discount rate applied by the Group to calculate
the recoverable amount, by comparing it to the weighted-average cost of capital
determined for the Group with due regard to its inherent risks.
Performing sensitivity analysis of the results of the Group’s assessment to reasonably
possible changes to key assumptions.
Testing the presentation and disclosure of information about the impairment test as
carried out by the Group in the consolidated financial statements for its consistency
with requirements of IAS 36 and its adequacy in the context of the consolidated
financial statements as a whole.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report 89 Consolidated Financial Statements95 Notes to Consolidated Financial StatementsIndependent Auditors’ Report 86
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87
KEY AUDIT MATTER
HOW OUR AUDIT ADDRESSED THE KEY AUDIT MATTER
OTHER INFORMATION
The audit procedures we have performed to address the key audit matter consisted of the
following:
Understanding and evaluation of design of relevant control activities that the Group has
in place in relation to recognition of current and deferred income taxes and long-term
budget preparation.
Comparing the Group’s forecasts in the long-term budget prepared in prior year to
actual performance to assess adequacy of the Group’s estimates in the current year.
Assessing accuracy of the deferred tax calculations.
Considering any limitations to the amount and timing of utilisation of the unused tax
loss as established by the Russian tax legislation.
Obtaining the long-term budget prepared by the Group for LLC Fresh Market and
challenging the expected future profits and assumptions regarding future earnings as
reflected therein, including by comparing to actual results to date and industry trends.
Analysing the treatment of differences between accounting and tax books in the
planning of future taxable profit.
Considering adequacy of disclosures on the deferred tax positions and assumptions
used in assessing recoverability of the deferred tax assets from tax losses carry
forward in the consolidated financial statements.
Recoverability of deferred tax assets
recognised for the carryforward of unused
tax losses
Refer to Notes 4 and 13 to the consolidated
financial statements of the Group.
As at 31 December 2019, the carrying value
of the Group’s deferred tax assets amounts
to RUB 4,175,871 thousand, including
RUB 2,840,607 thousand arising on the
accumulated tax losses carried forward by
LLC Fresh Market that develops the Group’s
chain of discounter stores under the DA!
brand starting from 2015.
A deferred tax asset shall be recognised
for the carryforward of unused tax losses
to the extent that it is probable that future
taxable profit will be available against which
the unused tax losses can be utilised.
The Group performed the assessment
of and concluded on the recoverability
of the deferred tax assets. This analysis
was based on the long-term financial
projections for LLC Fresh Market, which
includes estimates of future profits.
This area was significant to our audit
because of the history of tax losses
generated by LLC Fresh Market, the
complexity and subjectivity of the
assessment process, which is based on
assumptions that are inherently uncertain
and affected by the expected pace of new
openings of the discounters. In addition,
we considered continued uncertainty in the
Russian retail market and other relevant
factors.
In preparing the consolidated financial
statements, the Board of Directorsis
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 the Board of
Directors either intends to liquidate the
Group or to cease operations, or has no
realistic alternative but to do so.
Those charged with governance are
responsible for overseeing the Group’s
financial reporting process.
Responsibilities of the “Réviseur
d’entreprises agréé” for the audit of
the consolidated financial statements
The objectives of our audit 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 audit 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 the EU
Regulation No 537/2014, the Law of
23 July 2016 and with ISAs as adopted
for Luxembourg by the CSSF 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 the
EU Regulation No 537/2014, the Law of
23 July 2016 and with ISAs as adopted
for Luxembourg by the CSSF, we exercise
professional judgment and maintain
professional scepticism 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 the Board of Directors;
The Board of Directors is responsible
for the other information. The other
information comprises the information
stated in the annual report including the
consolidated directors’ report and the
Corporate Governance Statement but
does not include the consolidated financial
statements and our audit report thereon.
Our opinion on the consolidated financial
statements does not cover the other
information and we do 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 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. If, based on the work we have
performed, we conclude that there is
a material misstatement of this other
information, we are required to report that
fact. We have nothing to report in this
regard.
Responsibilities of the Board of
Directorsand those charged with
governance for the consolidated
financial statements
The Board of Directorsis responsible for
the preparation and fair presentation of
the consolidated financial statements in
accordance with IFRSs as adopted by
the European Union, and for such internal
control as the Board of Directorsdetermines
is necessary to enable the preparation of
consolidated financial statements that are
free from material misstatement, whether
due to fraud or error.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report 89 Consolidated Financial Statements95 Notes to Consolidated Financial StatementsIndependent Auditors’ Report 88
conclude on the appropriateness of
the Board of Directors’ use of the going
concern basis of accounting and,
based on the audit evidence obtained,
whether a material uncertainty exists
related to events or conditions that
may cast significant doubt on the
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 audit 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 audit 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 and 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 those charged
with governance 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 those charged with
governance with a statement that we have
complied with relevant ethical requirements
regarding independence, and communicate
to them all relationships and other matters
that may reasonably be thought to bear on
our independence, and where applicable,
related safeguards.
From the matters communicated with
those charged with governance, 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 audit
report unless law or regulation precludes
public disclosure about the matter.
REPORT ON OTHER LEGAL AND
REGULATORY REQUIREMENTS
The consolidated directors’ report is
consistent with the consolidated financial
statements and has been prepared
in accordance with applicable legal
requirements.
The Corporate Governance Statement
is included in the consolidated directors’
report. The information required by Article
68ter Paragraph (1) Letters c) and d) of
the Law of 19 December 2002 on the
commercial and companies register and
on the accounting records and annual
accounts of undertakings, as amended, is
consistent with the consolidated financial
statements and has been prepared
in accordance with applicable legal
requirements.
We have been appointed as “Réviseur
d’Entreprises Agréé” of the Group by the
General Meeting of the Shareholders on
26 April 2019 and the duration of our
uninterrupted engagement, including
previous renewals and reappointments, is
2 years.
PricewaterhouseCoopers, Société coopérative
Represented by
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Financial Statements
89
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
/AS AT 31 DECEMBER 2019/
’000 RUB
ASSETS
Non-current assets
Investment property
Property, plant and equipment
Construction in progress
Right-of-use assets
Lease rights
Intangible assets
Deferred tax assets
Other non-current assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Prepayments
Other current assets
Cash and cash equivalents
Total current assets
Total assets
Note
31 December 2019
31 December 2018
14
15
15
16
5
17
13
19
20
21
18
22
1,249,969
41,962,175
2,976,838
21,512,397
-
1,292,185
4,175,871
831,632
1,047,000
43,770,640
3,754,546
-
4,312,159
1,294,214
2,438,928
1,405,610
74,001,067
58,023,097
15,219,769
4,322,950
895,033
42,662
5,507,079
25,987,493
99,988,560
13,684,473
3,402,946
1,389,038
25,466
8,712,253
27,214,176
85,237,273
Andrei Chizhov
Luxembourg, 27 March 2020
The consolidated statement of financial position is to be read in conjunction with the notes to, and forming part of, the consolidated
financial statements set out on pages 95 to 141
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report 89 Consolidated Financial Statements95 Notes to Consolidated Financial StatementsIndependent Auditors’ Report 90
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CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
/AS AT 31 DECEMBER 2019/
’000 RUB
EQUITY AND LIABILITIES
Equity
Share capital
Legal reserve
Additional paid-in capital
Hedging reserve
Retained earnings
Translation reserve
Total equity
Non-current liabilities
Loans and borrowings
Lease liabilities
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities
Current liabilities
Loans and borrowings
Interest accrued on loans and borrowings
Lease liabilities
Trade and other payables
Current income tax payable
Total current liabilities
Total liabilities
Total equity and liabilities
Note
31 December 2019 31 December 2018
23
25
26
13
25
25
26
27
119,440
10,597
8,555,657
(155,518)
5,233,827
1,204,897
14,968,900
30,089,758
21,172,587
527,796
-
119,440
10,597
8,555,657
-
12,200,119
1,595,368
22,481,181
31,964,302
-
679,921
112,047
51,790,141
32,756,270
1,629,220
211,181
3,949,756
2,461,437
97,364
-
27,182,739
26,861,848
256,623
33,229,519
85,019,660
99,988,560
579,173
29,999,822
62,756,092
85,237,273
/FOR THE YEAR ENDED 31 DECEMBER 2019/
’000 RUB
Revenue
Cost of goods sold
Gross profit
General, selling and administrative expenses
Other operating income and expenses, net
Operating profit
Finance income
Finance costs
Foreign exchange gain/(loss)
Profit/(loss) before income tax
Income tax (expense)/ benefit
Profit/(loss) for the year
Other comprehensive (loss)/ income
Items that will never be reclassified to profit or loss:
Exchange differences on translation to presentation currency
Items that are or may be reclassified subsequently to profit or loss:
Change in fair value of hedges and reclassification from hedging reserve
Income tax on items within other comprehensive income
Other comprehensive (loss)/ income for the year, net of income tax
Total comprehensive income for the year
Earnings/(loss) per share
Basic and diluted earnings/(loss) per share (in RUB per share)
Note
2019
2018
6
8
9
11
11
12
13
13
24
165,086,202
161,303,411
(125,986,668)
(123,921,850)
39,099,534
37,381,561
(33,629,825)
(33,914,624)
(568,606)
4,901,103
89,803
(5,054,947)
937,678
873,637
(126,679)
746,958
95,045
3,561,982
76,286
(3,192,959)
(1,141,353)
(696,044)
96,289
(599,755)
(390,471)
609,117
(194,398)
38,880
(545,989)
200,969
124,826
(24,965)
708,978
109,223
2.8
(2.2)
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report 89 Consolidated Financial Statements95 Notes to Consolidated Financial StatementsConsolidated Financial Statements 92
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93
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
/FOR THE YEAR ENDED 31 DECEMBER 2019/
/FOR THE YEAR ENDED 31 DECEMBER 2019/
’000 RUB
Note
Share
capital
Legal
reserve
Additional
paid-in
capital
Hedging
reserve
Retained
earnings
Translation
reserve
Total
equity
’000 RUB
Note
Share
capital
Legal
reserve
Additional
paid-in
capital
Hedging
reserve
Retained
earnings
Translation
reserve
Total
equity
Balance at 1 January 2018
119,440
10,597
8,555,657
(99,861)
15,025,513
639,633
24,250,979
Balance at 31 December 2018
119,440
10,597
8,555,657
- 12,200,119
1,595,368 22,481,181
(599,755)
-
(599,755)
Balance at 1 January 2019
119,440
10,597
8,555,657
Change in accounting policy
5
-
-
-
609,117
609,117
Profit for the year
Comprehensive income for the year
Comprehensive income for the year
Loss for the year
Other comprehensive income
Foreign currency translation differences
Change in fair value of hedges
and reclassification from hedging
reserve
Income tax on items within other
comprehensive income
Reclassification within equity
Total other comprehensive income
Total comprehensive income
for the year
Transactions with owners recorded
directly in equity
Contributions by and distributions
to owners
Dividends declared
23
Total transactions with owners recorded
directly in equity
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 31 December 2018
119,440
10,597
8,555,657
-
-
124,826
(24,965)
-
-
-
-
-
124,826
(24,965)
-
(346,618)
346,618
-
99,861
(346,618)
955,735
708,978
99,861
(946,373)
955,735
109,223
-
-
-
(1,879,021)
(1,879,021)
-
-
(1,879,021)
(1,879,021)
12,200,119
1,595,368
22,481,181
Other comprehensive loss
Foreign currency translation differences
Change in fair value of hedges
and reclassification from hedging reserve
Income tax on items within other
comprehensive income
Total other comprehensive loss
Total comprehensive income
for the year
Transactions with owners recorded
directly in equity
Contributions by and distributions
to owners
Dividends declared
23
Total transactions with owners recorded
directly in equity
-
-
-
-
(194,398)
38,880
(155,518)
(6,725,738)
-
(6,725,738)
5,474,381
1,595,368 15,755,443
746,958
-
746,958
-
-
-
-
(390,471)
(390,471)
-
-
(194,398)
38,880
(390,471)
(545,989)
(155,518)
746,958
(390,471)
200,969
-
-
(987,512)
(987,512)
-
-
(987,512)
(987,512)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Balance at 31 December 2019
119,440
10,597
8,555,657
(155,518)
5,233,827
1,204,897 14,968,900
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report 89 Consolidated Financial Statements95 Notes to Consolidated Financial StatementsConsolidated Financial Statements 94
CONSOLIDATED STATEMENT OF CASH FLOWS
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1 BACKGROUND
(a) The Group and its operations
95
/FOR THE YEAR ENDED 31 DECEMBER 2019/
These consolidated financial statements for the year ended 31 December 2019 have been prepared for O’KEY GROUP S.A. (the “Company”) and its
’000 RUB
Cash flows from operating activities
Cash receipts from customers
Other cash receipts
Interest received
Cash paid to suppliers and employees
Taxes other than on income
Other cash payments
VAT paid
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Note
2019
2018
subsidiaries (together referred to as the “Group”).
191,108,706
185,385,687
698,981
49,475
1,021,735
54,545
(175,781,669)
(177,167,778)
(668,837)
(43,199)
(859,009)
(80,216)
(3,494,010)
(2,513,869)
(791,615)
(1,079,307)
11,077,832
4,761,788
The Company was incorporated and is domiciled in Luxembourg. The Company is a public limited company (société anonyme) and was set up
in accordance with Luxembourg regulations. The main part of the Group is located and conducts its business in the Russian Federation.
The Company does not have an immediate parent or an ultimate controlling party.
As at 31 December 2019 and 2018, the Company’s major indirect shareholders are Mr. Troitskii, Mr. Volchek and Mr. Korzhev.
As at 31 December 2019 and 2018, as well as throughout the years then ended, 38.172% of the Company’s shares were admitted to trading
on the London Stock Exchange in the form of global depositary receipts (“GDRs”).
The Company’s registered address is Luxembourg 6 rue Jean Monnet, L-2180.
The Group’s principal business activity is operation of retail chains in Russia under the brand names “O’KEY” (hypermarkets) and “DA!” (discounter
Purchase of property, plant and equipment (excluding VAT)
(2,508,942)
(3,150,785)
stores). At 31 December 2019 the Group operated 178 stores including 100 discounter stores (31 December 2018: 160 stores including
Purchase of intangible assets (excluding VAT)
Proceeds from sale of supermarkets (excluding VAT)
Proceeds from sale of subsidiaries
9
Proceeds from sale of property, plant and equipment and intangible assets (excluding VAT)
Net cash (used in)/ from investing activities
Cash flows from financing activities
Proceeds from loans and borrowings
Repayment of loans and borrowings
Interest paid on loans and borrowings
Repayment of principal amount of lease liabilities
Interest paid on lease liabilities
Dividends paid
Other financial payments
Net cash used in financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of exchange rate fluctuations on cash
and cash equivalents
Cash and cash equivalents at the end of the year
(410,157)
-
1,552,785
14,612
(470,989)
7,069,951
-
31,084
(1,351,702)
3,479,261
13,252,720
15,006,000
(15,843,795)
(16,896,776)
(2,885,956)
(3,337,810)
(4,083,535)
(2,286,559)
-
-
82 discounter stores) in major Russian cities, including but not limited to Moscow and towns in Moscow region, St. Petersburg, Murmansk, Nizhniy
Novgorod, Rostov-on-Don, Krasnodar, Lipetsk, Volgograd, Ekaterinburg, Novosibirsk, Krasnoyarsk, Ufa, Astrakhan and Surgut.
(b) Business environment
The Group’s operations are primarily located in the Russian Federation which displays certain characteristics of an emerging market. Its economy
is particularly sensitive to oil and gas prices. The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations
and frequent changes which together with other legal and fiscal impediments contribute to the challenges faced by entities operating in the Russian
Federation. The economy continued to be negatively impacted by ongoing political tension in the region and international sanctions against
certain Russian companies and individuals. Firm oil prices, low unemployment and rising wages supported a modest growth of the economy
in 2019. This operating environment has a significant impact on the Group’s operations and financial position. Management is taking necessary
measures to ensure sustainability of the Group’s operations. However, the future effects of the current economic situation are difficult to predict
and management’s current expectations and estimates could differ from actual results.
23
(987,512)
(1,879,021)
(87,453)
(140,850)
(12,922,090)
(7,248,457)
(3,195,960)
8,712,253
992,592
7,750,177
(9,214)
(30,516)
5,507,079
8,712,253
22
22
2 BASIS OF PREPARATION
(a) Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRSs”) as adopted
by the European Union under the historical cost convention, as modified by the initial recognition of financial instruments based on fair value,
and by the revaluation of investment properties and financial instruments categorised at fair value through other comprehensive income (“FVOCI”).
These consolidated financial statements were authorised for issue by the Board of Directors on 27 March 2020.
Any changes to these consolidated financial statements after issue require approval of the Board of Directors.
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3 FUNCTIONAL AND PRESENTATION CURRENCY
Recoverability of deferred tax asset. Significant judgment is required in assessment of recoverability of deferred tax asset on tax losses of LLC
Fresh Market, the Group’s entity that develops a discounter chain and does not yet generate profit. The Group performs analysis of future taxable
The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity
profit to cover the accumulated tax losses on the basis of the long-term budget for the entity. Recognition of the deferred tax asset is contingent
operates. The functional currency of the Company is the US Dollar (“USD”) and the functional currency of the Group’s Russian subsidiaries
on the ability of the Group management to adhere to the long-term budget. Refer to Note 13.
in the Russian Rouble (“RUB”). The consolidated financial statements are presented in RUB, which is the Group’s presentation currency. All financial
information presented in RUB has been rounded to the nearest thousand, except when otherwise indicated.
Lease term. In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if
The results and financial position of the Group entities, which functional currencies are different from RUB, are translated into the presentation
the lease is reasonably certain to be extended (or not terminated).
currency as follows:
assets and liabilities for each statement of financial position presented are translated at the closing rate at the end of the respective reporting
contractual enforceable rights beyond the written agreement to determine the lease term with reference to mutual understanding between
If the contractual lease term does not align with the economics of the transaction, management considers whether there are any non-
period;
income and expenses are translated at the date of transaction;
components of equity are translated at the historic rate; and
the parties, respective laws and regulations and other relevant factors. The assessment is reviewed if a significant event or a significant change
in circumstances occurs which affects this assessment and that is within the control of the lessee.
The Group leases land and trade and other premises based on the lease agreements with various termination and extension options. To determine
the lease term the management has applied judgement in performing its “reasonably certain” assessment and determined that it is reasonably
certain that the extension options will be exercised or termination options will not be exercised during the lease period which is based
all resulting exchange differences are recognised in other comprehensive income.
on the Group’s business plan with the respective planning horizon.
At 31 December 2019 the principal rates of exchange used for translating foreign currency balances were USD 1 = RUB 61.9057; EUR 1 =
Most extension options in leases of trade premises have been included in the lease liability, because the Group is unlikely to replace the assets
RUB 69.3406 (31 December 2018: USD 1 = RUB 69.4706; EUR 1 = RUB 79.4605).
within the Group’s planning horizon.
4 USE OF ESTIMATES AND JUDGMENTS
The lease term is reassessed if an option is actually exercised (or not exercised) or the Group becomes obliged to exercise (or not exercise) it.
The assessment of reasonable certainty is only revised if a significant event or a significant change in circumstances occurs, which affects this
The preparation of consolidated financial statements in conformity with IFRSs requires management to make estimates and assumptions that
assessment, and that is within the control of the lessee.
affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ
from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which
An increase in the lease term by 1 year at the reporting date would have increased the balances of right-of-use assets and lease liabilities
by RUB 1,891,481 thous. and RUB 2,089,398 thous., respectively.
the estimates are revised and in any future periods affected.
A decrease of the lease term by 1 year at the reporting date would have decreased the balances of right-of-use assets and lease liabilities
Management also exercises certain judgements, apart from those involving estimations, in the process of applying the accounting policies.
Judgments that have the most significant effect on the amounts recognised in the consolidated financial statements and estimates that can cause
This analysis assumes that all other variables, in particular incremental borrowing rate, remain constant.
a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:
by RUB 2,028,915 thous. and RUB 2,252,736 thous., respectively.
Discount rates used for determination of lease liabilities. The Group uses its incremental borrowing rate as a base for calculation of the discount
Tax legislation. The Group is subject to taxation in several jurisdictions. The major part of the tax burden refers to the Russian tax legislation,
rate because the interest rate implicit in the lease cannot be readily determined.
which is subject to varying interpretations when being applied to the transactions and activities of the Group. Significant judgement is required
The Group’s incremental borrowing rate applied to lease liabilities in 2019 ranged from 4 to 10%.
in determining whether the tax positions and interpretations the Group has taken can be sustained. Refer to Note 31.
Bonuses from suppliers. The Group receives various bonuses from suppliers which represent a significant reduction in cost of goods sold
by RUB 911,480 thous. and RUB 847,748 thous., respectively.
and inventory cost. The calculation of these amounts is in part dependent on an estimation of whether the amounts due under agreements
with suppliers have been earned at the reporting date based on inventory purchased and other conditions.
A decrease of the discount rate by 1% at the reporting date would have increased the balances of right-of-use assets and lease liabilities
An increase in the discount rate by 1% at the reporting date would have decreased the balances of right-of-use assets and lease liabilities
The calculation and allocation of the bonuses to inventory cost has some element of judgement.
Determination of recoverable amount of non-current assets. For those non-current assets where impairment indicators exist as at reporting date,
the Group estimates the recoverable amount being the higher of their value in use and fair value less costs of disposal. For details of impairment
assessment performed as at 31 December 2019 refer to Notes 15-17.
by RUB 988,408 thous. and RUB 914,723 thous., respectively.
This analysis assumes that all other variables, in particular lease term, remain constant.
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99
5 NEW AND AMENDED STANDARDS AND INTERPRETATIONS ADOPTED BY THE GROUP
The change in accounting policy affected the following items in the consolidated statement of financial position on 1 January 2019:
A number of new standards and amendments to standards became effective from 1 January 2019, including the following:
IFRS 16, “Leases”. The Group has adopted IFRS 16 from 1 January 2019, but has not restated comparatives for the 2018 reporting period,
’000 RUB
ASSETS
as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules
Non-current assets
31 December
2018
Change in
accounting policy
1 January
2019
are therefore recognised in the opening balance sheet on 1 January 2019.
The new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. All leases result in the lessee
obtaining the right to use an asset at the start of the lease and, if lease payments are made over time, also obtaining financing. Accordingly, IFRS 16
eliminates the classification of leases as either operating leases or finance leases as is required by IAS 17 and, instead, introduces a single lessee
accounting model. The Group as the lessee is now required to recognise: (a) assets and liabilities for all leases with a term of more than 12 months,
unless the underlying asset is of low value; and (b) depreciation of right-of-use assets separately from interest on lease liabilities in the consolidated
statement of profit or loss and other comprehensive income. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
Accordingly, while the Group as the lessor had only operating leases, it continued to account for such operating leases upon adoption of IFRS 16
with no changes.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as “operating leases” under
the principles of IAS 17. These liabilities were measured at the present value of the remaining lease payments, discounted using the Group’s
incremental borrowing rate as of 1 January 2019. The Group’s incremental borrowing rate applied to the lease liabilities on 1 January 2019 ranged
from 4 to 10%.
’000 RUB
Operating lease commitments disclosed as at 31 December 2018
Add: adjustments as a result of a different treatment of extension and termination options
Less: future minimum lease payments under non-cancellable land leases depending on the cadastral value
as at 31 December 2018
Add: future minimum in-substance fixed lease payments as at 31 December 2018
Less: effect of discounting
Lease liability recognised as at 1 January 2019
Of which are:
Current lease liabilities
Non-current lease liabilities
36,968,672
7,870,300
(4,531,763)
5,788,580
(16,867,997)
29,227,792
3,543,705
25,684,087
The associated right-of-use assets for leases were measured at their carrying amounts as if the standard had been applied since
the commencement date, but discounted using the Group’s incremental borrowing rate at the date of initial application.
Lease rights previously presented as a separate item in the consolidated statement of financial position are in substance payments made to take
over the Group’s leases, and as such meet the definition of initial direct costs.
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases; and
the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease and in determining
the lease consideration where the contract contains options to increase of consideration in uncertain amount.
Property, plant and equipment
Construction in progress
Right-of-use assets
Lease rights
Deferred tax assets
Other non-current assets
Total non-current assets
Current assets
Other current assets
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity
Retained earnings
Total equity
Non-current liabilities
Lease liabilities
Total non-current liabilities
Current liabilities
Lease liabilities
Trade and other payables
Total current liabilities
Total liabilities
Total equity and liabilities
43,770,640
3,754,546
-
4,312,159
2,438,928
1,405,610
58,023,097
25,466
27,214,176
85,237,273
12,200,119
22,481,181
-
32,756,270
-
26,861,848
29,999,822
62,756,092
85,237,273
29,522
(132,628)
25,226,179
(4,312,159)
1,681,434
(784,456)
21,707,892
(16,000)
(16,000)
21,691,892
(6,725,738)
(6,725,738)
25,684,087
25,684,087
3,543,705
(810,162)
2,733,543
28,417,630
21,691,892
43,800,162
3,621,918
25,226,179
-
4,120,362
621,154
79,730,989
9,466
27,198,176
106,929,165
5,474,381
15,755,443
25,684,087
58,440,357
3,543,705
26,051,686
32,733,365
91,173,722
106,929,165
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements
100
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101
The amounts presented in the table above were restated as compared to the amounts disclosed in the Group’s condensed consolidated interim
The Group has two operating segments that also represent reportable segments: “O’Key” and “DA!”. Each segment has similar format of their stores
financial statements for the six-month period ended 30 June 2019. As part of the preparation of the annual financial statements, management
which is described below:
identified circumstances pointing to the presence of impairment indicators of right-of-use assets as at 1 January 2019. As a result of the detailed
analysis and testing of relevant assets for impairment, the adjustments were made to carrying values of respective assets against the Group’s
O’Key – chain of modern style hypermarkets under the “O’KEY” brand;
retained earnings on 1 January 2019.
’000 RUB
Construction in progress
Right-of-use assets
Deferred tax assets
Retained earnings
Change in accounting policy
as originally presented
Impairment adjustments
Change in accounting policy –
as restated
The assortment of goods in the stores of each segment is different, and the segments are managed separately. For each of the segments,
the CODM of the Group reviews internal management reports at least on a monthly basis.
DA! – chain of discounter stores in Moscow and Central region.
81,720
26,473,332
1,389,134
(5,556,537)
(214,348)
(1,247,153)
292,300
(1,169,201)
(132,628)
25,226,179
1,681,434
(6,725,738)
All business components within each reportable segment demonstrate similar characteristics:
the products and customers;
The following amended standards also became effective from 1 January 2019, but did not have any material impact on the Group:
IFRIC 23 “Uncertainty over Income Tax Treatments”;
Prepayment Features with Negative Compensation – Amendments to IFRS 9;
Amendments to IAS 28 “Long-term Interests in Associates and Joint Ventures”;
the business processes are integrated and uniform: the components manage their operations centrally. Purchasing, logistics, finance, HR and IT
functions are centralised;
the components’ activities are mainly limited to Russia which has a uniform regulatory environment.
The CODM assesses the performance of the operating segments based on revenue and earnings before interest, tax, depreciation and amortisation
adjusted for certain one-off items outlined below (“EBITDA”). The “EBITDA” term is not defined in IFRS. Other information provided to the CODM is
measured in a manner consistent with that in the consolidated financial statements.
The accounting policies used for the segment reporting are the same as the accounting policies applied for the consolidated financial statements
Annual Improvements to IFRSs 2015-2017 cycle – amendments to IFRS 3, IFRS 11, IAS 12 and IAS 23;
(Note 35).
Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement”.
Basis of segmentation used in these consolidated financial statements is consistent with that used in the prior year.
6 SEGMENT INFORMATION
The segment information for the years ended 31 December 2019 and 31 December 2018 is as follows:
Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are
regularly reviewed by the chief operating decision maker (CODM) and for which discrete financial information is available. The CODM is the person
or group of persons who allocate resources and assess the performance for the entity.
’000 RUB
External revenue
O’Key
Da!
Total
2019
2018
2019
2018
2019
2018
The CODM has been determined as the CEO of the Group and the Board of Directors of the Company.
The Group is engaged in management of retail stores located in the Russian Federation. Although the Group is not exposed to concentration
of sales to individual customers, all of the Group’s sales are made in the Russian Federation. As such, the Group is exposed to the economic
development in Russia, including the development of the Russian retail industry. The Group has no significant non-current assets outside
the Russian Federation.
The Group identified its operating segments in accordance with the criteria set in IFRS 8 Operating Segments and based on the way the operations
of the Group are regularly reviewed by the CODM to analyse performance and allocate resources within the Group.
- Sales of trading stock
139,237,309
139,793,834
17,856.390
13,558,958
157,093,699
153,352,792
- Sales of self-produced catering products
6,060,468
6,027,584
-
-
6,060,468
6,027,584
Revenue from contracts with customers
145,297,777
145,821,418
17,856,390
13,558,958
163,154,167
159,380,376
Rental income
Total revenue
Inter-segment revenue
EBITDA
1,876,935
1,866,148
55,100
56,887
1,932,035
1,923,035
147,174,712
147,687,566
17,911,490
13,615,845
165,086,202
161,303,411
-
-
457,651
-
457,651
-
14,276,746
10,415,634
(215,315)
(1,771,626)
14,061,431
8,644,008
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements 102
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A reconciliation of EBITDA to profit/(loss) for the year is as follows:
8 GENERAL, SELLING AND ADMINISTRATIVE EXPENSES
’000 RUB
EBITDA
Revaluation of investment property
Gain from disposal of non-current assets
Impairment of non-current assets
Loss from write-off of receivables
Impairment of receivables
Depreciation and amortisation
Finance income
Finance costs
Foreign exchange gain/(loss)
Net loss generated by sold supermarkets until cessation of their operations
Other expenses
Profit/(loss) before income tax
Income tax (expense)/benefit
Profit/(loss) for the year
Note
9, 14
9
9
9
9
8
11
11
12
13
2019
2018
14,061,431
8,644,008
’000 RUB
Personnel costs
(75,454)
46,885
(821,009)
(191,353)
(19,382)
(50,142)
127,209
(368,585)
(22,883)
(28,048)
Depreciation and amortisation
Communication and utilities
Advertising and marketing
Repairs and maintenance costs
Insurance and bank commissions
(8,100,015)
(4,367,254)
Security expenses
89,803
(5,054,947)
937,678
-
-
873,637
(126,679)
746,958
76,286
(3,192,959)
(1,141,353)
(159,298)
(213,025)
(696,044)
96,289
(599,755)
Legal and professional expenses
Operating taxes
Variable lease expenses and expenses relating to short-term and low value leases /
Operating lease expense
Materials and supplies
Other costs
Total general, selling and administrative expenses
103
Note
10
15, 16, 17
2019
2018
14,671,629
14,067,602
8,100,015
3,656,196
2,268,126
1,316,665
918,128
713,069
655,733
638,068
4,367,254
3,503,234
2,011,700
1,230,022
816,606
736,473
629,781
802,929
347,317
5,425,712
321,077
23,802
294,030
29,281
33,629,825
33,914,624
Fees billed to the Group by PricewaterhouseCoopers, Société coopérative, the Company’s independent auditors, and affiliated companies thereof
Adoption of IFRS 16 “Leases” from 1 January 2019 impacted the Group’s EBITDA for the year ended 31 December 2019, as major part of operating
lease expense is now replaced with finance costs and depreciation that are not included in EBITDA.
Since the Group adopted the new standard under the modified retrospective approach, comparative EBITDA information has not been restated.
As a consequence, the EBITDA for the year ended 31 December 2019 is not entirely comparable to the EBITDA for the prior year.
If the Group had adopted IFRS 16 from 1 January 2018 on the same principles as it has adopted as of 1 January 2019, EBITDA for the year ended
31 December 2018 would have been RUB 14,133,168 thous. which would comprise of the positive result of “O`KEY” segment in the amount
of RUB 14,926,078 thous. and the negative result of “DA!” segment in the amount of RUB 792,910 thous. respectively.
7 PRINCIPAL SUBSIDIARIES
are as follows:
’000 RUB
Fees for statutory audit of annual and consolidated accounts
Fees charged for tax advisory services
Fees charged for other assurance services
Fees charged for other non-audit services
Total auditors’ remuneration
9 OTHER OPERATING INCOME AND EXPENSES, NET
’000 RUB
Details of the Company’s significant subsidiaries at 31 December 2019 and 31 December 2018, all wholly owned and registered in the Russian
Gain from modification of leases
Federation, are as follows:
Subsidiary
LLC O’KEY
LLC Fresh Market
JSC Dorinda
Nature of operations
Retail
Retail and real estate
Real estate
LLC O’KEY Management (formerly, LLC O’KEY group) Managing company
LLC O’KEY Logistics
Import operations
Net gain from disposal of non-current assets
Impairment of non-current assets
Impairment of receivables
Loss from write-off of receivables
Loss from revaluation of investment property
Sundry income and expense, net
Total other operating income and expenses, net
2019
14,406
5,505
4,561
-
24,472
2019
376,864
46,885
(821,009)
(19,382)
(191,353)
(75,454)
114,843
(568,606)
2018
14,517
9,090
4,027
3,700
31,334
2018
-
127,209
(368,585)
(28,048)
(22,883)
(50,142)
437,494
95,045
Note
15
14
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Net gain from disposal of non-current assets for the year ended 31 December 2018 includes gain on sale of the remaining 4 supermarkets business
13 INCOME TAX
in the amount of RUB 336,015 thous. and loss on disposal of other non-current assets in the amount of RUB 208,806 thous.
In June 2019 the Group signed agreements with a third party for sale of the Group’s two subsidiaries holding rights for lease of land plots and other
related non-current assets in Moscow. Total proceeds according to the agreement comprised RUB 1,552,785 thous. with the gain recognised
in the net gain from disposal on non-current assets. As of 31 December 2019, the deal was closed and the amounts due from the buyer under
the agreements were received in cash in full.
Income tax recognised in profit or loss
’000 RUB
Current tax expense
Deferred tax benefit
Total income tax (expense)/benefit
105
2019
(295,433)
168,754
(126,679)
2018
(659,108)
755,397
96,289
10 PERSONNEL COSTS
’000 RUB
Wages and salaries
Social security contributions
Bonuses to personnel
Other employee benefits
Total personnel costs
11 FINANCE INCOME AND FINANCE COSTS
’000 RUB
Recognised in profit or loss
Interest income on bank deposits
Other finance income
Total finance income
Interest expense on loans and borrowings
Interest expense on lease liabilities
Finance costs on interest rate swap contracts
Total finance costs
Net finance costs recognised in profit or loss
2019
2018
9,189,989
8,959,215
3,020,233
1,465,547
995,860
2,872,502
1,259,695
976,190
14,671,629
14,067,602
2019
2018
70,193
19,610
89,803
69,313
6,973
76,286
(2,832,305)
(2,222,642)
(3,166,730)
-
-
(26,229)
(5,054,947)
(3,192,959)
(4,965,144)
(3,116,673)
Reconciliation between the tax (expense)/benefit and profit or loss multiplied by applicable tax rate
The income tax rate applicable to the majority of the Group’s 2019 and 2018 income is 20%, the income tax rate established by the Russian tax
legislation. A reconciliation between the expected and the actual taxation charge/ benefit is provided below.
’000 RUB
Profit/(loss) before income tax
Theoretical income tax at applicable tax rate of 20%
Effect of income taxed at different rates
Tax effect of items which are not deductible for taxation purposes:
- Inventory shrinkage expenses
- Other non-deductible expenses
Adjustments to current income tax for previous periods
Other items
Income tax (expense)/benefit for the year
Deferred tax assets and liabilities
(a) Deferred taxes in respect of subsidiaries
2019
873,637
(174,727)
(14,697)
(81,931)
(40,223)
184,899
-
(126,679)
2018
(696,044)
139,209
82,337
(85,927)
(12,421)
(19,428)
(7,481)
96,289
The Group has not recorded a deferred tax liability in respect of temporary differences of RUB 26,827,800 thous. (31 December 2018:
RUB 25,453,488 thous.) associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary
During 2019 the Group has capitalised borrowing costs in the amount of RUB 222,356 thous. (2018: RUB 208,013 thous.) arising on financing
differences and does not intend to reverse them in the foreseeable future. If the temporary difference reversed in form of distributions remitted
directly attributable to the construction of the Group’s new stores. The capitalisation rate was 8.83% (2018: 9.97%).
to the Company, then an enacted tax rate of 5-15% would apply.
12 FOREIGN EXCHANGE GAIN / (LOSS)
(b) Recognised deferred tax asset on tax loss carried forward
The Group’s risk management policy is to receive loans and borrowings in the same currency in which revenues are generated (RUB).
Deferred tax asset recognised in respect of tax loss carried forward relates to the losses accumulated by the Group’s subsidiary LLC Fresh Market
As at 31 December 2019, the share of the Group’s USD-denominated loans and borrowings did not exceed 3% of total loans and borrowings
that develops a discounter chain and does not yet generate profit.
(31 December 2018: 5%). Major amount of foreign exchange differences is caused by intragroup USD-denominated loans. The Group’s exposure
to currency risk is disclosed in Note 29.
Starting from 1 January 2017 the amendments to the Russian tax legislation became effective in respect of tax loss carry forwards.
The amendments affect tax losses incurred and accumulated since 2007 that have not been utilised. The 10-year expiry period for tax loss carry-
forwards that was in effect prior to 2017 no longer applies, and the accumulated tax losses can now be carried forward for utilisation in future
periods without any time limitation, with exception of limitation on utilisation of tax loss carry forwards that applies during the period from 2017
to 2021. The amount of losses that can be utilised each year during this period is limited to 50% of annual taxable profit.
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The Group determined that future taxable profits will be available at LLC Fresh Market in the foreseeable future against which its accumulated
losses can be utilised. In making this assessment the Group considered that according to the discounter chain’s long-term budget the deferred
tax asset of RUB 2,840,607 thous. on accumulated losses generated by LLC Fresh Market as at 31 December 2019 will be utilised in full by 2028.
’000 RUB
In 2019 the Group corrected its long-term plan for opening of new stores by adjusting the pace of new openings and increasing the total number
of openings. This revision was made based on the more selective approach to choosing suitable locations for new stores with reference
to the Group’s accumulated experience.
Tax effect of deductible/ (taxable) temporary differences
and tax loss carry forwards
Recognition of the deferred tax asset is contingent on the ability of the Group management to adhere to the key assumptions made in the long-term
budget. These key assumptions in the discounter chain’s long-term budget covering 2020-2028 include annual expansion by approximately 20-50
new discounter stores per year; annual growth in revenue generally in line with the most recent trends of the discounter chain; and gradual decrease
of share of semi-fixed costs due to economies of scale.
(c) Movement in temporary differences during the year
Differences between IFRS and statutory taxation regulations in Russia and other countries give rise to temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these temporary
differences is detailed below.
’000 RUB
Tax effect of deductible/ (taxable) temporary differences
and tax loss carry forwards
Investment property
Property, plant and equipment
Construction in progress
Right-of-use assets
Intangible assets
Other non-current assets
Inventories
Trade and other receivables and payables
Long-term investments
Lease liabilities
Tax loss carry-forwards
Net deferred tax assets
Recognised deferred tax assets
Recognised deferred tax liabilities
1 January
2019
Recognised
in profit or loss
Recognised
in other
comprehensive
income
31 December
2019
15,091
(439,154)
(46,909)
905,642
5,138
156,023
(71,031)
(17,205)
(828)
(821,089)
483,076
168,754
80,003
(917,436)
(234,732)
(4,182,804)
(115,105)
84,760
397,994
118,059
6,613
5,845,558
2,357,531
3,440,441
4,120,362
(679,921)
-
-
-
-
-
-
38,880
-
-
38,880
95,094
(1,356,590)
(281,641)
(3,277,162)
(109,967)
240,783
326,963
139,734
5,785
5,024,469
2,840,607
3,648,075
4,175,871
(527,796)
Investment property
Property, plant and equipment
Construction in progress
Intangible assets
Other non-current assets
Inventories
Trade and other receivables and payables
Long-term investments
Tax loss carry-forwards
Net deferred tax assets
Recognised deferred tax assets
Recognised deferred tax liabilities
1 January
2018
Recognised
in profit or loss
Recycled
from other
comprehensive
income
31 December
2018
69,975
(624,512)
(261,521)
(94,649)
(102,825)
500,080
(280,970)
6,613
1,816,384
1,028,575
1,917,572
(888,997)
10,028
(287,020)
263
(20,456)
27,494
(102,086)
586,027
-
541,147
755,397
-
-
-
-
-
-
(24,965)
-
-
(24,965)
80,003
(911,532)
(261,258)
(115,105)
(75,331)
397,994
280,092
6,613
2,357,531
1,759,007
2,438,928
(679,921)
In the context of the Group’s current structure, tax losses and current tax assets of different Group companies may not be offset against current tax
liabilities and taxable profits of other Group companies and, accordingly, taxes may accrue even where there is a consolidated tax loss. Therefore,
deferred tax assets and liabilities are offset only when they relate to the same taxable entity.
14 INVESTMENT PROPERTY
(a) Reconciliation of carrying amount
’000 RUB
Investment properties at fair value as at 1 January 2018
Expenditure on subsequent improvements
Fair value gains less losses
Investment properties at fair value as at 31 December 2018
Investment properties at fair value as at 1 January 2019
Transfer from property, plant and equipment and construction in progress
Expenditure on subsequent improvements
Fair value gains less losses
Investment properties at fair value as at 31 December 2019
Note
9
9
1,075,010
22,132
(50,142)
1,047,000
1,047,000
274,302
4,121
(75,454)
1,249,969
The trade premises of the Group included in investment property are subject to operating leases. As at 31 December 2019 the Group’s investment
property comprises three buildings and two land plots (31 December 2018: three buildings).
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements 108
(b) Measurement of fair value
The investment properties are valued annually on 31 December at fair value, by an independent, professionally qualified valuator who has recent
experience in valuing similar properties in the Russian Federation.
The carrying values of investment properties at 31 December 2019 and 31 December 2018 agree to the valuations reported by the external
valuators with the use of a combination of the market approach with reference to comparable prices for orderly transactions with similar properties
and the income approach with reference to estimates of future cash flows, supported by the terms of any existing lease and other contracts
and by external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect
current market assessments of the uncertainty in the amount and timing of the cash flows.
The principal assumptions underlying the estimation of the fair value with reference to the income approach are those relating to: the annual net
rent rate of RUB 917 –14,793 per sq. m. (31 December 2018: RUB 2,511 – 16,281 per sq. m.); expected occupancy of 67% – 92.9% during the first
year (31 December 2018: 15% – 95%) and 92.9 – 100% in the subsequent years (31 December 2018: 92.9 – 95%); and appropriate discount rate
of 10.6% – 14.0% (31 December 2018: 11.4% – 14.5%).
These valuations are regularly compared to actual market yield data and actual transactions by the Group, and those reported by the market.
The fair value measurement of investment property has been categorised as a Level 3 fair value based on the inputs to the valuation technique used.
15 PROPERTY, PLANT AND EQUIPMENT AND CONSTRUCTION IN PROGRESS
Land
Buildings
Leasehold
improvements
Machinery
and equipment,
auxiliary
facilities
and other fixed
assets
Total property,
plant and
equipment
Construction
in progress
Total property,
plant and
equipment and
construction
in progress
4,934,476
38,006,385
7,309,159
14,928,340
65,178,360
3,313,175
68,491,535
15,487
39,568
(14,472)
18,131
940,242
(81,720)
-
1,148,013
1,181,631
2,686,878
3,868,509
719,511
372,890
2,072,211
(2,072,211)
-
(117,748)
(791,250)
(1,005,190)
(173,296)
(1,178,486)
4,975,059
38,883,038
7,910,922
15,657,993
67,427,012
3,754,546
71,181,558
Land
Buildings
Leasehold
improvements
Machinery
and equipment,
auxiliary
facilities
and other fixed
assets
Total property,
plant and
equipment
Construction
in progress
Total property,
plant
and equipment
and
construction
in progress
’000 RUB
Cost
Balance
at 1 January 2018
Additions
Transfers
Disposals
Balance
at 31 December 2018
’000 RUB
Balance
at 1 January 2019
Additions
Transfers
Transfer to investment
property
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
’000 RUB
Depreciation and impairment
losses
Balance
at 1 January 2018
Depreciation for the year
Impairment losses
Disposals
Balance
at 31 December 2018
’000 RUB
Balance
at 1 January 2019
Depreciation for the year
Impairment losses
Disposals
Balance
at 31 December 2019
Net book value
109
Land
Buildings
Leasehold
improvements
Machinery
and equipment,
auxiliary
facilities
and other fixed
assets
Total
property,
plant and
equipment
Construction
in progress
Total property,
plant
and equipment
and
construction
in progress
-
-
-
-
-
(7,021,978)
(2,565,688)
(10,626,559)
(20,214,225)
(1,282,196)
(609,582)
(1,970,791)
(3,862,569)
(351,195)
63,423
(17,390)
57,321
-
(368,585)
668,263
789,007
(8,591,946)
(3,135,339)
(11,929,087)
(23,656,372)
-
-
-
-
-
(20,214,225)
(3,862,569)
(368,585)
789,007
(23,656,372)
Land
Buildings
Leasehold
improvements
Machinery
and equipment,
auxiliary
facilities
and other fixed
assets
Total
property,
plant and
equipment
Construction
in progress
-
-
-
-
-
(8,592,043)
(3,135,766)
(11,929,087)
(23,656,896)
(1,307,099)
(673,037)
(1,796,354)
(3,776,490)
(821,009)
2,874
-
2,240
-
(821,009)
718,084
723,198
(10,717,277)
(3,806,563)
(13,007,357)
(27,531,197)
-
-
-
-
-
Total property,
plant
and equipment
and
construction
in progress
(23,656,896)
(3,776,490)
(821,009)
723,198
(27,531,197)
At 1 January 2018
4,934,476
30,984,407
At 31 December 2018
4,975,059
30,291,092
At 1 January 2019 (Note 5)
4,975,059
30,315,169
4,743,471
4,775,583
4,781,028
4,301,781
44,964,135
3,313,175
48,277,310
3,728,906
43,770,640
3,754,546
47,525,186
3,728,906
43,800,162
3,621,918
47,422,080
At 31 December 2019
4,901,189
29,325,399
4,733,092
3,002,495
41,962,175
2,976,838
44,939,013
Depreciation expense of RUB 3,776,490 thous. has been charged to selling, general and administrative expenses (2018: RUB 3,862,569 thous.).
Impairment assessment
At the end of each reporting period, the Group assesses whether there is any indication that its non-current assets including property, plant
and equipment, right-of-use assets / lease rights and other non-current assets may be impaired. Where the non-current assets relate to the Group’s
stores, these stores are treated as separate CGUs, and impairment assessment is performed in respect of the aggregate carrying value of the non-
4,975,059
38,907,212
7,916,794
15,657,993
67,457,058
3,621,918
71,078,976
current assets attributable to these CGUs with reference to their actual and anticipated performance and other relevant factors.
92,816
8,807
-
-
1,135,840
660,259
907,009
221,441
1,008,632
2,247,373
3,256,005
2,017,540
(2,017,540)
-
(166,348)
-
-
-
(166,348)
(107,954)
(274,302)
For the CGUs subject to impairment testing, recoverable amount was determined based on value-in-use calculations using cash flow projections
based on financial budgets and forecasts approved by management covering a one-year period. Cash flows beyond the one-year period are
extrapolated using an expected growth rate for each particular CGU which depends on its maturity and other relevant factors. The discount rates
are pre-tax and reflect management’s estimate of the risks specific to the Group.
Disposals
(338)
(9,183)
(37,398)
(776,591)
(823,510)
(766,959)
(1,590,469)
Balance
at 31 December 2019
4,901,189
40,042,676
8,539,655
16,009,852
69,493,372
2,976,838
72,470,210
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements 111
Software
Other intangible
assets
1,739,629
729,922
(723,886)
1,745,665
1,745,665
556,076
(290,016)
2,011,725
(901,112)
(367,045)
711,643
(556,514)
(556,514)
(543,522)
288,551
(811,485)
838,517
1,189,151
1,200,240
190,726
13,948
(23,427)
181,247
181,247
18,253
(6,491)
193,009
(68,135)
(31,237)
23,188
(76,184)
(76,184)
(31,153)
6,273
(101,064)
122,591
105,063
91,945
Total
1,930,355
743,870
(747,313)
1,926,912
1,926,912
574,329
(296,507)
2,204,734
(969,247)
(398,282)
734,831
(632,698)
(632,698)
(574,675)
294,824
(912,549)
961,108
1,294,214
1,292,185
Amortisation of RUB 574,675 thous. has been charged to selling, general and administrative expenses (2018: RUB 398,282 thous.).
No indicators of impairment were identified for the Group’s intangible assets as at 31 December 2019 and 2018.
110
Overview
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Operational Review
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Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
As the result of the impairment test performed as at 31 December 2019, the Group recognised an impairment loss in the amount
17 INTANGIBLE ASSETS
’000 RUB
Cost
Balance at 1 January 2018
Additions
Disposals
Balance at 31 December 2018
Balance at 1 January 2019
Additions
Disposals
Balance at 31 December 2019
Amortisation and impairment losses
Balance at 1 January 2018
Amortisation for the year
Disposals
Balance at 31 December 2018
Balance at 1 January 2019
Amortisation for the year
Disposals
Balance at 31 December 2019
Carrying amounts
At 1 January 2018
At 31 December 2018
At 31 December 2019
of RUB 821,009 thous. (2018: RUB 368,585 thous.), primarily in respect of mature low-performing CGUs, including RUB 784,009 thous. (2018:
RUB 314,000 thous.) in O’Key segment and RUB 37,000 thous. (2018: RUB 54,585 thous.) in DA! segment. The impairment losses in 2019 and 2018
were entirely attributable to property, plant and equipment. The total recoverable amount of the impaired CGUs determined based on value in use
as of 31 December 2019 amounted to RUB 874,010 thous. (31 December 2018: RUB 1,722,306 thous.).
The post-tax discount rate used in the assessment as at 31 December 2019 was 11.8% (31 December 2018: 14.1%). If the revised estimated
pre-tax discount rate applied to the discounted cash flows of the CGUs had been 1% higher than management’s estimates, the Group would need
to recognise additional impairment of property, plant and equipment of RUB 70,909 thous. (2018: RUB 120,375 thous.).
Pledged assets
At 31 December 2019, 4 stores with carrying value of RUB 2,386,084 thous. have been pledged to third parties as collateral for bank borrowings
(31 December 2018: 4 stores were pledged with carrying value of RUB 2,338,054 thous.).
16 RIGHT-OF-USE ASSETS
The Group leases various trade premises, land and other assets. Rental contracts are typically made for fixed periods of 3 to 49 years but may
have extension and early termination options. Lease terms are negotiated on an individual basis and contain a wide range of different terms
and conditions.
Until 31 December 2018 all of the Group’s leases were classified as operating leases. From 1 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability from the date when the leased asset becomes available for use by the Group.
The table below presents the right-of-use assets by class of underlying assets:
’000 RUB
Balance at 1 January 2019
Additions
Modifications and reassessments
Depreciation for the year
Disposals
Trade premises
Land
Other
Total
17,448,977
5,281,087
2,496,115
25,226,179
596,249
30,932
(3,006,754)
-
101,915
62,627
(271,509)
(686,173)
12,899
48,826
711,063
142,385
(602,794)
(3,881,057)
-
(686,173)
Balance at 31 December 2019
15,069,404
4,487,947
1,955,046
21,512,397
The group “Other” is mostly represented by office premises and warehouses.
Depreciation expense of RUB 3,748,850 thous. has been charged to general, selling and administrative expenses.
Net book value of the right-of-use assets attributable to the subsidiaries sold to a third party in the reporting period amounted
to RUB 531,760 thous. (Note 9).
Right-of-use assets are assessed for indication of potential impairment as at each reporting date. For those assets where impairment indicators
exist, the Group estimates recoverable amount being the higher of their value in use and fair value less costs of disposal, on either individual asset
or CGU level. No indicators of impairment were identified for the Group’s right-of-use assets that are attributable to individual leased assets and do
not relate to stores in operation as at 31 December 2019. For those right-of-use assets that relate to the Group’s stores and are therefore assessed
for impairment on the store level together with the other non-current assets attributable to the stores, impairment assessment has been performed
as disclosed in Note 15. No impairment attributable to the right-of-use assets was identified as at 31 December 2019.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements 112
18 PREPAYMENTS
’000 RUB
Prepayments for services
Overview
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Corporate Governance
Financial Statements
113
Note
31 December 2019 31 December 2018
’000 RUB
31 December 2019 31 December 2018
21 TRADE AND OTHER RECEIVABLES
Prepayments for variable lease payments – third parties
Prepayments for goods
VAT on prepayments/prepayments for lease to entities under control of shareholder
group
32
Other prepayments
Total prepayments
306,152
126,066
265,207
89,902
107,706
895,033
312,440
249,496
369,365
353,232
104,505
1,389,038
Short-term prepayments for lease to entities under control of the shareholder group in the amount of RUB 353,232 thous. as at 31 December 2018
were renegotiated with the lessors into long-term interest-bearing loans which principal amounts to RUB 346,025 thous. as at 31 December 2019
(Note 19, 32).
19 OTHER NON-CURRENT ASSETS
’000 RUB
Note
31 December 2019 31 December 2018
Long-term loans to entities under control of shareholder group
18,31
Prepayments for non-current assets
Long-term refundable deposits to lessors
Prepayments for lease to entities under control of shareholder group
31
346,025
252,806
232,801
-
-
280,711
391,645
733,254
Total other non-current assets
831,632
1,405,610
The long-term prepayments for lease to entities under control of the shareholder group in the amount of RUB 733,254 thous.
as at 31 December 2018 represented prepayments for rent of hypermarkets for the period until 2034. Upon adoption of IFRS 16 on 1 January 2019,
the prepayments net of VAT were reclassified to right-of-use assets (Note 5).
Financial assets within trade and other receivables
Trade receivables
Bonuses receivable from suppliers
Receivables from sale of supermarkets
Other financial receivables
486,626
2,027,894
120,686
371,395
416,038
1,818,948
120,686
348,931
Total financial assets within trade and other receivables
3,006,601
2,704,603
Other receivables
VAT receivable
Prepaid income tax
Prepaid taxes other than income tax
Total trade and other receivables
1,088,358
180,966
47,025
528,326
44,475
125,542
4,322,950
3,402,946
The Group’s exposure to credit and currency risks and credit loss allowance as at 31 December 2019 and 31 December 2018 related to trade
and other receivables are disclosed in Note 29.
22 CASH AND CASH EQUIVALENTS
’000 RUB
Cash on hand
Bank current accounts
Term deposits
Cash in transit
Total cash and cash equivalents
31 December 2019 31 December 2018
229,328
1,703,444
2,512,259
1,062,048
5,507,079
236,175
4,172,848
2,570,420
1,732,810
8,712,253
20 INVENTORIES
’000 RUB
Goods for resale
Raw materials and consumables
Write-down to net realisable value
Total inventories
31 December 2019 31 December 2018
14,967,315
13,415,173
762,248
(509,794)
777,487
(508,187)
15,219,769
13,684,473
Term deposits had original maturities of less than three months.
The Group’s exposure to currency risk related to cash and cash equivalents is disclosed in Note 29.
23 EQUITY
As at 31 December 2019 and 31 December 2018, the Group’s authorised, issued and fully paid share capital of RUB 119,440 thous., the RUB
equivalent of EUR 2,691 thous., is represented by 269,074,000 ordinary shares with a par value of 0.01 EUR each. Each share is entitled to one vote,
except as may be otherwise provided by the Articles of incorporation or by applicable law.
The Group tested the inventories for obsolescence and wrote down the inventories to their net realisable value, which resulted in a decrease
of the carrying value of inventories by RUB 509,794 thous. as at 31 December 2019 (31 December 2018: RUB 508,187 thous.). The write down
In accordance with Luxembourg Company Law, the Company is required to transfer a minimum of 5% of its net profits for each financial year
to net realisable value was determined applying the percentages of discount on sales and write-offs of slow-moving goods to the appropriate
to a legal reserve. This requirement ceases to be necessary once the balance of the legal reserve reaches 10% of the issued share capital.
ageing of the goods.
The percentages of discount were based on the management’s best estimate following the experience of the discount sales.
The legal reserve is not available for distribution to the shareholders. As at 31 December 2019 and 2018, the legal reserve was formed in full.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements
114
Overview
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Corporate Responsibility
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115
Additional paid-in capital represents the excess of contributions received over par value of shares issued. There were no movements in additional
As at 31 December 2019 the Group had RUB 15,947,280 thous. (31 December 2018: RUB 12,206,500 thous.) of undrawn committed borrowing
paid-in capital during the years ended 31 December 2019 and 31 December 2018.
facilities available in RUB on fixed and floating rate basis until March 2020-December 2023 in respect of which all conditions have been met.
Proceeds from these facilities may be used to finance operating and investing activities, if necessary.
In October 2019 the Company declared and paid interim dividends to shareholders in the amount of RUB 987,512 thous. (USD 15,162 thous.) (2018:
RUB 1,879,021 thous. (USD 33,276 thous.). Dividends declared were recognised as distribution to owners in the consolidated statement of changes
During 2013 – 2017 the Group placed unsecured bonds on Moscow exchange bearing coupon rates of 8.9% – 11.7% p.a. Further, in April 2019,
in equity. Dividends per share for the year ended 31 December 2019 amounted to RUB 3.7 (USD 0.05635) (2018: RUB 7.0 (USD 0.1)).
the Group placed another issue of unsecured bonds in the amount of RUB 5,000,000 thous. on Moscow exchange bearing coupon rate of 9.35%
24 EARNINGS / (LOSS) PER SHARE
p.a. and maturing in April 2029 with an option for the bondholders to claim early repayment in April 2022.
In December 2019, the Group placed another issue of unsecured bonds in the amount of RUB 5,000,000 thous. on Moscow exchange bearing
Basic earnings/(loss) per share are calculated by dividing the profit or loss attributable to owners of the Company by the weighted average number
coupon rate of 7.85% p.a. and maturing in November 2024.
of ordinary shares in issue during the year. The Company has no dilutive potential ordinary shares; therefore, the diluted earnings/(loss) per share
Compliance with loan covenants
The Group monitors compliance with loan covenants on an ongoing basis. Where noncompliance is unavoidable in management’s view, the Group
requests waiver letters from the banks before the year-end, confirming that the banks waive their rights to demand early redemption.
At 31 December 2019 and 31 December 2018 and during the years then ended the Group complied with all its loan covenants.
’000 RUB
Currency
Maturity
Carrying value
Maturity
Carrying value
Modifications and reassessments
equals the basic earnings/(loss) per share.
Earnings/(loss) per share is calculated as follows:
‘000 RUB
Profit/(loss) for the year
Weighted average number of ordinary shares in issue (thousands)
Basic and diluted earnings/(loss) per ordinary share (in RUB per share)
25 LOANS AND BORROWINGS
2019
746,958
269,074
2.8
2018
(599,755)
269,074
(2.2)
31 December 2019
31 December 2018
Non-current loans and borrowings
Secured bank loans
Unsecured bank facilities
Unsecured bonds
Total non-current loans and borrowings
Current loans and borrowings
Unsecured bank facilities
Unsecured bonds
Unsecured loans from related parties (Note 32)
Unsecured loans from third parties
Total current loans and borrowings
Unsecured bonds interest
Interest accrued on loans
Interest accrued on loans and borrowings
Total current loans and borrowings, including
interest accrued
Total loans and borrowings
RUB
RUB
RUB
RUB
RUB
USD
RUB
RUB
RUB
2025
2021-2023
2021-2024
2020
2020
On demand
2020
4,500,000
10,538,462
15,051,296
30,089,758
464,258
213,006
949,106
2,850
1,629,220
210,112
1,069
211,181
1,840,401
31,930,159
2025
2020-2023
2020-2021
4,500,000
22,200,000
5,264,302
31,964,302
2019
1,393,500
-
On demand
1,065,087
2019
2,850
2,461,437
83,844
13,520
97,364
2,558,801
34,523,103
26 LEASE LIABILITIES
’000 RUB
Balance at 1 January
Additions
Repayment
Interest expense
Foreign exchange gains
Balance at 31 December
Non-current lease liabilities
Current lease liabilities
2019
29,227,792
689,806
(234,479)
(6,370,094)
2,286,559
(477,241)
25,122,343
21,172,587
3,949,756
Interest expense in the amount of RUB 2,222,642 thous. has been charged to finance costs.
Total cash outflow for leases in 2019 amounted to RUB 6,677,365 thous.
Some property leases contain variable payment terms that are linked to sales generated by a store. For individual stores, up to 100 per cent of lease
payments are on the basis of variable payment terms and there is a wide range of sales percentages applied. Variable payment terms are used
for a variety of reasons, including minimising the fixed costs base for newly established stores. Variable lease payments that depend on sales are
recognised in profit or loss in the period in which the condition that triggers those payments occurs.
Expense relating to variable lease payments not included in lease liabilities included in selling, general and administrative expenses for 2019 was
RUB 333,751 thous.
Information about property, plant and equipment pledged as collateral for the Group’s loans and borrowings is disclosed in Note 15.
Expenses relating to short-term leases and to leases of low-value assets that are not included in lease liabilities, both included in selling, general
and administrative expenses, amounted to RUB 1,083 thous. and RUB 12,483 thous., respectively.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements
116
27 TRADE AND OTHER PAYABLES
’000 RUB
Financial liabilities at amortised cost
Trade payables
Other financial payables
Total financial liabilities at amortised cost
Financial liabilities at fair value
Interest rate swap liability
Total financial liabilities at fair value
Payables to staff
Taxes payable other than income tax
Advances received from lessees
Contract liability related to gift cards
Total trade and other payables
31 December 2019 31 December 2018
24,147,521
24,238,896
302,402
271,175
24,449,923
24,510,071
194,398
194,398
1,250,477
791,610
396,220
100,111
26,229
26,229
1,171,213
690,035
373,395
90,905
27,182,739
26,861,848
All of the Group’s contract liabilities relate to contracts with customers for periods of less than one year. RUB 90,905 thous. of revenue was
recognised in the current reporting period related to the contract liabilities as at 31 December 2018, all of which related to gift cards.
The Group’s exposure to currency and liquidity risks related to trade and other payables is disclosed in Note 29.
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
117
28 RECONCILIATION OF MOVEMENTS OF LIABILITIES TO CASH FLOWS ARISING FROM FINANCING
ACTIVITIES
The table below sets out an analysis of liabilities from financing activities and the movements in the Group’s liabilities from financing activities
for each of the periods presented. The items of these liabilities are those that are reported as financing in the consolidated statement of cash flows:
Note
Loans
and borrowings
Lease liabilities
Interest rate
swap liability
Dividends
payable
34,523,103
29,227,792
26,229
’000 RUB
Balance at 1 January 2019
Cash flows from financing
activities
Proceeds from loans
and borrowings
Repayment of loans
and borrowings
Interest paid on loans
and borrowings
Repayment of principal amount
of lease liabilities
Interest paid on lease liabilities
Dividends paid
23
13,252,720
(15,843,795)
(2,885,956)
-
-
-
-
-
-
(4,083,535)
(2,286,559)
-
-
Other financial payments
(87,453)
Total cash flows from financing
activities
Non-cash changes
Additions to lease liabilities
Modifications and reassessments
of lease liabilities
Accrued interest
Dividends declared
Changes in fair value of interest
rate swap
Effect of changes in foreign
exchange rates
Total non-cash changes
23
27
(5,564,484)
(6,370,094)
-
-
689,806
(234,479)
3,054,661
2,286,559
-
-
-
-
(83,121)
(477,241)
2,971,540
2,264,645
Balance at 31 December 2019
31,930,159
25,122,343
-
-
-
-
-
(987,512)
-
Total
63,777,124
13,252,720
(15,843,795)
(2,885,956)
(4,083,535)
(2,286,559)
(987,512)
(87,453)
(987,512)
(12,922,090)
-
-
-
987,512
-
-
689,806
(234,479)
5,341,220
987,512
168,169
(560,362)
987,512
6,391,866
-
57,246,900
-
-
-
-
-
-
-
-
-
-
-
168,169
-
168,169
194,398
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements
118
’000 RUB
Balance at 1 January 2018
Cash flows from financing activities
Proceeds from loans and borrowings
Repayment of loans and borrowings
Interest paid
Dividends paid
Other financial payments
Total cash flows from financing activities
Non-cash changes
Accrued interest
Dividends declared
Changes in fair value of interest rate swap
Effect of changes in foreign exchange rates
Total non-cash changes
Balance at 31 December 2018
29 FINANCIAL RISK MANAGEMENT
(a) Overview
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
(b) Credit risk
119
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations,
and arises principally from the Group’s cash and cash equivalents, loans issued, trade receivables, bonuses receivable and other financial
receivables.
(i) Exposure to credit risk
The carrying amounts of financial assets in the consolidated statement of financial position represent the Group’s maximum credit risk exposure.
The maximum exposure to credit risk at the reporting date was:
Total
36,465,957
15,006,000
(16,896,776)
(3,337,810)
(1,879,021)
(140,850)
(1,879,021)
(7,248,457)
-
1,879,021
-
-
3,374,743
1,879,021
(98,598)
176,666
1,879,021
5,331,832
-
34,549,332
’000 RUB
Loans issued
Trade and other receivables
Cash and cash equivalents
Total
Carrying amount
Note
31 December 2019 31 December 2018
19
21
22
388,688
3,006,601
5,277,751
8,673,040
25,467
2,704,603
8,476,078
11,206,148
Due to the fact that the Group’s principal activities are located in the Russian Federation the credit risk is mainly associated with its domestic
market. The credit risks associated with foreign counterparties are considered to be remote, as there are only few foreign counterparties and they
were properly assessed for creditworthiness.
(ii) Trade and other receivables
Note
Loans
and borrowings
Interest rate
swap liability
Dividends
payable
-
-
-
-
(1,879,021)
-
36,341,130
124,827
23
23
15,006,000
(16,896,776)
(3,337,810)
-
(140,850)
(5,369,436)
3,374,743
-
-
176,666
3,551,409
34,523,103
-
-
-
-
-
-
-
-
(98,598)
-
(98,598)
26,229
The risk management function within the Group is carried out with respect to financial risks, operational risks and legal risks. Financial risk
The Group has no considerable balance of trade receivables because the majority of its customers are retail consumers, who are not provided
comprises market risk (including currency risk, interest rate risk and other price risks), credit risk and liquidity risk. The primary function of financial
with any credit. The Group’s trade receivables primarily include receivables from tenants and receivables connected to provision of services. Other
risk management is to establish risk limits and to ensure that any exposure to risk stays within these limits. The operational and legal risk
receivables are primarily represented by bonuses receivable from suppliers. The Group manages credit risk in respect of those bonuses receivable
management functions are intended to ensure the proper functioning of internal policies and procedures in order to minimise operational and legal
by maintaining a stable suppliers base and monitoring collectability of amounts due on an ongoing basis.
risks.
Risk management framework
To measure the ECL for trade and other receivables, those have been grouped based on shared credit risk characteristics and the days past due.
The expected loss rates are based on the payment profiles of sales over a period of 36 months before 31 December 2019 and 31 December 2018
The Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework.
and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-
looking information on macroeconomic factors affecting the ability of the customers to settle the receivables.
The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits
and controls, and to monitor risks and adherence to limits. Risk management policies are reviewed regularly to reflect changes in market
The ECL for bonuses receivable from suppliers is determined on portfolio level based on historical default percentages applied to the total amount
conditions and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined
of bonuses receivable from suppliers, adjusted to reflect relevant current and forward-looking information.
and constructive control environment in which all employees understand their roles and obligations.
The Group’s Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures
and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group’s Audit Committee is assisted
in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures,
the results of which are reported to the Audit Committee.
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Overview
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Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
121
The credit loss allowance as at 31 December 2019 determined with the use of provision matrix is summarised in the table below.
(i) Exposure to liquidity risk
’000 RUB
Trade receivables
Bonuses receivable from suppliers
Other financial receivables
Total
Gross amount
ECL
Carrying amount
The table below shows liabilities at 31 December 2019 by their remaining contractual maturity. The amounts disclosed in the maturity table are
492,657
2,087,713
388,185
2,968,555
(6,031)
(59,819)
(16,790)
(82,640)
486,626
2,027,894
371,395
2,885,915
the contractual undiscounted cash flows, including gross loan commitments. Such undiscounted cash flows may differ from the amount included
in the consolidated statement of financial position because the consolidated statement of financial position amounts are based on discounted
cash flows. Where the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the end
of the reporting period. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period.
31 December 2019
’000 RUB
Carrying
amount
Contractual
cash flows
Demand
and less than
6 months
From 6
to 12 months
From 1
to 5 years
More than
5 years
The credit loss allowance as at 31 December 2018 determined with the use of provision matrix is summarised in the table below.
’000 RUB
Trade receivables
Bonuses receivable from suppliers
Other financial receivables
Total
(iii) Cash and cash equivalents
Gross amount
ECL
Carrying amount
Financial liabilities at amortised cost
431,619
1,873,767
355,191
2,660,577
(15,581)
(54,819)
(6,260)
(76,660)
416,038
1,818,948
348,931
2,583,917
Secured bank loans
Unsecured bonds
4,500,000
5,819,674
163,800
165,600
4,668,813
821,461
15,474,414
19,082,129
1,064,508
674,893
17,342,728
Unsecured bank facilities
11,003,754
12,833,879
411,143
872,318
11,550,418
Unsecured loans from related parties
949,106
1,107,620
1,107,620
Unsecured loans from third parties
2,885
2,885
35
2,850
-
-
Lease liabilities
25,122,343
37,163,992
3,167,963
3,418,869
16,477,389
14,099,771
-
-
-
-
The Group assesses credit risk for cash and cash equivalents based on external ratings that are available publicly. Cash and cash equivalents are
mainly held with banks which are rated from Ba2 to Ba3 based on Moody’s rating.
Financial liabilities at fair value through OCI
Interest rate swap
194,398
194,398
47,644
49,337
97,417
Trade and other payables
24,449,923
24,449,923
24,449,923
-
-
-
-
(iv) Loans issued
Total
81,696,823
100,654,500
30,412,636
5,183,867
50,136,765
14,921,232
Loans issued are represented by loans given to related parties. To determine whether or not there has been a significant increase in credit risk,
loans issued are assessed on a portfolio basis or an individual basis by monitoring relevant triggers. The criteria used to identify significant increase
As at 31 December 2019, the Group’s current liabilities exceeded its current assets by RUB 7,242,026 thous. (31 December 2018:
in credit risk are monitored and reviewed periodically.
(c) Liquidity risk
RUB 2,785,646 thous.). An excess of current liabilities over current assets is usual for the retail industry. The Group uses excess of trade and other
payables over inventory to finance its operating and investing activities. The Group has reviewed its cash flow forecasts in the context of current
and projected market conditions, as well as available undrawn credit facilities disclosed in Note 25, and is confident that it will be able to meet its
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled
by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have
sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking
damage to the Group’s reputation.
Liquidity risk management is a responsibility of the Treasury under the supervision of the Group’s Financial Director. The Group’s liquidity risk
management objectives are as follows:
maintaining financial independence: a share of one creditor in debt portfolio should not exceed 30%;
maintaining financial stability: the Net Debt / EBITDA ratio should not exceed 5.5, where Net Debt is the total of long-term and short-term loans
and borrowings and lease liabilities less cash and cash equivalents as presented in the consolidated financial statements;
monitoring of compliance with debt covenants;
planning: timely preparation of operating, investing and financing cash flow forecasts on rolling basis.
obligations as they fall due.
31 December 2018
’000 RUB
Financial liabilities at amortised cost
Secured bank loans
Unsecured bonds
Unsecured bank facilities
Carrying
amount
Contractual
cash flows
Demand
and less than
6 months
From 6
to 12 months
From 1
to 5 years
4,502,160
6,338,722
5,348,146
6,485,121
197,640
331,926
198,720
254,482
5,942,362
5,898,713
23,604,828
28,377,991
2,390,294
975,150
25,012,547
Unsecured loans from related parties
1,065,087
1,107,340
1,107,340
Unsecured loans from third parties
2,882
2,882
32
24,510,071
24,510,071
24,510,071
26,229
26,229
26,229
59,059,403
66,848,356
28,563,532
1,431,202
36,853,622
-
2,850
-
-
-
-
-
-
Trade and other payables
Financial liabilities at FVTPL
Interest rate swap
Total
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122
Overview
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Corporate Responsibility
Corporate Governance
Financial Statements
123
(d) Market risk
Profile
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group’s income
At the reporting date the interest rate profile of the Group’s interest-bearing financial instruments at their carrying amounts was:
or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures
within acceptable parameters, while optimising the return. Management sets limits on the value of risk that may be accepted. However, the use
of this approach does not prevent losses outside of these limits in the event of more significant market movements.
(i) Currency risk
The Group holds its business in the Russian Federation and mainly collects receivables nominated in Russian Roubles. However, financial assets
and liabilities of the Group are also denominated in other currencies, primarily US Dollar.
Thus, the Group is exposed to currency risk, which may materially influence the financial position and financial results of the Group through
the change in carrying value of financial assets and liabilities and amounts on foreign exchange rate gains or losses. The Group ensures that its
exposure is kept to an acceptable level by keeping the proportion of financial assets and liabilities in foreign currencies to total financial liabilities
’000 RUB
Fixed rate instruments
Cash and cash equivalents
Loans issued
Loans and borrowings
Lease liabilities
Variable rate instruments
Loans and borrowings
31 December 2019 31 December 2018
4,215,703
388,688
(26,929,124)
(25,122,343)
6,743,268
25,467
(29,519,373)
-
(5,001,035)
(5,003,730)
at an acceptable level. From time to time the Group converts assets and liabilities from one currency to another.
Cash flow sensitivity analysis for variable rate instruments
Exposure to currency risk
A change of 500 basis points in interest rates at the reporting date would have increased / (decreased) equity and profit or loss by the amounts
shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis was performed
The Group’s exposure to currency risk in relation to the USD, the major foreign currency for the Group’s Russian subsidiaries, was as follows based
on the same basis for 2018.
on notional amounts:
’000 RUB
Trade and other receivables
Cash and cash equivalents
Unsecured loans from related parties
Lease liabilities
Trade and other payables
Total
Sensitivity analysis
31 December 2019 31 December 2018
122,503
22,575
11,064
26,108
(949,106)
(1,065,087)
(2,777,094)
(454,412)
(4,035,534)
-
(387,766)
(1,415,681)
’000 RUB
31 December 2019
Variable rate instruments
Interest rate swap
Cash flow sensitivity (net)
31 December 2018
Variable rate instruments
Cash flow sensitivity (net)
Profit or loss
Equity
500 bp increase
500 bp decrease
500 bp increase
500 bp decrease
(250,052)
375,000
124,948
(250,186)
(250,186)
250,052
(375,000)
(124,948)
250,186
250,186
-
690,010
690,010
-
-
-
(704,532)
(704,532)
-
-
A 11% weakening/strengthening of the RUB against the USD at 31 December 2019 would have decreased/increased equity and profit or loss
by RUB 443,909 thous. (31 December 2018: 20% weakening/strengthening of the RUB against the USD would have decreased/increased equity
The Group may enter into sales and purchase agreements with the same counterparty in the normal course of business. The related amounts
and profit or loss by RUB 283,136 thous.). This analysis was performed only for USD denominated monetary balances of the Group’s entities whose
receivable and payable do not always meet the criteria for offsetting in the consolidated statement of financial position. This is because, while
functional currency is the RUB and is based on foreign currency exchange rate variances that the Group considered to be reasonably possible
generally there is an intention to settle on net basis, the Group may not have any currently legally enforceable right to offset recognised amounts,
at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant. The analysis was
because the right to offset may be enforceable only on the occurrence of future events. In particular, in accordance with the Russian civil law
(e) Offsetting of financial assets and financial liabilities
performed on the same basis for 2018.
(ii) Interest rate risk
The Group has material exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash
flows.
an obligation can be settled by offsetting against a similar claim if it is due, has no maturity or is payable on demand, unless otherwise stated
in the agreement.
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The following table sets out the carrying amounts of recognised financial instruments that are subject to the above agreements.
’000 RUB
31 December 2019
Gross amounts before offsetting
Amounts offset
Net amounts presented in the consolidated statement of financial position
Amounts related to recognised financial instruments that do not meet some or all of the offsetting
criteria
Net amount
’000 RUB
31 December 2018
Gross amounts before offsetting
Amounts offset
Net amounts presented in the consolidated statement of financial position
Amounts related to recognised financial instruments that do not meet some or all of the offsetting
criteria
Net amount
Trade and other
receivables
Trade and other
payables
6,245,621
(3,239,020)
27,688,943
(3,239,020)
3,006,601
24,449,923
(1,688,369)
(1,688,369)
1,318,232
22,761,554
Trade and other
receivables
Trade and other
payables
5,755,557
(3,050,954)
27,561,025
(3,050,954)
2,704,603
24,510,071
(1,597,344)
(1,597,344)
1,107,259
22,912,727
125
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
31 CONTINGENCIES
(a) Legal proceedings
From time to time and in the normal course of business, claims against the Group are received. On the basis of its own estimates and both internal
and external professional advice, the management is of the opinion that no material losses will be incurred in respect of claims outstanding.
(b) Tax contingencies
Russian tax legislation which was enacted or substantively enacted at the end of the reporting period, is subject to varying interpretations when
being applied to the transactions and activities of the Group. Consequently, tax positions taken by management and the formal documentation
supporting the tax positions may be challenged by tax authorities. Russian tax administration is gradually strengthening, including the fact that
there is a higher risk of review of tax transactions without a clear business purpose or with tax incompliant counterparties. Fiscal periods remain
open to review by the authorities in respect of taxes for three calendar years preceding the year when decisions about the review was made. Under
certain circumstances reviews may cover longer periods.
Russian transfer pricing (TP) legislation is generally aligned with the international TP principles developed by the Organisation for Economic
Cooperation and Development (OECD), although it has specific features. The TP legislation provides for the possibility of additional tax assessment
for controlled transactions (transactions between related parties and certain transactions between unrelated parties) if such transactions are not
on an arm’s-length basis. The management has implemented internal controls to comply with current TP legislation.
Tax liabilities arising from controlled transactions are determined based on their actual transaction prices. It is possible, with the evolution
of the interpretation of the TP rules, that such prices could be challenged. The impact of any such challenge cannot be reliably estimated.
The net amounts presented in the consolidated statement of financial position disclosed above form part of trade and other receivables
The Group includes companies incorporated outside of Russia. The tax liabilities of the Group are determined on the assumption that these
and trade and other payables, respectively. Other amounts included in these line items do not meet the criteria for offsetting and are not subject
companies are not subject to Russian profits tax, because they do not have a permanent establishment in Russia. This interpretation of relevant
to the agreements described above.
legislation may be challenged.
Amounts offset comprise mainly trade payables for goods and bonuses receivable from suppliers.
As Russian tax legislation does not provide definitive guidance in certain areas, the Group applies its judgement in interpretations of such uncertain
(f) Capital management
areas. While management currently estimates that the tax positions and interpretations that it has taken can probably be sustained, there is
a possible risk that an outflow of resources will be required should such tax positions and interpretations be challenged by the tax authorities.
The Group’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development
The impact of any of the challenges mentioned above cannot be reliably estimated currently; however, it may be significant to the financial position
of the business. Neither the Company nor its subsidiaries are subject to externally imposed capital requirements, except for statutory requirement
and/or the overall operations of the Group.
in relation to minimum level of share capital; the Group follows this requirement.
30 CAPITAL COMMITMENTS
In addition to the above matters, management estimates that as at 31 December 2019, the Group has other possible obligations of approximately
RUB 1,900,000 thous. (31 December 2018: RUB 1,900,000 thous.) from exposure to other than remote tax risks arising from certain transactions.
These exposures are estimates that result from uncertainties in interpretation of applicable legislation and related documentation requirements.
The Group has capital commitments to acquire property, plant and equipment, mostly relating to construction of stores, and intangible assets
Management will vigorously defend the Group’s positions and interpretations that were applied in determining taxes recognised in these
amounting to RUB 653,698 thous. as at 31 December 2019 (31 December 2018: RUB 659,616 thous.). The Group has already allocated
consolidated financial statements if these are challenged by the authorities.
the necessary resources in respect of these commitments. The Group believes that future net income and funding will be sufficient to cover these
and any similar commitments.
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127
32 RELATED PARTY TRANSACTIONS
(ii) Expenses
Parties are generally considered to be related if the parties are under common control or if one party has the ability to control the other party
or can exercise significant influence or joint control over the other party in making financial and operational decisions. In considering each
’000 RUB
possible related party relationship, attention is directed to the substance of the relationship, not merely the legal form. Related parties may
enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms,
conditions and amounts as transactions between unrelated parties.
Related parties of the Group fall into the following categories:
1. The Company’s major indirect shareholders (see Note 1).
2. Other related parties under control of the major indirect shareholders.
3. Members of the Board of Directors of the Company and other key management personnel.
(a) Transactions with key management personnel
Lease of premises, including:
Rental fee
Reimbursement of utilities
Reimbursement of other expenses
Other services received
Interest expenses on lease liability
Other finance costs
Total
Expense
Prepayments
2019
90,515
20,269
35,114
35,132
10,424
122,124
79,058
302,121
2018
31 December 2019
31 December 2018
833,368
713,458
62,464
57,446
40,273
-
77,287
950,928
-
-
-
-
1,094,483
7,484
-
-
1,101,967
Upon transition to IFRS 16 disclosed in Note 5, long-term prepayments for leases to other related parties were reclassified to right-of-use assets.
Related VAT in the amount of RUB 89,902 thous. as at 31 December 2019 is included in prepayments.
Key management received the following remuneration during the year, which is included in personnel costs (see Note 10):
Short-term prepayments for lease to entities under control of the shareholder group in the amount of RUB 353,232 thous. as at 31 December 2018
were renegotiated with the lessors into long-term interest-bearing loans which principal amounts to RUB 346,025 thous. as at 31 December 2019
’000 RUB
Short-term employee benefits:
Salaries and short-term bonuses
Social security contributions
Other short-term payments
Long-term employee benefits:
Long-term service bonus
Total
2019
2018
343,763
13,855
17,234
38,000
412,852
396,575
13,767
3,600
38,000
451,942
(Note 18, 19).
’000 RUB
Lease liabilities due to other related parties, including:
Current lease liabilities
Non-current lease liabilities
31 December 2019
1,272,328
382,636
889,692
Terms of the leases with other related parties are such that the Group pays rentals which include the reimbursement of all operating expenses
related to the hypermarkets leased and nearby leased areas and a certain percentage of the Group’s retail revenue from the operation of these
In addition, members of the Company’s Board of Directors received remuneration in the amount of RUB 59,442 thous. for the year ended
hypermarkets.
31 December 2019 (2018: RUB 59,341 thous.) which is included in legal and professional expenses.
(b) Transactions with other related parties
(i) Revenue
’000 RUB
Sale of services
Total
Income
2019
2,335
2,335
Receivables
2018 31 December 2019 31 December 2018
2,910
2,910
122
122
579
579
All outstanding balances with other related parties are to be settled in cash within six months of the reporting date. None of the balances are
secured or impaired.
(iii) Loans and borrowings
’000 RUB
Loans and borrowings
31 December 2019 31 December 2018
949,106
1,065,087
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The loans from other related parties are denominated in USD, bear interest at 8% per annum and are payable on demand but not later than 2021.
(a) Recurring fair value measurements
There were no movements in the loans received from related parties, except for the foreign exchange gain in the amount of RUB 115,981 thous.
in 2019 (2018: foreign exchange loss in the amount of RUB 181,991 thous.).
Recurring fair value measurements are those that the accounting standards require or permit in the statement of financial position at the end
of each reporting period.
(iv) Loans given
’000 RUB
Loans given (Note 18, 19)
Interest receivable
Total
31 December 2019 31 December 2018
value of the swaps was determined based on observable market data (Level 2 fair value), including forward interest rates. The Group has no
Financial instruments carried at fair value. Interest swaps are carried in the consolidated statement of financial position at their fair value. Fair
346,025
33,196
379,221
-
-
-
financial assets and liabilities measured at fair value based on unobservable inputs (Level 3 fair value).
Investment property. Fair value of the investment property is updated by the Group annually on 31 December applying the income approach
and market approach. Refer to Note 14.
The loans given to other related parties bear interest at 9% per annum, are not secured, due for repayment by not later than 2021 and represent
(b) Assets and liabilities not measured at fair value but for which fair value is disclosed
reclassified amounts for lease to entities under control of the shareholder group previously presented as short-term prepayments for lease
to entities under control of shareholder group.
Fair value was determined by the Group for initial recognition of financial assets and liabilities which are subsequently measured at amortised cost.
33 EVENTS SUBSEQUENT TO THE REPORTING DATE
Fair value of the Group’s financial assets and liabilities measured at amortised cost approximates their carrying amounts. Fair value of the Group’s
bonds listed on Moscow exchange was determined based on active market quotations (Level 1 fair value). Fair value of the Group’s other financial
Late in 2019 news first emerged from China about the COVID-19 (Coronavirus). The situation at year end, was that a limited number of cases of an
assets and liabilities at amortised cost belongs to level 2 measurements in the fair value hierarchy.
unknown virus had been reported to the World Health Organisation. In the first few months of 2020 the virus had spread globally, and its negative
impact has gained momentum. While this is still an evolving situation at the time of issuing these consolidated financial statements and to date
35 SIGNIFICANT ACCOUNTING POLICIES
there has been no discernible impact on the Group’s sales or supply chain, the future effects cannot be predicted. Underpinned by the Coronavirus
turmoil and oil price plunge in the first quarter 2020, Russian rouble has weakened 30% relative to the US dollar compared to the 2019 year-end.
Apart from the accounting policy changes resulting from the adoption of IFRS 16 effective from 1 January 2019, the principal accounting policies
Management considers this outbreak to be a non-adjusting post balance sheet
set out below have been consistently applied to all the periods presented in these consolidated financial statements and have been applied
event and will continue to monitor its potential impact as well as will take all steps possible to mitigate any operational and financial risk exposures
consistently by Group entities.
faced by the Group.
34 FAIR VALUE DISCLOSURES
(a) Basis of consolidation
(i) Subsidiaries
Fair value measurements are analysed and categorised by level in the fair value hierarchy as follows:
(i) Level 1 are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities;
significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use
its power over the investees to affect the amount of the investor’s returns. The financial statements of subsidiaries are included in the consolidated
(ii) Level 2 measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices)
financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been
or indirectly (that is, derived from prices); and
changed when necessary to align them with the policies adopted by the Group.
Subsidiaries are those investees, that the Group controls because the Group (i) has power to direct the relevant activities of the investees that
(iii) Level 3 measurements are valuations not based on observable market data (that is, unobservable inputs).
(ii) Transactions eliminated on consolidation
Management applies judgement in categorising financial instruments using the fair value hierarchy. If a fair value measurement uses observable
Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated
inputs that require significant adjustment, that measurement is a Level 3 measurement.
financial statements. Unrealised losses are also eliminated unless the cost cannot be recovered.
The significance of a valuation input is assessed against the fair value measurement in its entirety.
Loans between Group entities and related foreign exchange gains or losses are eliminated upon consolidation.
However, where the loan is between Group entities that have different functional currencies, the foreign exchange gain or loss cannot be eliminated
in full and is recognised in the consolidated profit or loss, unless the loan is not expected to be settled in the foreseeable future and thus forms part
of the net investment in foreign operation. In such a case, the foreign exchange gain or loss is recognised in other comprehensive income.
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(b) Foreign currency
(i) Foreign currency transactions and balances
Where the business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses
whether the cash flows represent solely payments of principal and interest (“SPPI”).
Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is
Monetary assets and liabilities are translated into each entity’s functional currency at the official exchange rate of the Central Bank of the Russian
classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed.
Federation (“CBRF”) at the respective end of the reporting period. Foreign exchange gains and losses resulting from the settlement
of the transactions and from the translation of monetary assets and liabilities into each entity’s functional currency at year-end official exchange
Financial instruments are reclassified only when the business model for managing the portfolio as a whole changes.
rates of the CBRF are recognised in profit or loss as a separate line item.
The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change
Translation at year-end rates does not apply to non-monetary items that are measured at historical cost. Non-monetary items measured at fair
in the business model.
value in a foreign currency, including equity investments, are translated using the exchange rates at the date when the fair value was determined.
Effects of exchange rate changes on non-monetary items measured at fair value in a foreign currency are recorded as part of the fair value gain
(iii) Financial assets impairment – credit loss allowance for ECL
or loss.
(ii) Foreign operations
The Group assesses, on a forward-looking basis, the ECL for debt instruments measured at AC. The Group measures ECL and recognises net
impairment losses on financial assets at each reporting date. The measurement of ECL reflects: (i) an unbiased and probability weighted amount
that is determined by evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable information that is
The assets and liabilities of foreign operations are translated to RUB at the exchange rates at the reporting date. The income and expenses
available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of future conditions.
of foreign operations are translated to RUB at exchange rates at the dates of the transactions.
Foreign currency differences are recognised directly in other comprehensive income. Since 1 January 2005 the Group’s date of transition to IFRSs,
such differences have been recognised in the foreign currency translation reserve. When a foreign operation is disposed of such that control is
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for trade
lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss
and lease receivables. For other financial assets the Group applies a three stage model for impairment, based on changes in credit quality since
Debt instruments measured at AC are presented in the consolidated statement of financial position net of the allowance for ECL.
on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant
initial recognition.
proportion of the cumulative amount is reattributed to non-controlling interests.
(iv) Financial assets – write-off
(c) Financial instruments
(i) Non-derivative financial assets and financial liabilities – initial recognition
Non-derivative financial assets are written-off, in whole or in part, when the Group exhausted all practical recovery efforts and has concluded that
there is no reasonable expectation of recovery. The write-off represents a derecognition event. The Group may write-off financial assets that are still
subject to enforcement activity when the Group seeks to recover amounts that are contractually due, however, there is no reasonable expectation
Non-derivative financial instruments represented by cash and cash equivalents, loans given and trade and other receivables and lease receivables
of recovery.
are initially recorded at fair value adjusted for transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain
or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other
(v) Financial assets – derecognition
observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable
markets. After the initial recognition, an ECL allowance is recognised for financial assets measured at amortised cost (AC), resulting in an
The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b)
immediate accounting loss.
the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement whilst (i)
also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all the risks
(ii) Non-derivative financial assets – classification and subsequent measurement
and rewards of ownership but not retaining control.
All of the Group’s non-derivative financial assets belong to the AC measurement category. The classification and subsequent measurement
Control is retained if the counterparty does not have the practical ability to sell the asset in its entirety to an unrelated third party without needing
of debt financial assets depends on: (i) the Group’s business model for managing the related assets portfolio and (ii) the cash flow characteristics
to impose additional restrictions on the sale.
of the asset.
The business model reflects how the Group manages the assets in order to generate cash flows – whether the Group’s objective is: (i) solely
to collect the contractual cash flows from the assets (“hold to collect contractual cash flows”,) or (ii) to collect both the contractual cash flows
Financial liabilities are classified as subsequently measured at AC, except for (i) financial liabilities at FVTPL: this classification is applied
and the cash flows arising from the sale of assets (“hold to collect contractual cash flows and sell”) or, if neither of (i) and (ii) is applicable,
to derivatives and other financial liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments, if
the financial assets are classified as part of “other” business model and measured at FVTPL.
any (iii) financial liabilities at FVOCI: this classification is applied to financial instruments carried at fair value (swaps).
(vi) Financial liabilities – measurement categories
Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Group
undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Factors considered by the Group in determining
the business model include the purpose and composition of a portfolio, past experience on how the cash flows for the respective assets were
collected, how risks are assessed and managed, how the assets’ performance is assessed and how managers are compensated.
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(vii) Financial liabilities – derecognition
(xiii) Capitalisation of borrowing costs
Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled
General and specific borrowing costs directly attributable to the acquisition, construction or production of assets that are not carried at fair value
or expires).
and that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those
An exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as substantial
assets.
modifications of the terms and conditions of existing financial liabilities, are accounted for as an extinguishment of the original financial liability
The commencement date for capitalisation is when (a) the Group incurs expenditures for the qualifying asset; (b) it incurs borrowing costs; and (c)
and the recognition of a new financial liability. The terms are substantially different if the discounted present value of the cash flows under
it undertakes activities that are necessary to prepare the asset for its intended use or sale.
the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different
from the discounted present value of the remaining cash flows of the original financial liability. In addition, other qualitative factors, such
Capitalisation of borrowing costs continues up to the date when the assets are substantially ready for their use or sale.
as the currency that the instrument is denominated in, changes in the type of interest rate, new conversion features attached to the instrument
and change in loan covenants are also considered. If an exchange of debt instruments or modification of terms is accounted for as an
The Group capitalises borrowing costs that could have been avoided if it had not made capital expenditure on qualifying assets. Borrowing costs
extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not
capitalised are calculated at the Group’s average funding cost (the weighted average interest cost is applied to the expenditures on the qualifying
accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining
assets), except to the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset. Where this occurs, actual
term of the modified liability.
borrowing costs incurred on the specific borrowings less any investment income on the temporary investment of these borrowings are capitalised.
Modifications of liabilities that do not result in extinguishment are accounted for as a change in estimate using a cumulative catch up method,
(d) Transactions with owners
with any gain or loss recognised in profit or loss, unless the economic substance of the difference in carrying values is attributed to a capital
transaction with owners.
(viii) Offsetting financial instruments
(i) Ordinary shares/share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to issue of ordinary shares are recognised as a deduction
from equity, net of any tax effects. Any excess of the fair value of consideration received over the par value of shares issued is recorded
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position only when there is
as additional paid-in capital in equity.
a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset
and settle the liability simultaneously. Such a right of set off (a) must not be contingent on a future event and (b) must be legally enforceable in all
(ii) Distributions to owners/contributions from owners
of the following circumstances: (i) in the normal course of business, (ii) in the event of default and (iii) in the event of insolvency or bankruptcy.
(ix) Cash and cash equivalents
Dividends are recorded as a liability and deducted from equity in the period in which they are declared and approved. Any dividends declared after
the reporting period and before the consolidated financial statements are authorised for issue are disclosed in the subsequent events note.
Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original
(e) Property, plant and equipment and construction in progress
maturities of three months or less. Cash and cash equivalents are carried at AC because: (i) they are held for collection of contractual cash flows
and those cash flows represent SPPI, and (ii) they are not designated at FVTPL.
(i) Recognition and measurement
(x) Trade and other receivables
Trade and other receivables are recognised initially at fair value and are subsequently carried at AC using the effective interest method.
(xi) Trade and other payables
Items of property, plant and equipment, except for land, are measured at cost less accumulated depreciation and impairment losses. The cost
of property, plant and equipment at 1 January 2005, the date of transition to IFRSs, was determined by reference to its fair value at that date.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost
of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for their intended use, the costs
of dismantling and removing the items and restoring the site on which they are located, and capitalised borrowing costs. Purchased software that
Trade payables are accrued when the counterparty performs its obligations under the contract and are recognised initially at fair value
is integral to the functionality of the related equipment is capitalised as part of that equipment.
and subsequently carried at AC using the effective interest method.
(xii) Loans and borrowings
Loans and borrowings are recognised initially at fair value, net of transaction costs incurred and are subsequently carried at AC using the effective
interest method.
Any gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying
amount of property, plant and equipment, and is recognised net within “other operating income and expense” in profit or loss.
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When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification
becomes its deemed cost for subsequent accounting.
The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that
the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount
Earned rental income is recorded in profit or loss for the year within revenue.
of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss
as incurred.
(g) Intangible assets
Land and construction in progress are not depreciated. Other items of property, plant and equipment are depreciated from the date that they
(i) Intangible assets
are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use.
Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component
Intangible assets that are acquired by the Group have finite useful lives and are measured at cost less accumulated amortisation and accumulated
has a useful life that is different from the remainder of that asset, that component is depreciated separately.
impairment losses. Intangible assets primarily include capitalised computer software, patents and licenses. Acquired computer software, licenses
and patents are capitalised on the basis of the costs incurred to acquire and bring them to use.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant
and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.
(ii) Subsequent expenditure
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain
ownership by the end of the lease term.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.
The estimated useful lives of significant items of property, plant and equipment for the current and comparative periods are as follows:
Buildings
30 years;
Machinery and equipment,
auxiliary facilities
2-20 years;
All other expenditure is recognised in the profit or loss as incurred.
(iii) Amortisation
Amortisation is based on the cost of the asset less its estimated residual value.
Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they
are available for use since this most closely reflects the expected pattern of consumption of future economic benefits embodied in the asset.
Leasehold improvements over the term of underlying lease;
The estimated useful lives for the current and comparative periods are as follows:
Other fixed assets
2-10 years.
software
1-7 years;
Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
other intangible assets
1-5 years.
(f) Investment property
Amortisation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.
Investment property is property held by the Group to earn rental income or for capital appreciation or both, including land held for a currently
(h) Lease rights – accounting policies before 1 January 2019
undetermined future use, and which is not occupied by the Group. Properties that are mainly occupied by the Group and insignificant portion
of which is leased out to third parties mainly for offering additional customer service are presented within property, plant and equipment.
Where the Group incurs initial direct costs to negotiate and enter into new leases, such as key money payments to incumbent tenants, or where
rights for favourable operating leases are acquired in business combinations, such costs are capitalised as lease rights and amortised using
Investment property, including assets under construction for future use as investment property, is initially recognised at cost, including transaction
straight-line method over the lease term being up to 49 years for lease of land and up to 8-19 years for lease of premises. If the Group subsequently
costs, and subsequently remeasured at fair value with any change therein recognised in profit or loss within other operating income and expenses.
acquires the asset previously leased, the carrying amount of the related lease rights is reclassified into property, plant and equipment and included
If fair value of investment property under construction is not reliably determinable, the Group measures that investment property under
in the cost of the asset acquired.
construction at cost until either its fair value becomes reliably determinable or construction is completed (whichever is earlier).
(i) Leases – accounting policies since 1 January 2019
Fair value of the Group’s investment property is the price that would be received from sale of the asset in an orderly transaction, without deduction
of any transaction costs. The best evidence of fair value is given by current prices in an active market for similar property in the same location
At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys
and condition. Market value of the Group’s investment property is determined based on reports of independent appraisers, who hold recognised
the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right
and relevant professional qualifications and who have recent experience in the valuation of property in the same location and category.
to control the use of an identified asset, the Group assesses whether:
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the contract involves the use of an identified asset – this may be specified explicitly or implicitly and should be physically distinct asset.
If the supplier has a substantive substitution right, then the asset is not identified;
Extension options (or period after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not
terminated). Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
the Group has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, the Group’s incremental
the Group has the right to direct the use of the asset.
borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value
to the right-of-use asset in a similar economic environment with similar terms, collateral and conditions.
The Group has the right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used.
The right-of-use assets are measured at cost comprising the following:
In rare cases where the decision about how and for what purposes the asset is used is predetermined, the Group has the right to direct the use
of the asset if either:
the amount of the initial measurement of the lease liability;
the Group has the right to operate the asset; or
any lease payments made at or before the commencement date less any lease incentives received;
the Group designed the asset in a way that predetermines how and for what purpose it will be used.
any initial direct costs.
From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available
The lease liability is measured at amortised cost using the effective interest method. The carrying amount of liability is remeasured to reflect any
for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over
reassessment, lease modification or revised in-substance fixed payments. It is remeasured when there is (i) a change in future lease payments
the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset
arising from a change in an index or a rate;(ii) a change in the lease term depending on the reassessment of whether the Group will exercise
is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.
extension or termination options; and (iii) lease modifications, when the modification is not accounted for as a separate lease. When the lease
The estimated useful lives of right-of-use asset are as follows:
trade premises
3-17 years;
land
other
2-47 years;
1-5 years.
At the commencement date, lease liabilities are measured at an amount equal to the present value of the following lease payments:
liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if
the carrying amount of the right-of-use asset has been reduced to zero.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an expense in profit or loss.
Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise IT-equipment and refrigeration equipment.
Some property leases contain variable payment terms that are linked to sales generated by a store. Such variable lease payments are recognised
in profit or loss in the period in which the condition that triggers those payments occurs.
The Group presents right-of-use assets and lease liabilities in the separate lines in the consolidated statement of financial position.
The operating lease payments were presented in 2018 within cash used in operating activities in the consolidated statement of cash flows, whereas
fixed payments (including in-substance fixed payments), less any lease incentives receivable;
in 2019 all lease payments are presented by the Group as the lessee within cash flows used in financing activities.
variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;
Lease payments including repayment of principal lease liability and accrued interest are classified consistently with payments of other financial
amounts expected to be payable by the Group under residual value guarantees;
liabilities in the consolidated statement of cash flows.
Lease payments which were not included in the measurement of the lease liabilities (including certain variable payments, short-term leases
the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
and leases of low-value assets) continue to be presented as operating cash flows.
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.
(j) Inventories
The following variable payments are not included in the calculation of lease liability:
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is based on the moving weighted average principle,
and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their
payments under land lease agreements, the calculation of which depends on the cadastral value of the land plot and other coefficients
established by government decrees;
existing location and condition.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
payments for utilities and other services, determined upon the fact of consumption;
variable lease payments that depend on turnover.
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(k) Impairment of non-financial assets
(m) Provisions
The carrying amounts of the Group’s non-financial assets, other than investment property and deferred tax assets, are reviewed at each reporting
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it
date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.
is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs of disposal. In assessing
The unwinding of the discount is recognised as a finance cost.
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 or cash-generating unit. For the purpose of impairment testing, assets
(n) Revenue
that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”).
Revenue is income arising in the course of the Group’s ordinary activities. Revenue is recognised in the amount of transaction price. Transaction
price is the amount of consideration to which the Group expects to be entitled in exchange for transferring control over promised goods or services
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses
to a customer, excluding the amounts collected on behalf of third parties.
are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount
of assets in the unit (group of units) on a pro rata basis.
Revenue is recognised net of VAT, returns and discounts.
Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer
(i) Revenue from contracts with customers
exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net
Revenue from contracts with customers is represented by retail sales of goods for resale and self-produced catering products.
of depreciation or amortisation, if no impairment loss had been recognised.
In testing a cash-generating unit for impairment, the Group identifies all the corporate assets that relate to the cash-generating unit under review.
normally for the retail customers it is occurred in the store at the point of sale. No element of financing is deemed present, as payment
Revenue from sale of goods and self-catering products is recognised when control of the goods and products has transferred to the customer,
If a portion of the carrying amount of a corporate asset can be allocated on a reasonable and consistent basis to that unit, the Group compares
of the transaction price is due immediately.
the carrying amount of the unit, including the portion of the carrying amount of the corporate asset allocated to the unit, with its recoverable
amount. If a corporate asset cannot be allocated on a reasonable and consistent basis to the cash-generating unit, the Group assesses
In accordance with the Russian consumer protection legislation, the customers have the right of return of goods in a range of categories within
the impairment of this corporate asset on an individual basis.
14 days after the purchase. Such estimated returns are assessed at each reporting date. Based on historical data about returns, it is probable that
(l) Employee benefits
(i) Short-term employee benefits
a significant reversal in the cumulative revenue recognised will not occur.
Gift cards issued by the Group are recorded as a contract liability within trade and other payables upon sale when prepaid by customers until they
are redeemed or expire.
Wages, salaries, contributions to the state pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary
The Group did not operate any loyalty program in the reporting period where customers accumulate award points for purchases made which entitle
benefits (such as health services) are measured on an undiscounted basis and accrued in the year in which the associated services are rendered
them to discount on future purchases.
by the employees of the Group.
The Group has no legal or constructive obligation to make pension or similar benefit payments beyond the payments to the statutory defined
with total value above a pre-determined amount. The discount coupons entitle the customers to a free purchase or a discount on selected goods
From time to time, the Group holds promotional campaigns where the Group provides discount coupons to the customers that purchase goods
contribution scheme.
immediately after the campaign ends. Such coupons represent a material right to the customers and give rise to a separate performance obligation
to deliver the customers additional goods. The total transaction price is allocated on the portfolio basis to the initial and the additional performance
A liability is recognised for the amount expected to be paid under short-term bonus if the Group has a present legal or constructive obligation to pay
obligations on a relative stand-alone selling price basis. Revenue attributable to the performance obligation not yet satisfied at the reporting date is
this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
recognised as a contract liability within trade and other payables until the right of the customers to obtain additional goods is realised or expires.
(ii) Long-term employee benefits
(ii) Rental income
Long-term employee benefits represent long-term service bonuses. Long-term employee benefits are expensed evenly during the periods in which
The Group leases out trade premises under operating lease. Rental income from investment property is recognised in profit or loss on a straight-
they are earned by employees.
line basis over the term of the lease. When assets are leased out under an operating lease, the lease payments receivable are recognised as rental
income on a straight-line basis over the lease term. Lease incentives granted are recognised as an integral part of the total rental income.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements 140
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
141
(o) Cost of goods sold
Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right
Cost of goods sold include the purchase price of the goods sold and other costs incurred in bringing the inventories to the location and condition
to offset current tax assets and liabilities, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different
ready for sale. These costs include costs of purchasing, packaging and transporting of goods to the extent that it relates to bringing the inventories
tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.
to the location and condition ready for sale.
The Group receives various types of bonuses from suppliers of inventories, primarily in the form of volume discounts, slotting fees and counter
off against taxable profits and current tax liabilities of other Group companies, therefore deferred tax assets and liabilities are offset only within
services to suppliers directly related to the purchases made. These bonuses decrease the cost of inventory and are recorded as reduction of cost
the individual companies of the Group.
In accordance with the tax legislation of the Russian Federation, tax losses and current tax assets of a company in the Group may not be set
of sales as the related inventory is sold.
Losses from inventory shortages are recognised in cost of goods sold.
(p) Finance income and costs
In determining the amount of current and deferred tax the Group takes into account the impact of uncertain tax positions and whether additional
taxes, penalties and late-payment interest may be due. The Group believes that its accruals for tax liabilities are adequate for all open tax
years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates
and assumptions and may involve a series of judgments about future events. New information may become available that causes the Group
to change its judgment regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact the tax expense in the period that
Finance income comprises interest income on issued loans and bank deposits. Interest income is recognised as it accrues in profit or loss, using
such a determination is made.
the effective interest method.
(r) Earnings per share
Finance costs comprise interest expense on borrowings and lease liabilities and unwinding of the discount on provisions, if any. Borrowing costs
that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective
Earnings per share are calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average
interest method.
number of participating shares outstanding during the year.
Foreign currency gains and losses are reported on a net basis.
(s) Segment reporting
(q) Income tax
Operating segments are reported in a manner consistent with the internal reporting provided to the Group’s chief operating decision maker.
The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. Operating
Income taxes have been provided in the consolidated financial statements in accordance with the respective legislation enacted or substantively
segments whose revenue, results or assets are ten percent or more of all the segments are reported separately.
enacted by the end of the reporting period. Income tax comprises current and deferred tax. Current tax and deferred tax are recognised in profit
or loss except to the extent that they are recognised in other comprehensive income or directly in equity because they relate to transactions that are
(t) Value added tax
also recognised, in the same accounting period, in other comprehensive income or directly in equity.
Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted
the services are rendered to the Group. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases which
at the reporting date, and any adjustment to tax payable or receivable in respect of previous years. Taxes other than on income are recorded within
has not been settled at the balance sheet date (VAT deferred) is recognised in the consolidated statement of financial position on a gross basis
general, selling and administrative expenses.
and disclosed separately as an asset and liability. Where provision has been made for the ECL of receivables, the impairment loss is recorded
Input VAT is generally reclaimable against sales VAT when the right of ownership on purchased goods is transferred to the Group or when
Deferred tax is recognised in respect of tax loss carried forward and temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary
(u) Presentation of the consolidated statement of cash flows
differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting
for the gross amount of the debtor, including VAT.
nor taxable profit or loss, and differences relating to investments in subsidiaries to the extent that it is probable that they will not reverse
The Group reports cash flows from operating activities using direct method. Cash flows from investing activities are presented net of VAT. VAT
in the foreseeable future. A deferred tax asset is recognised for unused tax losses, unused tax credits and deductible temporary differences,
paid to suppliers of non-current assets and VAT in proceeds from sale of non-current assets are presented in line “VAT paid” within cash flows
to the extent that it is probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each
from operating activities.
reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
(v) New accounting pronouncements
The measurement of deferred tax reflects the tax consequences that would follow the manner in which the Group expects, at the end
of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
The new standards, amendments to standards and interpretations that have been issued by the International Accounting Standards Board (IASB),
adopted by the European Union and are mandatory for the annual periods beginning on or after 1 January 2020, none of which the Group has early
adopted, are not expected to affect significantly the Group’s consolidated financial statements.
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY Financial StatementsNotesto Consolidated Financial Statements80 Management and Directors Responsibility Statement 82 Independent Auditors’ Report89 Consolidated Financial Statements95 Notes to Consolidated Financial Statements 142
Overview
Strategic Report
Operational Review
Financial Review
Risk Management
Corporate Responsibility
Corporate Governance
Financial Statements
143
GLOSSARY
Average ticket – The figure calculated
by dividing total sales, net of VAT, at all
stores during the relevant year by the
number of tickets in that year
Blended learning – A style of education
in which students learn via electronic
and online media as well as traditional face-
to-face teaching
Corporate Social Responsibility –
Responsible attitude in managing our
impact on a range of stakeholders:
customers, colleagues, investors, suppliers,
the community and the environment
ERP (Enterprise Resource Planning) –
A modular software system designed
to integrate the main functional areas
of an organisation’s business processes
into a unified system
Global Food Safety Initiative (GFSI) –
A private organisation, established and
managed by the international trade
association the Consumer Goods Forum
under Belgian law in May 2000, the GFSI
maintains a scheme to benchmark food
safety standards for manufacturers as well
as farm assurance standards
HACCP (Hazard Analysis and Critical
Control Points) – A systematic preventive
approach to food safety from biological,
chemical, and physical hazards
in production processes that can cause
the finished product to be unsafe, and
designs measurements to reduce these
risks to a safe level
LFL (like–for–like) The method of
comparing current year sales figures to
prior year’s sales figures excluding the
expansion effect
Net revenue – The amount of a company’s
gross revenue plus all negative revenue
items
On-shelf availability – Availability of
product for sale to a shopper, in the place
he expects it and at the time he wants
to buy it, impacted by a host of different
factors, all along the supply chain
Planogram – A diagram that shows how
and where specific retail products should
be placed on retail shelves or displays
in order to increase customer purchases
Private label (PL) – Brand owned not
by a manufacturer or producer, but
by a retailer or supplier, who gets its goods
made by a contract manufacturer under its
own label
Real disposable income – The post-tax
and benefit income available to households
after an adjustment has been made
for price changes
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
Stakeholder – Any individual, group,
or party with an interest in an organisation
and the outcomes of its actions
ABBREVIATIONS
ACORT – Association of retail trade
companies
bps – Basis point
CEO – Chief Executive Officer
CJSC – Closed joint stock company
CRM – Client Relationship Management
DC – Distribution centre
IPO – Initial Public Offering
IT – Information Technology
JSC – Joint Stock Company
k m² – A thousand square metres
KPI – Key Performance Indicators
m² – Square metre
EBITDA – Earnings before interest, taxes,
depreciation and amortisation
p.p. – Percentage point
NGO – Non-governmental organisation
EDI – Electronic data interchange
Q – Quarter of the year
FD – Federal district
RUB – Russian rouble
FMCG – Fast-moving consumer goods
VAT – value-added tax
GDR – Global depositary receipt
WHT – withholding tax
HR – Human resources
WMS – warehouse management system
Traffic – The number of tickets issued
for the period under review
IFRS – International Financial Reporting
Standards
YoY – Year Over Year
Annual Report 2019O’KEY Group S.A.& QUALITY FOR EACH FAMILY 144
CONTACTS
Contacts for media
Depositary
Alla Golovatenko
Head of Public Relations
phone: +7 926 169 91 17
Bank of New York Mellon
U.S.A., 10286 New York,
101 Barclay Street
email: alla.golovatenko@okmarket.ru
bnymellon.com
Contacts for investment community
email: ir@okmarket.ru
Addresses
Luxembourg, 2180 Luxembourg,
6 rue Jean Monnet
117534, Moscow, Kirovogradskaya,
23A bld. 1
195027, St. Petersburg,
Shaumyan avenue, 8
Auditor
PricewaterhouseCoopers,
Société cooperative
Luxembourg, 2182 Luxembourg,
2 rue Gerhard Mercator
phone: +352 49 48 48 1
pwc.lu
& QUALITY FOR EACH FAMILY