213800J17UJJJDGUVF56-2021-12-31-en.xhtml

ESEF reporting

should not be considered

as the ﬁnancial statements

2021

ANNUAL REPORT

UNAUDITED

Annual report

Strategic

Report

PAGES 3-140

PAGES 141-176

PAGES 177–265

Corporate

Governance

Financial

Statements

Overview

About this report

Our approach, values and goals

2021 key highlights

Chairman’s statement

Business model

Our formats

Russia’s food retail market

Strategic review

CEO statement

Our future-ready strategy

Geography of operations

Leadership team

Review by formats

Pyaterochka

Perekrestok

Karusel

Chizhik

Digital businesses

Express delivery

Vprok.ru Perekrestok

5Post

Food.ru media platform

Mnogo Lososya

X5 Bank

Financial review

Information on alternative

performance measures

Retail infrastructure

Logistics

X5 Transport

103

Direct imports

105

X5 Technologies

106

Innovations

110

Governance structure

142

How we manage risk

150

Supervisory and

Management Boards

159

Report of the Supervisory Board

161

Remuneration Report

167

Consolidated ﬁnancial

statements

179

Notes to the consolidated

ﬁnancial statements

184

Company ﬁnancial statements

250

Notes to the company

ﬁnancial statements

252

Other information

265

Contents

Sustainable development

117

Our sustainability goals

117

Stakeholder engagement

118

Compliance and business ethics

120

Local communities

125

Rational consumption ofresources

127

Health

131

People review

132

Occupational health and safety

136

Overview

Strategic review

Review by formats

Digital businesses

Financial review

Information on alternative performance measures

Retail infrastructure

Sustainable development

117

Strategic

report

STRATEGIC REPORT

We have built Russia’s leading food

retailer, with aportfolio ofsuccessful

ofﬂine and online businesses that are

leading players intheir respective sectors.

Two of our key areas of focus are

constantly improving the efﬁciency and

effectiveness of our current operations,

while inparallel investing in preparing

forthe future of retail such as pursuing

digital initiatives ranging from enhanced

big data analysis and process automation

to integrating digital media platforms

withour online retail services.

We also have a global innovation scouting

programme that helps us to identify,

analyse, pilot and roll out successful

innovations that help to further enhance

thebusiness. Our track record in recent

years has shown that this strategic

approach has enabled us to stay atthe

leading edge ofRussian food retail, and

we are conﬁdent that X5 remains ready

for thefuture.

STRATEGIC REPORT

OVERVIEW

X5 Group’s 2021 Annual Report

complies with UK and Russian

Federation listing requirements,

aswell astheDutch Corporate

Governance Code.

This document looks at our performance from

anumber of different perspectives. It provides an

analysis ofour ﬁnancial and operating performance,

reports on progress perspectives our strategic

goals and gives anoverview of our ESG

performance and priorities, which are discussed

ingreater detail inthe2021 Sustainability Report.

Report boundary and scope

This report covers the period from 1 January 2021 to 31

December 2021, and looks at X5 Group’s business

model and strategy, market and consumer trends,

operating and ﬁnancial performance, environmental,

social and governance (ESG) achievements and the

results of key business units.

Key business units include Pyaterochka proximity

stores, Perekrestok supermarkets, Chizhik hard

discounter stores and Karusel hypermarkets. Our key

digital businesses include express delivery, Vprok.ru

Perekrestok, 5Post, Mnogo Lososya, the food.ru media

platform and X5 Bank. X5 Group’s consolidated

ﬁnancial statements are prepared in accordance with

International Financial Reporting Standards (IFRS). IFRS

ﬁnancial results in this report are presented according

to IFRS 16 as well as old pre-IFRS 16 standards.

Signiﬁcant events after the reporting date are also

covered in this report.

Alternative performance measures

Alternative performance measures (APMs) that are not

deﬁned or speciﬁed under IFRS requirements are also

used in this report. These APMs provide important

insights into the performance of our business.

Aglossary with explanations of how each APM is

calculated, why we use it and how it can be reconciled

to a statutory measure, where relevant, is provided on

pages 93–97.

Assurance

The Supervisory Board, with the support of the Audit

and Risk Committee, is responsible for X5 Group’s

internal controls to provide reasonable assurance

against material misstatement and loss.

Materiality

The management of X5 Group has determined the

material issues to address in this report based on its

understanding of stakeholder interests, the economic

and competitive landscape in Russia, our business

model, risks and opportunities. Signiﬁcant ﬁnancial

issues and material non-ﬁnancial topics are all

considered material issues.

The tools used to inform decisions about the material

issues facing the Company include internal analysis

and reporting mechanisms, market research, external

polling and research products, as well as feedback

received directly from key stakeholders. X5’s

sustainable development strategy, which was

developed in line with the United Nations Sustainable

Development Goals (UN SDGs) and was approved in

2019, was also used to deﬁne the Company’s material

issues.

Management believes that this report accurately

covers how X5 Group interacts with and creates value

for its stakeholders.

Financial and non-ﬁnancial information

X5 Group’s ﬁnancial, operating and ESG performance is

reviewed on a regular basis by the Company’s

management and Supervisory Board. Key areas of the

Company’s non-ﬁnancial performance include

innovation, consumer safety, environmental impact,

investments in local communities, the provision of a

safe and enriching workplace for our employees,

business conduct and relations with suppliers.

Supervisory Board approval

The Supervisory Board of X5 Group has conﬁrmed

that it believes this report provides a balanced

overview of all material issues concerning the

Company’s performance for the reporting period, as

well as an accurate reﬂection of its updated strategic

goals. The Board approved the 2021 Annual Report for

publication on 19 May 2022.

Overview

About this report

STRATEGIC REPORT

OVERVIEW

OUR APPROACH, MISSION AND GOALS

Our approach,

values and

goals

We are conﬁdent that X5 Group can create value for a wide

range of stakeholders by developing as a proﬁtable,

sustainable business. We believe that the key to success lies

in always putting the customer at the centre of our decision-

making, offering high-quality modern food retail services at

our ofﬂine stores and via out digital businesses.

We are the market leader by size, and we aim to use this to

create positive change by strengthening and adapting our

ofﬂine food retail formats, implementing innovative

technologies to power digital services as well as promoting

good practices like creating standards for sustainable

packaging, increasing the use of renewable energy and

implementing company-wide programmes to support local

communities.

Our sustainability strategy is aligned with the UN SDGs that

we have determined as being most relevant to our business:

Zero Hunger, Good Health and Well-being, Decent Work and

Economic Growth, as well as Responsible Consumption and

Production.

What does respect mean to us? It means

acceptance of different opinions and the ability to

establish dialogue and cooperation even when we

disagree. It means mutual support and gratitude

for assistance and effort.

This reﬂects a sincere desire to help, the ability to

put oneself in the place of another person and the

willingness to ask what would be better for them,

what they would like to receive. We look out for

one another, and that helps us do our job right the

ﬁrst time.

When we speak openly and from the heart. We

talk about problems and challenges honestly.

We’re not afraid to make mistakes; instead, we

learn from them. We protect our reputation and

that of the Company.

When we see new opportunities and new growth

points in everything we do. When we derive

satisfaction from bold, ambitious goals.

WHAT DOES THIS

MEAN IN PRACTICE?

Values

Approach

Our values provide guidance in our

professional life and give us a road map for

our decision-making.

They help us to better understand one another,

achieve success and derive satisfaction from

working together. All of X5’s business divisions

share the same values.

We show respect when we are involved in

discussions, solving problems or providing feedback.

We take into account the interests, opinions and

feelings of our colleagues when making decisions

and when interacting with one another.

We help our colleagues, going beyond the scope

ofour responsibilities if necessary.

We look for solutions that meet

thecustomer’s

needs.

In any situation, we put ourselves in the position

ofthe customer.

We build long-term relationships with customers.

We abide by our agreements.

We give our co-workers information in full.

We have zero tolerance for corruption.

We set ambitious goals for ourselves that require a

substantial effort to achieve.

We take responsibility for our actions and do not shift

blame onto others.

We commend our co-workers for their achievements

and allow them to make mistakes.

Customers are not just patrons at our stores but also our co-workers.

Respect

Customer-oriented

approach

Honesty and

integrity

Desire for

achievement

STRATEGIC REPORT

OVERVIEW

2021 KEY HIGHLIGHTS

2021 key

highlights

We successfully navigated a changing market

landscape in2021 thanks to successful

implementation aimed at strengthening X5’s

existing business while preparing for the future

of retail. X5 Group continues to thrive even as

competition intensiﬁes from digital platforms,

niche players and new formats like hard

discounters.

Thanks to our robust business processes, combined with

anentrepreneurial spirit that is part of our DNA, X5 Group

isadapting and competing in a changing market while

delivering on our ﬁnancial, operating and sustainability targets.

One of the ways that we adapted during 2021 was with the

ofﬁcial launch of the Chizhik hard discounter, which was

announced in 2020 as a pilot project. The Chizhik CVP will

address the needs of rational shoppers in difﬁcult

macroeconomic conditions while providing the promise

ofreliable quality customers trust X5 Group to deliver. Wehave

also continued to grow our digital businesses and expand our

presence at every stage of the customer journey: during the

year we launched the Food.ru media platform, acquired Mnogo

Lososya dark kitchens and launched our own X5 Bank ﬁnancial

services.

We remain focused on implementing our strategy while

adapting to a changing market in order to deliver value

forourshareholders and all of X5 Group’s stakeholders.

5.1

Like-for-like sales

y-o-y

1.67

Net deb

EBITDA

pre-IFRS 16 as of

31December2021

26.8

MLN

Digital services MAUs

+78% y-o-y

27.0

MLN

Parcels delivered by 5Post

4× growth y-o-y

7.3

EBITDA margin

pre-IFRS 16

47.9

RUB

BLN

Digital business sales

+140% y-o-y

+11.5% y-o-y

2,205

RUB

BLN

Revenue

2021 ﬁnancial and operating highlights

STRATEGIC REPORT

OVERVIEW

2021 KEY HIGHLIGHTS

2021 strategic highlights

Leadership in the food market

We conﬁdently maintained our leadership position in

Russia’s food market, despite a wave of consolidation

by other large players and the growing role of niche

players and digital ecosystems. X5 Group’s overall

share of food retail revenue in 2021 was

(

2020), thanks to 11.5% year-on-year growth inour total

revenue and 140.0% year-on-year growth in digital

business net sales.

Growth in the top line was supported by both a 7.3%

expansion in selling space and a 5.1% increase in like-

for-like (LFL) sales. Our 62.6 million active users of

loyalty cards, which are a key element of our ability to

offer each customer a more personalised experience

tailored to their needs, accounted for 86% of net retail

sales in 2021, and we were also successful at

increasing sales densities to RUB 271.5 ths/sqm, a rise

of 3.5% year-on-year.

Our leadership is largely a function of our ability to

successfully serve our customers and create value for

them every time they visit an X5 Group store or use an

X5 Group online service, and this is reﬂected in

customer feedback: X5 brands are among Russia’s top

brands, with Pyaterochka in ﬁrst place according to a

Romir and BCG survey conducted in 2021.

Our suppliers are another key stakeholder group that

contribute to our success, and for whom we seek to

create value as business partners. According to a

supplier survey by the market research agency

Advantage, Perekrestok was ranked the best partner

among the top 15 food retailers for the second year

running. Pyaterochka improved its position in this

survey vs 2020 and is now in second place.

12.7%

12.6%

Leadership in digitalisation

Digitalisation is one of the central elements of our

efforts to continuously strengthen our existing

business by helping us achieve greater efﬁciency and

become even better at putting our customers at the

centre of our decision-making. Digitalisation continues

to beneﬁt our bottom line, and had a RUB 18 billion

positive effect on X5 Group’s EBITDA pre-IFRS 16

ofRUB 161.0 billion in FY 2021.

As we build out our consumer-facing digital

businesses and the Food.ru media platform, we

continue to attract more existing and potential guests,

whose customer journey often starts online: X5

Group’s MAUs rose to 26.8 million in 2021, a 78%

increase year-on-year.

ESG leadership

ESG performance was another area where we excelled

in 2021. Throughout the year we sought to lead the

industry in this ﬁeld, driving the adoption of sustainable

packaging standards, developing new ways to reduce

food waste and expanding programmes aimed at

supporting the communities where we operate. X5

Group has now established a Sustainable

Development and Innovation Committee at the

Supervisory Board level with responsibility for guiding

our ESG strategy and monitoring implementation. X5

was the ﬁrst company in the Russian food retail sector

to publish its inaugural GRI-compliant, externally

veriﬁed sustainability report in 2021, continued to

enhance its ESG databook for investors and improved

key ESG ratings (MSCI ESG, S&P Global, CDP).

Maintaining proﬁtability and commitment

toshareholders

As we continue to invest in our ofﬂine and digital

businesses, we are delivering value for shareholders:

X5 Group's adjusted ROIC pre-IFRS 16 for 2021 was

17.1%, we maintained an EBITDA margin pre-IFRS 16

of7.3%.

17.1

X5 Group's adjusted ROIC

(pre-IFRS 16) for 2021

12.7

X5 Group’s share on the

Russian food retail market

in2021

ROIC before adjustments (pre-IFRS 16) equals 15.6%.

31.4

2017

28.6

2018

25.9

2019

39.2

2020

STRATEGIC REPORT

OVERVIEW

2021 KEY HIGHLIGHTS

Operational and Financial highlights

Net retail sales,

RUB bln

Operational highlights

Financial highlights (pre-IFRS 16)

Revenue,

RUB bln

Number of stores

EBITDA,

RUB bln

Selling space,

ths sqm

Gross proﬁt,

RUB bln

Number of orders in online businesses

Net proﬁt,

RUB bln

1,287

2017

12,121

2017

96.2

2017

5,480

2017

1,295

2017

308.9

2017

1,525

2018

107.6

2018

14,431

2018

6,464

2018

409

2018

7,239

2019

122.6

2019

1,728

2019

16,297

2019

1,533

2018

369.7

2018

7,840

2020

1,382

2019

1,973

2020

145.1

2020

8,410

2021

2,194

2021

17,707

2020

161.0

2021

1,734

2019

425.8

2019

19,121

2021

7,941

2020

1,978

2020

487.2

2020

23,889

2021

2,205

2021

553.4

2021

48.5

2021

23.9%

7.4%

7.0%

7.1%

7.3%

2.4%

1.9%

1.5%

2.0%

2.2%

7.3%

24.1%

24.6%

25.1%

14.3%

CAGR 2017-2021

11.3%

CAGR 2017-2021

14.2%

CAGR 2017-2021

15.7%

CAGR 2017-2021

12.1%

CAGR 2017-2021

13.7%

CAGR 2017-2021

11.5%

CAGR 2017-2021

Net proﬁt

Net proﬁt margin

EBITDA

EBITDA margin

Gross proﬁt

Gross proﬁt margin

2021 operational and ﬁnancial

performance overview

STRATEGIC REPORT

OVERVIEW

CHAIRMAN’S STATEMENT

Chairman’s

statement

Peter Demchenkov

СHAIRMAN OF THE SUPERVISORY BOARD

We are living in disturbing times. Despite the

strong achievements in 2021, now, as geopolitical

tensions rapidly unfold and a major impact on

Russia’s consumer markets lies ahead, we are

faced with the inevitable necessity of adjusting

both our short- and longer-term strategies. The

Supervisory Board is closely engaged with

management in this process, while also monitoring

contingency planning and the impact on X5’s

operations, in order to ensure business continuity

in the interest of our employees, customers and

other stakeholders.

Dear stakeholders,

STRATEGIC REPORT

OVERVIEW

CHAIRMAN’S STATEMENT

Chairman’s statement

I am proud to say that we continue to deliver results:

X5 remains the #1 player in Russia’s food market,

growing in line with our targets while also maintaining

proﬁtability. Our key banners Pyaterochka and

Perekrestok continued to deliver healthy growth and

proﬁts in 2021, increasing trading space with 1,263 and

57 new stores, respectively. Meanwhile, we ramped up

the rollout of our new hard discounter format, Chizhik.

Building on promising results since the launch of this

new format in 2020, we aim to operate more than three

thousand Chizik stores by 2025. We value customer

feedback as the key driver of these developments;

it allows us to continuously meet customer needs

by piloting new store formats and value propositions.

X5’s digital businesses continued to grow thanks

tothe Company’s focus in this area in 2021. Following

explosive growth in 2020, Vprok.ru Perekrestok,

express delivery and 5Post continued their expansion,

driven by sustainable changes in consumer behaviour

towards online shopping. Throughout 2021, even in the

face of ﬁerce competition, our digital businesses

continued to grow with revenue rising by 140% year-

on-year. By the end of the year, more than 1,600 stores

in 50 regions of Russia offered express delivery.

To meet consumer needs and support our leading

market positions, we continued to adapt the customer

value propositions of our core formats, integrate new

omnichannel offerings and expand our ability to be

with customers at every stage of their shopping

journey. Several important milestones were achieved

in2021 to further strengthen X5’s CVP for shoppers:

the launch of the Food.ru media platform, the

acquisition of Mnogo Lososya dark kitchens, and the

launch ofX5 Bank branded ﬁnancial services that

areintegrated into Perekrestok and Pyaterochka

loyalty programmes.

In this 2021 annual report, X5 Group reports

onanother challenging year in which X5 Group

continued to grow its business in the new reality

ofCOVID-19, with consumer behaviour being impacted

by both safety-related and macroeconomic factors.

Inthe context of the pandemic and difﬁcult market

conditions with strong competition, we maintained

our

focus on X5’s long-term strategy, which aims

strengthen theexisting businesses while growing

our digital capabilities and omnichannel presence.

First of all I would like to thank our employees for their

commitment to providing consistently high-quality

service for our customers while ensuring a reliable

and

safe shopping experience. Our team’s

commitment to putting the customer at the centre

everything we do, and our ability to adapt quickly

helped X5 to continue to perform in line with

its

strategic targets in 2021.



We are happy to report on the increasing importance

of X5’s sustainability efforts in 2021. As part of our

commitment to corporate social responsibility and

transparency, we released our ﬁrst Sustainability

Report in accordance with GRI Standards in May.

InSeptember, the remit of the Innovation and

Technology Committee was expanded, and it was

renamed the Sustainable Development and Innovation

Committee to strengthen the focus of the Supervisory

Board on environmental, social and governance

matters. Through the work of this committee, the Board

closely monitors X5’s progress against the medium-

and long-term goals set out in X5's sustainability

strategy. I am pleased to say that theCompany has

made excellent progress and is ahead of schedule at

meeting some of its 2023 targets, particularly in the

area of CO2 emissions.

The management team deserves our recognition

forsuccessfully integrating ESG targets into X5’s

business processes, at the same time delivering

continued revenue growth while maintaining margins

in an increasingly competitive and complex

environment. This team helps us to adjust our strategy

to constantly evolving customer needs, maintaining

the core pillars that build value over the long term

while adapting to the dynamic market we operate in.

As an important part of our ESG work, we continue

toseek ways to improve and enhance our corporate

governance standards in line with international best

practices and the evolving needs of the Company and

of society. The Supervisory Board seeks to operate as

a team and to be a partner to management in

supporting the Company’s successful and sustainable

growth. The common theme in our discussions with

management was ensuring that the decisions taken

would prioritise long-term value creation for the

Company and all its stakeholders.

That said, 2021 was a year of signiﬁcant change in the

Supervisory Board itself: at the annual General

Meeting of Shareholders, Karl-Heinz Holland stepped

down, while at the same time we welcomed Richard

Brasher and Alexander Tynkovan as new board

members. We would like to thank Karl-Heinz for his

signiﬁcant contribution to the Company. Today,

only in the ﬁrst half of the new year, the Board has

undergone further changes as a consequence

of current events: it is with deep regret that we had

to see Mikhail Fridman, Stephan DuCharme, Richard

Brasher, Geoff King and Michael Kuchment step down

in March. We thank Mikhail, Stephan, Geoff and Michael

for their invaluable contribution and counsel over many

years, and Richard for his dedication and commitment

despite pandemic-related travel restrictions during his

short term in ofﬁce.

I would like to conclude by saying that it is a great

honour that the Supervisory Board decided to elect

me as its Chair, and I would like to thank the Executive

Board and, again and above all, all employees across

our businesses for their continued efforts to make

2021 another year of progress. Looking ahead I am

conﬁdent that the entire X5 team’s strong

commitment to the success of this business will

continue to be of paramount value for our customers,

despite the disturbing times we are living in.

Peter Demchenkov

СHAIRMAN OF THE SUPERVISORY BOARD

STRATEGIC REPORT

OVERVIEW

BUSINESS MODEL

Business model

Our business model aims to create

value for stakeholders at every step,

from our cooperation with suppliers

tothe corporate centre and onto our

online and ofﬂine business operations.

Intoday’s highly competitive environment, it is

essential to ensure the efﬁciency and effectiveness

ofevery part of our business model, and to maintain

aconstant focus on delivering the best for our

customers.

The management and operations of our ofﬂine and

digital businesses are decentralised to enable the

greatest possible degree of ﬂexibility to respond to

customer needs, while also leveraging the advantages

of scale in terms of purchasing power, IT and

digitalisation as well as some overlap in logistics.

While marketing and loyalty programmes are highly

independent between businesses, we use a uniﬁed

IDsystem (X5.ID), as well as shared big data and IT

infrastructure. All operations are run based on

SAPERP.

In terms of logistics, we run our own operations, with

Company-operated distribution centres accounting

for 96% of centralised deliveries to stores in 2021.

Share of centralised deliveries

tostores from Company-operated

distribution centres in 2021

STRATEGIC REPORT

OVERVIEW

BUSINESS MODEL

During 2021 we continued to develop X5’s supplier portal,

which helps to centralise all communications, transactions

and paperwork. We also share our big data capabilities with

suppliers, enabling them to access insights about sales and

promo efﬁciency.

X5 Group’s Corporate Centre manages shared business

infrastructure like IT systems, innovation and big data

functions, logistics management, internal controls, as well

as business support functions, corporate ﬁnance, risk

management and reporting. Overall strategic guidance and

best practice sharing is also handled by the Corporate

Centre.

Food.ru provides consumers with inspiration and

information as they discover and plan their food shopping

and cooking. With recipes and advice, as well as

integration into X5 services like Vprok.ru Perekrestok and

express delivery, Food.ru is often the entry point for

customers of X5 Group’s ofﬂine and digital businesses.

Efﬁcient and reliable logistics operations are critical to

delivering the quality products and assortment that our

customers expect across our operations, both in ofﬂine and

digital. We are improving operations with advanced route

planning technologies and driver awareness monitoring

systems, while also leveraging our extensive infrastructure

to build new businesses like 5Post, a last-mile parcel

delivery service.

Suppliers

Supply chain infrastructure

Ofﬂine businesses

Digital businesses

Corporate Centre

Media

platform

We are constantly developing the CVPs of our ofﬂine

business to meet changing customer needs and address

new segments of the market. While we are refurbishing

Pyaterochka and Perekrestok stores in line with new

concepts, we have also begun the full rollout of the entirely

new Chizhik hard discounter format.

Express delivery

Vprok.ru

Perekrestok

5Post

Mnogo

Lososya

7,083

Suppliers

Share of top 30 suppliers

inrevenue

Regions

Darkstores

Regions

16.9

THS

Pickup points

835

Light trucks

3.3

MLN

MAU

Regions

5.7

THS

Parcel lockers

MLN

Orders fulﬁlled

Dark kitchens

(including two

franchisees)

17,972 Pyaterochka proximity stores

in 67 regions

990 Perekrestok supermarkets

in 46 regions

72 Chizhik hard discounter stores

in 4 regions

33 Karusel hypermarkets

4 direct

import hubs

4,654 Company-

owned trucks

47 distribution

centres tosupport

ofﬂine stores

36 dark stores

tosupport digital

businesses

406.8 stores

perDC

6.36 sqm selling

space per 1 sqm

ofDC space

0.23 Company-

owned trucks per

store

STRATEGIC REPORT

OVERVIEW

BUSINESS MODEL

Digital businesses

As of 31 December 2021, express delivery

service was available from 1,611 stores

(923Pyaterochka stores, 30 Pyaterochka

dark stores, 655 Perekrestok supermarkets

and 3Karusel hypermarkets) in 50 regions,

compared with 992 stores and 13 regions

ayear earlier.

In Q4 2021, the number of orders for express

delivery was 69.8 thousand per day

(including Okolo), with a delivery time

ofc.60 minutes and an average ticket

ofRUB 1,527 at Pyaterochka and RUB 1,775

at Perekrestok, up 4% and 1% year-on-year,

respectively. The daily number of fulﬁlled

orders during Q4 2021 peaked in December

at 114 thousand on the busiest days.

In addition to ﬁve large dark stores (three

inMoscow, one in St Petersburg, one in

Nizhny Novgorod), Vprok.ru Perekrestok

opened its ﬁrst small dark store in Moscow

to provide fast delivery service to its

customers.

In Q4 2021, Vprok.ru Perekrestok’s revenue

increased by 23.1% year-on-year. The total

number of Vprok.ru Perekrestok orders

increased by 14% year-on-year and reached

1.5 million in Q4 2021. The average number

of daily orders in Q4 2021 reached

16.1thousand. The average Vprok.ru

Perekrestok basket in Q4 2021 increased by

8.1% year-on-year, reﬂecting further

expansion in the assortment to 72 thousand

SKUs.

In Q4 2021, 5Post’s e-commerce delivery

service revenue increased by three times

year-on-year. Orders fulﬁlled by 5Post

reached 12.2 million in Q4 2021, with

16.9thousand pickup points and 5.7

thousand multi-parcel lockers. Parcel lockers

in operation. Pickup points in stores generate

additional LFL trafﬁc of up to2%–3%.

The Mnogo Lososya ready-to-eat digital

service, which became part of X5 Group

inlate March 2021, continued expanding. As

of the end of December, it was operating

50dark kitchens (including two franchisees),

compared with 42 dark kitchens at the end

of September.

In Q4 2021, Mnogo Lososya’s net sales

reached RUB 397 million, up 31.9% quarter-

on-quarter with an average ticket of

RUB1,728 in Q4 2021.

Express delivery

Vprok.ru Perekrestok

5Post

delivery service

Mnogo Lososya

Revenue increase in 2021

y-o-y

41.5

Revenue increase in 2021

y-o-y

Revenue increase in 2021

y-o-y

31.9

Net sales increase in Q4 2021

q-o-q

We are constantly evolving our formats and their

CVPs as we adapt to changes in the market

landscape, driven by both consumer demand and

competitive challenges. While we have rolled out

new concepts for our core Pyaterochka and

Perekrestok formats, we are also launching a new

hard discounter format aimed at rational shoppers

who value everyday low prices combined with

reliable quality.

As our ofﬂine businesses grow, we are also

competing in the e-grocery space: our digital

businesses often leverage the extensive scale

ofour operations to further ensure we can be

atevery stage of the customer journey.

Express

delivery

Our formats

17,972

Proximity stores

Hard discounter

stores

990

Supermarkets

STRATEGIC REPORT

OVERVIEW

OUR FORMATS

STRATEGIC REPORT

OVERVIEW

OUR FORMATS

Pyaterochka

Chizhik

Perekrestok

Karusel

operates conveniently located proximity

stores and is Russia’s largest food retailer on a stand-

alone basis, with 17,972 stores as of 31 December 2021

and net retail sales of RUB 1.8 trillion in FY 2021.

Theﬁrst Pyaterochka was opened in 1999 and today it

has stores in 67 regions of Russia. The format’s main

focus is on being Russia’s trusted source for affordable

and high-quality food. At the same time, the new

Pyaterochka store concept offers customers and

employees a modern and comfortable shopping

experience, while Pyaterochka express delivery lets

customers get the goods they need delivered to their

door from a nearby store. Pyaterochka had 47.1 million

loyal customers in 2021 and serviced on average

13.8million customers every day.

Pyaterochka

is the largest supermarket business

inRussia, with 990 stores as of 31 December 2021 and

net retail sales of RUB 349 billion for FY 2021.

Perekrestok was also Russia’s ﬁrst supermarket chain,

established in 1995. With innovative technologies that

improve the customer experience, Perekrestok offers

customers atop-class food retail experience.

Perekrestok had 14.4million loyal customers in 2021 and

serviced on average 1.7 million customers every day.

Perekrestok

is X5 Group’s new hard discounter format and

was operating 72 stores as of 31 December 2021, with

net retail sales of RUB 2.9 billion for FY 2021. The new

everyday low-price (EDLP) concept focuses on

alimited assortment of essential goods, with a high

share of private labels that have been developed with

the help of customer feedback. This customer

engagement has helped generate trust in the new

low-price brand. Chizhik serviced on average 

16 thousand customers every day.

Chizhik

, established in 2004, operates compact

hypermarkets that are usually within city limits. With

thedevelopment of e-commerce businesses in Russia,

much of hypermarkets’ non-food space has become

obsolete, and customers are opting to do more of their

food shopping locally. In 2019, X5 Group decided to

downsize the format by closing and/or transferring

suitable stores to Perekrestok management.

Karusel

17,972

Number of stores

+7.6% y-o-y

Number of stores

18 growth y-o-y

Number of stores

-41.1%

7,048

THS

SQM

Selling space

+7.7% y-o-y

990

Number of stores

+6.1% y-o-y

THS

SQM

Selling space

21 growth y-o-y

1,794

RUB

BLN

Net retail sales

+12.3% y-o-y

128

THS

SQM

Selling space

-42.3%

2.9

RUB

BLN

Net retail sales

59 growth y-o-y

81.7

Share of X5 Group’s

net retail sales

0.1

Share of X5 Group’s

net retail sales

1,099

THS

SQM

Selling space

+8.4% y-o-y

31.7

RUB

BLN

Net retail sales

-43.0%

349

RUB

BLN

Net retail sales

+13.4% y-o-y

1.4

Share of X5 Group’s

net retail sales

15.9

Share of X5 Group’s

net retail sales

STRATEGIC REPORT

OVERVIEW

OUR FORMATS

Express delivery

5Post

Vprok.ru Perekrestok

is a last-mile delivery service established in 2019

that enables e-commerce providers and other X5 digital

businesses to deliver goods to parcel lockers, cashier

desks and/or pickup points located at X5 stores. As of 31

December 2021, 5Post had 22.6 thousand pickup points

in 17.3 thousand locations across 66 regions of Russia,

and the business unit delivered a total of 27.0 thousand

orders during FY 2021. 5Post reached positive EBITDA

proﬁtability in2021.

5Post



million

thousand

1,611

19.2

114

operations were launched in late

2019. The service offers delivery from local Perekrestok

and Pyaterochka stores within 50–60 minutes. Express

delivery is a cross-format project that utilises a

common digital platform: the formats are responsible

for assortment and in-store staff to pick orders, which

are then delivered by a third-party courier. As of

December 2021

express delivery services were

available from

Perekrestok, Pyaterochka and

Karusel stores in

regions across Russia. The service

handled a total of

orders during FY 2021,

with up to

orders on peak days.

Express delivery

ﬁve

three

million

with more than 22 thousand

cities

4.7

is an online hypermarket that aims

to address demand from customers looking to stock up

on groceries and FMCG, with the convenience of

delivery to their door or to specially equipped parcel

lockers at X5 Group stores. With

large dark stores

and operations in

as of 31 December 2021,

Vprok.ru Perekrestok handled

orders in FY

2021,

orders being

delivered on peak days.

Vprok.ru Perekrestok

1,611

Number of stores

Large dark stores

22.6

THS

Pickup points and

parcel lockers

25.7

RUB

BLN

Revenue

4 growth y-o-y

18.7

RUB

BLN

Revenue

+41.5% y-o-y

19.2

MLN

Orders delivered

in 2021

2.6

RUB

BLN

Revenue

4 growth y-o-y

UP TO

114

THS

Number of orders

on peak days

4.7

MLN

Orders delivered

in 2021

Regions of Russia

ths

Number of orders

on peak days

27.0

THS

Orders delivered

in 2021

Digital

business

Thanks to our strategy aimed at preparing X5

Group forthe future of retail, our digital businesses

continue togrow at a rapid pace, contributing to

overall revenue, customer acquisition and

retention.

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Russia’s food

retail market

The Russian food market was worth

RUB 18.4 trillion in 2021. During the last

two years, the fastest growth was seen

in the hard discounter and e-grocery

segments, where we are actively

growing our business.

Russian food retail market development

2019

26.6%

21.7%

37.8%

2020

28.9%

20.9%

2.8%

0.9%

12.6%

11.4%

34.1%

2021

29.0%

19.0%

3.4%

2.1%

13.9%

33.0%

RUB 16,121 bln

RUB 16,587 bln

RUB 18,445 bln

Proximity stores

Supermarkets

Hard discounters

E-grocery

Specialists

Other (e.g., hypermarkets, traditional trade)

We are already the #1 player in the proximity and

supermarket segments, with our two traditional

formats, and X5 Group is the absolute leader in

Russia’s overall food market. We are also one of the

top players in e-grocery, a rapidly expanding

segment deﬁned by ﬁerce competition from online

ecosystems and marketplaces. In the hard

discounter segment, we are rapidly scaling up the

operations of Chizhik, which has shown promising

results through its pilot and initial rollout.

X5’s position in a changing market

player with

market share in FY 2021

12.7%

Digital business revenue grew

by 140%

year-on-year

active loyalty card users

62.6 million

2.2%

0.3%

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Food market trends in 2021

Macroeconomics and government’s role

Market

Customer

Macroeconomic and regulatory factors became

increasingly important for the food market in 2021,

asfood supplies, labour and other resources all

became more scare and caused prices to rise. This

ispartly a result of, and compounded by, the ongoing

impact of the COVID-19 pandemic, which has seen

governments worldwide introduce measures aimed

at limiting the impact of the virus while also seeking

to prevent disruptive spikes in the cost of living.

In parallel to this, consolidation in the Russian food

market accelerated, with several large M&A deals in

2021 involving top-10 players. At the same time, the

maturity of the food market, combined with

theemergence of digital ecosystems, has meant the

emergence of new formats such as hard discounters

and specialist chains, as well as competition from

digital platforms that see food as a key way to

maintain engagement with their audiences.

Customer behaviour is also changing, as decreasing

real disposable household incomes mean growing

demand for rational food shopping options and

trading down. At the same time, the pandemic and

continued digitalisation of the economy are driving

further rapid growth of online services, especially

inlarger cities across Russia.

Increasing cost of supply

and resources

Consolidation

of market players

Decreasing real disposable

household incomes

Accelerated development

ofhard discounters and

specialist chains

Increasing government

regulation of pricing

Ecosystems and

marketplaces are competing

with retailers

Trading down and rational

customer behaviour

A “new normal” in COVID-19

pandemic environment

Growing popularity of online

services

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

The wave of consolidation that took place in2021 meant that,

for the ﬁrst time in ﬁve years, X5 Group did not grow revenue

at a faster pace than the remaining top-10 food market

players, combined.

X5 vs Russian food retail in top-line growth

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

10%

19%

28%

25%

13%

14%

11%

18%

20%

23%

21%

18%

10%

21%

14%

12%

11%

X5 y-o-y revenue growth

Top 10

Market

Food CPI

Top 10 Russian food retailers,

% market share

Top 10 Russian online food retailers,

% market share

2021

2020

1. X5 Group

12.7%

12.6%

2. Magnit

9.5%

8.7%

3. Mercury Retail

5.9%

6.2%

4. Lenta

2.4%

5. Svetofor

1.8%

1.3%

6. Auchan

1.4%

7. METRO

1.1%

1.2%

8. O'Key

1.1%

9. Vkusvill

1.0%

0.8%

10. Monetka

0.8%

TOTAL TOP 10

37.5%

36.5%

2021

2020

1. SberMarket

13.7%

11.2%

2. X5 Group

12.9%

13.0%

3. Vkusvill

12.9%

9.4%

4. Yandex

10.5%

7.9%

5. Samokat

10.4%

6.3%

6. Ozon

7.9%

8.3%

7. Wildberries

7.7%

7.8%

8. Utkonos

3.7%

9.0%

9. Delivery Club

3.3%

0.6%

10. Lenta

2.4%

0.7%

TOTAL TOP 10

85.4%

74.1%

Source: Rosstat, Infoline, X5 analysis

Source: Infoline

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Russian food retail

intheglobal context

Russia is the eighth-largest food retail market

globally, according to Euromonitor, but has

substantially less selling space per capita than key

developed markets.

Grocery retail market size globally in 2021,

USD bln

1,266

1,444

China

USA

254

Russia

250

India

435

Turkey

Germany

283

Poland

Japan

281

France

280

Brazil

3.2%

3.0%

4.4%

0.6%

(2.8%)

(0.2%)

0.4%

(2.9%)

(5.3%)

1.2%

(8.7%)

Modern grocery retail selling space per thousand people in 2021,

sqm

Source: Euromonitor, Infoline (market size for Russia only)

Note: All number are excluding VAT/sales tax

517

524

Canada

USA

289

Russia

272

Germany

468

Turkey

214

France

406

China

149

Spain

361

Poland

337

South Africa

CAGR 2011-2021

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Share of top 5 grocery retailers globally in 2021,

The combined market share of Russia’s ﬁve largest

grocery retailers was 32% in 2021, while this number

reaches as high as 76% in other European markets

and 46% in the US market.

The main driver of growth for Russian food retail

businesses has shifted from rapid expansion

toconsolidation.

24.4

4.2

Auchan

5.0

PPHU

14.0

Schwarz

14.1

Eurocash

Jeronimo Martins

Poland

23.2

1.7

17.4

19.3

Globus

13.3

Aldi

Schwarz

Rewe

Edeka

Germany

7.4

Auchan

8.1

Systeme U Centrale

12.9

E Leclerc

13.0

ITM

16.0

Carrefour

France

7.6

Aldi

7.8

Morrison

10.4

Walmart

11.5

Sainsbury's

23.5

Tesco

1.8

Svetofor

12.7

2.4

Lenta

5.9

Mercury Retail

9.5

Magnit

X5 Group

Russia

7.0

Svaz Ceskych

9.5

Tesco

12.2

Ahold Delhaize

17.1

Rewe

30.5

Schwarz

Czech Republic

3.7

Publix

3.8

Ahold Delhaize

4.8

Albertsons

8.1

Kroger

25.2

Walmart

USA

1.6

Carrefour

5.7

Yildiz

6.0

Migros

7.9

A101 Yeni

11.8

BIM

Turkey

Source: Euromonitor, Infoline (for Russia only)

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Russian grocery retail market dynamics,

Overall, X5’s current portfolio of is present in what

accounts for over 60% of the market today.

While we act as a consolidator and grow our share

ofthe market, we also expect the continued shift

tomodern retail and the growing role of federal players

like X5 Group.

In this context, we have succeeded in growing

primarily through organic expansion of our

business, but around half of new openings are

replacing smaller, less efﬁcient grocery retailers.

As the market expands and consolidates, we

also expect to see the fastest growth from

segments where X5 is already present:

proximity/discounters, online and hard

discounters.

Middle East

and Africa

Asia-

Paciﬁc

Eastern

Europe

Western

Europe

Latin

America

Australia

North

America

Russia

2018

2019

2020

2021

Traditional vs Modern retail in Russia and across key world regions in 2021,

Market segments

Modern retail

Traditional retail

Regional modern trade

Traditional trade

Federal chains

Source: Euromonitor, Infoline for Russia

Source: Infoline

9.0

6.9

6.0

5.8

3.4

3.0

2.1

2.0

1.9

1.1

1.0

USA

France

China

Canada

Russia

Poland

Spain

Turkey

Germany

South

Africa

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Online grocery sales penetration globally,

E-grocery market development,

Source: Euromonitor, Infoline for Russia

2019

2.3%

15.3%

18.3%

16.2%

48.0%

2020

27.3%

19.1%

16.9%

29.7%

7.1%

2021

39.4%

22.8%

17.2%

16.4%

4.3%

RUB 43 bln

RUB 155 bln

RUB 383 bln

Express delivery

Delivery services

Online marketplaces

Online hypermarkets

Other channels

Source: Infoline

Selected macroeconomic data

Trends in the economy andconsumer behaviour

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

YEAR-ON-YEAR COMPARISON, %

RUSSIAN MACROECONOMIC INDICATORS,

RUB/USD exchange rate, weighted average for the period

72.0

74.2

74.3

76.2

73.6

72.3

66.1

73.7

72.6

73.5

Real GDP

(2.7)

10.5

(0.7)

(1.8)

(3.5)

(7.8)

1.4

4.7

9.1

4.3

CPI

3.4

6.0

5.6

4.4

3.5

3.1

2.4

6.7

8.3

6.8

Food inﬂation

3.9

7.3

7.4

5.8

4.3

3.6

2.0

8.4

10.8

8.1

Real wage growth

3.8

5.5

1.6

2.2

1.8

(0.1)

6.2

2.9

2.8

2.0

Real income growth

(1.4)

7.9

(3.7)

0.5

(3.1)

(6.4)

3.0

3.4

0.8

8.1

Unemployment rate

5.8

4.9

5.6

6.1

6.3

6.0

4.6

4.8

4.3

4.4

Retail trade turnover, nominal

0.7

32.4

5.4

3.8

3.5

(12.1)

7.5

15.9

14.3

14.2

Food retail trade turnover, nominal

2.9

15.8

4.1

4.0

3.2

(2.5)

7.0

11.2

13.3

11.4

2020

2021

According to preliminary estimates, GDPgrew by

4.7% in 2021. By the end ofQ32021, the economy

had recovered topre-crisis levels at the end of 2019.

GDP growth was driven by a recovery in the global

economy and strong domestic demand. The

average annual inﬂation rate increased from 3.4%

to6.7%, while wage growth increased from 7.3%

to9.8%. Lending to consumers accelerated to

20-25% despite the fact that the Bank of Russia

doubled the key rate (from 4.25% to 8.5%).

Monetary policy remained soft due to the simultaneous

increase in the key rate and inﬂation. The average

annual RUB/USD exchange rate was 73.7, compared

with 72.0 a year earlier. At the same time, the exchange

rate demonstrated low volatility due to high prices for

raw materials and limited service imports.

The rapid recovery in GDP was driven by a rebound in

external demand for commodities and domestic

demand resulting from the economic stimulus brought

about by the combination of ﬁscal and monetary

policies. Low interest rates across the economy and

the extension of subsidised mortgage interest rates

amid rising inﬂation and inﬂationary expectations

stimulated consumer demand.

The labour market experienced a shortage due to a

low inﬂux of labour migrants and a high rate of

mortality. At the same time, the demand for labour

quickly recovered as the economy grew.

Unemployment reached a record low of 4.3% in

December 2021 (4.8% average in 2021). In addition, due

to the shrinking labour force, the number of people

unemployed reached a record low of 3.2 million.

The strongest demand for labour was seen in sectors

such as construction, retail trade and transport. Prior to

the pandemic, a considerable percentage of the

vacancies in these industries were ﬁlled by migrant

workers. As a result of imbalances in labour supply and

demand, wage growth accelerated from 7.3% to 9.8%

Wages and one-time cash beneﬁts from the state were

key drivers of the growth in household incomes. On

average for the year, wages increased by almost 9.8%,

while the average annual inﬂation rate was 6.7%. The

total cash beneﬁts paid out by the state in August and

September amounted to 0.5% of GDP, or almost RUB

700 billion. Up to two-thirds of these funds were used

for current consumption, including the food market.

Accelerating inﬂation threatened to offset any growth

in real disposable incomes, and increased inﬂationary

expectations stimulated lending.

Accelerating inﬂation both in Russia and throughout

the world was the result of volatile imbalances in supply

and demand in markets for goods and services as a

result of the simultaneous impact of stimulus policies

and ongoing pandemic restrictions on the functioning

of the economy. By the end of 2021, inﬂation had

increased to 8.4%, while food inﬂation reached 10.6%,

its highest point since 2015. In 2020, prices increased

by 4.9% and 6.7%, respectively.

In 2021, amid a recovery in household incomes, the

grocery retail market grew by 2.3% in real terms and by

11% in nominal terms. Overall, retail trade turnover

increased by 7.3% and 15.9%, respectively. Alongside

the increase in turnover, consumers adapted to rapidly

rising prices. Consumers began to take a more careful

approach to spending: they became more price-

sensitive, and their interest in promotions and

discounts increased.

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

REGULATIONS

MAIN LEGISLATIVE AMENDMENTS

DATE OF ENTRY INTO FORCE

Ban on the remote sale

of nicotine-containing products

Tobacco heating devices and products with heated tobacco were designated as a separate

category of goods called nicotine-containing products and devices for consuming

nicotine-containing products.

A ban on the remote sale of nicotine-containing products was introduced.

For more details, see Federal Law No. 303-FZ of 31 July 2020

28 January 2021

Restrictions on the sale of tobacco products

manufactured in or imported into the Russian

Federation before 1 April 2021

Tobacco products manufactured in or imported into the Russian Federation before 1 April 2021

with a maximum retail price indicated on the consumer packaging (pack) of tobacco products that

is below the sole established minimum price of tobacco products may be sold until 1 July 2021.

For more details, see Federal Law No. 504-FZ of 30 December 2020

1 April 2021

New requirements for employers

From 1 March 2022, the quota for the hiring of disabled persons shall be considered to have been

fulﬁlled by an employer in the event that employment relationships with disabled persons are

formalised in accordance with the established procedure as part of the employer’s obligation

to employ disabled persons in accordance with the established quota.

From 1 January 2022, employers whose average number of employees for the previous calendar

year exceeds 25 and newly created entities whose average number of employees exceeds

the speciﬁed limit are required to publish on the “Work in Russia” digital platform or other sites

information on the need for employees and on hiring conditions, on the availability of jobs

and vacant positions and on special workplaces equipped (outﬁtted) for work to be performed

by disabled persons.

For more details, see Federal Law No. 219-FZ of 28 June 2021

1 July 2021, with the exception

of certain provisions

Legislative changes

REGULATIONS

MAIN LEGISLATIVE AMENDMENTS

DATE OF ENTRY INTO FORCE

Requirements for providing data on advertising to

Roskomnadzor

Advertisers who have placed advertisements online and who meet the criteria determined by

the Government of the Russian Federation are required to provide information about such

advertising to Roskomnadzor.

In the event that Roskomnadzor adopts a decision to ban advertising on sites belonging to

foreign entities, a ban on the distribution of advertising on such sites shall be in place.

For more details, see Federal Law No. 347-FZ of 2 July 2021

2 July 2021

Amendments to the classiﬁcation of types

of alcoholic products

The notion of “fruit wine” was replaced by “fruit-based alcoholic product”.

The sale of fruit wines shall remain possible until the end of this year.

Cognac and brandy produced and recorded in the Uniﬁed State Automated Information System

no later than 2 July 2021 are subject to retail sales in the manner and on the terms that were in

effect prior to 2 July 2021. But they are to be displayed separately.

The term “sparkling wine (champagne)” has been replaced by the terms “sparkling wine,

including Russian champagne” and “sparkling wine”. From a literal interpretation of the law, it

follows that imported products must have the name “sparkling wine”.

The classiﬁcation of wines with a protected geographical indication (PGI) / protected

designation of origin (PDO) is carried out on the basis of the Russian national system for the

protection of wine products.

For more details, see Federal Law No. 345-FZ of 2 July 2021

2 July 2021

A list of imported goods subject to traceability (goods

for which businesses must submit reports to the

Federal Tax Service) was approved

The list of goods subject to traceability includes household refrigerators and freezers,

refrigeration and freezer equipment, forklift trucks and other loaders, monitors and projectors.

For more details, see Decree of the Government of the Russian Federation No. 1110 of 1 July 2021

8 July 2021

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Legislative changes

REGULATIONS

MAIN LEGISLATIVE AMENDMENTS

DATE OF ENTRY INTO FORCE

Description of cases in which traceability is applied

Traceability applies in relation to goods speciﬁed in the List of Goods in the following cases:

goods imported into the Russian Federation and released for domestic consumption;

goods imported into the Russian Federation and conﬁscated or appropriated as the property

(income) of the Russian Federation;

goods imported into the Russian Federation and seized pursuant to a court decision for

payment of duties and taxes;

goods imported into the Russian Federation from the Eurasian Economic Union, with the

exception of customs transit;

goods previously imported into the Russian Federation and that are located in the Russian

Federation on the day the List of Goods enters into force (amendments to supplement the

List of Goods). From the date of the entry into force of the List of Goods (8 July 2021), entities

involved in the sale of goods shall be required to submit a notiﬁcation of their inventories of

goods to the Federal Tax Service of Russia not later than the date of transactions involving the

goods.

For more details, see Decree of the Government of the Russian Federation No. 1108

of1July2021

8 July 2021

Amendments to the Law on Advertising

The distribution of auditory advertising using audio equipment mounted and placed on external

walls, roofs and other structural elements of buildings and other structures is prohibited.

For more details, see Federal Law No. 150-FZ of 26 May 2021

25 July 2021

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Legislative changes

REGULATIONS

MAIN LEGISLATIVE AMENDMENTS

DATE OF ENTRY INTO FORCE

Labelling rules for bottled water

The rules specify:

the procedure for labelling bottled water

the procedure for information exchange between entities involved in the sale of bottled water

and the state information system for monitoring the sale of goods

the speciﬁcations for means of identiﬁcation

the procedure for entities involved in the sale of bottled water to provide information to the

operator of the information system for monitoring the placement of bottled water on the

market, the selling of bottled water and the withdrawal of bottled water from the market.

For more details, see Decree of the Government of the Russian Federation No. 841

of31May2021

1 September 2021

Suspension of the enforcement of compliance with the

requirements for wine products

The enforcement of compliance with the requirements for wine products in terms of the

classiﬁcation thereof was suspended until 31 December 2021.

For more details, see Decree of the Government of the Russian Federation No. 1807

of22October 2021

22 October 2021

Amendments to the Labour Code of the Russian

Federation regarding electronic document

management

Provisions regulating electronic document management (EDM) in the area of labour relations

were added to the Labour Code of the Russian Federation.

The obligation to issue a hiring order was abolished. This is now the right of an employer.

Procedures were established for the use of EDM, for the hiring of employees by employers using

EDM, and for interaction between employers and employees through EDM. Employers have the

right to use EDM on the basis of a by-law.

For more details, see Federal Law No. 377-FZ of 22 November 2021

1 November 2021

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Legislative changes

REGULATIONS

MAIN LEGISLATIVE AMENDMENTS

DATE OF ENTRY INTO FORCE

The introduction of administrative liability

for the sale of medicines without identiﬁcation

and tobacco products without a label

Administrative liability was introduced for committing the following offences:

selling pharmaceutical products for medicinal purposes without afﬁxing identifying information

or in violation of the procedure for afﬁxing identifying information in the event that the

afﬁxation of such identifying information is obligatory;

selling goods and products, with the exception of medicines and tobacco products, without

a label and/or without afﬁxing information as required by the laws of the Russian Federation,

as well as in violation of the established procedure for the corresponding label and/or the

afﬁxation of information;

selling tobacco products without a label and/or without afﬁxing information as required

by the laws of the Russian Federation, as well as in violation of the established procedure

for the corresponding label and/or the afﬁxation of information;

failure to provide required information and/or violation of the procedure and deadlines

for submitting said information

For more details, see Federal Law No. 204-FZ of 11 June 2021

1 December 2021

The requirements for the carriage of goods

by road and the procedure for issuing consignment

notes were updated

The requirements for the carriage of goods by road were updated. The procedure for issuing

or generating a consignment note was formalised in terms of the requirements for completing

said consignment notes; the form that a consignment note must take was speciﬁed, as were

the requisite details of an order for the provision of a vehicle.

For more details, see Decree of the Government of the Russian Federation No. 2116

of30November 2021

1 January 2022, with the exception

of certain provisions

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Legislative changes

REGULATIONS

MAIN LEGISLATIVE AMENDMENTS

DATE OF ENTRY INTO FORCE

Amendments to the rules for labelling dairy products

Amendments to the rules for labelling dairy products by means of identiﬁcation shall enter into

force as of 1 March 2022. In particular, the conceptual framework was expanded, the actions of

sellers of cheeses and dairy products with a shelf life of up to 40 and of more than 40 days were

clariﬁed, the procedure for registering dairy products in the subsystem of the national catalogue

of labelled goods was clariﬁed, and the procedure for submitting information to the information

system for monitoring in relation to dairy products was clariﬁed, etc.

For more details, see Decree of the Government of the Russian Federation No. 2099

of15December 2020

1 March 2022, with the exception of certain

provisions

New uniﬁed lists of products subject to mandatory

certiﬁcation and of products subject to a declaration

of conformity

New uniﬁed lists of products subject to mandatory certiﬁcation and of products subject to

adeclaration of conformity were approved.

For more details, see Decree of the Government of the Russian Federation No. 2425

of23December 2021

1 September 2022, with the exception of certain

provisions

STRATEGIC REPORT

OVERVIEW

RUSSIA’S FOOD RETAIL MARKET

Legislative changes

STRATEGIC REPORT

STRATEGIC REVIEW

CEO STATEMENT

CEO statement

Igor Shekhterman

X5 CHIEF EXECUTIVE OFFICER, CHAIRMAN

AND MEMBER OF THE MANAGEMENT

BOARD

After successfully navigating the unexpected

storm brought on by the COVID-19 pandemic in

2020, X5 adapted to accelerated changes in our

market and maintained its growth throughout

2021. Despite several signiﬁcant external factors

that continue to impact the Company as we enter

2022, namely challenging macroeconomic factors

that affect everything from labour supply to price

inﬂation and consumer sentiment, and ﬁerce

competition both in ofﬂine and online, the

Company has maintained its strong performance

and high growth level.

Dear stakeholders,

STRATEGIC REPORT

STRATEGIC REVIEW

CEO STATEMENT

CEO statement

We also launched payment services and piloted subscriptions, which will be

integrated into our existing loyalty programmes.

Our core grocery formats have continued developing with a focus on

adjusting their CVPs to market and customer trends. Based on the current

macroeconomic situation and long-term dynamics in real disposable

incomes in Russia, we took a decision to launch a new ofﬂine format, the

Chizhik hard discounter brand. We believe that in the medium term, the

hard discounter segment will be the fastest-growing part of the food retail

market, and Chizhik gives X5 exposure to new groups of customers,

complementing our existing footprint.

We maintain our position as one of market leaders in Russia’s fast-

developing e-grocery segment, thanks to our scale, efﬁcient logistics,

customer loyalty and strong in-house digital capabilities.

Looking at internal processes, we are working to reduce capital expenditure

as a percentage of revenue. Capital investments under pre-IFRS 16 in 2021

amounted to RUB 97.9 billion, or 4.4% of revenue vs 4.5% in 2020. We

opened 1,414 new stores and six DCs. In addition to new openings, we

refurbished 1,037 stores and invested in projects to improve efﬁciency,

logistics and new businesses. We also completed the next stage of our

digital transformation programme, which had a positive impact of RUB 18

billion on X5 Group’s FY 2021 EBITDA. Despite the signiﬁcant investment

programme in 2021, our net debt/EBITDA remained at a comfortable level of

1.67x under pre-IFRS 16 at year end.

On top of that, X5 signiﬁcantly strengthened its free cash ﬂow generation,

driven by a continued focus on working capital improvements. In FY 2021,

we delivered an adjusted FCF under pre-IFRS 16 of RUB 73 billion, which is

RUB 56 billion higher than in 2020.

In 2021, we implemented changes to our senior management team with the

appointment of Vsevolod Starukhin as CFO of X5. In January 2022, Vladislav

Kurbatov, previously General Director of Perekrestok, was appointed

General Director of Pyaterochka. The seamless transition of both Vsevolod

and Vladislav into their new roles has further strengthened X5’s senior

team, ensuring we are ready to seize opportunities as they emerge in the

year ahead.

At the same time, we are taking steps to address these challenges and

ensure that our position as Russia’s #1 food retailer is secure over the long

term. The success of these actions is reﬂected in our performance: revenue

growth accelerated to 11.5% year-on-year in 2021 to RUB 2.2 trillion, and we

achieved a 7.3% EBITDA margin pre-IFRS 16. Despite the challenging

external environment, X5 delivered solid performance in 2021. We take a

long-term view of our business and we seek to anticipate consumer

demand and ensure we are well positioned across all commerce channels.

As such, we continue to develop our digital businesses, which comprise e-

grocery services, 5Post and Mnogo Lososya. Revenue from our digital

businesses rose 140% year-on-year to RUB 47.9 billion and contributed

2.2% to our consolidated revenue for 2021 (including a 2.7% share in

Q42021).

ESG performance was another area where we excelled, with the Company

on track to achieve or over-delivering on the 2023 targets set by the

Supervisory Board. X5 improved its key ESG ratings (MSCI ESG, S&P Global,

CDP) and published its ﬁrst sustainability report under GRI Standards in

2021.

We achieved other key strategic milestones in 2021: we expanded the

reach of our offering to cover all stages of the customer journey, with the

launch the Food-centric media platform Food.ru, which attracts customers

looking to plan meals and discover new food ideas; Food.ru already has 21

million MAUs.

Igor Shekhterman

X5 CHIEF EXECUTIVE OFFICER,

CHAIRMAN AND MEMBER

OF THE MANAGEMENT BOARD

Main highlights of 2021

X5 continued to deliver revenue growth and securely maintained its #1

position on the food retail market, despite consolidation by major

competitors during the year.

Our e-grocery business continued its aggressive expansion, remaining

ﬁrmly on track to achieve proﬁtability and maintaining a high quality of

service that attracts and retains customers for our ofﬂine businesses. The

number of express delivery orders increased by four times to 19.2 million

in 2021, while Vprok.ru Perekrestok delivered 4.7 million orders, up 30.1%.

Our 5Post e-commerce delivery service reached positive EBITDA in 2021,

having delivered 27.0 million e-commerce packages, ﬁnishing the year by

handling 5.1 million parcels in December through its network of 5,692

parcel lockers and 16,943 delivery points at X5 stores.

We maintained an EBITDA margin pre-IFRS 16 of 7.3% and continued

investments in digital transformation and the development of the Chizhik

format.

We sustained positive momentum in personnel turnover and labour

productivity: turnover declined 1.5 p.p. to 36.4%, and our average labour

productivity improved by 7.4%.

We continued to roll out new concepts and CVPs in our proximity and

supermarket formats, having refurbished 1,037 stores (992 proximity and

45 supermarkets). The new concept stores continued to demonstrate

strong like-for-like and NPS dynamics compared with the previous

concept.

We began the rollout of Chizhik hard discounter stores, with 72 stores as

of 31 December 2021 and plans to open over 3,000 stores in the next

three years.

The Food.ru media platform was launched in July 2021. This new digital

media platform helps us to attract customers at the search and discovery

stage of the customer journey.

The formats' loyalty programmes are adding joint initiatives with its

strategic banking partner.

We entered the Irkutsk region in November 2021 — our 67th region of our

presence in Russia.

STRATEGIC REPORT

STRATEGIC REVIEW

CEO STATEMENT

Delivering on strategic targets

Market environment

X5 remained the leader in food retail, with a market

share of 12.7%, up from 12.6% in 2020. We also

remained among the top players in e-grocery, with

digital sales growth continuing at a rapid pace, rising

by 140% year-on-yearto RUB 47.9 billion. Our digital

consumer platforms had a combined total of 26.8

million MAUs, up by 78% year-on-year.

In line with our goal of strengthening our existing

business, we achieved higher sales densities, which

rose to RUB 271.5 ths/sqm from RUB 262.3 ths/sqm in

2020. In addition, we continued to increase the

number of active loyalty card users, with a rise of 3.2%

year-on-year to 62.6 million in FY 2021.

At the same time, the overall performance of X5’s retail

store portfolio is at an all-time high with the number of

retail stores in "clinic" at a record low.

With a relentless focus on efﬁciency and improving the

customer experience, X5 is a market leader in

digitalisation.

While the market environment was challenging in 2021,

X5 was among the best placed to continue to create

value for a wide range of stakeholders, during the year.

Real GDP growth turned positive in 2021 and was 4.7%.

Real disposable income also moved into growth

territory, rising 3.4% for the year.

Despite these positive trends, customers began

demonstrating rational behaviour in the context of high

inﬂation levels in 2021, while also continuing to shift

towards using online services as an essential part of

their food shopping routine.

Unemployment continued to fall, reaching 4.3% at the

end of 2021, the lowest level since August 2019.

Demand for labour remains strong, while supply is

restricted amid reduced labour migration and a

declining working-age population due to the ongoing

Covid-19 pandemic.

Client-facing and back-ofﬁce digitalisation projects

had a positive impact of RUB 18 billion on EBITDA for

2021, compared with RUB 7 billion a year earlier.

Our strategy aims to create value for all of our

stakeholders, including our shareholders. In 2021,

EBITDA margin was 7.3% under pre-IFRS 16, and total

shareholder return over the last three years was 31.8%

in RUB as of December 2021. Adjusted ROIC (pre-IFRS

16) increased by 1.0 percentage points year-on-year in

2021; FCF improved by 315% in 2021. I believe this

demonstrates that we have been effective in delivering

what our shareholders expect, while creating value for

all our key stakeholders.

Our environmental, social and governance

performance is another strategic priority for X5 Group.

We will disclose our progress against our ESG strategy

targets in our sustainability report, which will be

published in May 2022.

At the same time, food inﬂation grew faster than

disposable income, reaching 8.4% for the full year and

leading to cost-conscious customer behaviour.

Increasing costs and prices have spurred higher

government involvement in the food market, as

ofﬁcials seek to keep inﬂation under control.

During this difﬁcult year, the market underwent active

consolidation, with the combined share of the top 10

players accounting for 37% in 2021.

In the digital space, ecosystems and marketplaces that

did not historically specialise in food have sought to

use this market as another way to keep consumers on

their own platforms, often sacriﬁcing margins and

proﬁtability to gain market share.

Responding to challenges

Years of work on developing a strong company

capable of delivering sustainable growth in a changing

market means we are in a good position to adapt to

the challenges we face today. Amid the latest external

developments, X5 has a number of strengths that

support our continued growth.

The ﬁrst is a robust infrastructure that has been reﬁned

during the economic challenges of 2020-21 and has

proven ﬂexible in responding to new market demands.

This includes our in-house logistics infrastructure and

our dedicated direct import operations, which enables

us to ensure continued deliveries from suppliers all

over the world. Our own digital sales platform, supports

the resiliency of our business amid challenges that

may arise for domestic players in the digital sphere.

Meanwhile, our technology platform that relies largely

on in-house developments further ensures the

ﬂexibility and information security of our business.

X5’s long-term approach to relationships with

suppliers enables us to maintain a stable supply of

goods while diversifying our customer offering. We

focus on partnerships with local suppliers to ensure

the quality and freshness of our products, and

continuously bring new suppliers on board to expand

our assortment. The development of X5’s private

labels is a major initiative in this regard, and responds

to increasing demand among rational consumers

seeking the best value for their money.

We are already addressing increased competition in

our ofﬂine operations through the rationalisation of our

CVPs across formats and the rollout of Chizhik, X5’s

hard discounter. As labour and other resources

increase in cost, we are expanding the digitalisation of

business processes in commercial operations, supply

chain and back ofﬁce, as well as optimising our supply

chain and increasing our purchasing power. In

response to the growing footprint of online

ecosystems in the food market, we are also expanding

our own digital infrastructure to reach across the entire

customer journey and support our core businesses.

We are well-placed to address these challenges: X5

has a track record for innovation and strong in-house

technology capabilities; organic growth is part of our

DNA, and our strong brands will continue to replace

smaller existing players as they expand further. We

have also succeeded in quickly integrating new

businesses like Mnogo Lososya dark kitchens while

creating and quickly rolling out our own new

businesses and services, like 5Post and express

delivery. Finally, our ﬂexible business model has

enabled the Company to build up sufﬁcient cash

reserves to continue implementing our strategy in

changing market conditions.

I am conﬁdent that X5 will continue to grow and adapt,

remaining Russia’s top food market player and

delivering value for shareholders in the years ahead.

STRATEGIC REPORT

STRATEGIC REVIEW

CEO STATEMENT

Sustainable development

We announced our sustainable development goals for

2023 in the autumn of 2020, and I am happy to inform

you that, as of 31 December 2021, we were signiﬁcantly

ahead of schedule or had already achieved our goals.

X5’s sustainable development strategy is focused on

four different areas where we can make the greatest

impact: health, the planet, employees and

communities. We continue to integrate these goals into

our business processes and to develop sustainability

projects.

However, given the current environment resulting from

external events, it is extremely important to double

down on our support for local communities, in

particular our programme for helping the most

vulnerable members of society. We plan to scale up

our “Basket of Kindness” project in 2022 in order to

offer food support to more people than before,

including by increasing the supplies we donate to

charities.

We also understand that X5 Group’s sustainability is a

result of the hard work of our employees, who ensure

smooth day-to-day operations, which is why we need

to increase our focus on supporting our staff and

improving working conditions and safety.

Sustainability will be one of X5 Group’s key strategic

priorities in the years to come, and I am certain we can

make an even bigger impact together.

Outlook

Looking ahead to 2022, we are now operating in

unprecedented and historic times, with volatility and

unpredictability becoming the deﬁning factors

inﬂuencing the Russian economy and business. While

we currently continue our normal day-to-day

operations without interruption, X5 Group is also

engaged in contingency planning to ensure business

continuity, including selection of key suppliers, liquidity

management and debt portfolio diversiﬁcation.

We are realistic about the challenges we face, but

optimistic about our ability to continue to deliver solid

ﬁnancial performance in the long term. We expect to

achieve double digit revenue growth, optimise capital

expenditure and deliver strong positive cashﬂow.

Thank you for your continued interest in X5 Group. We

are living in challenging times, but I wholeheartedly

believe that X5 has the right team and the right

strategic approach to continue to successfully

navigate the difﬁculties we will face in 2022 and to

thrive in the years ahead.

STRATEGIC REPORT

STRATEGIC REVIEW

OUR FUTURE-READY STRATEGY

Our future-ready strategy

X5 Group’s strategic focus remains onleading the

introduction of innovations and new technologies for

food retail while continuing to develop and strengthen

our existing business. This approach has enabled

ustoadapt quickly to changes in the market

landscape, from evolving customer preferences and

intensiﬁed competition to the impact ofCOVID-19 on

everything from consumer behaviour to supply chains

and the labour market.

During 2021 we made signiﬁcant progress towards our

goal of being with customers at every stage of their

food purchasing journey, launching the Food.ru media

platform, integrating Mnogo Lososya dark kitchens and

beginning to offer X5 Bank ﬁnancial services.

We are pursuing this strategic goal because most

ofour customers function in a digital environment,

even if they make their food purchases ofﬂine.

Beginning our engagement with current and potential

customers at the stage of planning and discovery

through a media platform like Food.ru will be a key way

to guide them towards X5 Group services, and

tocompete with emerging online commercial

ecosystems that also offer their users food retail

services.

At the same time, we have undertaken major initiatives

to strengthen our existing business, from the full

launch of our Chizhik hard discounter format and

theongoing reﬁnement of existing formats’ CVPs

tonumerous digitalisation initiatives aimed at further

improving the efﬁciency and accuracy of planning and

decision-making.

Vladimir Salakhutdinov

DIRECTOR OF STRATEGY

AND BUSINESS DEVELOPMENT

After the reporting date, we announced our decision

toexplore ways to develop Vprok.ru Perekrestok

together with an ecosystem partner like Sber. We

believe that the expanded audience that the Sber

ecosystem could bring to Vprok.ru Perekrestok could

beneﬁt the online hypermarket’s business model.

Express delivery services from stores and mini-dark

stores will remain anarea that we at X5 Group focus

on, as we believe this isthe best way to leverage our

existing infrastructure to create value for our

customers and shareholders.

Our sustainability strategy continues to develop, and

while we are well on target to meet or beat our 2023

goals, we are also working to build out what we started,

including the introduction of a climate strategy in 2022.

We continue to be the absolute leader in Russia’s food

retail market, and successful implementation of our

strategy has enabled us to strengthen this position

while also maintaining proﬁtability margins. Looking

ahead, I am conﬁdent that all of our stakeholders stand

to beneﬁt as we continue to deliver on our strategic

business and sustainability goals.

STRATEGIC REPORT

STRATEGIC REVIEW

OUR FUTURE-READY STRATEGY

Strategic goals to 2023

12.7

Share of grocery market

in2021

140

Growth in digital

sales

62.6

MLN

Total active loyalty

card users

+3.2% y-o-y

RUB

BLN

EBITDA impact from

digitalisation projects

17.1

Adjusted ROIC

(pre-IFRS 16)

7.3

EBITDA margin

(pre-IFRS 16)

31.8

3Y TSR in RUB

26.8

MLN

MAUs

+78% y-o-y

272

RUB

SQM

Sales density LTM

+3.5% y-o-y

Throughout 2021 we worked hard to achieve our 2023

strategic goals while adapting to challenging market

conditions during the year. Thanks to our focus on

efﬁciency and investments in creating robust business

processes and retail operations infrastructure, we were

able to turn thechallenges we face into opportunities.

With our customers at the centre of everything we do,

we seek to create value for X5 shareholders and all our

stakeholders by building a multifaceted food retail

business that provides Russian society with modern,

reliable and high-quality goods and services.

Published ﬁrst sustainability report under GRI

Standards

Established Sustainable Development

andInnovation Committee at Supervisory

Boardlevel

Leadership

inthefood

market

Leadership

in digitalisation

Commitment

to shareholders

Care for

thecommunity

2021

TODAY

2023 TARGETS

Leader in grocery

market share

15%

Industry leader

in digitalisation

Strong return

onequity toshareholders

ESG agenda isanatural

part of X5's DNA

STRATEGIC REPORT

STRATEGIC REVIEW

OUR FUTURE-READY STRATEGY

2023

STRATEGIC

GOALS

LEADERSHIP

IN THE FOOD MARKET

LEADERSHIP

IN DIGITALISATION

COMMITMENT

TO SHAREHOLDERS

COMMITMENT

TO SUSTAINABILITY

Share of food

retail market

MLN

Monthly active users

ofX5 digital channels

and mobile apps

Share of revenue from

digital businesses

Meet sustainability goals approved

under the sustainability strategy

Continue dialogue with stakeholders

to adapt sustainability priorities

Increasing shareholder value

At least

STRATEGIC REPORT

STRATEGIC REVIEW

OUR FUTURE-READY STRATEGY

Converting challenges

into opportunities

We remain focused on the key strategic pillars for

strengthening our existing business, furthering X5

Group’s digital transformation and leading the way to

next-generation retail.

At the same time, we are operating in challenging

macro and market conditions, withgrowing

competition, rising prices and declining household

incomes.

We are addressing these challenges in three

mainways:

CVP rationalisation across our

formats

Rollout of a hard discounter

Growing competition inofﬂine

segment triggered by a decline

indisposable household

incomes

Scaling up digital products

incommerce, operations,

supplychain, back ofﬁce

Optimising supply chain network

across X5

Leveraging purchasing power

andscale of existing

infrastructure

Increasing cost of resources

Food.ru

media platform

X5 Bank

ﬁnancial service

Dark kitchen

service

Single ID and subscription

service

Online delivery

platform

Growing ecosystem

footprintinfood

Developing digital infrastructure

around customer journey to

support core business

As new ofﬂine competitors emerge and existing

players improve their offer while disposable

household incomes decline, we are already in the

process of rationalising our CVP across all formats

and rolling out a new hard discounter format,

Chizhik.

With rising costs for resources, from labour to the

food we sell on our shelves, we are investing in

further digitalisation and automation of products and

processes in order to achieve sustainable long-term

savings that can be shared with customers. We are

also optimising operations across the supply chain

and constantly reviewing ways to further leverage

X5Group’s purchasing power and the scale of its

infrastructure.

In the online space, we are seeing ecosystems move

into food retail as an attractive way to strengthen ties

with users. X5 already has well-developed online

businesses and has made good progress towards

creating a digital infrastructure that enables X5

Group to address this competition. We are now able

to engage with customers at every stage of their

journey in the process of purchasing food, from

discovering recipes on our Food.ru media platform

topaying with an X5 Bank branded debit card.

STRATEGIC REPORT

STRATEGIC REVIEW

OUR FUTURE-READY STRATEGY

Expanding our footprint

inthecustomer journey

We believe that a key element to the long-term success of

our core businesses is expanding our ability to engage and

attract customers across all stages of their food purchase

process. The customer journey often begins with searching

for recipes or planning a menu, for example, which is why we

have integrated the Food.ru media platform into our business.

By the end of 2021, customers could use their X5.ID single

sign-on account to browse articles and recipes, contribute

their own content, and then compile an order via Vprok.ru

Perekrestok with the click of a button. As we expand our

reach into the broader food market beyond just groceries, the

dark kitchen service Mnogo Lososya has also become a key

element of our ability to address customer demand for quick

delivery of meals that are ready to eat. Payment and

subscription services mark the end of the customer journey,

and we have already launched X5 Bank ﬁnancial services,

which are integrated into Perekrestok and Pyaterochka loyalty

programmes.

These various digital businesses and “enablers” help

usto acquire and retain customers, and nearly all

arerevenue-generating for X5 Group.

Express delivery from

X5 retail chains

Last-mile e-commerce platform

Perekrestok

Chizhik

Online hypermarket

Vprok.ru Perekrestok

Pyaterochka

Media platform

Food.ru

X5 Bank

Subscription

service

Planning

Search / selection

Realisation

Related services

Enablers

X5 core bisinesses retail chains

and ready-to-eat food

Digital bisinesses

Mnogo Lososya dark kitchens

STRATEGIC REPORT

STRATEGIC REVIEW

OUR FUTURE-READY STRATEGY

X5 business

Customer acquisition

Increasing customer retention

Revenue

X5 digital services impact

X5 express delivery

Vprok.ru Perekrestok

5Post

Mnogo Lososya

X5 Media

X5 Bank

STRATEGIC REPORT

STRATEGIC REVIEW

OUR FUTURE-READY STRATEGY

Strategic progress

Continued refurbishments at Perekrestok

andPyaterochka to upgrade to new store

concepts, which continue to achieve higher

LFL sales and trafﬁc performance

Began rollout of Chizhik, which is delivering

sales density that is 62% higher than our

proximity format

Digital business sales rose by 140%

year-on-year and reached 4.0% of revenue

inMoscow and the Moscow region

5Post e-commerce logistics platform

delivered 27 million parcels in 2021 and

achieved a positive EBITDA for the year

Acquired and integrated the Mnogo Lososya

dark kitchens business

Expanded use of big data–driven CVM

project that automates personalised offers

forcustomers

Converted 13 Karusel stores into large

Perekrestok supermarkets

Re-enforce CVPs across the portfolio and implement a set of actions

inPyaterochka and Perekrestok to further improve value for customers

Open over 3,000 Chizhik stores in 2022–2024

Develop fast/express delivery from stores and ultra-fast delivery from

mini-dark stores as primary area of focus in e-grocery

Further integrate X5 Group’s core food retail businesses into the Food.ru

mediaplatform

Launch subscription service for food customers

Continue to pilot new formats and sub-formats to meet consumer demand

Pursue partnership opportunities for further development of Vprok.ru

Perekrestok

Transfer to new IT architecture that will achieve a new level of speed

andﬂexibility

Leverage big data tools and omnichannel capabilities to better meet the needs

of a wider group of consumers

Continue to improve communication with customers through online

andmobileapps

Continue end-to-end integration of X5.ID single sign-on as a convenient way

forcustomers to access non-X5 online services

Test and develop new and innovative food retail offerings that can enhance

theCVP of X5’s businesses

We made good progress towards our 2023 goals during 2021

Achieve at least 10% annual revenue growth

Maintain EBITDA margin pre-IFRS 16 above 7%

Maintain focus on improving operational efﬁciency and reducing shrinkage

Focus on personnel engagement

Maintain solid ﬁnancial position, with net debt/EBITDA pre-IFRS 16 below 2.0x

Increase ROIC and FCF as well as reduce capex as percentage of revenue

CORE PRINCIPLES AND 2023 GOALS

2021 RESULTS

NEXT STEPS

Leadership in food market

Achieved 11.5% annual revenue growth

Maintained EBITDA margin pre-IFRS 16

above7%

Reduced shrinkage level by 10 b.p.

Reduced employee turnover by 1.5 p.p.

Continued to grow cash return on newly

opened stores and maintained the share

ofunderperforming stores in “EBITDA clinic”

at2.2% of the store base in Q4 2021

Commitment to shareholders

Growing shareholder value

>15

Share of grocery

market

MAUs for X5 dgital services reached

26.8million in Q4 2021

Digital transformation had an estimated

positive impact on X5 Group EBITDA

ofRUB18 billion

Digital business revenue accounted for 2.2%

of X5 Retail Group’s total FY 2021 sales and

was as high as 4.0% in Moscow and the

Moscow region

Continued to roll out technologies developed

in-house, including facial-recognition

payment options and self-scan trolleys with

built-in payment services

Maintained position as one of the leaders

ine-grocery in Russia

Received over 452 million product ratings

from customers online and via mobile apps

Leadership in digitalisation

>38

MLN

MAUs in X5 digital

channels and

mobile apps

Share of digital

businesses in

revenue in 2023

STRATEGIC REPORT

STRATEGIC REVIEW

GEOGRAPHY OF OPERATIONS

Geography

of operations

As we move towards the future of retail, the breadth

and depth of our operations will play key roles in

enabling X5 Group to remain the leader in Russia’s

food market, delivering proﬁtable and efﬁcient

growth, both ofﬂine and online, while constantly

improving existing operations. At the end of 2021,

X5was operating 19,121 retail stores, ﬁve large dark

stores, 31small dark stores and 47 distribution

centres in67regions across seven of the eight

federal districts inRussia.

We continue to expand our digital businesses,

leveraging a robust IT infrastructure and extensive

retail operations to deliver agile services without losing

our focus on the bottom line.

As of 31 December 2021, express delivery service was

available from 1,611 stores (923 Pyaterochka stores,

30Pyaterochka dark stores, 655 Perekrestok

supermarkets and 3 Karusel hypermarkets) in

50Russian regions, compared with 992 stores and

13regions a year earlier. Our last-mile e-commerce

delivery service 5Post had over 22 thousand pickup

points in operation, including over 5 thousand multi-

parcel lockers at the end of 2021, as well as 50 Mnogo

Lososya dark kitchens.

Rapid rollout of digital businesses

Net retail sales by federal district in 2021,

Number of stores

as of 31 December

CENTRAL

NORTH-

WESTERN

CENTRAL AND

NORTH-WESTERN

VOLGA

URAL

SOUTHERN

NORTH

CAUCASUS

SIBERIAN

TOTAL

2021

7,181

1,998

9,179

4,895

1,672

1,951

388

1,036

19,121

2020

6,703

1,910

8,613

4,621

1,535

1,718

334

886

17,707

2019

6,301

1,836

8,137

4,306

1,358

1,501

293

702

16,297

2018

5,822

1,668

7,490

3,820

1,168

1,222

252

479

14,431

2017

5,198

1,416

6,614

3,169

999

874

188

277

12,121

2016

4,077

1,095

5,172

2,468

764

606

137

9,187

FEDERAL DISTRICT

SHARE OF NET

RETAIL SALES, %

% OF RUSSIAN

POPULATION

RUB MLN PER

1,000 PEOPLE

Central

47.8%

26.9%

26.9

Volga

19.0%

19.8%

14.5

North-Western

13.7%

9.5%

21.7

Ural

7.4%

8.4%

13.3

Southern

7.3%

11.3%

9.8

North Caucasus

1.2%

6.9%

2.6

Siberian

3.5%

11.6%

4.6

Based on federal districts of the Russian Federation

STRATEGIC REPORT

STRATEGIC REVIEW

GEOGRAPHY OF OPERATIONS

X5 today

FORMAT

SIBERIAN

Pyaterochka

1,036

Perekrestok

–

Karusel

–

Chizhik

–

Number of DCs

Number of dark

stores

–

Number of dark

kitchens

–

Number of

pickup points /

parcel lockers

NORTH

CAUCASUS FD

378

–

353

SOUTHERN

1,890

–

1,801

CENTRAL FD

6,489

552

6,703

VOLGA FD

4,745

142

–

4,677

NORTH-

WESTERN FD

1,838

151

–

1,899

URAL FD

1,596

–

1,575

330

7 federal districts

Multi-format presence in

Chizhik hard discounters

17,972

Pyaterochka stores

Pyaterochka dark stores

990

Perekrestok

supermarkets

19,121

Total stores in 2021

Number of stores and DCs

Express delivery services

available from 1,611 stores

in50regions

Over 22 thousand 5Post

pickup points, including 5,692

parcel lockers, available from

17,338 stores in 66 regions

Mnogo Lososya dark

kitchens

Karusel hypermarkets

transformation is ongoing

Large Vprok.ru

Perekrestok dark stores

+ 1 small dark store

5 Vprok.ru Perekrestok large

dark stores covering 8 regions

(incl. 2 franchisees)

Leadership

team

Personnel development

as of 31 December 2021

Top management team gender

breakdown

62%

38%

women

men

Increased multi-format

interaction

Retention ofcompetent

staff

Improvement

ofmanagement

andprofessional skills

Providing theknowledge

and skills needed for the

digital transformation

Issues addressed

Top management

Middle management

IMD

Participants

Middle

management

Skolkovo

Participants

Top management

Middle management

X5 Digital

Academy

1,693

Participants

STRATEGIC REPORT

STRATEGIC REVIEW

LEADERSHIP TEAM

Vladimir

Sadovin

ACTING GENERAL

DIRECTOR OF

PEREKRESTOK

Dmitry

Agureev

HEAD OF CORPORATE

SECURITY

Ilya

Yakubson

DIRECTOR OF CHIZHIK

Anton

Mironenkov

MANAGING DIRECTOR

OF X5 TECHNOLOGIES,

MEMBER OF THE

EXECUTIVE BOARD

Igor

Shekhterman

CHIEF EXECUTIVE OFFICER,

CHAIRMAN AND MEMBER

OF THE MANAGEMENT BOARD,

CHAIRMAN AND MEMBER

OFTHE EXECUTIVE BOARD

Vladislav

Kurbatov

GENERAL DIRECTOR

OFPYATEROCHKA,

MEMBER OF THE

EXECUTIVE BOARD

Elena

Konnova

CORPORATE

COMMUNICATIONS

DIRECTOR

Svetlana

Volikova

DIRECTOR OF BUSINESS

SUPPORT, MEMBER

OFTHEEXECUTIVE BOARD

Vladimir

Salakhutdinov

DIRECTOR

OF STRATEGY

AND BUSINESS

DEVELOPMENT,

MEMBER OF THE

EXECUTIVE BOARD

Tatiana

Rakhmanova

MANAGING

DIRECTOR OF

X5 READY FOOD

Tatiana

Krasnoperova

DIRECTOR OF HUMAN

RESOURCES AND

ORGANISATIONAL

DEVELOPMENT, MEMBER

OFTHEEXECUTIVE

BOARD

Vsevolod

Starukhin

CHIEF FINANCIAL

OFFICER, MEMBER

OFTHE EXECUTIVE

BOARD

Ekaterina

Lobacheva

GENERAL COUNSEL

AND GOVERNMENT

RELATIONS DIRECTOR,

MEMBER OF THE

EXECUTIVE BOARD

Leadership team

STRATEGIC REPORT

STRATEGIC REVIEW

LEADERSHIP TEAM

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER, MEMBER OF

THE EXECUTIVE BOARD

Vladimir Sadovin

ACTING GENERAL DIRECTOR OF

PEREKRESTOK

Vladislav Kurbatov

GENERAL DIRECTOR OF PYATEROCHKA,

MEMBER OF THE EXECUTIVE BOARD

Igor Shekhterman

CHIEF EXECUTIVE OFFICER, CHAIRMAN

AND MEMBER OF THE MANAGEMENT

BOARD, CHAIRMAN AND MEMBER OF THE

EXECUTIVE BOARD

Igor joined the X5 Supervisory Board

in 2013. He has been Managing

Partner and CEO at RosExpert, a

consulting company that he co-

founded in 1996. Igor started his

career as ﬁnance manager at the

Russian branch of Beoluna, the

Japanese jewellery producer. Igor

holds a degree in Economics from

the Kaliningrad Technical Institute

(1992), and degrees in Business

Administration from the Institute

d’Administration des Enterprises

(France, 1994) and the Danish

Management School (1995).

X5 Group management team handles

day-to-day management of the

Company and is responsible for

implementing the long-term strategic

goals set by the Supervisory Board.

Theteam reports to the Supervisory

Board, which holds management

accountable for delivering on strategic,

ﬁnancial and operating targets.

Members on theleadership

team

Vsevolod joined X5 in May 2021. He

has extensive experience across a

range of industries, from managing

the ﬁnance departments of Russian

and international FMCG companies

to overseeing operations

management for large businesses

undergoing digital transformations.

Prior to joining X5, he worked at Sibur

LLC from 2017, where he held several

positions including the role of Chief

Operating Ofﬁcer of the Plastics,

Elastomers and Organic Synthesis

Division. From 2009 to 2016, he was

CFO and later CEO of the energy

company DTEK Energy in Ukraine.

He also has experience leading the

ﬁnance functions departments of

companies including Mars,

Schlumberger, RUSAL and others.

Vsevolod is a graduate of the SGH

Warsaw School of Economics and

holds PhD from the Academy of

Labour and Social Relations in

Moscow, and he completed

corporate MBA programmes at the

LBS and INSEAD business schools.

Vladimir joined X5 in 2021 as

Strategic Marketing Director of

Perekrestok. He has over 20 years of

experience in FMCG. From 2002 to

2020, he worked at Azbuka Vkusa,

ﬁrst as Marketing Director, then as

CEO from 2004 to 2018, after which

he led the strategic development of

the chain. From 1995 to 2001,

Vladimir was Marketing Director of

Russian Product.

Vladimir graduated from Moscow

State University of International

Relations with a degree in

International Economics.

Vladislav joined X5 in 2015 as Chief

Operating Ofﬁcer of Perekrestok and

led the supermarket chain from June

2018 to January 2022.

During the format's transformation

phase, he contributed signiﬁcantly

to the development of Perekrestok,

in particular, the ongoing CVP

development, increasing the

efﬁciency of in-store processes and

improving the retail chain's

customer focus.

Vladislav has extensive experience

in retail having managed O'KEY's

operations for over 13 years.

Vladislav graduated from the

Leningrad Higher Military

Topographical School.

STRATEGIC REPORT

STRATEGIC REVIEW

LEADERSHIP TEAM

Anton Mironenkov

Tatiana Krasnoperova

Ilya Yakubson

DIRECTOR OF CHIZHIK

Vladimir Salakhutdinov

Elena Konnova

CORPORATE COMMUNICATIONS DIRECTOR

Ekaterina Lobacheva

MANAGING DIRECTOR

OF X5 TECHNOLOGIES,

MEMBER OF THE EXECUTIVE BOARD

Anton joined X5 as Deputy Director of

the M&A Department in September

2006. In March 2011, he was

appointed Director for M&A and

Business Development and in 2012

became the Director for Strategy and

Business Development. In January

2014, he was also appointed as

General Director of the express

convenience store format. From 2005

to 2006, Anton managed various

projects at Alfa Group including the

merger of Pyaterochka and

Perekrestok. Anton headed the Big

Data Department at X5 in 2018. Under

his leadership, the brand-new unit

quickly grew from a small group of

employees to a team of more than

250 professionals who create and

develop services for customers and

employees. Prior to X5, he held senior

positions at Troika Dialog and

PricewaterhouseCoopers. Anton

graduated with honours from Moscow

State University in 2000 with a

degree in Economics.

DIRECTOR OF HUMAN RESOURCES AND

ORGANISATIONAL DEVELOPMENT,

MEMBER OF THE EXECUTIVE BOARD

Tatiana joined the X5 team in

February 2016 and has a proven

track record in organisational

development and HR management.

She has over 10 years of experience

in executive positions at major

domestic and international

companies, including EVRAZ, TNK-

BP and Integra Group. Tatiana

graduated from the Izhevsk State

Technical University with a degree in

Economics and Business

Administration and was awarded an

MBA from the RUDN University.

Since 2019, Ilya has been managing

the launch of Chizhik, X5 Retail

Group’s new hard discounter format.

Until 2018, he was in charge of Alfa

Health Center clinics. Between 2008

and 2015, Ilya held the position of

CEO at DIXY Group. Before 2008, he

was in charge of Pallada Group. He

holds a PhD in Economics and an

MBA.

DIRECTOR OF STRATEGY

AND BUSINESS DEVELOPMENT,

MEMBER OF THE EXECUTIVE BOARD

Vladimir joined X5 in May 2019. From

2014, he served as Deputy CEO for

Finance at Russian Post and was a

Supervisory Board member at

Pochta Bank. In 2002–2014, he held

senior management positions at

Western Union and American

Express. Prior to that, he served in

various positions at the Moscow

Exchange for over ﬁve years.

Vladimir is a graduate of the Moscow

Engineering Physics Institute and

the Financial University under the

Government of the Russian

Federation. He also holds an MBA

from the Kellogg School of

Management at Northwestern

University.

CORPORATE COMMUNICATIONS DIRECTOR

Elena joined X5 in January 2015. She

has 15 years of experience handling

public relations with some of

Russia’s largest companies. Before

joining X5, Elena worked for Volga

Group, Gazprom Neft, NIS (Naftna

Industrija Srbije) and Ilim Group (a

Russian pulp and paper holding).

Prior to that, Elena spent more than

10 years working as a journalist for

the Russian business press,

including at Kommersant and

Expert. Elena graduated from St

Petersburg State University with a

degree in Sociology and

Economics.

In addition to overseeing X5 Retail

Group’s external and internal

communications activities, she leads

implementation of its sustainability

strategy.

GENERAL COUNSEL AND GOVERNMENT

RELATIONS DIRECTOR,

MEMBER OF THE EXECUTIVE BOARD

Ekaterina joined X5 in October 2016

as the Head of the Corporate Law

and X5 Corporate Structure

Department. She has more than 15

years of successful managerial and

practical experience in the ﬁeld of

law. Before joining X5 Retail Group,

Ekaterina worked for over ﬁve years

at Evraz Holding, where she

implemented a number of large-

scale projects in legal support for

the business. During her term at

Evraz Holding, she held numerous

positions, including Director of

Corporate and Property Relations;

Vice President, Legal; and Law and

Corporate Law Director. Ekaterina

worked at MDM Bank as the

Corporate Secretary from 2007 to

2011. She began her professional

career in the legal ﬁeld in 1999,

working in several private and

government entities before joining

MDM Bank. Ekaterina graduated

from the Russian Academy of State

Service with a degree in Law in 2005

and received an additional degree in

Finance and Credit from the

Plekhanov Russian University of

Economics in 2011.

STRATEGIC REPORT

STRATEGIC REVIEW

LEADERSHIP TEAM

Tatiana Rakhmanova

MANAGING DIRECTOR OF X5 READY FOOD

Dmitry Agureev

HEAD OF CORPORATE SECURITY

Svetlana Volikova

DIRECTOR OF BUSINESS SUPPORT,

MEMBER OF THE EXECUTIVE BOARD

Tatiana joined X5 in April 2020. She is

in charge of developing the ready-to-

eat business line, working together

with the Group’s retail formats and

other services. X5 Ready Food

ensures a sufﬁcient supply of ready-

to-eat foods from internal and

external suppliers and seeks

innovative solutions and growth

opportunities for the category.

Tatiana has a solid track record in the

HoReCa sector. Before joining X5, she

spent four years heading up the

Tanuki restaurant chain in Russia and

abroad. Prior to that, she was in

charge of operations and uniformity

for Shokoladnitsa coffee shops

across Russia, managed the PRIME

cafe chain and supervised regional

operations at McDonald’s. Tatiana

holds a degree in Physics from the

Moscow State Pedagogical University.

Dmitry has 29 years of

experience working in

government and corporate

security, including leading

Russian and international

companies. He started his career

in the Intelligence Service of the

Russian Federation. Prior to

joining X5, he was the security

director for Volvo Group Russia,

Ukraine and Belarus and also

held security positions at

Gazprom and Transneft. Dmitry

holds degrees from the Moscow

Suvorov Military School, the

Serpukhov Military Command-

Engineering College of Nuclear

Missile Forces and the Russian

Intelligence Service Academy, as

well as a Volvo MBA.

Svetlana joined the X5 team in 2007.

Today she is responsible for

overseeing the business units that

handle transportation and direct

import, as well as the construction,

leasing and development of real

estate assets. Svetlana has held

various positions within X5’s

Corporate Centre and retail formats,

including the General Director of

Karusel. From 1996 to 2007, she

held positions at Auchan and

Danone. Svetlana graduated from

the Higher Institute of Management

in Paris, France. She qualiﬁed as an

ACCA accountant in 2009.

STRATEGIC REPORT

STRATEGIC REVIEW

LEADERSHIP TEAM

STRATEGIC REPORT

REVIEW BY FORMATS

PYATEROCHKA

We continued to develop Pyaterochka in 2021,

offering reliable, modern and accessible food. It was

often the closest place to shop for the millions of

Russians who live in the catchment areas of our

17,972 Pyaterochka stores. We also expanded the

reach of our online express delivery food offering to

953 stores.

While we maintain a focus on implementing a digital

transformation of our business, we are also aware of

the challenging macroeconomic situation and

changing market landscape. We took measures to

adapt Pyaterochka’s CVP and optimise renovations

costs for new concept stores. While our stores

continue to offer unique and attractive features like

freshly baked bread and coffee, we are also

conscious that Russian consumers are increasingly

trading down and becoming more rational shoppers.

In addition to ongoing adaptations to the CVP and

expansion of our digital offering, Pyaterochka has

taken measures to digitalise business processes that

will help us to achieve sustainable improvements on

costs, including scaling up our use of big data

powered planning tools, technology solutions to

improve logistics operations and an innovative

online platform that enables us to coordinate

individualised promotion campaigns with suppliers.

Looking ahead, we hope to provide our customers

with the best proximity store shopping experience

while maintaining our reputation for low prices and

reliable quality.

Vladislav Kurbatov

GENERAL DIRECTOR OF PYATEROCHKA

STRATEGIC REPORT

REVIEW BY FORMATS

PYATEROCHKA

17,972

Stores in operation

+7.6% 2020/21

2021 performance highlights

992

Stores refurbished

5.0

BLN

Customer visits

+7.9% 2020/21

5.6

LFL sales growth

4,501

Stores operating under

new concept

25% of store portfolio

47.1

MLN

Active loyalty cardusers

+5.5% 2020/21

7,048

THS

SQM

Selling space

+7.7% 2020/21

NPS

+6.3 2020/21

Loyalty card penetration

in trafﬁc

OPERATIONAL

METRICS

409

RUB

Average ticket

+4.0% 2020/21

1,795

RUB

BLN

Revenue

+12.3% 2020/21

8.1

EBITDA margin

(pre-IFRS 16)

CUSTOMER

METRICS

FINANCIAL

METRICS

STRATEGIC REPORT

REVIEW BY FORMATS

PYATEROCHKA

2021 strategic highlights

25% of Pyaterochka stores (4,501) were operating under

the new concept as of 31 December 2021

Capex reduced per sqm for new concept refurbishments

Double-digit LFL growth for new concept stores

vs oldconcept

NPS of new concept Pyaterochka is 1.4× higher than

forold concept

Pyaterochka mobile app and website had 10.4 million

MAUs in December 2021, up 27% year-on-year

Express delivery continued rapid rollout across

Pyaterochka geography of operations, with services

in 50 regions

Pyaterochka express delivery orders rose

3x year-on-year to 10.7 million in 2021

Shrinkage level decreased by 17 b.p

Labour productivity in December 2021 improved

by 17% year-on-year

LFL sales grew by 5.6% year-on-year in 2021

FURTHER IMPROVE OPERATIONAL

EFFICIENCY AND SHRINKAGE

ROLL OUT NEW CONCEPT

AND ADAPT CVP

LEVERAGE BIG DATA TOOLS AND

OMNICHANNEL CAPABILITIES

INCREASE PERSONNEL

ENGAGEMENT

Personnel engagement increased by 6% year-on-year

Staff turnover decreased by 4.7 p.p.

A pilot of the Pyaterochka shop director entrepreneurial

motivation programme was launched. Developing

an entrepreneurial approach helps combine the potential

and interests of shop directors with X5 Group's

development goals

INCREASE CUSTOMER TRUST

AND LOYALTY

For the second year in a row, Pyaterochka was

named the most loved brand by consumers in

Russia during the COVID-19 pandemic. We beat

not only competitors in proximity food retail but

also local and international giants from other

industries such as Sber, YouTube and Yandex.

In 2021, Pyaterochka also climbed to #6 inthe

ranking of the most valuable brands in the

Russian market according to BrandFinance.

NPS level improved by 6.3

points in 2021

STRATEGIC REPORT

REVIEW BY FORMATS

PYATEROCHKA

Key operating results

Adaptation and rollout of new CVP

Net sales by region,

CAGR

2021

2020

2019

2018

2017

Number of stores, eop

Net retail sales, RUB bln

Selling space ’000 sqm, eop

Customer visits, mln

12.5%

15.7%

12.3%

11.4%

17,972

1,794

7,048

5,029

16,709

1,597

6,542

4,662

15,354

1,367

5,975

4,460

13,522

1,198

5,291

3,913

11,225

1,001

4,427

3,267

44.5

21.1

13.0

7.9

4.3

1.3

2021

46.0

20.8

13.7

7.6

7.1

3.6

1.1

2020

Ural FD

Volga FD

Siberian FD

North Caucasus FD

North-Western FD

Central FD

Southern FD

STRATEGIC

PRIORITIES

Continue to reﬁne CVP to reﬂect changing

demand in challenging macro environment

Maintain focus on reducing shrinkage and

labour productivity

Support “employer brand” to attract

personnel in tight labour market

Optimise capex for new openings and

refurbishments

Invest in further automation and

data-driven tools to achieve sustainable cost

savings and reduce exposure to higher costs

as a result of labour shortage

Continue implementing sustainability strategy,

including focus on increasing use of

renewable energy and decreasing carbon

footprint

We reached the milestone of 25% ofPyaterochka

stores operating under the newconcept in 2021,

bringing the total to4,501stores operating under the

new concept as of 31 December 2021.

With a modern and comfortable interior design, the

new format stores offer optimised shopping routes for

different shopping missions, as well as up-market

features such as in-store bakeries, coffee and fresh

juice points, healthy food assortments, and an

expandedready-to-eat and food-to-go offering.

We have developed a ﬂexible matrix ofPyaterochka

store formats with a variety ofservices and renovation

requirements depending on a number of factors, such

aslocation, trafﬁc, etc.

Thus, store opening costs depend on the set of

services it offers (oven, coffee machine, juicer, etc.).

The decision touseone service or another is left to

the macro-region's discretion.

NPS 11

6.9

points y-o-y

We are also working on further increasing the share of

private label goods in our assortment, enabling us to

offer customers a range of goods at competitive prices

while maintaining a reliable level of quality that they

can trust. In 2021, the share of private labels in overall

sales at Pyaterochka amounted to 23%.

We are changing our approach to private labels:

We accept zero compromise between price and

quality, and offer the best price to value in our stores.

Development of innovative products based on

consumer research.

One supplier per product for local supplies within

a region.

We conducted more than 100 advertising campaigns,

both independently and in cooperation with suppliers.

This helped us to maintain parity in SOV (share of

voice) leadership in the food retail market against the

backdrop of greater investment by key competitors.

Pyaterochka made important progress in further

strengthening the trust of our guests, based on

independent ratings like Romir, where we were #1, and

internal research ranking Pyaterochka in 20th place,

which is an improvement of four places among all

food retailers in the country as of Q3 2021. This was

achieved through the rollout of the new concept and

communication related to the updated format, as well

as social projects such as from Basket of Kindness

and Liza Alert and joint environmental-themed

activities with suppliers.

As a result of around 200 joint campaigns with

suppliers, we managed to implement ESG goals,

increase MAUs and customer loyalty, all of which had

a positive impact on retail turnover.

During 2021, Pyaterochka relaunched its loyalty

programme: we reduced the number of points given

out per guest by around 25% while making the

programme more interesting. This enabled us to

incentivise some of the customer base to consume

more online (by increasing their check and/or

frequency of purchases when choosing their favourite

categories at their level, calculating the effect on

validation). Total loyalty programme penetration in

sales rose to 85%, and monthly active customers grew

to 39 million (+7% year-on-year in November), and we

increased monetisation of Pyaterochka’s customer

value management (CVM) product.

Throughout 2021, we worked on improving the

efﬁciency of CVM with more personalised

communication with customers through relevant

channels. Through these efforts, we reduced the cost

of contact by 40% in 2021 by increasing the use of

free channels to a target of 40–50% compared to the

previous period.

Operational efﬁciency

The current macro environment has once again focused our attention on efﬁciency,

and we continue to work inseveral key directions:

Introduced shrinkage committees across macro regions

Remote fruit and vegetable acceptance launched at DCs

Smart reduction in assortment

Reduced inventory and losses through an end-to-end supply planning process

Audit of store processes to simplify operations

Decrease in inventory via audits at the SKU level and promo audits

Simpliﬁed operations

Optimal staff planning

Efﬁcient use of capex to open new stores

Continued development of multilayer logistics infrastructure

Focus on improving efﬁciency of transportation between our own DCs

Further optimisation of rent costs with a focus on revenue-linked rent

Shrinkage

Logistics

Rent

Lean Store

STRATEGIC REPORT

REVIEW BY FORMATS

PYATEROCHKA

Shrinkage

2020

2021

−17 b.p.

Private label share

in sales,

2020

2024E

2021

Ready-to-eat share in sales

0.6

2020

0.9

2021

Personnel engagement

Big data and omnichannel opportunities

As part of X5’s overall digital transformation,

Pyaterochka is implementing a number of initiatives to

leverage advanced big data analysis in its business

operations and to expand omnichannel opportunities

that often intersect with digital businesses.

In our stores, we continue to expand the 5Post

network of parcel lockers and pickup points. These

parcel lockers help both to drive additional customer

trafﬁc to our stores and offer our guests additional

convenient services.

As an extension of our stores, we rapidly accelerated

the scaling up of express delivery services.

We continue to develop our mobile app as the key

online channel for communicating with our customers.

Today we are the market leaders in terms of MAUs in

absolute terms and growth dynamics. We get

feedback from our guests via our app, and based on

this feedback we have rotated or reﬁned with the

producers over 3,000 SKUs, and the average rating for

our private label products is 4.8 out of 5.

Big data tools primarily impact our business operations

behind the scenes, but they are key to helping us meet

consumer demand in the most effective and most

efﬁcient way possible.

Pyaterochka continues to lead the digitalisation of the

food retail market in both communication and

distribution channels. The total number of active

Pyaterochka mobile app users rose to 9.6 million,

which was the highest growth in absolute terms in the

market. We also retained SOV leadership among brick-

and-mortar retailers. We were especially pleased with

our successful SMM performance, with Pyaterochka

leading the market across platforms.

We also implement joint X5 projects, such as the

launch of X5 Bank payment services in the

Pyaterochka mobile app and the pilot of X5

subscriptions at 30 stores. In addition, we are

coordinating on promotions and recipes with Food.ru,

including offering rebates, cooking shows, etc.

Pyaterochka achieved a 4.7 p.p. year-on-year

improvement in staff turnover in 2021, while labour

productivity in December rose by 17% year-on-year.

Our store employees are becoming front-ofﬁce

workers, and we treat them as internal customers.

Personnel engagement increased by 6% year-on-year.

Our investments in making Pyaterochka a good place

to work mean that it has become easier for us to hire

people, and we are registering increased employee

engagement. As a result, the perception of politeness

is rising and shrinkage is falling, meaning we are

serving our customers better while also improving the

proﬁtability of our business.

STRATEGIC REPORT

REVIEW BY FORMATS

PYATEROCHKA

Staff turnover dynamics

2020

2021

−4.7 p.p.

Personnel

engagement

y-o-y

STRATEGIC REPORT

REVIEW BY FORMATS

PEREKRESTOK

Perekrestok

With 990 stores as of 31 December 2021, Perekrestok is

Russia’s largest supermarket chain, with a focus on the

country’s most afﬂuent regions. Perekrestok has been

successfully rolling out its new supermarket concept, with

23% of the store base operating nunder the new concept

atthe end of the year.

Online businesses are also a key part of the Perekrestok

CVP, with 5Post pickup points and express delivery from

stores all integrated parts of the supermarket’s business.

Depending on its size, a Perekrestok supermarket will have

an assortment ranging from 8,000 to 15,000 SKUs, and

theaverage selling space is 1,110 sqm.

990

Perekrestok stores

1,110

SQM

Average selling space

AS OF 31 DECEMBER 2021

STRATEGIC REPORT

REVIEW BY FORMATS

PEREKRESTOK

Perekrestok delivered 3.8% LFL sales growth and

a13.5% year-on-year rise in revenue. We ﬁnished

theyear just shy of 1,000 supermarkets and remain

Russia’s largest supermarket chain. Thanks to our

ongoing refurbishment programme and updates to the

Perekrestok CVP, we continue to attract customers

who know they can trust Perekrestok to provide a wide

assortment of quality goods at fair prices.

We continue to implement our strategy, adapting the

CVP and testing new formats for Perekrestok stores

that focus on an emotional shopping experience and

are tailored to our customers’ needs. With 23% of the

Perekrestok supermarket portfolio now operating

under the new store concept, we continue to see

consistently better LFL and NPS performance after

refurbishments.

Efﬁciency was a major focus for Perekrestok in 2021.

We piloted and rolled out numerous digital projects to

reduce losses, automate and streamline store

processes and use innovative solutions like the self-

checkout machines we developed in-house. These

initiatives both improved efﬁciency and helped

increase retail turnover, and we plan to expand them

in 2022.

Sustainability is an important part of what we do. We

are particularly focused on continuous improvements

in healthy living, energy efﬁciency, reducing CO2

emissions, facilitating recycling, reducing food waste

and promoting community engagement. During 2021

these priority areas were an integral part of

Perekrestok’s business performance.

Looking ahead, we will focus on addressing the short

term challenges that we face in the current market

environment, while continuing to implement strategic

priorities like digitalisation, sustainability and updated

Perekrestok's CVP.

Vladimir Sadovin

ACTING GENERAL DIRECTOR

OF PEREKRESTOK

990

Stores in operation

+6.1% 2020/21

2021 performance highlights

Stores refurbished

636.5

MLN

Customer visits

+13.2% 2020/21

3.8

LFL sales growth

223

Stores operating under

new concept

23% of store portfolio

14.4

MLN

Active loyalty cardusers

+4.7% 2020/21

1,099

THS

SQM

Selling space

+8.4% 2020/21

NPS

+3.6 2020/21

Loyalty card penetration

in trafﬁc

OPERATIONAL

METRICS

626

RUB

Average ticket

+0.2% 2020/21

351.1

RUB

BLN

Revenue

+13.5% 2020/21

6.9

EBITDA margin

(pre-IFRS 16)

CUSTOMER

METRICS

FINANCIAL

METRICS

STRATEGIC REPORT

REVIEW BY FORMATS

PEREKRESTOK

2021 strategic highlights

Portfolio of private label brands addresses range

ofaudiences with competitive products

Management of private label suppliers streamlined

withdigitalisation

Customer feedback further integrated into selection

andquality control

Continued investment in automation of supplier

interactions and HR processes

In-store processes leveraging digital technologies

Big data tools helping to improve assortment,

pricing and replenishment

FURTHER IMPROVE OPERATIONAL

EFFICIENCY AND SHRINKAGE

PRIVATE LABEL

DEVELOPMENT

LEVERAGE BIG DATA TOOLS AND

OMNICHANNEL CAPABILITIES

CUSTOMER-CENTRIC BUSINESS:

NPS GROWTH AND FEEDBACK

CONTINUOUS ADAPTATION

OF THE CVP

Testing new formats, such as small

Perekrestok stores with a limited assortment

for dense urban environments

Focus on expanding ready-to-eat and health

food assortments

Service quality improving thanks to better

employee engagement

Successful differentiation from competition,

with rising share of private label, health food

and ready-to-eat assortments in overall sales

New supermarket format

rollout continues

Perekrestok’s NPS improved from 27 in 2020 to 31 in 2021

Handling of complaints and queries streamlined

andsystematised

Customer ratings and feedback inform

decision-makingon assortment

Growing share of private label goods

in sustainable packaging

Basket of Kindness food drives continue to grow

Online businesses: 655 Perekrestok supermarkets

offer express delivery, with Perekrestok app MAUs

reaching 3.3 million

STRATEGIC REPORT

REVIEW BY FORMATS

PEREKRESTOK

Key operating results

Perekrestok net retail sales by region,

CAGR

2021

2020

2019

2018

2017

Number of stores, eop

Net retail sales, RUB bln

Selling space ’000

, eop

sqm

Customer visits, mln

11.6%

16.9%

14.6%

11.8%

990

349

1,099

636

933

320

1,014

562

852

273

879

589

760

231

782

505

638

187

637

407

61.4

17.3

9.6

4.9

6.3

0.6

2021

64.9

15.8

9.4

4.4

5.0

0.6

2020

Ural FD

Volga FD

North Caucasus FD

North-Western FD

Central FD

Southern FD

STRATEGIC

PRIORITIES

Continue to adapt CVP and roll out new

store concept, with focus on efﬁciency and

controlling costs

Reﬁne the CVP with a focus on the

emotional shopping experience and our

assortment of fresh, ready-to-eat and

private label goods

Invest in digitalisation and automation to

achieve sustainable cost savings

Further improve speed and accuracy of

decision-making, as well as automate key

practices with big data tools

Expand use of customer feedback as a key

element of decision-making in the

business, helping to guide private label

development, overall assortment and CVP

Become #1 supermarket in terms of health

food, ready-to-eat and private label

assortments

STRATEGIC REPORT

REVIEW BY FORMATS

PEREKRESTOK

Perekrestok’s new store concept reﬂects the leading

edge of global food retail, with increased assortments

of health food, ready-to-eat and ready-to-cook

offerings. As of the end of 2021, 23% ofPerekrestok’s

990 supermarkets were operating under the new store

concept.

We have developed a new mission and positioning for

Perekrestok, with a focus on the emotional shopping

experience. Perekrestok’s updated CVP is being

ﬁnalised, with a focus on strengthening fresh

categories and differentiation.

Updating the value proposition andconceptof supermarkets

One important element of Perekrestok’s developing

CVP is our ready-to-eat assortment. X5 launched its

own Smart Kitchen in 2019, designed to ramp up our

own supply of ready-to-eat goods in response to

demand. During 2021, ready-to-eat assortment sales

reached RUB 3.5 bln, 67% growth year-on-year.

NPS 31

3.6

points y-o-y

STRATEGIC REPORT

REVIEW BY FORMATS

PEREKRESTOK

Our private label assortment accounted for 15% of

revenue in 2021, reaching 18% at the end of the year,

up from 14% at the end of 2020. Our private labels

include Green Line healthy foods and a range of other

brands that cover all price segments.

Ready-to-eat share in sales,

2.5

2020

4.1

2021

With increasing interest in healthy lifestyles among

consumers, and in line with our commitment to

support healthy lifestyles as part of our sustainability

strategy, we are expanding our assortment of healthy

products and making them more visible in stores in

order to help customers navigate their way to making

healthier choices.

Private label share in sales,

2020

2024E

2021

In an environment of declining real disposable

household incomes and rising costs for labour and

resources, achieving further breakthroughs in

operational efﬁciency is a top priority for Perekrestok.

Thanks to ongoing initiatives like customer value

management, as well as automation of forecasting,

replenishment and interactions with suppliers, we

continue to be able to maintain proﬁtable operations

while sharing savings with our customers.

In 2021, we launched a pilot of our Mobile Assistant,

which enables automatic routing of shop incidents

(equipment breakdowns, staff absenteeism, waste

removal problems, etc.) and sends them directly to

relevant employees, while also tracking their

implementation. In 2022, we plan to roll out this

solution to all Perekrestok supermarkets.

We have also launched a Digital Operations Assistant

product, which enables store directors and cluster

directors to save time in analysing performance. The

solution highlights stores where performance requires

attention. In 2022, we plan to expand the number of

indicators that the system will analyse.

In 2021, we piloted a Freshness project, aimed at

improving the perception of quality and freshness of

Perekrestok supermarkets by extending our

monitoring of goods to cover their entire journey from

the producer to store shelves. This includes remote

quality control at suppliers’ DCs, incoming and

outgoing quality control at our DCs, monitoring of the

cold chain at all stages of transportation, management

of stock levels and quantities, shop standards, etc. This

project has helped to improve retail turnover and

reduce losses. In Q4 2021, we rolled out of the project

in the Central region and in 2022 we plan to extend

this to all Perekrestok stores.

Throughout last year, we continued the rollout of our

lean store project, which is aimed at increasing the

productivity of store personnel through a convenient

system of storing goods on roll cages, which are used

for stocking shelves. On average, a store with lean

processes spends 7%-10% less time restocking

shelves. By the end of 2021, around 130 stores were

involved in the project. For 2022, we plan to continue

replicating the project, and by the end of the year we

plan to have around 250 to 300 stores converted to

lean processes.

We also installed around 1,500 self-service checkouts

(SCCs) at Perekrestok supermarkets in 2021. At the

end of the year, a total of around 4,000 SCCs had

been installed in 550 stores. SCCs signiﬁcantly improve

store productivity, as only one employee is required for

six SCCs. Queues have also been reduced. We plan to

install around 1,500 more SCCs in 250 stores in 2022.

Operational efﬁciency

Develop and test clustered pricing

policies

Rollout of a regional pilot store

Pricing at SKU/store level, based on

product elasticity

Clustering and assortment

optimisation using big data solutions

Big data solution to increase accuracy

of promo forecast

Introduction of individual planograms

based on JDA

Regional

model

Inventory

Further development of regional

logistics

Synergies with Pyaterochka for remote

regions

Further improve staff productivity

Logistics

Matching personnel compensation

with market benchmarks

Optimise salary in regions

Transformation of the organisational

structure: a new organisational model

for central and regional ofﬁces was

introduced, and operational verticals

with a focus on increasing territorial

autonomy and adapting to local

customer needs was implemented

Personnel

Labour productivity

2020

2021

+7.1%

Personnel

Our employees are one of the keys to our success in

providing a reliable high level of service to our

customers. We continue to implement best-in-industry

practices for our store staff, ranging from improving

staff lounges and adding new functionality to the

Perekrestok employee mobile app to expanding

training opportunities and maintaining ways for staff to

engage in and share our success.

In order to further improve efﬁciency, Perekrestok is

automating HR processes and implementing a

personnel planning and management system.

In a tight labour market, these measures have helped

us to retain staff while also enabling us to recruit

efﬁciently as we open new stores.

In 2021, our Mobile Workstation product was rolled out

to all Perekrestok stores. The aim of the product is to

increase the efﬁciency of operations, which in turn will

increase sales, reduce shrinkage and increase

productivity. The plan for 2022 is to expand the

functionality of the product to include the receipt of

goods, the display of goods and the hourly availability

of goods on shelves. This will further increase sales

and productivity.

Big data and omnichannel

opportunities

Omnichannel retail is increasingly part of the

Perekrestok CVP, with integrations into express

delivery as well as 5Post parcel lockers and pickup

points.

In addition to these services, we are using X5.ID to

enable a single sign-on for customers at any stage of

the customer journey, whether they are logging on to

Food.ru to discover recipes, placing express delivery

orders through the Perekrestok mobile app, using their

loyalty card at a self-checkout machine in a store or

paying with an X5 Bank branded debit card.

Looking ahead, we’ll continue to focus on innovation,

digitalisation and automation of business processes. In

addition to existing services, we will also test new

omnichannel solutions that have the potential to

further enhance our CVP.

Customer value management

We launched customer value management (CVM) for

Perekrestok in 2020. CVM uses analytical models to

automatically generate personalised offers based on

customer preferences.

We are building a system that can personalise offers

for customers at every contact point, at every stage of

the customer journey. This client-centric approach

supports long-term cooperation with each customer.

During 2021, we expanded our CVM product to

partners and suppliers interested in CVM campaigns.

STRATEGIC REPORT

REVIEW BY FORMATS

PEREKRESTOK

STRATEGIC REPORT

REVIEW BY FORMATS

KARUSEL

Karusel

Following the decision in 2019 to transform the Karusel

hypermarket format, the process continued in 2021. While we

believe that many customers will switch to online

hypermarkets like Vprok.ru Perekrestok for their stock-up

shopping needs, we are also transferring some Karusel

stores toPerekrestok to be run as large supermarkets.

Karusel’s team, in parallel with downsizing its operations,

focused on the operational efﬁciency of the stores that

remain in operation as hypermarkets for the immediate

future.

MLN

Customer visits

RUB

BLN

Net retail sales

Stores in operation

AS OF 31 DECEMBER 2021

128

THS

SQM

Selling space

AS OF 31 DECEMBER 2021

Key operating results

2021 highlights

Karusel net retail sales by region,

2021

2020

2019

2018

2017

Number of stores, eop

Net retail sales, RUB bln

Selling space ’000

, eop

sqm

Customer visits, mln

128

222

364

121

382

132

385

135

68.2

10.3

16.6

0.4

3.1

1.4

2021

57.1

19.1

17.6

2.4

2.9

0.9

2020

Southern FD

Volga FD

North Caucasus FD

North-Western FD

Central FD

Ural FD

DIGITAL

TRANSFORMATION

Karusel continues to maintain a mobile app that

enables customers to manage their loyalty

programme, receive personalised offers and submit

ratings or reviews of goods. The Karusel mobile app

uses the X5.ID single sign-on, meaning users can

use the same login and personal data across X5

services, receiving the same personalised approach

no matter where they shop. Mobile app users

accounted for 41% of retail turnover in 2021,

compared with just 16% in December 2020.

We also implemented the “digital store director”

programme, which helps to streamline the

workload for store management personnel and

automate inventory monitoring processes.

OPERATIONAL

EFFICIENCY

Throughout the transformation process, Karusel

has remained focused on efﬁciency. We have

implemented a “multi-skill” approach to stafﬁng

stores, so that now 100% of ﬂoor staff are able to

work at tills, stocking shelves, at service desks or in

the storeroom.

Even as the store base shrinks, we continue to

focus on efﬁcient management of rental space in

our stores.

LOYALTY

PROGRAMME

Loyalty card penetration in Karusel sales was 93%

in FY 2021, while penetration in trafﬁc was 86%

forthe same period.

STRATEGIC REPORT

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KARUSEL

STRATEGIC REPORT

REVIEW BY FORMATS

CHIZHIK

Chizhik

After launching our hard discounter format Chizhik in 2020,

we announced ofﬁcial rollout plans in 2021, with a target of

opening around 300 stores in 2022.

Chizhik aims to address rational shoppers looking to get

reliable value and everyday low prices. We have built the

format from the ground up to run efﬁciently, with every

process optimised.

A typical Chizhik store has 250–300 square metres of selling

space and an SKU range of 750–800 goods. Our aim is for

private labels with an attractive value proposition to account

for up to 75% of the assortment, contributing toourability to

help customers save 20%-25% vs shopping with peers.

Cost savings for customers

inChizhik stores

UP TO

STRATEGIC REPORT

REVIEW BY FORMATS

CHIZHIK

We completed the Chizhik pilot in 2021 and are now

inthe process of scaling up and replicating the project

to achieve a rapid expansion of the format in the

coming years.

The Chizhik store concept is designed for rational

buyers who value their time and money but are

unwilling to compromise on product quality. Our hard

discounter format means we are able to offer low

prices based on constant optimisation of costs and

business processes, as a well as a high level of quality

of private label brands.

One of our key focuses in 2021 was the ramp-up of our

private label assortment: we launched over 300 private

label products during the year, adhering to our strict

quality control systems, which are based on product

quality monitoring and customer feedback analysis.

We also ﬁnalised the store opening process, from

selection criteria for new sites to equipment standards

and formalising key business processes.

By the end of 2021, we had completed hiring for the

Chizhik management team, tested and ﬁnalised the

format’s business model and established a clearly

deﬁned three-year strategic plan. Through the pilot

phase, we veriﬁed key assumptions of our hard

discounter business model all the way down to the

store level, and now we are ready for scaling up.

We are optimistic about the outlook for Chizhik: our

hard discounter format is certain to occupy a strong

position in its market segment, which is expected to

grow quickly in the coming years.

We plan to become masters of decentralisation,

building independent regional teams that retain the

Chizhik DNA as we grow. We will also launch full-scale

and efﬁcient logistics to support our expansion, while

always remaining focused on cost optimisation and

business efﬁciency. Of course, our ultimate goals are to

deliver impressive results to our stakeholders and

unbelievable quality goods at affordable prices to our

customers.

Ilya Yakubson

DIRECTOR OF CHIZHIK

Key indicators

2.9

RUB

BLN

Net retail sales

5.9

MLN

Customer visits

568

RUB

Average ticket

STRATEGIC

HIGHLIGHTS

2021

KEY OPERATING

RESULTS

THS

SQM

Selling space

Stores in operation

PERFORMANCE

HIGHLIGHTS

2021

2020

Number of stores, eop

Net retail sales, RUB bln

Selling space ’000 sqm, eop

Customer visits, mln

2.9

5.9

0.05

0.1

Completed pilot stage and ﬁnalised business model,

processes and strategic goals

Ramped up private label assortment to over 300 items

Began roll out stage with plans to open up to 300

stores in 2022

EDLP positioning

Savings of up to 20%-25% compared with peers

Price

Close proximity to households

Narrow assortment — saving time on product

choice

Convenience

Young, friendly in-store personnel

Modern, simple stores

Atmosphere

Affordable prices

Taking care of families by saving time

and money (food budget)

Social

responsibility

Basic assortment covering 50%-60%

of customer needs

High-quality of private labels in line

with top brands

Assortment

CVP

The Chizhik CVP aims to meet demand for a rational

shopping experience where customers can save money

while getting quality and value they can rely on.

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CHIZHIK

A typical Chizhik store is about 400 sqm, of which

270–300 sqm is the sales ﬂoor. We have optimised the

assortment matrix with just 750-800 SKUs and pricing

that is 20%-30% lower than the benchmark for

equivalent products. This helps us to achieve higher

sales densities than in typical convenience stores.

Each store has a laser focus on productivity, with only

sevenfull-time employees, low shrinkage and

optimised processes.

Operational efﬁency is at the core of our business

model, drawing from the extensive experience and

unique know-how of the X5 andChizhik project teams.

Operational efﬁciency

At present, Chizhik already has over 300 private label

goods in its assortment. These currently account for

around 30% of sales. Our longer-term goal is for

private label goods to account for 75% of our total

assortment.

The key focus areas of our private label strategy are

quality and supply chain efﬁciency. We handle

complaints quickly and efﬁciently, and strive to

demonstrate to customers that we are being

responsive to their feedback. To support supply chain

efﬁciency, we rely primarily on shelf-ready packaging

(SRP) for goods, signiﬁcantly reducing the amount of

time needed to stock shelves.

Private label

Plans

for 2022

Launch and ﬁnalise the process for replicating the

Chizhik model as the network expands, create

independent regional teams

Launch highly efﬁcient logistics operations in several

Russian regions

Open around 300 stores in nine regions

Implement digital initiatives, such as launching a

mobile app, automating the handling of customer

feedback and testing delivery services from Chizhik

stores

Raise the share of private label to more than 40% of

the assortment

Our aim is to make private labels

market leaders

Market-leader quality

Customer tests

Proper ingredients

Product

Development of packaging

Development of SRP boxes

Working with mix boxes

Packaging

EDLP strategy

20%-30% gap to brand names

10%-15% gap to private labels

Price

STRATEGIC REPORT

REVIEW BY FORMATS

CHIZHIK

STRATEGIC REPORT

DIGITAL BUSINESSES

EXPRESS DELIVERY

Express delivery

120

100

Express delivery order dynamics,

ths

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Total

Pyaterochka

Perekrestok

Okolo

Our express delivery business

continued to grow at a fast pace

in 2021, with GMV rising more

than fourfold year-on-year to

RUB 30.8 billion.

In an increasingly crowded and competitive market, we

managed to remain one of the market leaders thanks to our

extensive loyal customer base and X5 Group’s ability to

quickly roll out new technology solutions to its existing store

network.

One of the top priorities throughout 2021 was to roll out

express delivery service to new regions, and the total number

of regions of operations increased from 13 at the end of 2020

to 50 at the end of 2021. This expansion means that

Pyaterochka has launched express delivery in nearly every

city where it operates with a population over 500 thousand,

while Perekrestok launched its service in almost every region

of presence.

25.7

RUB

BLN

Net sales

19.2

MLN

Total orders

1,533

RUB

Average ticket

1,611

Stores

Regions

69.8

THS

Average number

ofdaily orders

in Q4 2021

2021 highlights

Express delivery service was

available from

923 Pyaterochka stores

30 Pyaterochka dark stores

655 Perekrestok stores

3 Karusel stores

As of 31 December 2021

STRATEGIC REPORT

DIGITAL BUSINESSES

EXPRESS DELIVERY

Plans for 2022

During 2021, we signiﬁcantly improved the unit economics

of the business, reaching positive contribution margins in

some formats/regions, with scale effects and process

improvements helping to reduce pick-and-pack and

delivery costs per order.

Directed by customer feedback and a commitment to

delivering the best customer experience, we worked hard

to develop the express delivery mobile app functionality,

primarily expanding omnichannel services as well as

further integration with other X5 projects such as the

Food.ru media platform.

How express delivery

is managed

We view express delivery services as an extension of the

customer value propositions of X5’s retail formats. The

express delivery technology platform is a solution that was

developed in house based on X5’s decentralised, multi-

format business model. This means that each of our formats

is responsible for managing the customer experience,

assortment and marketing.

The technology platform and

courier delivery services used

by the formats are managed

centrally by an internal service

unit, X5 Digital.

Amid the challenging macroeconomic environment,

our main focus for 2022 will be to ensure that express

delivery does not undermine the economics of our

main business. We are conﬁdent in our ability to

achieve sustainable proﬁtability of the business

segment in 2022, thanks in part to improved

operational efﬁciency and unit economics. In the short

term, we plan to step back from the current level of

promotional and marketing activity and pause regional

expansion until we see an improvement in the overall

economic situation in the country.

At the same time, we will continue to focus on

maintaining and improving the high quality of our

delivery service, including delivery time and order

fulﬁlment accuracy. Despite the macroeconomic

headwinds, we expect to see continued strong

competition in the express delivery segment. In

response, we will aim to increase customer loyalty and

strengthen our market position by expanding the

range of our service offering along with other

elements of the customer journey.

In 2021, the ﬁrst specialised dark stores for express

delivery were launched; this process will continue in

2022, primarily in large cities. The transition to express

delivery from dark stores will help to increase the

speed and precision of order fulﬁlment while also

improving the economics of the service. In this

process, we are going to use centralised infrastructure

for both of X5’s retail formats to maximise economic

efﬁciency.

STRATEGIC REPORT

DIGITAL BUSINESSES

VPROK.RU PEREKRESTOK

Vprok.ru Perekrestok

18.7

RUB

BLN

Revenue

+41.5% y-o-y

Large dark stores

and 1 mini-dark store

Regions

vs 12 in 2020

4,533

RUB

Average ticket

+9.4% y-o-y

4.7

MLN

Total orders delivered

+30.1% y-o-y

2.6

MLN

Website MAUs

0.9

MLN

Mobile app MAUs

+21.6% y-o-y

RUB

BLN

Total capex

since 2017

Online hypermarket

Order made by

customer via X5

proprietary app

or website

Order received

at the nearest

X5 dark store

Order assembled

atX5 dark store

Same-day / next day delivery

Order picked up

by X5 courier for

delivery

Order

delivered

2021 highlights

Business model

Vprok.ru Perekrestok is our online hypermarket,

which offers customers looking to stock up on

groceries to have FMCG products delivered

totheir door or in some cases to a nearby 5Post

pickup point.

The hypermarket offers customers same-day or

next-day delivery in its core markets, with service

to a wider geography supported by 5Post.

STRATEGIC REPORT

DIGITAL BUSINESSES

VPROK.RU PEREKRESTOK

891

867

922

1,630

2,096

3,592

2,836

4,747

4,492

4,256

4,188

5,765

280

277

2020

2019

2021

306

505

591

885

846

1,295

1,170

1,000

1,058

1,477

2020

2019

2021

Number of orders and average ticket

Net sales,

RUB mln

3,624

3,575

3,440

3,655

4,026

4,587

3,791

4,121

4,355

4,877

4,513

4,454

Number of orders, ths

Average ticket, RUB

Online brand Vprok.ru has become well knownin market

Assortment expanded to c. 75,000 SKUs andcontinues

to grow

Own logistics infrastructure and in-house last-mile

delivery enhanced by 5Post platform for additional

regional reach

Wide addressable market in cities of presence

Proprietary customer interface: mobile appor website

X5.ID integration for all stages of customer journey, from

Food.ru media platform to ordering, loyalty points and

payment

Leverages X5’s purchasing power and supplierterms

Control over assortment, pricing, promotions and supply

chain supports high NPS

STRATEGIC REPORT

DIGITAL BUSINESSES

VPROK.RU PEREKRESTOK

Vprok.ru Perekrestok is an important part

ofX5Group’s strategic aim to be present at

every stage of the customer journey in the

food market. With service in 74 regions, the

online hypermarket is able to deliver large

orders to customers’ doors or, from 2021, to

specially equipped 5Post lockers outside of

core service regions.

Review of development strategy

inlight of potential partnership

tosupport further rapid expansion

of the business

2022

Vprok.ru continued to invest in

infrastructure throughout 2021, opening

a new dark store in Salaryevo to replace

the less-efﬁcient Skladochnaya dark

store. The business also launched mini-

dark stores in Moscow to enable 15-

minute express deliveries.

Russian online shoppers often tip

couriers, so we have integrated a

cashless tipping service into our Vprok.ru

mobile app.

Plan for 2022

2022

Regions of work

As part of Vprok.ru Perekrestok's mission

to serve B2B customers, we launched

deliveries to new corporate clients, such

as Shokoladnitsa cafes, 223 Air squadron,

Mnogo Lososya dark kitchens (part of

X5Group) and UCG.

STRATEGIC REPORT

DIGITAL BUSINESSES

5POST

5Post

2.6

RUB

BLN

Revenue

TOP 5

Ranked in top ﬁve delivery

service inRussia

MLN

Parcels delivered

181

Commercial partners

Sorting facilities

5Post is X5’s last-mile delivery service for domestic

and international e-commerce platforms.

The business offers delivery of goods to parcel

lockers and pickup points operated by 5Post and

X5 retail staff directly at the till in Perekrestok and

Pyaterochka stores. Thanks to our extensive

nationwide retail operations infrastructure, 5Post

has been able to scale up a low-cost, high-quality

service that beneﬁts our core businesses by

attracting more trafﬁc to stores while also

generating additional revenue.

Business model

2021 highlights

Keys to success

22,635

Pickup points,

Including 5,692 parcel lockers

Positive EBITDA

reached in 2021

Parcel delivery

tohub

ﬁrst mile

Parcel sorting

at hub

Parcel delivery

tosatellites

interbranch

transportation

Parcel sorting

atsatellites

Parcel delivery

toX5stores

last mile

Parcel pickup

by customers

cashier desk,

lockers, pickup

points

Parcel

acceptance

fordelivery from

marketplaces—

domestic/cross-

border

Nationwide network of conveniently located

pickup points

Leverages existing X5 logistics operations

(distribution, logistics, stores)

Broad and loyal client base

Multi-channel pickup options: direct from

stores, lockers, pickup points

High-quality last-mile service based on X5's

well-organised logistics, which ensures that

stores receive daily supplies of products and,

as a result, parcels are delivered promptly

STRATEGIC REPORT

DIGITAL BUSINESSES

5POST

Key partners in 2021

5POST competitive advantages

E-commerce is an increasingly important part of the

overall retail market, and 5Post offers a way to capture

complementary growth for X5’s core businesses. With

a last-mile delivery service that partners with top

Russian and international e-commerce platforms to

make parcels available in our stores, we are able to

better meet demand from customers while also

reinforcing X5’s position as an active player in the

digital market.

Thanks to our extensive retail operations, we already

have a nationwide network with a presence in 66

regions. This scale of operations is comparable only to

Russian Post. Our distribution centres and stores

offering 5Post parcel pickups are primarily located in

larger cities and population centres.

Thanks to X5’s existing infrastructure, we have been

able to grow the 5Post business with relatively small

investments, while rapidly scaling up our nationwide

logistics network for e-commerce platforms.

Keys to success: X5’s logistics

platform for e-commerce

Efﬁciency

X5 is the most efﬁcient logistics

operator in Russia by cost per order

thanks to efﬁcient business processes

and our ability to utilise X5’s existing

logistics infrastructure

Coverage

Nationwide network of convenient

pickup points covering 3,236 cities

and towns

Accessibility

5Post pickup points are within 1 km

(10min walking distance) for over 70%

of the Russian population

Convenience

Goods can be collected in stores,

from lockers or at pickup points

STRATEGIC REPORT

DIGITAL BUSINESSES

5POST

Achieved

positive EBITDA

Strategy

2019

2020

2021

2022E

Creation of a separate

business unit at X5

Parcel pickup

available in over

of X5 stores

70%

Parcel pickup

available in over

of X5 stores

80%

Parcel pickup

available in over

of X5 stores

90%

Sorting facilities

6,829

THS

Parcels

16,455

Pickup points

Sorting facilities

26,994

THS

Parcels

37,602

THS

Parcels

22,635

Pickup points

24,047

Pickup points

To become one of the

leaders in the

delivery market

e-commerce

OUR GOAL

5Post was established in 2019 as an additional service

to support trafﬁc to our Pyaterochka stores that could

also generate additional revenue from existing retail

operations infrastructure.

By the end of 2021, 5Post was operating 22,635

pickup points and 31 sorting facilities located

inexisting X5 DCs or stores. By the end of 2022,

weaim to have over 24 thousand pickup points and

achieve 90% reach across our formats.

Strategic initiatives and plans

for2022—2023

Bulk integrations with partners (over

100new partners per month) to achieve

economies of scale

Maximise operating efﬁciency by

achieving best-in-industry efﬁciency

byCPO (cost per order)

Leverage best-in-class efﬁciency to gain

market share from competitors like

Russian Post, SDEK, DPD, PickPoint,

Boxberry

Continue to open new sorting centres,

with the goal of achieving 90% coverage

of the store network by year-end 2022

Expand beyond X5 properties

tomaximise network utilisation

Increase marketplace-independent

trafﬁc

Add new services, e.g. return or

exchange ofgoods, deferred payment,

ﬁtting rooms, etc.

Название блюда или ингридиента...

STRATEGIC REPORT

DIGITAL BUSINESSES

FOOD.RU MEDIA PLATFORM

Food.ru media platform

Food.ru is a media platform that

aims to engage customers at early

stages of their shopping journey by

offering recipes, culinary master

classes and advice on topics like

healthy eating.

Product (functionality):

Content

Expanded search to offer ﬁlters by

popular topics like healthy eating, meal

preparation, etc.

Added ability to save recipes to personal

accounts

Comments can now be left for recipes

and articles

Users can now submit their own recipes

to the site

Integration with Vprok.ru Perekrestok

makes it possible to order recipe

30,000+

Recipes available on Food.ru,

including with step-by-step

photo and/or video instructions

4,100

Recipes submitted by users

500+

Recipes integrated with

Pyaterochka and Perekrestok

offerings and promos

150+

Recipes from professional

chefs for Food.ru Academy

5,000

Articles and advice columns

While offering customers information at the planning and

choice stages, Food.ru’s integration into X5 services like

express delivery and the X5.ID single sign-on help us to guide

customers towards continuing their shopping journey with X5.

Food.ru plays a key role in our strategic goal of building

afood market business that is present at every stage of the

customer journey. By providing consumers with a dynamic,

engaging media platform that is regularly updated with a wide

variety of content about food, we are able to begin

communication with them at the earliest stages of their

customer journey.

As customers choose what to eat and plan their meals, the

Food.ru platform, which is integrated with X5.ID, provides us

with insights into customer preferences, enables us to extend

more personalised marketing and promo offers and gives

users the convenient option ofordering recipe ingredients

directly from our online hypermarket Vprok.ru Perekrestok

and express delivery services.

21.9

MLN

MAUs

We aim to continue to expand the content while further integrating

Food.ru into our core businesses in the year ahead.

Plans for 2022

STRATEGIC REPORT

DIGITAL BUSINESSES

FOOD.RU MEDIA PLATFORM

Launch of order delivery from

X5Retail chains

E-GROCERY

70,000+

Recipes

with over 25,000 new

recipes from users

1,600+

Number of new articles

published

including at least 180

integrated into core

business offerings

80+

Videos for Food.ru Academy

CONTENT

Ability to order any product from

X5 catalogue, including recipes

Personalisation of content

Integration of the shopping list,

meal plan and calorie calculator

PRODUCT

(FUNCTIONALITY)

STRATEGIC REPORT

DIGITAL BUSINESSES

MNOGO LOSOSYA

Mnogo Lososya

Mnogo Lososya is a food

techproject that is developing

anational network of dark

kitchens that will support

aportfolio ofonline “eating-

out” brands.

In late March 2021, Mnogo Lososya became part of X5 Group.

As of 31 December 2021, Mnogo Lososya was operating 50

kitchens (including two franchisees) and 76 cafe points in

Moscow's Perekrestok stores, as well as a mobile app and a

software suite supporting key business processes such as

food preparation and delivery. The business unit’s portfolio

currently includes three brands.

A dark kitchen produces over 200 ready-to-eat SKUs under

the Mnogo Lososya, Ten Ideal Pizzas and Rolls No. 1 brands.

Customers can place orders using both the company's own

Mnogo Lososya app or through delivery aggregators.

999

RUB

MLN

Revenue

excl. intra-Group sales

744

THS

Orders

Dark kitchens

inoperation

incl. two franchisees

1,640

RUB

Average ticket

2021 highlights

Formats

A dark kitchen produces:

200+

Ready-to-eat SKUs

under the following brands:

Mnogo Lososya

franchises

in checkout areas at

Pyaterochka and

Perekrestok stores

Cafe points

inPerekrestok stores

Dark kitchens

Mnogo Lososya

Ten Ideal Pizzas

Rolls No. 1

Focus on development

of own sales channel

and positive brand

recognition

Expand operations to

increase the number

ofdark kitchens from

50 to 60–65 in 2022

Identify and test

additional brands that

can leverage X5’s

purchasing power

Launch offering in

Murmansk; other large

cities being considered

Be on track to reach

positive EBITDA within

three years

After becoming part of X5 Group in March 2021, Mnogo

Lososya successfully developed its dark kitchen business

through organic growth, including expanding into the St

Petersburg market in June 2021. The business managed to

exceed its 2021 revenue goal by around 20% thanks to the

implementation in full of its development programme and

strong demand from customers for its ready-to-eat hot

meal offering.

In addition to geographic expansion, Mnogo Lososya also

launched a project with Perekrestok to develop cafe points

in selected Moscow supermarkets, which will be rolled out

to other major cities during 2022.

While Mnogo Lososya work with a number ofdelivery

aggregators, the company’s app is also popular among

customers, and currently generates around 30% of revenue

for the dark kitchen business.

Key highlights of 2021

Plans for 2022 and beyond

STRATEGIC REPORT

DIGITAL BUSINESSES

MNOGO LOSOSYA

STRATEGIC REPORT

DIGITAL BUSINESSES

X5 BANK

X5 Bank today

X5 Bank

X5 Bank’s MVP was launched in November 2021,

offering users plastic and digital cards that combine

the functionality of Pyaterochka and Perekrestok

loyalty cards with banking services such as

payments, money transfers and rouble-denominated

cashback, among others, in X5's mobile apps.

X5 Bank is a joint project between X5 and Alfa Bank,

Russia’s largest non-state bank. In line with our

strategic goal of being present at every stage of the

customer journey, X5 Bank cards support customer

acquisition, increased retention and higher revenue by

raising shopping frequency.

X5 Bank was launched in November 2021 and is still at

theMVP stage.

Customers can now order plastic cards or use digital cards

issued via the Perekrestok and Pyaterochka mobile apps.

In the ﬁrst phase X5 Bank offers digital cards that combine the

functionality of Pyaterochka and Perekrestok loyalty cards

with bank services – payments, money transfers, cashback,

etc.

As of 31 December 2021, X5 Bank digital cards were available

to users of the Perekrestok and Pyaterochka mobile apps in 13

cities.

Plans for 2022

X5 Bank's offering of various card types will be

expanded to more cities where X5's formats operate

and will be available digitally throughout Russia

Expand the range of ﬁnancial services offered via

X5Bank to include lending products: credit cards,

instalment purchases, overdrafts and cash loans

We plan to launch a new product line integrated into

instalment programmes and providing maximum

privileges at ourstores

Pyaterochka card

Perekrestok card

STRATEGIC REPORT

FINANCIAL REVIEW

Financial review

Our net debt/EBITDA ratio (pre-IFRS 16) remained

unchanged at the comfortable level of 1.67x, which

isbelow our upper target limit of 2.0x. Despite the

reduction in the weighted average effective interest

rate on X5’s total debt from 6.78% for 2020 to6.56%

for 2021, the rise in net ﬁnance costs under IFRS 16 of

1.0% year-on-year was due to new and prolonged

contracts at higher rates. The share of borrowings with

ﬁxed interest rate accounted for 84% as the end of

December 2021.

The X5 Group Supervisory Board has made

arecommendation not to pay a ﬁnal dividend for 2021.

The total dividend for the year will amount to RUB

20billion, or RUB 73.65 per GDR, which represents

46.8% of X5 Group's 2021 net proﬁt.

Looking ahead, there is a great deal of uncertainty

ineconomic environment. I am conﬁdent that

X5Group’s strong balance sheet, robust business

processes and talented team will help us to navigate

the challenges we will undoubtedly face in the year

ahead.

X5 Group’s performance in 2021 well demonstrated

the resilience, ﬂexibility and sustainability of our

business. We delivered revenue growth of11.5% to RUB

2,205 billion with solid pre-IFRS16 EBITDA margin of

7.3%, in line with ourtargets.

Top-line growth was driven by expansion in selling

space, which delivered a 6.1% increase, and LFL

performance, which contributed 5.1%. X5 maintained its

top spot in Russian food retail and increased its market

share to 12.7% in 2021, despite ﬁerce competition from

established players, the emergence of new and niche

formats, as well as the aggressive expansion of online

ecosystems into the food market. We were able to

dothis thanks to our continued focus on adapting the

CVPs of our existing formats, successful steps to

enable X5 to engage with consumers at every stage

ofthe customer journey and the launch of our new

hard discounter retail chain — Chizhik.

At the same time, our focus on the digital

transformation of our business and efﬁciency

measures enabled X5 Group to successfully deliver

onproﬁtability targets. Despite signiﬁcant inﬂationary

pressures, we were able to containadjusted SG&A

expenses under IFRS 16 asapercentage of revenue to

14.2%, representing year-on-year growth of 71 b.p. This

increase was mainlydue to higher staff costs, third-

party services and other expenses.

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER

STRATEGIC REPORT

FINANCIAL REVIEW

Key highlights

Capital expenditure structure (pre-IFRS 16),

44%

17%

12%

14%

2020

89.9

RUB

BLN

34%

10%

20%

11%

15%

2021

97.9

RUB

BLN

10%

New store openings

Refurbishments

Maintenance

Logistics

Other, including new digital businesses

Segments

GROSS PROFIT MARGIN

NET DEBT/EBITDA

25.5

45 b.p. year-on-year

increase

IFRS 16

3.16

IFRS 16

1.67

pre-IFRS 16

25.1

47 b.p. year-on-year

increase

pre-IFRS 16

REVENUE

CAPITAL EXPENDITURE

2,205

RUB

BLN

11.5% year-on-year

increase

97.9

RUB

BLN

8.9% year-on-year

increase

ADJUSTED EBITDA MARGIN

DIVIDENDS

12.3

7 b.p. year-on-year

decrease

IFRS 16

7.4

7 b.p. year-on-year

increase

pre-IFRS 16

RUB

BLN

46.8% of consolidated

IFRS 16 net proﬁt

73.65

RUB

PER GDR

Financial

review

The ﬁnancial and operational information

contained in this ﬁnancial review comprises

information about X5 Group N.V. and

itsconsolidated subsidiaries (hereinafter jointly

referred to as “we”, “X5” or the “Company”).

Thefollowing is a review of our ﬁnancial

condition and results of operations

asof31December 2021 and for the years ended

31 December 2021 and 31 December 2020.

Theconsolidated ﬁnancial statements and

related notes thereto are available on pages

177-264 of this document and were prepared

inaccordance with International Financial

Reporting Standards (IFRS), as adopted

bytheEuropean Union.

STRATEGIC REPORT

FINANCIAL REVIEW

Proﬁt and loss statement: highlights

Results of operations for the year ended

31December 2021 compared with the year

ended 31 December 2020

The following table and discussion provide a summary

of our consolidated results of operations for the years

ended 31 December 2021 and 31 December 2020.

RUSSIAN ROUBLES (RUB),

MILLIONS

2021

2020

% CHANGE,

Y-O-Y

2021

2020

% CHANGE,

Y-O-Y

Revenue

2,204,819

1,978,026

11.5

2,204,819

1,978,026

11.5

incl. net retail sales

2,194,477

1,973,346

11.2

2,194,477

1,973,346

11.2

Pyaterochka

1,793,676

1,597,174

12.3

1,793,676

1,597,174

12.3

Perekrestok (including Vprok.ru Perekrestok)

365,119

320,459

13.9

365,119

320,459

13.9

Karusel

31,742

55,662

(43.0)

31,742

55,662

(43.0)

Chizhik

2,940

Mnogo Lososya

999

–

n/a

999

–

n/a

Gross proﬁt

561,317

494,620

13.5

553,363

487,223

13.6

Gross proﬁt margin,

25.5

25.0

45 b.p.

25.1

24.6

47 b.p.

Adj. SG&A

(314,017)

(267,605)

17.3

(410,205)

(356,838)

15.0

Adj. SG&A,

% of revenue

14.2

13.5

71 b.p.

18.6

18.0

56 b.p.

Adj. EBITDA

271,023

244,501

10.8

164,197

146,016

12.5

Adj. EBITDA margin,

12.3

12.4

(7) b.p.

7.4

7 b.p.

EBITDA

267,850

243,622

9.9

161,024

145,137

10.9

EBITDA margin,

12.1

12.3

(17) b.p.

7.3

(3) b.p.

Operating proﬁt

117,572

105,717

11.2

84,359

76,785

9.9

Operating proﬁt margin,

5.3

(1) b.p.

3.8

3.9

(6) b.p.

Adj. net proﬁt

⁴

44,613

35,828

24.5

50,323

46,863

7.4

Adj. net proﬁt margin,

2.0

1.8

21 b.p.

2.3

2.4

(9) b.p.

Net proﬁt

42,738

28,344

50.8

48,513

39,180

23.8

Net proﬁt margin,

1.9

1.4

51 b.p.

2.2

2.0

22 b.p.

PRE-IFRS 16

IFRS 16

Please note that in this and other tables and text, immaterial deviations

in the calculation of percentage changes, subtotals and totals

areexplained by rounding.

Net of VAT and revenue from wholesale operations and revenue

fromfranchise services and other services.

Adjusted SG&A is SG&A before depreciation, amortisation

andimpairment costs as well as costs related to the LTI programme,

share-based payments and other one-off remuneration payments

andtheone-off impact of the Karusel transformation. For more

information onalternative performance measures, see pages 93-97.

Adjusted net proﬁt is net proﬁt before the effect of the Karusel

transformation and tax accruals related to previous periods, including

X5’s reorganisation.

STRATEGIC REPORT

FINANCIAL REVIEW

Sales of ofﬂine and digital businesses

RUB MLN

2021

2020

CHANGE

Y-O-Y,

Pyaterochka

1,779,567

1,592,576

11.7

Perekrestok

337,391

306,218

10.2

Karusel

31,723

55,662

(43.0)

Chizhik

2,940

Ofﬂine net sales

2,151,621

1,954,506

10.1

Vprok.ru Perekrestok

18,651

13,183

41.5

Express delivery

(incl.Okolo)

25,678

6,112

5Post (e-comm last mile)

2,615

683

Mnogo Lososya

999

–

n/a

Digital businesses’

netsales

47,943

19,978

140.0

Total net sales

2,199,564

1,974,484

11.4

Summary of operating results

2021 net retail sales

andsales drivers,

y-o-y %change

Average ticket

Number of

customers

Net retail sales

Pyaterochka

4.0

7.9

12.3

Perekrestok

0.2

13.2

13.4

Karusel

7.2

(46.6)

(43.0)

Chizhik

24.7

X5 Group

2.9

7.9

11.2

Selling space end of period,

square metres

31-Dec-21

31-Dec-20

% change, y-o-y

Pyaterochka

7,048,488

6,541,622

7.7

Perekrestok

1,098,905

1,013,860

8.4

Karusel

128,063

222,119

(42.3)

Chizhik

20,327

980

Mnogo Lososya

4,992

–

n/a

X5 Group

8,409,757

7,840,055

7.3

2021 LFL

results,

% growth y-o-y

Sales

Trafﬁc

Basket

Pyaterochka

5.6

1.4

4.1

Perekrestok

3.8

3.2

0.5

Karusel

(8.4)

(9.3)

1.0

X5 Group

5.1

1.5

3.5

Revenue and net retail sales

In 2021, X5’s revenue increased by 11.5% year-on-year to RUB 2,205 billion.

Net retail sales for 2021 grew by11.2% year-on-year, driven by a 5.1%

increase in like-for-like (LFL) sales and a 6.1% sales growth contribution

from a 7.3% rise in selling space.

The Company’s proximity store format, Pyaterochka, was the main growth

driver in 2021: Pyaterochka’s netretail sales rose by 12.3% year-on-year,

driven bya5.6% increase in LFL sales and a 6.7% contribution to sales

growth from a 7.7% expansion inselling space. LFL trafﬁc increased

by1.4%year-on-year, while the LFL basket grew by 4.1% year-on-year.

Perekrestok’s net sales, excluding the online hypermarket Vprok.ru

Perekrestok, increased by 13.4% in 2021, driven mostly by selling space

expansion andarecovery at stores located in shopping malls after

thelockdown restrictions were lifted. LFL sales growth was 3.8%.

Karusel experienced a 43.0% decline in net retail sales, driven

bydownsizing as part of the format’s transformation programme.

In 2021, Chizhik’s net sales rose 59 year-on-year. Thenumber of stores

reached 72 as of 31 December 2021.

Gross proﬁt

The Company’s gross proﬁt margin under IFRS 16 in2021 increased

by45b.p. year-on-year to 25.5% (increased by 47 b.p. to 25.1% under pre-

IFRS 16), driven predominantly by an improvement in commercial margin

onthe back of accelerating shelf inﬂation, reduced price investments

inQ42021 and changes incategory mix as well as a reduction in shrinkage

asaresult of operating improvements.

Excluding Vprok.ru Perekrestok

LFL comparisons of retail sales between two periods are comparisons of retail sales in the local currency (including VAT) generated by relevant stores. The stores that are included in LFL comparisons are those that

have operated for at least 12 full months. Their sales are included in the LFL calculations starting from the day of the store’s opening. We include all stores that ﬁt our LFL criteria in each reporting period.

STRATEGIC REPORT

FINANCIAL REVIEW

Adjusted selling, general and administrative (SG&A) expenses

Analysis of selling, general and administrative (SG&A) expenses

RUB MLN

2021

2020

% CHANGE,

Y-O-Y

2021

2020

% CHANGE,

Y-O-Y

Staff costs

(185,572)

(159,261)

16.5

(185,572)

(159,261)

16.5

% of revenue

8.4

8.1

37 b.p.

8.4

8.1

37 b.p.

incl. LTI and share-based payments

(3,011)

(345)

772.8

(3,011)

(345)

772.8

staff costs excl. LTI % of revenue

8.3

8.0

25 b.p.

8.3

8.0

25 b.p.

Lease expenses

(14,452)

(11,291)

28.0

(105,451)

(96,573)

9.2

% of revenue

0.7

0.6

8 b.p.

4.8

4.9

(10) b.p.

Utilities

(45,539)

(39,819)

14.4

(45,539)

(39,819)

14.4

% of revenue

2.1

2.0

5 b.p.

2.1

2.0

5 b.p.

Other store costs

(22,568)

(21,625)

4.4

(23,418)

(22,621)

3.5

% of revenue

1.0

1.1

(7) b.p.

1.1

(8) b.p.

Third-party services

(22,016)

(16,257)

35.4

(21,718)

(15,894)

36.6

% of revenue

1.0

0.8

18 b.p.

1.0

0.8

18 b.p.

Other expenses

(26,881)

(19,697)

36.5

(31,518)

(23,015)

36.9

% of revenue

1.2

1.0

22 b.p.

1.4

1.2

27 b.p.

SG&A (excl. D&A&I and impact from Karusel

transformation)

(317,028)

(267,950)

18.3

(413,216)

(357,183)

15.7

% of revenue

14.4

13.5

83 b.p.

18.7

18.1

68 b.p.

Adj. SG&A (excl. D&A&I, LTI, share-based

payments and impact from Karusel

transformation)

(314,017)

(267,605)

17.3

(410,205)

(356,838)

15.0

% of revenue

14.2

13.5

71 b.p.

18.6

18.0

56 b.p.

PRE-IFRS 16

IFRS 16

In 2021, adjusted SG&A expenses under IFRS 16

asapercentage of revenue increased year-on-year

by71b.p. to 14.2% (increased by 56 b.p. to 18.6% pre-

IFRS 16), mainly due to increased staff costs, third-

party services and other expenses.

Staff costs (excluding LTI and share-based payments)

in2021, as a percentage of revenue, increased year-

on-year by 25 b.p. to 8.3% due to the shortage

oflabour force driven by the COVID-19 pandemic.

Lease expenses under IFRS 16 as a percentage

ofrevenue in 2021 increased year-on-year by 8 b.p.

to0.7% (decreased by 10 b.p. to 4.8% pre-IFRS 16),

mainly due tothe higher number of stores with

revenue-linked lease payments accounted for as part

of operating activities under IFRS 16 and higher sales

at those stores compared with the X5 average.

Thedecrease pre-IFRS 16 was mainly due to the

positive operating leverage effect and measures taken

to reduce lease expenses; the decrease was partially

balanced by the growing share of leased space in X5’s

total real estate portfolio, which accounted for 82%

asof 31 December 2021, compared with 80%

asof31December 2020.

In 2021, other store costs under IFRS 16

asapercentage ofrevenue decreased year-on-year

by7 b.p. to 1.0% (decreased by 8 b.p. to 1.1% pre-IFRS

16), driven by lower maintenance expenses.

In 2021, third-party services under IFRS 16

asapercentage of revenue increased year-on-year

by18 b.p. to 1.0%, driven by investments in new

services – subscription and a media platform.

Other expenses (excluding the impact of the Karusel

transformation) under IFRS 16 as a percentage of

revenue increased year-on-year by 22 b.p., totalling

1.2% (increased by 27 b.p. totalling 1.4% pre-IFRS 16)

due to a growing share of courier service costs for

express delivery, reﬂecting a 4x year-on-year increase

in the number oforders and higher acquiring costs

driven by the increased penetration of card payments.

STRATEGIC REPORT

FINANCIAL REVIEW

Long-term incentive (LTI) programme

Accruals were made in the consolidated ﬁnancial

statements for the year ended 31 December 2021

related to liabilities for deferred conditional payouts

related to the LTI programme for 2018–2020, the new

LTI programme for 2021–2023 and the new LTI

programme for new businesses (5Post, Chizhik and

Okolo). Accruals for the deferred conditional payout

related to the 2018–2020 LTI programme will continue

until Q2 2022. In total, RUB 3,011 million was accrued

in2021 for the LTI programme.

The LTI programme is a cash incentive programme

over a three-year period until 31 December 2023,

withan extension component of deferred and

conditional payouts in order to maintain the focus

onlong-term goals and to provide for an effective

retention mechanism.

Targets under the LTI programme are structured

toalign the long-term interests of shareholders and

management, with a focus on maintaining leadership

interms of revenue, maintaining leadership in terms

ofenterprise value multiple relative to peers and

achieving ESG targets. Additionally, the LTI programme

includes triggers relating to the EBITDA margin

pre-IFRS 16 toensure that proﬁtability is not sacriﬁced

and tothenet debt/EBITDA ratio pre-IFRS 16 to retain

focus on prudent ﬁnancial and balance sheet

management.

The accruals have been made for all three targets

in2022 and 2023 and for the market share and

ESGtargets only in 2021.

All LTI accruals and attributable social taxes

aresummarised in the table below.

EBITDA and adjusted EBITDA

RUB MLN

2021

2020

% CHANGE,

Y-O-Y

2021

2020

% CHANGE,

Y-O-Y

Gross proﬁt

561,317

494,620

13.5

553,363

487,223

13.6

Gross proﬁt margin, %

25.5

25.0

45 b.p.

25.1

24.6

47 b.p.

Adj. SG&A (excl. D&A&I, LTI, share-based

payments and impact from Karusel

transformation)

(314,017)

(267,605)

17.3

(410,205)

(356,838)

15.0

% of revenue

14.2

13.5

71 b.p.

18.6

18.0

56 b.p.

Net impairment losses on ﬁnancial assets

(154)

(251)

(38.6)

(154)

(251)

(38.6)

% of revenue

0.0

(1) b.p.

0.0

(1) b.p.

Lease/sublease and other income

23,877

17,737

34.6

21,193

15,882

33.4

% of revenue

1.1

0.9

19 b.p.

1.0

0.8

16 b.p.

Adj. EBITDA

271,023

244,501

10.8

164,197

146,016

12.5

Adj. EBITDA margin,

12.3

12.4

(7) b.p.

7.4

7 b.p.

LTI, share-based payments and other one-off

remuneration payments expense and SSC

(3,011)

(345)

772.8

(3,011)

(345)

772.8

% of revenue

(0.1)

(0.0)

(12) b.p.

(0.1)

(0.0)

(12) b.p.

Effect of Karusel transformation

(162)

(534)

(69.6)

(162)

(534)

(69.9)

% of revenue

(0.0)

2 b.p.

(0.0)

2 b.p.

EBITDA

267,850

243,622

9.9

161,024

145,137

10.9

EBITDA margin, %

12.1

12.3

(17) b.p.

7.3

(3) b.p.

IFRS 16

PRE-IFRS 16

LTI programme expense (including social security contributions (SSC))

RUB MLN

2021

2020

2019

2018

2017

2015

2016

LTI 2015-2017

–

(541)

327

1,552

2,875

3,053

3,607

LTI 2018-2020

1,055

830

2,444

619

–

LTI 2021-2023

1,350

–

New businesses

515

–

Total LTI

2,920

289

2,771

2,171

2,875

3,053

3,607

STRATEGIC REPORT

FINANCIAL REVIEW

Lease/sublease and other income

As a percentage of revenue, the Company’s income

from lease, sublease and other operations under IFRS

16 increased by 19 b.p. year-on-year, totalling 1.1%

(increased by 16 b.p. year-on-year totalling 1.0% under

pre-IFRS 16), reﬂecting an increase in revenue from

sales of recyclable materials on the back of improved

efﬁciency of internal processes.

EBITDA analysis

EBITDA under IFRS 16 in 2021 grew year-on-year by

9.9% and totalled RUB 267,850 million (grew by 10.9%

and totalled RUB 161,024 million pre-IFRS 16), while

EBITDA margin under IFRS 16 decreased by 17 b.p.

year-on-year to 12.1% (decreased by 3 b.p. to 7.3%

pre-IFRS 16).

EBITDA analysis by segment

Upon adoption of IFRS 16, the Management Board

continued to assess the performance of the

Company’s operating segments based on a measure

of sales and adjusted EBITDA pre-IFRS 16, as it more

accurately reﬂects the true nature of the Company’s

business and retail formats.

Pyaterochka (pre-IFRS 16)

RUB MLN

2021

2020

% CHANGE,

Y-O-Y

Revenue

1,795,018

1,598,315

12.3

EBITDA

145,350

129,268

12.4

EBITDA margin, %

8.1

1 b.p.

Pyaterochka’s EBITDA margin remained ﬂat at 8.1% on

the back of express delivery expansion, increasing

corporate overheads and logistics costs.

Perekrestok excluding Vprok.ru Perekrestok

(pre-IFRS 16)

RUB MLN

2021

2020

% CHANGE,

Y-O-Y

Revenue

351,100

309,460

13.5

EBITDA

24,213

22,116

9.5

EBITDA margin, %

6.9

7.1

(25) b.p.

Perekrestok’s EBITDA margin decreased by 25 b.p.

year-on-year in FY 2021 to 6.9% mainly due to higher

share of express delivery services and higher allocated

corporate overheads.

Other segments: Karusel, Vprok.ru

Perekrestok, 5Post, Chizhik

andMnogoLososya (pre-IFRS 16)

RUB MLN

2021

2020

% CHANGE,

Y-O-Y

Revenue

58,701

70,251

(16.4)

EBITDA

(4,375)

(2,409)

81.6

EBITDA margin, %

(7.5)

(3.4)

(402) b.p.

Most of the negative impact on the EBITDA of other

segments is attributable to Vprok.ru Perekrestok,

followed by Chizhik.

Corporate Centre (pre-IFRS 16)

RUB MLN

2021

2020

% CHANGE,

Y-O-Y

EBITDA

(4,164)

(3,838)

8.5

Corporate expenses increased by 8.5% year-on-year

in 2021.

STRATEGIC REPORT

FINANCIAL REVIEW

Depreciation, amortisation and impairment

costs

Depreciation, amortisation and impairment costs under

IFRS 16 in 2021 totalled RUB 150,278 million

(RUB 76,665 million pre-IFRS 16), decreasing as a

percentage of revenue by 16 b.p. year-on-year to 6.8%

(increasing by 2 b.p. to 3.5% pre-IFRS 16). This was

mainly due to the optimisation of the refurbishment

plan partially offset by increasing impairment.

Analysis of non-operating gains and losses

Net ﬁnance costs under IFRS 16 in 2021 amounted to

RUB 57,229 million, a 1.0% increase from 2020 (RUB

16,569 million, a 0.3% decrease from 2020 pre-IFRS 16)

driven by the increase in interest on lease liabilities.

Thedecrease under pre-IFRS 16 is driven by the

reduced weighted average effective interest rate on

X5’s total debt from 6.78% for 2020 to 6.56% for 2021

as a result of declining interest rates in Russian capital

markets, the solid credit quality of X5 Group and

actions taken to minimise interest expenses.

The net FX result reﬂects the volatility of the rouble

exchange rate, mainly due to revaluation of lease

liabilities denominated in foreign currency (IFRS 16)

and payables for imported goods (IFRS 16 and pre-

IFRS 16).

Income tax expenses under IFRS 16 increased by 3.9%

in 2021, reﬂecting business growth. In 2021, X5’s

effective tax rate under IFRS 16 decreased to 29.6%

from 37.9% in 2020 (decreased to 28.6% from 33.8%

in 2020 pre-IFRS 16), driven by the high base effect of

the previous year.

Net proﬁt in 2021 under IFRS 16 included one-off

adjustments totalling RUB 1,875 million (RUB 1,810

million pre-IFRS 16) related to the Karusel

transformation (mainly due to impairment of non-

current assets).

Non-operating gains and losses

RUB MLN

2021

2020

% CHANGE,

Y-O-Y

2021

2020

% CHANGE,

Y-O-Y

Operating proﬁt

117,572

105,717

11.2

84,359

76,785

9.9

Operating proﬁt margin, %

5.3

(1) b.p.

3.8

3.9

(6) b.p.

Net ﬁnance costs

(57,229)

(56,636)

1.0

(16,569)

(16,627)

(0.3)

Share of proﬁt of associates

–

(20)

–

(20)

–

Net FX result

399

(3,391)

n/a

175

(913)

n/a

Proﬁt before tax

60,742

45,670

33.0

67,965

59,225

14.8

Income tax expense

(18,004)

(17,326)

3.9

(19,452)

(20,045)

(3.0)

Net proﬁt

42,738

28,344

50.8

48,513

39,180

23.8

Net proﬁt margin, %

1.9

1.4

51 b.p.

2.2

2.0

22 b.p.

Effect of Karusel transformation and tax

accrual related to X5’s reorganisation in

previous periods

1,875

7,484

(74.9)

1,810

7,683

(76.4)

% of revenue

0.1

0.4

(29) b.p.

0.1

0.4

(31) b.p.

Adj. net proﬁt

44,613

35,828

24.5

50,323

46,863

7.4

Adj. net proﬁt margin, %

2.0

1.8

21 b.p.

2.3

2.4

(9) b.p.

IFRS 16

PRE-IFRS 16

STRATEGIC REPORT

FINANCIAL REVIEW

Сash ﬂow analysis

In 2021, the Company’s net cash from operating activities

before changes in working capital under IFRS 16 increased

by RUB 24,727 million, or 10.3%, year-on-year, totalling RUB

265,528 million (increased by RUB 17,075 million, or 11.8%,

totalling RUB 161,387 million pre-IFRS 16) and reﬂecting the

overall growth of the business. Changes in working capital

under IFRS 16 totalled 32,415 million in 2021 compared

with RUB 2,247 million in 2020. Under pre-IFRS 16,

changes in working capital in 2021 totalled RUB 32,244

million compared with RUB 1,261 million in 2020. The

positive change in working capital was driven by an

increase in accounts payable due to increasing sales,

measures taken to increase the efﬁciency of working

capital and calendarisation.

Net interest and income tax paid under IFRS 16 in 2021

decreased year-on-year by RUB 13,007 million, or 15.6%,

totalling RUB 70,481 million (decreased by RUB 13,651

million, or 31.3%, totalling RUB 29,919 million pre-IFRS 16),

a refund of advance income tax payments in Q3 2021.

As a result, in 2021 net cash ﬂows generated from

operating activities increased to RUB 227,462 million under

IFRS 16 (RUB 163,712 million pre-IFRS 16), compared with

RUB 159,560 million under IFRS 16 (RUB 102,003 million

pre-IFRS 16) for the same period in 2020.

Adj. net cash used in investing activities under IFRS 16,

which generally consists of payments for property, plant

and equipment, totalled RUB 89,435 million in 2021,

compared with RUB 84,314 million (RUB 90,295 in 2021

compared with RUB 84,314 million in 2020 under pre-IFRS

16) in 2020. In addition, the Company made a short-term

RUB 50,000 million cash deposit in Q4 2021.

Net cash used in ﬁnancing activities under IFRS 16 totalled

RUB 81,890 million (RUB 17,280 million pre-IFRS 16) in

2021, compared with RUB 73,805 million under IFRS 16

(RUB 16,248 million pre-IFRS 16) in 2020.

Consolidated cash ﬂow

RUB MLN

2021

2020

% CHANGE,

Y-O-Y

2021

2020

% CHANGE,

Y-O-Y

Net cash from operating activities before

changes in working capital

265,528

240,801

10.3

161,387

144,312

11.8

Change in working capital

32,415

2,247

1,342.6

32,244

1,261

2,457.0

Net interest and income tax paid

(70,481)

(83,488)

(15.6)

(29,919)

(43,570)

(31.3)

Net cash ﬂows generated from operating

activities

227,462

159,560

42.6

163,712

102,003

60.5

Adj. net cash used in investment activities

(89,435)

(84,314)

6.1

(90,295)

(84,314)

7.1

Net cash used in ﬁnancing activities

(81,890)

(73,805)

11.0

(17,280)

(16,248)

6.4

Short-term ﬁnancial investments

(50,000)

−

n/m

(50,000)

−

n/m

Effect of exchange rate changes on cash and

cash equivalents

(83)

(35)

137.1

(83)

(35)

137.1

Net increase/(decrease) in cash and cash

equivalents

6,054

1,406

330.6

6,054

1,406

330.6

IFRS 16

PRE-IFRS 16

Liquidity analysis

As of 31 December 2021, the Company’s total debt pre-

IFRS 16 amounted to RUB 294,338 million, 29.8% of which

was short-term debt and 70.2% was long-term debt. The

Company’s debt is 100% denominated in Russian roubles.

As of 31 December 2021, the majority of X5’s debt had

ﬁxed interest rates.

As of 31 December 2021, the Company had access to RUB

482,263 million in available credit limits with major Russian

and international banks. In addition, the Company has

short-term deposit in the amount of RUB 50 billion as of 31

December 2021.

Dividends

The Company’s Supervisory Board has made

arecommendation not to pay the ﬁnal dividend for 2021.

The total dividend for the year will amount to RUB 20

billion, or RUB 73.65 per GDR (compared with RUB 50

billion / RUB 184.13 per GDR in 2020), which represents

46.8% of X5 Group’s 2021 net proﬁt (176.4% in 2020).

The dividend policy was approved by the X5 Supervisory

Board in September 2017 and amended in November

2020. When considering a dividend recommendation to

the General Meeting of Shareholders, the Supervisory

Board is guided by a target consolidated net debt/

adjusted EBITDA

ratio of below 2.0

, in line with the

Company’s ﬁnancing strategy, and by the operating cash

ﬂow against the Company’s investment requirements for

the upcoming calendar year.

Liquidity update

RUB MLN

31-DEC-21

% OF TOTAL

31-DEC-20

% OF TOTAL

31-DEC-19

% OF TOTAL

Total ﬁnancial debt

294,338

261,947

227,933

Short-term borrowings

87,767

29.8

77,026

29.4

74,755

32.8

Long-term borrowings

206,571

70.2

184,921

70.6

153,178

67.2

Net debt (pre-IFRS 16)

268,276

241,939

209,331

Net debt/EBITDA (pre-IFRS 16)

1.67

1.71

Adj. net debt (pre-IFRS 16)

218,184

241,939

209,331

Adj. net debt/EBITDA (pre-IFRS 16)

1.35

1.67

1.71

Lease liabilities (IFRS 16)

577,363

548,501

484,795

Net debt/EBITDA (IFRS 16)

3.16

3.24

3.28

Adj. net debt/EBITDA (IFRS 16)

2.97

3.24

3.28

EBITDA shall be adjusted (decreased) by the amount that would have

been recognised as operating lease, other store costs, third-party

services and other expenses payable during the period, but which is not

recognised as such under IFRS 16, as well as the amount of the net

effect from the decrease in the scope of the lease and terminations of

lease agreements and adjustment of gain/loss from sale of asset under

sale and leaseback operations for the proportion of the rights retained

recognised under IFRS 16.

STRATEGIC REPORT

INFORMATION ONALTERNATIVE PERFORMANCE MEASURES

Information on alternative

performance measures

EBITDA (including EBITDA margin)

Adjusted EBITDA (including adjusted EBITDA margin)

In this report and other public disclosures, X5 Group presents certain alternative performance

measures (APMs) that it believes provide readers with a more detailed and accurate understanding

ofthe Company’s ﬁnancial and operating performance. In accordance with European Securities

Markets Authority guidelines, a list of deﬁnitions, explanations of the relevance of APMs, comparatives

and reconciliations are provided below.

Earnings before interest, tax, depreciation and amortisation (EBITDA) is a measure of the Company’s

operating performance. It is a way to evaluate X5 Group’s performance exclusive of ﬁnancing,

accounting and taxation factors. X5 believes that showing EBITDA and EBITDA margin performance

provides greater detail about the Company’s performance.

Adjusted EBITDA is a measure of the Company’s operating performance. It is a way to evaluate the

Company’s performance exclusive of ﬁnancing, accounting and taxation factors, and also excluding the

effects of the LTI programme and the impact of the Karusel transformation, which do not represent

ongoing costs of doing business. X5 believes that showing adjusted EBITDA and adjusted EBITDA

margin performance provides a more accurate reﬂection of the Company’s sustainable performance.

RUB MLN

2021

2020

2021

2020

RUB MLN

2021

2020

2021

2020

Operating proﬁt

117,572

105,717

84,359

76,785

Adjustments:

LTI, share-based payments and other one-off

remuneration payments expense and SSC

3,011

345

3,011

345

EBITDA

267,850

243,622

161,024

145,137

Adj. EBITDA

271,023

244,501

164,197

146,016

EBITDA

267,850

243,622

161,024

145,137

Depreciation, amortisation and impairment

150,278

137,905

76,665

68,352

Effect of Karusel transformation

162

534

162

534

PRE-IFRS 16

IFRS 16

RUB MLN

2021

2020

2021

2020

Revenue

2,204,819

1,978,026

2,204,819

1,978,026

EBITDA margin, %

12.1

12.3

7.3

EBITDA

267,850

243,622

161,024

145,137

PRE-IFRS 16

IFRS 16

RUB MLN

2021

2020

2021

2020

Revenue

2,204,819

1,978,026

2,204,819

1,978,026

Adj. EBITDA

271,023

244,501

164,197

146,016

Adj. EBITDA margin, %

12.3

12.4

7.4

PRE-IFRS 16

IFRS 16

Adjusted net proﬁt (including adjusted net proﬁt margin)

Adjusted SG&A (including adjusted SG&A as % of revenue)

Adjusted net proﬁt is a measure of the Company’s proﬁtability. It is a way to evaluate the Company’s

performance exclusive of one-off factors, including the effect of the Karusel transformation and a tax

accrual related to X5’s reorganisation in prior periods, which do not represent ongoing costs of doing

business. X5 believes that showing adjusted net proﬁt and adjusted net proﬁt margin performance

provides a more accurate reﬂection of the Company’s sustainable performance.

Selling, general and administrative expenses (SG&A) are reported on the income statement as the sum

of all direct and indirect selling expenses and all general and administrative expenses of the Company.

X5 Group reports adjusted SG&A, which excludes the effects of the LTI programme and share-based

payments, the impact of the Karusel transformation as well as depreciation, amortisation and

impairment. The Company believes that adjusted SG&A provides additional detail regarding the

long-term SG&A costs of the business.

RUB MLN

2021

2020

2021

2020

Adjustments:

Effect of Karusel transformation and tax accrual

related to X5’s reorganisation in previous periods

1,875

7,484

1,810

7,683

Adj. net proﬁt

44,613

35,828

50,323

46,863

Net proﬁt

42,738

28,344

48,513

39,180

PRE-IFRS 16

IFRS 16

RUB MLN

2021

2020

2021

2020

Revenue

2,204,819

1,978,026

2,204,819

1,978,026

Adj. net proﬁt

44,613

35,828

50,323

46,863

Adj. net proﬁt margin, %

2.0

1.8

2.3

2.4

PRE-IFRS 16

IFRS 16

RUB MLN

2021

2020

2021

2020

Adjustments:

LTI, share-based payments and other one-off

remuneration payments expense and SSC

(3,011)

(345)

(3,011)

(345)

Effect of Karusel transformation

(162)

(534)

(162)

(534)

Depreciation, amortisation and impairment

(150,278)

(137,905)

(76,665)

(68,352)

Adjusted SG&A

314,017

267,605

410,205

356,838

SG&A

467,468

406,389

490,043

426,069

PRE-IFRS 16

IFRS 16

RUB MLN

2021

2020

2021

2020

Revenue

2,204,819

1,978,026

2,204,819

1,978,026

Adjusted SG&A expenses as % of revenue

14.2

13.5

18.6

18.0

Adjusted SG&A

314,017

267,605

410,205

356,838

PRE-IFRS 16

IFRS 16

STRATEGIC REPORT

INFORMATION ONALTERNATIVE PERFORMANCE MEASURES

Adjusted net cash used in investing activities

Adjusted net cash used in investing activities is a measure of the Сompany’s cash generation or

spending from various investment-related activities in a speciﬁc period. It is a way to evaluate the

change in a Сompany's cash position from investment gains/losses and ﬁxed asset investments.

X5 believes that showing adjusted net cash used in investing activities provides a more accurate

reﬂection of the Сompany’s performance.

RUB MLN

2021

2020

2021

2020

Adjustments:

Adjusted net cash used in investing activities

89,435

84,314

90,295

84,314

Short-term ﬁnancial investments

(50,000)

−

(50,000)

−

Net cash used in investing activities

139,435

84,314

140,295

84,314

PRE-IFRS 16

IFRS 16

Adjusted FCF

Adjusted free cash ﬂow is a measure of the Сompany’s cash generation. It is a way to evaluate the

Сompany’s cash generation after taking into consideration cash outﬂows that support its operations

and maintain its capital assets. X5 believes that showing free cash ﬂow adjusted for investments in

short-term ﬁnancial instruments provides a more accurate reﬂection of the Сompany’s performance.

RUB MLN

2021

2020

2021

2020

Adjustments:

Investments in short-term ﬁnancial

instruments

50,000

−

50,000

−

FCF

88,027

75,246

23,417

17,689

Adjusted FCF

138,027

75,246

73,417

17,689

PRE-IFRS 16

IFRS 16

STRATEGIC REPORT

INFORMATION ONALTERNATIVE PERFORMANCE MEASURES

ROIC

ROIC is a measure of the Сompany's efﬁciency at allocating the capital under its control to proﬁtable

investments. It is a way to evaluate how well a Сompany is using its capital to generate proﬁts.

NOPAT

82,724

65,611

60,215

50,797

Invested capital (average equity + net debt)

884,229

847,982

384,793

386,524

ROIC

9.4%

7.7%

15.6%

13.1%

2021

2020

2021

2020

PRE-IFRS 16

IFRS 16

Adjusted ROIC

Adjusted ROIC is a measure of the Company's efﬁciency at allocating the capital under its control

to proﬁtable investments adjusted for one-off effects and tax on investments. It is a way to evaluate

how well a Company is using its capital to generate proﬁts excluding one-off effects. X5 believes that

showing adjusted ROIC provides a more accurate reﬂection of the Company’s performance.

2021

2020

2021

2020

Adjustments:

NOPAT

82,724

65,611

60,215

50,797

Effect of Karusel transformation, tax on investments

and tax accrual related to X5’s reorganisation

in previous periods

7,739

17,647

5,439

11,412

Adjusted NOPAT

90,462

83,257

65,654

62,209

Invested capital (average equity + net debt)

884,229

847,982

384,793

386,524

Adjusted ROIC

10.2%

9.8%

17.1%

16.1%

PRE-IFRS 16

IFRS 16

Net debt/EBITDA

STRATEGIC REPORT

INFORMATION ONALTERNATIVE PERFORMANCE MEASURES

The net borrowings to earnings before interest depreciation and amortisation (EBITDA) ratio is a

measurement of leverage. It is calculated as the Company’s long-term and short-term borrowings,

minus cash and cash equivalents, divided by EBITDA. The net debt to EBITDA ratio is a commonly used

indicator that provides additional clariﬁcation regarding the Company’s debt burden.

RUB MLN

31-DEC-21

31-DEC-20

31-DEC-21

31-DEC-20

Total debt, incl.:

294,338

261,947

294,338

261,947

Short-term borrowings

87,767

77,026

87,767

77,026

Lease liabilities

577,363

548,501

−

Long-term borrowings

206,571

184,921

206,571

184,921

Cash and cash equivalents

26,062

20,008

26,062

20,008

EBITDA

267,850

243,622

161,024

145,137

Net debt

845,639

790,440

268,276

241,939

Net debt/EBITDA

3.16

3.24

1.67

PRE-IFRS 16

IFRS 16

Adjusted net debt/EBITDA

The net borrowings to earnings before interest depreciation and amortisation (EBITDA) ratio

is a measurement of leverage. It is calculated as the Company’s long-term and short-term

borrowings, minus cash and cash equivalents and ﬁnancial investments, divided by EBITDA.

X5 Group reports adjusted net debt/EBITDA, which excludes the effect of short-term

ﬁnancial investments. X5 believes that showing adjusted net debt/EBITDA provides a more

accurate reﬂection of the Company’s debtburden.

RUB MLN

31-DEC-21

31-DEC-20

31-DEC-21

31-DEC-20

Adjustments:

Net debt

845,639

790,440

268,276

241,939

Short-term ﬁnancial investments

(50,092)

–

(50,092)

–

Adjusted net debt

795,547

790,440

218,184

241,939

EBITDA

267,850

243,622

161,024

145,137

Adjusted net debt/EBITDA

2.97

3.24

1.35

1.67

PRE-IFRS 16

IFRS 16

STRATEGIC REPORT

INFORMATION ONALTERNATIVE PERFORMANCE MEASURES

Net retail sales

Net retail sales shows the amount of sales generated by the Company after the

deduction of revenue from franchise services, wholesale operations and other

services. Because food retail is X5 Group’s core business, net retail sales is

provided to give a clearer picture of the performance of the Company’s core

business activity.

RUB MLN

2021

2020

Adjustments:

Revenue

2,204,819

1,978,026

Revenue from wholesale operations and other services

(10,335)

(4,675)

Net retail sales

2,194,477

1,973,346

Revenue from franchise services

(7)

(5)

Like-for-like (LFL)

LFL comparisons of retail sales between two

periods are comparisons of retail sales in the

local currency (including VAT) generated by

relevant stores. The stores that are included in

LFL comparisons are those that have operated

for at least 12 full months. Their sales are

included in the LFL calculation starting from

the day of the store’s opening.

We include all stores that ﬁt our LFL criteria in

each reporting period. This is a commonly used

indicator in the retail industry that helps illustrate

the sustainability of a company’s growth by

focusing on the performance of stores that have

already been operating for more than 12 months

by removing the effect of new stores opened

during the period.

2021

2020

Net retail sales growth

11.2

14.2

LFL

5.1

5.5

Less contribution from an increase in selling space

6.1

8.7

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

LOGISTICS

Pyaterochka Logistics

Developing efﬁcient and robust

business processes

A pilot for avocado ripening was successfully

conducted at our Podolsk banana ripening station.

Plans are in place to expand this process to cover

allripening stations in 2022

An external banana ripening station was launched

inthe Southern macro-region

Vegetable storehouses in the North-Western and

Ural macro-regions were opened, doubling storage

volumes vs 2020 to 6,000 tonnes

Pyaterochka’s logistics operations, which includes

38DCs, were serving the 17,972 stores operating

in67Russian regions as of 31December 2021.

One of the main priorities in 2021 was to maintain

service levels in stores despite global labour

andtransport shortages. Our product availability rate

was 91.1% in 2021, reaching 93.8% in December 2021.

Other key 2021 highlights

In an Advantage study, we moved up one position

tosecond place in an integrated supplier

assessment and for the sixth year in a row, we ranked

ﬁrst in terms of supply chain management

In 2021, the Supply Chains team developed

integrated planning tools both for suppliers and for

X5’s internal use: 15 of our most mature suppliers

were connected to a CPFR (collaborative planning,

forecasting and replenishment) tool and to a joint

sales forecasting tool

An end-to-end stock model and sales and

operations planning process were launched in

conjunction with RVI (X5 importing legal entity),

helping to make imported goods more affordable

aswell as optimising inventory throughout the

supply chain

Six new facilities were added to the warehouse

infrastructure: two new distribution centres

in Kursk and Krasnoyarsk, as well as four 3PL sites

(inOrenburg, Ekaterinburg, Izhevsk and Moscow)

Expanding digitalisation

Added seven new DCs to the rollout of the

Manhattan target warehouse management system,

bringing the total number to 12

The warehouse mobile app gained additional

modules for “placement and storage” as well as

“dispatch”

Rollout of the JDA Distribution Centre and Store

Restocking project continued, which supports the

end-to-end process for the movement of goods

from distribution centres to stores as well as

automation of the restocking processes

Microservices that work with both the existing and

new restocking systems such as Orchard were

introduced. Orchard is an automatic tool for

restocking DCs with fruits and vegetables that

provides access to data directly from WMS systems,

while also enabling the monitoring of goods in the

supply chain on an hourly basis

Machine learning-based regular sales forecasting

isbeing rolled out. The solution has already been

implemented in three macro-regions for four out

ofﬁve product categories

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

LOGISTICS

2021

2020

2019

2018

2017

2016

2015

4.6

5.7

106

6.5

8.5

108

6.5

8.3

103

6.3

8.2

6.0

8.3

5.9

7.6

5.2

5.9

2.91

2017

3.31

2016

3.54

2015

2.86

2018

2.67

2019

2.61

2020

2.68

2021

−24.3%

+99%

3 best DCs

2015–2021

+49%

3 best DCs

2015–2021

+113%

Company average

2015–2021

+42%

Company average

2015–2021

Operational efﬁciency gains

Storage and transport costs (excl. pickup, incl. recyclable materials),

% of sales

OWR,

boxes/hour

DC throughput,

boxes/m²

Company average

3 best DCs

Company average

3 best DCs

We took measures that offset most of the increased cost investments in warehouse

and transport personnel aimed at ensuring guaranteed service for operations in a tight

labour market

Key warehouse efﬁciency metrics in terms of DC throughput and overall warehouse

performance remained at a consistently high level

The positive effect of efﬁciency projects totalled RUB 387 mln

in 2021

The availability of top-5 SKUs in each category increased

by0.3% y-o-y

The increase in the forecast accuracy was achieved by the

introduction of a demand forecasting model that allows to

predict the demand for goods at the store-item-day level within

a 16 weeks horizon. The forecast accuracy increased by 9.4 p.p.

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

LOGISTICS

100

Process maturity

Achieving sustainability goals

Pyaterochka was selected as the winner in the

“Best Mentor” category at the Izotov Cup national

competition

Supply Chain Management Division won the top

prize in X5’s Idea Challenge corporate innovation

competition. The division’s “Axle Load” project was

the clear winner among the competition ﬁnalists

Pyaterochka became a special partner for the

“Strong Link: Student League” interuniversity

competition, with the aim of being strengthening

the Company’s pool of potential candidates

In 2021, supply chains participated for the ﬁrst time

in the annual Top 100 Dialog supplier conference,

where they shared their experience and expertise

at around a dozen specialised discussion forums

and conferences

Plans for 2022

Main focus is on ensuring the business continuity

Continue implementation of

Manhattan warehouse

management system

Continue rollout of the JDA

project

Distribution Centre and

Store Restocking

Continue rollout of the Machine learning-based

Regular Sales Forecasting

Donated 8,254 LEGO sets to

orphanages in December 2021

Underwent preparations for

Pyaterochka DCsto receive ISO

14001 environmental

management certiﬁcation,

including an assessment

of business processes, energy

efﬁciency, waste management

and other factors

“Children's Days” are held every

year atPyaterochka DCs

Implemented the “Comfortable

DC” project for the second year

in arow, including the

development of meals based on

employee feedback and the

creation of ﬁtness areas at all

Pyaterochka DCs that are

accessible outside of working

hours

Completed an assessment for

ISO 45001 occupational health

and safety certiﬁcation and held

training sessions for employees

Ran an awareness-raising

session to reduce the risks

of COVID-19 infection and offered

on-site vaccination clinics at DCs

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

LOGISTICS

101

Perekrestok Logistics

Physical logistics

Decreased logistics costs as a share of retail

turnover by 0.03% due to efﬁciencies in warehousing

and transport logistics as well as handling

of returnable tare

DC operations achieved an average 4% year-on-year

increase in productivity thanks to the warehouse

logistics operational efﬁciency project

Improved the cost efﬁciency of transport

duetoa2.2% year-on-year increase in the average

box per trip

Migrated to trusted receiving processes at ﬁve DCs,

which reduced resources required at stores for

accepting goods from DCs

Improved the quality of fruits and vegetables

through implementation of remote quality

acceptance at registration centres

Ensured fresh product quality by introducing

automatic temperature monitoring sensors

forallDCs

Procured additional transport to manage risks

of vehicle shortages

Secured Perekrestok’s entry into new territories

(Murmansk, Apatity)

Supported supply chain operations for Chizhik

and5Post

Key 2021 highlights

To support product availability, freshness and

quality based on regional characteristics,

operational logistics were decentralised to speed

up decision-making and ﬂexibility

To ensure a high level of shelf availability,

a single planning function was established, with

responsibility for end-to-end forecasting, planning

and replenishment processes from the supplier

to the store shelf

To improve management efﬁciency and the

availability oftransport despite labour and vehicle

shortages, a centralised transport management

centre was created

To support strategic infrastructure development, as

well as implementation of strategic transformational

efﬁciency projects and to lead the digitalisation

of the supply chain, a new strategic supply chain

development function was established

Planning

Inventories decreased by 1.9 days year-on-year,

as a result of greater accuracy in promo forecasting,

efﬁcient management of assortment matrices

and the introduction of best global practices

for insurance inventory planning

Availability decreased by 0.9% year-on-year to 93.9%

due to transport shortages for replenishment

intheﬁrst half of 2021 and a 2% year-on-year decline

in service levels from suppliers due to global

problems with import supplies

Launched end-to-end integrated planning process

with RVI for vegetable/fruit and liquor categories to

ensure uninterrupted supply during the hot season

Signiﬁcant year-on-year increase in forecast quality

(+7% in promo, +0.8% in regular) due to

thedevelopment of the Forecast digital

transformation product

Perekrestok's logistics operations serve its own

supermarkets and Karusel hypermarkets. Throughout

2021, we implemented changes tofurther improve

theefﬁciency, quality and digitalisation of our

operations.

Perekrestok’s logistics operations included 9 DCs

as of 31 December 2021, which helped to support

the operations of 990 supermarkets and 33 Karusel

hypermarkets across 19 regions of Russia.

Plans for 2022

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

LOGISTICS

102

Opening of Voronezh DC

Launch of Implant programme with top suppliers

to improve availability and reduce losses

Implementation of logistical solutions together with

suppliers to reduce the cost of the supply chain from

production facility to store shelf

Improve the freshness and quality of products

onshelves through the implementation of the

Freshness digital product and infrastructure projects

to maintain target temperature levels in cold chains

Launch of Lean DC programme to improve

efﬁciencies in warehouse logistics

Increasing vehicle turnaround and routing automation

for more efﬁcient transport logistics

New WMS implementation project launched

Automation of forecasting and replenishment

processes (hands-free planning)

Implementation of global safety culture practices

on all DCs

Further optimisation through implementation

of a digital replenishment product

Centralisation of recyclables as an additional source

of revenue for the network

Launch of Supply Chain Academy for management

staff and qualiﬁcation centres for CP line staff

X5 Transport

Our logistics network is the most efﬁcient

and best way for us to transport goods from

suppliers to our store shelves, where

customers can rely on the quality and

availability of our assortment.

Efﬁcient and reliable transport operations are key to

multiple aspects of our strategy, from strengthening

existing operations by reducing costs to supporting

the development of new businesses that use our

transport capacity to offer services like last-mile

delivery.

Our transport operations are also important to

achieving our sustainability goals, with ongoing efforts

to reduce the CO2 emissions of our ﬂeet, ensure the

safety of our drivers and ensure we can preserve the

freshness of our growing assortment of fresh produce

and fruits and vegetables across the more than

19,000 stores we operate.

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

X5 TRANSPORT

103

As of 31 Dec 2021

4,654

Trucks in X5 Transport’s ﬂeet

Handled about

of our deliveries

during the year

Plans for 2022

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

X5 TRANSPORT

104

Key achievements in 2021

One of the key challenges we faced in 2021 was the

scarcity of labour. In response, we increased our

investment in human resources considerably,

improving X5 Transport’s appeal as an employer for

drivers. We also continued taking steps to improve

working conditions for drivers and other employees,

with portals providing personal payroll services

introduced for drivers, renovation of break rooms for

drivers to offer them modern and comfortable facilities,

as well as joint programmes with equipment

manufacturers on safe and efﬁcient driving. In order to

support further training and education for our drivers,

instructors and mentors were added as permanent

positions.

We continue to develop our own ﬂeet and purchased

692 new trucks during 2021 to upgrade and expand

our in-house operations. In order to ensure the

necessary ﬂexibility and scalability, we have also

updated the way we work with external carriers in order

to provide more stable terms for doing business.

In 2021, many of our suppliers faced a shortage of

vehicles for deliveries. In helping resolve our partners’

problems, X5 actively developed a service for suppliers

for self-pickup and commercial deliveries. This service

expanded by about 30% vs 2020.

To support the development of the regional network,

new cross-docking centres were opened in Murmansk,

Irkutsk, Salekhard and Izhevsk.

X5 Transport’s uniﬁed digital platform continued

todevelop. We have expanded the use of big data

topower artiﬁcial intelligence systems to improve

transport efﬁciency, and we continue to scale up

services and solutions for planning and monitoring

X5’s ﬂeet and hired transport. Progress continues

tobe made in electronic document management:

in2021, we began using electronic consignment

documents for internal shipments undertaken by our

own ﬂeet (more than 60% of the total number of trips).

The X5 Transport electronic data interchange system

facilitated payments for the purchase of spare parts,

consumables and services. We also piloted

anexchange of electronic documents with fuel

companies, developed an electronic service for truck

insurance and introduced personal accounts

fordrivers.

We also introduced the innovative Antison system

in2021. Antison makes it possible to monitor a driver’s

physical condition behind the wheel, to monitor the

road and to track the driver’s condition while in transit.

Thanks to the introduction of gas–diesel engines and

other technical solutions, atmospheric greenhouse gas

emissions decreased by 10% year-on-year. In 2021,

monitoring and reporting on our work involving

industrial waste from our transport-related business

processes improved.

Further develop the X5 Transport uniﬁed

digital platform: speeding up processes

through automation, expanding channels

for fulﬁlling orders using our own ﬂeet and

a rental ﬂeet, adding convenient services

to the app for drivers

Develop electronic document management

and convert the remaining transport

documentation into a digital format

Continue to test and incorporate equipment

that operates on gas and alternative fuels

Expand our delivery coverage, open up new

cross-docking centres for our retail formats

and develop international deliveries

Launch strategic partnerships with major

transport companies in the market for

city-based and intracompany transport

Improve the efﬁciency of our own

maintenance depots due to the lack

of external service centres for servicing

equipment

Focus on ESG: reduction of empty runs

and responsible consumption of resources

(water, energy, waste)

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

DIRECT IMPORTS

Direct

imports

Key achievementsin 2021

We continued to develop our own Infrastructure

withthe opening of a hub in Ekaterinburg. This new

operational site will help to improve the delivery of

direct imports to the Urals and Siberia regions as the

geography of our business continues to grow. We have

also been able to support further development

of private label goods through our direct import

infrastructure.

In order to enable greater ﬂexibility during peak

seasons for key imported goods, we have diversiﬁed

the modes of transport and methods of transhipment

we are able to use for citrus fruits, which now include

deliveries through a hub, cross-docking at a port and

deliveries by rail to various regions).

As we seek to continuously improve the efﬁciency

of our operations, we developed an IT platform that

makes it possible collect offers and conduct online

bidding with import suppliers of fruit and vegetables.

As a result of continued business growth and progress

on developing our operations, X5 Group’s direct

imports increased by 17.5% year-on-year, with

signiﬁcant growth year-on-year in categories such as

drinks (up 158%), non-food products (up 91.8%) and

groceries (up 45%).

In order to support the further development of X5

Group’s online businesses, we also launched a sorting

line to handle 5Post shipments.

Plans for 2022

TOTAL SHARE

OF DIRECT IMPORTS

2020

5.3

2021

5.7

NOVOROSSIISK

PULKOVO

BOGORODSK

As of the end of 2021,

theImports business unit

wasoperating four hubs:

EKATERINBURG

Focus on improving

procurement efﬁciency

by conducting bidding in the fruits

andvegetables category on our

ITplatform, sourcing new countries

and suppliers, and concluding direct

contracts with import producers

Expansion of warehouse

infrastructure

expansion of the Bogorodsk hub

toincrease direct import supply

ofdrinks, grocery and non-food

Improving the timeliness

of deliveries ofdirect imports

Development of imports

from the countries of Central Asia

(stone fruits, melons, cabbages,

onions, nuts)

105

X5 Technologies

The operations of X5’s retail formats are the Company’s

backbone, and X5Technologies is the main technology partner

for all of the Group’s business units.

Our retail formats continue to develop services aimed at

improving the quality of service and the freshness of produce

as well as optimising internal processes. This enables us to use

innovative technologies such as artiﬁcial intelligence, analytical

platforms based on big data, algorithms for managing business

processes and cloud infrastructure. In order to increase the

speed at which we incorporate new solutions, proprietary

innovations are becoming our main priority.

In 2021, X5 Technologies took part in 417 business initiatives

on behalf of X5’s retail formats and business units, and we plan

to increase this number in 2022.

368

Information systems

in operation

1.4

THS

Physical servers

10.0

Petabytes of storage

ina big data cluster

X5 Technologies infrastructure

The ﬂexible application of state-of-the-art

development practices, a product-based

approach and product teams areat the core

of X5 Technologies’ work.

3.5

THS

Employees

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

X5 TECHNOLOGIES

106

X5 Technologies took part in

417

BUSINESS

INITIATIVES

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

X5 TECHNOLOGIES

107

Domain approach

To improve the efﬁciency of working with X5’s retail

formats, the Company continued to take a domain

approach in 2021, where digital specialists are

embedded within business units.

During the year, one of the main objectives was

the comprehensive development of investment

initiatives in the early stages.

As a result, more than 300 different ideas were

analysed, 60% of which showed excellent potential

and were submitted for further development.

In terms of the impact on the Group’s customers,

employees and partners, the following are worth

noting:

A technological concept was developed for stores

in 2023. The time needed to authorise cashiers

at checkouts was reduced by 80% — this operation

now takes no more than eight seconds

Decrease the time needed to update checkout

and back-ofﬁce systems, reduce the cost of

maintaining store operations, increase staff

productivity, and improve the customer experience

and the quality of our labour-enhancing IT services

We moved employees’ personal accounts

to a single digital platform, which made it possible

to prepare the rollout of the portal at Perekrestok

over several weeks

Develop a platform approach for other solutions,

including corporate training and employee

development systems

We launched our ﬁrst corporate portals using the

low-code content management platform

WordPress. These solutions are now being further

developed without the involvement of IT specialists

Apply the low-code / no-code approach to other

solutions, including mobile applications, in order

to reduce overall costs and decrease the time

to market for new products

More than 5,000 business trips have already been

processed using the new portal

Increase this ﬁgure to 65,000 and fully digitalise

this routine process

More than 3.5 million ﬁnancial documents are

signed by stores electronically on the new platform

Considerably improve the quality of the user

experience in respect of the Group’s other

electronic document management solutions

2021

PLANS FOR 2022

The unit enabled the entire X5 team to work

remotelythroughout the year, quickly anticipating

andresolvingissues raised by staff. The unit also

introduced asystem for managing IT service status

and assessments of the impact of IT on business

processes. Access management processes were

automated, meaning that staff did not have to be

present in order to be granted access, and the unit

began sending hardware to new hires though 5Post

parcel lockers located at nearby Pyaterochka stores.

In 2021, X5 Technologies launched the ﬁrst A/B testing

platform for retail. The system is able to automatically

collect the results of experiments at all Group stores,

as well as analyse the effectiveness of operational

processes in all of the Group’s business units.

TheA/Btesting system helps with decision-making

based on raw data: on a daily basis, information about

purchases is systematised, analysed and used

toformulate conclusions regarding each of hundreds

of hypotheses put forward. The main goal of the

project is to accelerate the growth of X5’s business

byincreasing the number of ongoing experiments.

Thesystem processes all of X5’s stored data – tens

ofmillions of records every day. The platform is

currently testing and ﬁnalising a number of modules,

and we are planning to evaluate over a 1,000

experiments a year.

The Company attaches great importance to the

development of a data-driven culture and the

engagement of young employees. In-house schools

have been launched covering every major area

of development, and a school for analysts has been

restarted. In the summer of 2021, we launched

a business analysis school and a systems analysis

school, where more than 100 X5 Technologies

employees completed training over a period six

months.

One of the division’s priorities is to ensure

ahighdegree of availability and a high level of

performance on the part of its IT systems, which are

essential to X5’s core business processes. Aseparate

team created to develop and support root systems

has launched projects aimed at taking the

development of ERP, checkout software, document

management andother root systems to a new level.

99.87

IT service availability in 2021

IT and development

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

X5 TECHNOLOGIES

108

X5 is actively developing a data-driven approach

to decision-making. The penetration of analytical

solutions increased by 18%, and 2,390 employees were

added to the Company’s BIplatform, an increase

of 78% year-on-year.

The Company is working hard to incorporate this

analytical platform into its work. Last year, dozens

of projects involving BI analytics were implemented,

with special attention paid to the development

of self-service analytics in Russia’s regions.

We introduced a data catalogue — a single entry point

into the world of X5 data, where one can ﬁnd the data

and reports they need, gain access to said data and

reports, request assistance from co-workers and much

more. Today, more than 3,000 employees of the

Company’s business units use the system every

month. The data community is being actively

developed, and its membership has doubled. The

growth of the data community is also one of the

priority areas for the development of a data-driven

culture.

This year, we managed to complete the rollout of our

single customer sign-on platform, X5.ID, across 15

communication channels. Over 14 million customers

are currently active users of the platform. The service

makes it possible to quickly integrate existing X5

services, thus considerably improving the customer

experience. The platform is an example of X5’s new,

state-of-the-art, high-load, cloud-based architecture,

which ensures excellent availability and enables rapid

modiﬁcations. The Company’s solution received a CIO

Global award as the best e-commerce/retail project.

In October 2021, X5 announced the launch of a pilot

subscription service. The project’s MVP, completed

in September, showed an increase in retail turnover

and trafﬁc at our retail formats, and it also contributed

to the creation of new customer streams. People

in every age group have shown interest in the

subscription service.

Based on the results of assumption testing, three

subscription formats were identiﬁed, which the

Company piloted from November to December 2021.

The format of each subscription differs in terms

of its anchor offer and the available option packages.

Acombined subscription with the working title

“Bundle” combines discounts on goods in a single

check, loyalty programme upgrades, free services and

gifts. The monthly cost is RUB 199, RUB 249 or RUB

299 depending on the service package. By December

2021, more than 100,000 customers had signed up for

a Bundle subscription.

Bundle subscriptions are based on X5’s single

customer sign-on, X5.ID, which creates a so-called

golden record that stores all data on customers’

shopping habits at all X5 Group business units and

retail formats. Thanks to CDP technology, X5.ID

is able to incorporate the use of cookies with user,

proﬁleswhich makes it possible not only to build an

end-to-end marketing funnel for subsequent analytics

but also to enable personalised automated media and

CRM communications. The Dialog.X5 platform has

a signiﬁcant role to play in the project, as it provided

the data and analytics that made it possible to increase

subscriber conversion through communications with

niche audience segments.

Data management and data products for customers

In 2021, X5 worked hard to develop its X5 Cloud

dynamic infrastructure project. The main objective of

the project is to provide high-quality, state-of-the-art

service to internal customers (project and product

teams) and for results-based work.

A new X5 Cloud development strategy was drafted

and approved, which foresees the transformation of X5

Cloud into a full-ﬂedged cloud platform that includes

infrastructure (IaaS) and platform (PaaS) services, as

well as a new model for processes related to project

onboarding, ﬁnancial accounting, information security

and standardisation of business activities within

X5 Technologies.

From using off-the-shelf integrated solutions from one

vendor, we are moving to a best-of-breed approach,

where the main focus is on open-source solutions and

products. For commodity components such as the

platform’s infrastructure core, we use off-the-shelf

solutions in the form of a service with a high SLA, while

products unique to X5, such as a platform orchestrator,

billing, portals, and so on, are developed in-house.

As part of our new X5 Cloud strategy, we plan to

implement hybrid scenarios with external public

cloud providers for disaster recovery, cloud burst for

cloud-native applications and the use of specialised

environments – for example, with super-fast storage

systems or GPUs.

In the autumn of 2021, we introduced a new role:

customer success manager, whose purpose is to help

projects and products resolve organisational,

commercial and technical issues at all stages of their

life cycle. The customer success manager acts as a

one-stop shop, promptly connecting the needed

resources from X5 Cloud to resolve speciﬁc project-

and product-related issues and tasks on an individual

basis.

In 2022, the Company plans to start the process

of cloud-native transformation, which will involve the

migration of a large number of information systems

from various sources. For this purpose, we plan to

launch a centralised migration service in 2022: the

main focus will be on migrating from OpenShift and the

old version of X5 Cloud, but preparatory processes

and planning for migration from other sources will also

get under way.

X5 Cloud

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

X5 TECHNOLOGIES

109

With the increase in the number of business initiatives,

the staff of X5 Technologies has also been growing.

Recruiting personnel in Russia’s highly competitive

IT market is becoming more difﬁcult every year;

to ensure success, X5’s HR team uses a set of tools

from classic recruitment and career sites to their

own events, games, and training and retraining

programmes. This combination and systematic work

on the Company’s IT HR brand have driven our

success in hiring highly qualiﬁed employees and

meeting our extensive stafﬁng needs.

In 2021, we built IT talent management processes

(IT resource planning, evaluation, recruitment,

development, etc.) around a single competency

model. Employees completed more than

300 training programmes. In terms of ESG initiatives,

X5 Technologies launched a project on intellectual

volunteering in 2021.

We will focus on the following in 2022: career

development based on equal opportunities for all

employees, automating HR solutions to improve

the employee experience, high-quality IT talent

management and organisational efﬁciency, working

with employee engagement and developing

our employer brand.

For X5 to achieve tech leadership andhigh-quality

automation of the Company’s business processes,

one of X5 Technologies’ key focuses remains working

with employees.

1,400

New employees joined the

X5Technologies team

in 2021

Human capital management

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

INNOVATIONS

110

Innovations

X5 Group systematically develops innovations

toimprove the efﬁciency of in-house processes and

the quality of customer service. Having achieved

numerous breakthroughs in recent years, the

Company has become a leading innovator.

Since X5’s Innovations department was established

three years ago, its staff have studied more than

15thousand different retail solutions, covering nearly

the entire range of existing technological practices.

Our main objective now is to monitor the emergence

of tech innovations in real time while also keeping

abreast of any solutions that are of interest but that

require further development or a cost reduction. In this

context, the Company’s main source of breakthrough

ideas is its employees, who have free rein within X5’s

in-house accelerator topropose innovative projects

of all sorts. The Company also considers it important

to work with students in developing innovations.

In 2021, 28 new pilot projects were launched, and 16

pilots were completed with statistically signiﬁcant

results. Ten of the 16 were declared successful and

cost-effective. Five of them have already been rolled

out or are at the rollout stage. The other ﬁve are

undergoing tech reﬁnements in preparation for rollout.

In 2021, X5’s Innovations department began working

more closely with the customer experience unit

in order to include the development and analysis

of a customer journey map in our projects. This led

to a better understanding of customer needs and

a better formulation of value propositions.

The introduction and scaling of innovations added

RUB 865 million to the Company’s EBITDA in 2021.

In addition, X5’s innovations received numerous

awards last year, including Popai Russia Awards,

ITStars, Retail Week Awards, Loyalty Awards, etc.

External sources of innovation are an important

element of X5’s work. Ideas for scouting are

developed in collaboration with X5’s retail formats,

business units and functional divisions. Problem

interviews are conducted with managers at all

levels of every function. This enables us to look at

pain points from all sides and to properly prioritise

and organise an effective search for tech solutions

that we can incorporate. To begin with, we search

for solutions in response to those needs where

we see the greatest potential economic impact.

In 2021, our scouting team evaluated just over

1,500 innovative solutions — both Russian and

international. Plug & Play provided an overview

of European, US and Brazilian solutions, and the

Axis accelerator and Israel’s trade mission to Russia

provided an in-depth study of Israeli solutions.

Invest India conducted scouting in India, while tech

from Singapore was studied in conjunction with

Enterprise Singapore. Although extensive scouting

was carried out in China, it proved ineffective.

Innovations

External innovations

For the third year in a row, X5 was an anchor partner (on the retail track) for the world’s largest

accelerator, Plug & Play.

Plug & Play holds closed pitch sessions for X5, including in response to needs that are raised

during workshops.

In 2022, X5 also became a Plug & Play partner on the sustainability track. The partnership in this

area involves searching for innovative solutions to achieve the goals of lowering CO₂ emissions,

reducing food waste and developing sustainable packaging.

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

INNOVATIONS

111

Joint innovation

activities

The launch of Russia’s ﬁrst partnership

involvingcollaborative innovations in retail for the

exchange of best business practices and experiences

piloting and implementing tech solutions and joint

scouting in Russia and abroad bore fruit in 2021.

In the context of the Retail Innovation Tech Alliance

(RITA), 14 joint events were held in 2021:

PARTNERS MEETINGS

Meetings where the partners discussed companies’

pilot projects, outlining who worked with which

startups and what the results were

CASE STUDY CLUBS

Introductory meetings where companies’ business

functions discussed the exchange of experience

inimplementing projects and improving the efﬁciency

of their processes

PITCH SESSIONS

On 15 startups selected from a long list

2020

GEOGRAPHY

OFSCOUTING

2,700

SCOPED

2021

4,200

SCOPED

ADDED IN 2021

+1,500

In 2021, the Alliance companies (X5, Hoff,

M.Video-Eldorado Group, Beeline) jointly

scoped 900 startups, evaluated 80 use

casesand launched 21 pilots

The Alliance’s Russian scouting programme

isrun by GoTech

In 2021, RITA added another ecosystem

partner, the Kazakhstani food retailer Magnum.

RITA also added three technology partners:

SAP, Microsoft andNvidia

Plug & Play and Axis have traditionally

helpedwith the European funnel. The Israeli

programme is led by Axis

RITA’s general funnel includes 1,276

companiesfrom more than 40 countries.

Twenty-one projects have completed

piloting or are currently at the pilot stage

(for all partners, notonly X5)

RITA is operated by GoTech, which

coordinatesall partners

134

PILOTS

193

PILOTS

+59

PILOTS

1,300

BUSINESS

CASES

1,600

BUSINESS

CASES

+300

BUSINESS

CASE

SCOPING

ROLLOUTS

+26

ROLLOUT

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

INNOVATIONS

112

Twenty-four students completed the programme,

some of whom received job offers from X5 or were

given an opportunity to implement their own ideas.

The programme was taught not only by staff from the

Graduate School of Business but also by practitioners

and innovation specialists from X5 Group, including

Pyaterochka and Perekrestok, as well as leading

Russian and global companies (the Internet Initiatives

Development Fund, Plug & Play and others).

The programme lasted three months. As a result of the

training, each project team created a concept for an

innovative product or service that can be incorporated

into X5 infrastructure.

In April 2021, X5 Group established a multifunctional

auditorium at the Graduate School of Business.

The auditorium hosts lectures and seminars for the

Innovations in Retail programme, applied workshops

and scouting sessions for solutions developed by

students, as well as industry meetings with leading

Russian and global companies. The Higher School of

Economics and X5 plan to conduct joint research and

to publish scientiﬁc and educational materials related

to the retail industry and new technological solutions.

In 2021, X5 launched a comprehensive corporate

entrepreneurship programme. During the two phases

of the programme, 588 different ideas were collected

that were aimed at improving business efﬁciency,

creating new tools to increase sales and improving the

customer experience. Ninety-six teams were selected

for the main programme of the intensive startup

workshop, where they received training on everything

from presentations to ﬁnancial modelling.

A dedicated unit was created within the Innovations

department for the implementation of corporate

entrepreneurship programmes.

In February 2021, X5 and the Graduate School of

Business of the Higher School of Economics National

Research University entered into a strategic agreement

on long-term cooperation in the area of education.

The partners began their collaboration with the launch

of an applied programme called “Innovations in Retail”

for students from the Higher School of Economics

and other universities.

Development of intrapreneurship

and work with students

Thirty-nine teams advanced to the budget defence portion

The second wave of the corporate entrepreneurship programme

Share of the ideas coming from regions

beyond Moscow and St Petersburg.

The regional component expanded

Share of the participants in the second wave

arealready participating a second time

More teams entered

the programme

More ideas were collected

Pilots launched

in the ﬁrst wave

BLN

RUB

Expected to be added per year

to the Company’s EBITDA

In logistics

In operations

In HR

In marketing

In maintenance

In commerce

In online

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

INNOVATIONS

113

The introduction of remote technology to monitor

the on-shelf availability of fresh baked goods, the

assortment of baked goods and culinary business

processes enabled us to increase turnover and reduce

losses in the category, as well as to increase customer

satisfaction (NPS).

The pilot was carried out at 30 supermarkets, resulting

in a 6.5% increase in turnover in the category.

Adecision was made to roll out the solution in

130stores. The tech uses a neural network that

enables a single operator to process three times

as many stores as operators not using the tech.

Remote monitoring of baked goods

A neural network–based technology that monitors

a driver’s condition and prevents accidents due

to asleep onset, fatigue, the use of devices and

distracted driving. The pilot, which was carried out

on 50 vehicles from the Vidnoe transport company,

conﬁrmed the efﬁcacy of the solution, as the accident

rate at the pilot transport site was reduced

considerably.

Adding a rear-view camera to the tech resulted in

a 99% reduction in damages from accidents. It was

decided to install the tech in 2,778 vehicles and

to include it as a standard part of new vehicles.

Anti-sleep tech

Examples of innovative solutions

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

INNOVATIONS

114

As a result of a study of the customer experience

when purchasing wine, 37% of customers said they

found it difﬁcult to choose wine. In response, X5’s

Innovation Lab developed an e-sommelier technology.

For the convenience of customers, the solution has

been integrated into ViVino, a popular resource that

provides ratings of selected wines. Integration with

electronic price tags makes it easier for users to search

for selected wines on shelves: a blinking LED on the

electronic price tag lets them know where the product

they are looking for is located. The pilot project was

carried out at 30 supermarkets. Based on the results,

a decision was made to integrate the sommelier into

Perekrestok’s existing wine club and to roll out the

tech at an additional 30 stores.

Sommelier

The Innovation Lab developed a smart scale, a device

that automatically recognises items sold by weight,

including fruits, vegetables and sweets.

The innovation decreases the time needed to process

items sold by weight at checkout counters at

Pyaterochka stores and increases the throughput

capacity of each checkout by about 5%.

This high degree of precision was made possible

thanks to the neural network used in the computer

vision system, which is constantly learning and thus

becoming more efﬁcient.

Smart scales

THE SMART SCALE

WAS PILOTED AT

WHERE THE

RECOGNITION

ACCURACY RATE

WAS ABOUT

STORES

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

INNOVATIONS

115

This technology is a combination system that uses

facial recognition for employee attendance and

timekeeping and reads employee badges outﬁtted

with RFID tags to monitor their movements to ensure

that they are in a useful part of the store.

The pilot project was carried out at 10 supermarkets in

Moscow involving the participation of 650 employees.

The system’s facial recognition and geo-locator

functions achieved a recognition accuracy rate of

above 99%. In addition to a nearly 5% increase in

employee productivity, the pilot revealed that staff

were more disciplined in terms of ensuring that they

were located in a useful part of the store, depending

on their position.

Improving staff efﬁciency

STRATEGIC REPORT

RETAIL INFRASTRUCTURE

INNOVATIONS

116

The Innovation Lab developed a new device to replace

standard price checkers. With wide-ranging

functionality, the device does much more than simply

providing the prices of scanned products. As part of

the pilot project, the following functions were tested:

product information, in-store stock on hand, product

evaluation, store evaluation, promotion catalogue,

personal coupons when scanning a loyalty card,

comments and offers, store information, job

application, facial recognition attendance and

timekeeping, and staff training.

Touchscreen price checker

X5’s Innovation Lab developed a proprietary

technology that enables customers to scan items

themselves using hand-held scanners and then to pay

at self-service checkouts.

The piloting and development of the tech also involved

an in-depth study of the customer experience, which

resulted in a substantial increase in the percentage

of customers using the solution.

The pilot project showed that a self-scanning service

is something that customers want, and a decision was

made to roll out the tech in new stores.

Proprietary self-scan

THE PROPRIETARY

TECH ENABLED X5

TO REDUCE THE

COST OF

INCORPORATING

SOLUTIONS

IN STORES

BY ALMOST

AND THE COST OF

SUPPORTING THIS

PARTICULAR TECH

BY ABOUT

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

OUR SUSTAINABILITY GOALS

117

Our

sustainability

goals

In 2021, we continued our momentum towards

achieving our sustainable development targets as

outlined inourSustainable Development Strategy,

based on the 17 Sustainable Development Goals

(SDGs) adopted bythe United Nations in 2015.

We are working toward our 30×30 goals, which include

a 30% reduction in GHG emissions, 30% share of

renewable energy used in X5 operations and a 30%

reduction in the ratio of waste generated toretail sales,

all by 2030. We also aim to increase the share of solid

waste from our operations that isrecycled to 95%

by 2023, we are actively working towards achieving

carbon neutrality by 2050.

Reaching these ambitious goals requires

accountability and collaboration at all levels. We have

alreadypublished our ﬁrst Sustainability Report under

GRI Standards, and we expect to publish our second

report in the ﬁrst half of 2022. We also established

aSustainable Development and Innovation Committee

at the Supervisory Board level and hosted the Growing

Sustainable Conference, the ﬁrst conference

onsustainable retail, which was attended by 70 people

ofﬂine and more than 1,000 people online.

https://esg.x5.ru

The following section provides an overview of our key

goals and achievements in 2021.

Additional information, including an ESG databook, can

befound at

100

Share of Pyaterochka stores

participation in the Liza Alert

programme to help people who

are lost or disoriented by2023

Increase share of SMEs among

X5suppliers

Double the number ofpeople

who receive food aid as part

of the Basket ofKindness

programme by2023

UP TO

Increase share of fresh andF&V

products by 2023

Increase employee engagement

by 2023

Entire Company to meet

designated occupational health

and safety standards by 2023

–

Reduction in GHG emissions

(Scope 1 and Scope 2) persqm

of selling space by2023

vs 2019

UP TO

Share of recyclable waste sent

forrecycling by 2023

Share of private label goods

insustainable packaging by2023

UP TO

Share of non-expired food waste

sent for reprocessing by2023

UN SDGs

Key goals for X5

Primary goals are highlighted with a larger scale, secondary goals with a smaller size

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

STAKEHOLDER ENGAGEMENT

118

Stakeholder engagement

Maintaining a regular dialogue with ourstakeholders

is essential to growing our business in a sustainable

and proﬁtable way while creating value.

Our key stakeholders include customers, employees,

shareholders and investors, suppliers, local

communities, as well as regulators and government

ofﬁcials. On this and the following pages are highlights

of our stakeholder engagement activities and

an overview of how and why we engage with our

stakeholders. Highlights of what we did in 2021

willalsobe available in our 2021 Sustainability Report.

How we interact

Customers

Employees

Make more informed decisions about

customer demand through use of big data

analytics ofconsumer transactions

Maintain a variety of channels for

interaction with customers, ranging from

chatbots in messenger apps

toatelephone hotline

Monitor our apps’ feedback and rating

tools tocollect data and develop analysis

of customer preferences

Conduct a country-wide Net Promoter

Score (NPS) assessment to determine

customer satisfaction levels

In addition to providing meaningful career

opportunities, ensure competitive, fair and

transparent salaries plus motivation

schemes

Upgraded and expanded channels for

employee feedback to hone our strategy

more effectively inareas such as working

conditions, compensation, management

and corporate culture

Training, skills assessment and overall

career growth are linked via digital tools

for a seamless employee experience

The X5 Digital Academy and other

professional learning programmes support

and enable employee growth and

development consistent with our strategic

priorities

Uphold our human rights policy, provide

employees with the freedoms they

areentitled to

Implement strict occupational health

andsafety policies and inform employees

about workplace health and safety

requirements

Support employees in crisis, such as due

to long-term illness or accidents,

bereavement or loss of property

Notable contributions to the Company’s

performance are recognised

Employees are encouraged to engage

with our social responsibility agenda and

make a positive social impact

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

STAKEHOLDER ENGAGEMENT

119

How we interact

Suppliers and business partners

Society and local communities

Government/regulators

Provide suppliers with access

tocomprehensive insights about

consumer demand and trends through

the use of big data–powered tools

Ensure business relationships meet high

standards oftrust and respect while

collaborating with suppliers to develop

quality responses to customer ratings

andcomplaints

Increase the share of local goods offered

across our formats through education

and outreach to regional producers

Ensure access for both large federal

andsmaller local suppliers to our

transport and logistics infrastructure,

andtrain suppliers on how to work with

said infrastructure effectively

Gather supplier feedback via regular

surveys and other engagement activities

Continued expansion of community

wellness initiatives such as the Basket

ofKindness food bank and Liza Alert

search-and-rescue operations

Collaborate with municipal, regional

andfederal governments on initiatives

tosupport historically disadvantaged

groups, such as pensioners

Prioritise programmes that encourage

ourcustomers to donate to good causes

together with X5

Host local community improvement

events such astree planting, green-up

days and Victory Day celebrations

Ensure X5 operations are compliant

with environmental regulations

Measure and communicate our

sustainable development progress,

and educate the community about X5

initiatives that successfully reduce

emissions, consumption and waste

Represent the interests of retailers with

regard toregulation and legislation

viaactive involvement in leadership

ofrelevant associations

Highlight how X5 creates jobs and

supports local producers by engaging

with relevant government ofﬁcials at key

events such as DC openings

Participate in working groups at federal

and regional levels

Test technological changes such

aslabelling forvarious categories of

goods, electronic document exchange

and electronic signatures

Maintain an open dialogue with

theindustry association AKORT

andprovide X5’s position on vital industry

topics such as environmental and sanitary

legislation

Shareholders/investors

Proactively communicate updates

andshifts inX5strategic priorities

Ongoing improvement of our ESG

disclosure practices based on globally

recognised best practices

Outline our corporate view of the food

market andcompetitive environment,

plus how it will develop

Corporate governance systems

arealigned with global best practice

Regularly publish timely, accurate and

relevant information about Company

performance via our investor website,

including but not limited to annual reports,

sustainability reports, ﬁnancial statements,

press releases and presentations

Directly engage with stakeholders

andinvestors via: virtual and in-person

roadshows, via virtual and in-person

investor conferences, conference calls,

and group meetings with analysts and

investors

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

COMPLIANCE AND BUSINESS ETHICS

120

Compliance and

business ethics

When conducting business, X5 Group is committed

to a corporate culture of shared values based on ethical

standards, mutual respect and compliance with

applicable laws andregulations.

The values and standards of conduct common

toallX5 divisions are reﬂected in the Code of Business

Conduct and Ethics and in the policies developed

onthe basis thereof. These documents serve to help

employees act in accordance with the law and

tofollow ethical principles in the performance of their

work duties. The above-mentioned documents are

published on the Company’s website and/or intranet,

thus enabling all employees to familiarise themselves

with them. The Code and its underlying policies

arereviewed and updated on a periodic basis

inresponse to changes in legislation and Company

processes.

Principal documents

Code of Interaction

withBusiness Partners

Code of Business

Conductand Ethics

Policy on Countering

Misconduct Including Fraud

and Corruption

Declaration on Human

Rights Protection

Compliance Policy

Inside Information

andDealing Code

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

COMPLIANCE AND BUSINESS ETHICS

121

Policy highlights

The Code of Business Conduct and Ethics sets standards of conduct

that employees are expected to strictly observe in relations with

customers, suppliers and other employees, as well as a set of basic

principles that guide our business practices.

The Code covers areas such as fair competition, ﬁghting bribery and

corruption, care for the environment, protection of personal data and

Company assets, avoiding conﬂicts of interest, and equal opportunities

for employees and safe working conditions; it also establishes principles

for interaction with customers, suppliers and competitors. Furthermore,

the Code contains provisions on how to report violations of the Code.

The Code applies to all employees regardless of their position or

function, and during the course of regular training, its provisions are also

examined from a practical point of view based on examples and real-life

case studies.

Throughout the Code, one of the key approaches is “when in doubt,

ask”. If employees have a question concerning the Code or any ethical

issue that they encounter in their work at X5 Group, they are obliged

to contact their immediate supervisor or upper/regional management

or report to the Compliance Ofﬁcer or X5 hotline.

A special email for reporting to the Compliance Ofﬁcer is available:

. Anyone who writes to the indicated address will

receive advice on any issue related to the application of the Code

of Business Conduct and Ethics.

Certain individual issues governed by the Code are covered in additional

documents described on the following pages.

compliance@x5.ru

DECLARATION ON HUMAN

RIGHTS PROTECTION

CODE OF BUSINESS

CONDUCT AND ETHICS

X5’s Declaration on Human Rights Protection deﬁnes principles and

rules in respect of compliance with and promotion of high international

standards for the protection of human rights at every level of the

Company’s operations:

Prohibition of discrimination and forced labour

Prohibition of harassment

Respect for cultural diversity and values

Respect for the right to freedom of assembly and association

Occupational health and safety

As a complement to the Code of Business Conduct and Ethics,

the Declaration on Human Rights Protection is a binding document

for all X5 employees.

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

COMPLIANCE AND BUSINESS ETHICS

122

X5’s Inside Information and Dealing Code aims to ensure that X5

employees do not abuse, and do not place themselves under suspicion

of abusing, inside information and that they comply with their obligations

under the applicable rules on inside information and securities trading.

As an industry leader, we are aware of our responsibility to the

government, society, our shareholders and business partners, and we

aim to fully comply with legal and ethical standards, as well as best

corporate practices, in order to serve as an example for other market

participants.

The Code of Interaction with Business Partners contains provisions

regarding compliance with trade and competition laws, anti-corruption

and anti-fraud legislation, legislation on the quality of products and

services, and legislation on environmental protection and occupational

health and safety, communication standards, information protection,

prevention of conﬂicts of interest, etc. Violations of the Code of

Interaction with Business Partners are handled by X5’s Conciliation

Commission.

COMPLIANCE

POLICY

POLICY ON COUNTERING

MISCONDUCT INCLUDING

FRAUD AND CORRUPTION

INSIDE INFORMATION

AND DEALING CODE

CODE OF INTERACTION

WITH BUSINESS PARTNERS

In order to ensure compliance with the requirements of regulators and

stakeholders, as well as internal standards and rules on business

conduct and ethics, X5 has adopted a Compliance Policy in accordance

with ISO standards on GRC and management systems.

Compliance risks are assessed and reviewed by the Audit and Risk

Committee on an ongoing basis.

X5 and its divisions are committed to conducting business in an

ethically responsible manner and complying with all applicable laws and

regulations relating to anti-corruption and bribery.

In addition to the Code of Business Conduct and Ethics, X5’s Policy

on Countering Misconduct Including Fraud and Corruption (the

“Anti-Corruption Policy”) prohibits any form of corruption or bribery,

including facilitation payments. It aims to create a culture of honesty and

zero tolerance for illegal behaviour among staff, and also to eliminate any

risks of involving the Company in corrupt activities. Our anti-corruption

system includes a set of mechanisms, procedures and tools aimed at

preventing, uncovering, investigating and responding to all possible

cases of misconduct. Furthermore, it establishes roles and

responsibilities for departments and management bodies within the

anti-corruption system. Our aim is to conduct business only with those

partners that share X5’s principles of zero tolerance for corruption and

fraud, and relevant provisions are included in the agreements with our

suppliers and other business partners.

Policy highlights

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

COMPLIANCE AND BUSINESS ETHICS

123

The Ethics Committee includes the Company’s Chief Executive Ofﬁcer

(Chairman of the Committee), the Director for Legal Affairs and

Government Relations, the Security Director, the Business Support

Director and the Director for Human Resources and Organisational

Development. The Committee’s decisions are binding on all Company

employees.

Our internal procedure for declaring, monitoring and resolving conﬂicts

of interest enables managers and employees to disclose situations

where the personal interests of an employee at any level affects or

could affect the rights and interests of the Company, and it establishes

procedures for the purpose of resolving such situations.

The Compliance Department is responsible for the effectiveness

of the process involved in declaring conﬂicts of interest.

Additional information regarding X5’s corporate governance systems

and mechanisms for managing conﬂicts of interest is provided

on page146 of the Corporate Governance report.

Employees are encouraged to report any actual or suspected violations

of the Code of Business Conduct and Ethics or labour laws. An ethics

hotline is in place for this purpose. Various communication channels are

available to employees and other whistle-blowers for reporting

violations: reports can be made by e-mail as well as through the

Company’s website and intranet.

Responsible staff are required to review all reports and follow up in

accordance with internal procedures. Reports via the ethics hotline can

be made anonymously; moreover, provided that reports are made in

good faith, employees can contact the ethics hotline without fear of

retaliation even if an investigation does not conﬁrm that a violation took

place. The Company guarantees the conﬁdentiality of all reports

submitted.

In 2021, there were no substantiated reports of signiﬁcant ﬁnancial

reporting or accounting violations, fraud or other ethical violations.

In addition to the whistle-blowing channels for employees, the Company

operates a reporting channel for business partners and other third

parties. Violations of the Code of Interaction with Business Partners are

handled by X5’s Conciliation Commission, which serves as a corporate

arbitrator in disputes with business partners. Reports of violations may

be submitted through the Company’s website.

ETHICS COMMITTEE

CONFLICTS OF INTEREST

REPORTING VIOLATIONS

AND WHISTLE-BLOWING

The Ethics Committee is responsible for:

Objective review of disputes related to alleged violations of the Code

of Business Conduct and Ethics and the Anti-Corruption Policy;

Resolving conﬂicts of interest;

Taking measures to combat corruption and fraud.

Compliance and ethics systems

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

COMPLIANCE AND BUSINESS ETHICS

124

In addition to the fact that all Company employees are required to

familiarise themselves with the Code of Business Conduct and Ethics,

the Company conducts regular training on the Code of Business

Conduct and Ethics and related policies, during which employees are

required to take part in sessions covering the practical application

of these documents.

The development of training programmes in the areas of compliance

and ethics are entrusted to the Compliance Department.

More detailed information on the Company’s performance in the areas

of compliance and business ethics in 2021 will be published in X5

Group’s Sustainability Report.

TRAINING

Compliance and ethics systems

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

LOCAL COMMUNITIES

125

Local

communities

Since its founding, X5 Group has been committed

toplaying a role in ensuring the health and well-being

of the people in the regions where it operates. We will

continue to engage in such activities in accordance

with our sustainable development strategy, which

isfocused on achieving the UN SDGs aimed at ending

hunger and ensuring good health and well-being.

Thecommunity-focused projects that we implement

have been developed based on our understanding

ofthe priority areas where we can make a signiﬁcant

contribution to ensuring the health and well-being

oflocal communities.

In our activities, we are also guided by Russia’s

National Development Goals to 2030, the opinions

ofcivil society experts and international best practices.

X5’s corporate brand division, the marketing division

for the Company’s retail formats and Pyaterochka’s

transformation ofﬁce are responsible for the

implementation of charitable programmes.

In 2021, the Company conducted a comprehensive

assessment that included a calculation of the impact

of its charitable programmes on various aspects of the

life of local communities. As a result of these efforts,

amonitoring system and a regulation on the conduct

ofregular assessments were developed.

X5 Group’s key forms of interaction with local

communities are its charitable and social projects.

The general principles and rules for charitable activities

are set out in X5’s Charity Policy, which also speciﬁes

the roles and responsibilities of employees involved

inthe implementation of charitable programmes.

ThePolicy applies to all X5 Group business divisions.

The Company has identiﬁed the following priority

areas for charitable activities:

food assistance

the creation of a comfortable and safe

environment

health and healthy lifestyles, physical education

and children’s sports

In order to maximise its contribution, the Company

promotes and develops corporate volunteer activities

by encouraging employees to take part in charitable

and volunteer projects.

The key groups of beneﬁciaries are children, the

elderly, people in difﬁcult life situations and local

communities.

Upon the completion of each project, we receive

feedback from the non-proﬁt organisations

we work with.

Local communities

UP TO

Annual increase in the number

offamilies receiving support

through theBasket

of Kindness project

Long-term 30×30 goals

Medium-term goals for 2023

100

Increase compared with

2019inthe number offamilies

receiving support through

theBasket ofKindness project

by2023

The participation ofallstores

by2023 inaprogramme

aimed atﬁnding missing

people

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

LOCAL COMMUNITIES

126

Food assistance

Health

FOOD COLLECTION

In August 2015, X5, together with Foodbank Rus,

launched the Basket of Kindness national project

tocollect and distribute food to those in need.

In 2021, 3,769 stores took part in the project. Some

355.7tonnes of food was collected and distributed

tothe elderly, families with children and people with

disabilities. No fewer than 9,817 volunteers were

involved in the project. More than 184,900 people

received assistance.

In 2021, X5 Group launched a new means of providing

assistance: charitable food cards. Some 2,940 families

from 15 cities received cards for shopping

atPerekrestok stores, and Foodbank Rus adds

RUB1,000 to the balance every month.

HELP PROJECT

In 2021, Perekrestok supported the Help project run

bythe Here to Help Foundation. The retail format

invests in the development of the project’s digital

platform and is a general partner in the grocery retailer

category. In 2021, the Company donated about

RUB31million to the project. Thanks to our

cooperation with the Foundation, 1,216 beneﬁciaries

in26 Russian cities receive monthly food assistance

inthe form of a selection of 33 items weighing 20 kg

and valued at RUB 3.5 thousand.

CANDIES OF KINDNESS PROJECT

Through this project, customers at all Pyaterochka

stores can purchase Candies of Kindness at checkout

counters. RUB 5 from the sale of every candy helps

cover the cost of operations for beneﬁciaries

of the Life Line Foundation. In 2021, the project raised

almost RUB 10 million for the treatment of 45 seriously

ill children.

Comfortable and safe

environment

SAFE SPACE

In 2021, store employees and volunteer rescuers from

the Liza Alert search-and-rescue team helped

1,370people, including 68 children, return home.

TheSafe Space project was launched in the spring

of2019 at more than 2,600 Pyaterochka stores

inMoscow and the Moscow region, and that autumn

itwas expanded to every Pyaterochka store

inthe66regions where the retail format operates.

Perekrestok stores also joined the project in November

2020. Safe spaces are special areas in stores marked

by distinctive signage in the form of an orange

geolocation pin, which acts as a reference point for

anyone who is lost or disoriented. Anyone in such

asituation can enter a Pyaterochka or Perekrestok

store and make contact with a store employee or wait

until help is offered.

PREVENTION OF CHILD ABANDONMENT

With the support of X5, SOS Children’s Villages arrange

individual consultations according to a plan specially

developed for each needy family as well as a variety

ofevents, workshops, training courses, educational

assistance and comprehensive support for family

members. In 2021, 447 families (578 children and

747adults) beneﬁtted from the programme.

Plans for 2022

Increase in the number

offamilies receiving food

assistance through

theBasket ofKindness

project

UP TO

100

Share ofPyaterochka and

Perekrestok stores that

continue tosupport the

operation oftheSafe

Spaces programme tohelp

lost ordisoriented people

Develop

programmes

focused onlocal

communities

Piloting of

foodsharing in

several regions

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

RATIONAL CONSUMPTION OF RESOURCES

127

Under the sustainable development strategy approved

in December 2019, we continue to implement

measures aimed at supporting UN SDG 12 –

responsible consumption and production – which

wehave identiﬁed as a priority for X5.

In order to continue to improve our performance

inthisarea, we are also piloting and introducing new

and innovative ways to optimise our own resource

consumption and further encourage our customers

toreduce, reuse and recycle.

At the end of 2021, X5 afﬁrmed its commitment

tosustainable development by introducing

aDecarbonisation Plan and setting an ambitious goal

ofreaching carbon neutrality by 2050. Our target will

be reviewed against science-based criteria

over 2022

to ensure that we are on track tomeet the goals of the

Paris Agreement. We are also investing considerable

efforts into meeting our target of achieving a 30%

reduction in greenhouse gas (GHG) emissions intensity

per square metre of retail space by 2030.

First, we began a process ofcalculating indirect GHG

emissions, which covers most of our value chain

processes.

Moreover, X5 conducts climate risk

assessment and scenario analysis.

Please refer to the section “How We Manage Risk”

inthis Report and our forthcoming 2021 Sustainability

Report for further details.

An assessment of Scope 3 GHG emissions was carried

out for the ﬁrst time in 2020, resulting in an increase in

reported gross emissions in 2020 compared with 2019.

The inclusion of Scope 3 emissions in our calculations

ensures the integrity of our approach to assessing our

level of emissions, which is important for monitoring

the attainment of our climate targets.

Share of suppliers to develop

sustainable packaging

⁴

Share of private labels

sustainably packaged

Promote sustainable sourcing

programmes andprinciples

across thesupply chain

UP TO

Reduction in GHG emissions

persquare metre of retail space

Use of renewable energy

inX5operations

UP TO

Share of recyclable waste

from

X5operations to be sent

forrecycling by 2023

⁵

UP TO

Share of non-expired food waste

tobereprocessed by 2023

Reduction in GHG emissions

(Scope 1 + Scope 2) per

square metre of retail space

vs 2019

Share of energy from

renewable sources for

in-house operations

Reduction in ratio of waste

generation to retail sales

Rational

consumption

of resources

Long-term 30×30 goals

Medium-term goals for 2023

X5 announced its commitment to the Science Based Target initiative (SBTi) in December 2020.

X5 disclosed its direct (Scope 1) and indirect (Scope 2) GHG emissions in 2020.

X5 uses the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) for the assessment of climate-related risks.

In line with X5 Retail Group recommendations for suppliers.

Recyclable solid waste: plastic, cardboard, wrapping ﬁlm, banana boxes, wooden pallets, tires, scrap metal, etc.

Protecting the planet

Sustainable supply chain

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

RATIONAL CONSUMPTION OF RESOURCES

128

Promoting responsible consumption and use of resources

Perekrestok

Thirty-nine stores were connected

to our smart store system,

reducing energy consumption

by12% on average. In total,

416stores have been connected,

with plans in place to connect

100 more in 2022.

The refrigeration system was

integrated into the smart store

system at 189 stores, reducing

thecost of electricity by 4%.

Since 2021, Perekrestok has been

outﬁtting its refrigerated display

cabinets at 86 stores with

thermopane glass, which will

reduce stores’ energy

consumption by 11%; the

thermopane glass was purchased

in 2021, and installation is well

underway.

X5 consistently works to optimise our use ofresources.

In 2021, X5 converted 11 DCs tolow-carbon energy

sources. Now, all X5-owned Pyaterochka DCs have

moved to low-carbon energy sources. In2022,

Pyaterochka and Perekrestok will continue their shift

to green energy sources attheir stores and DCs.

Initiatives include theinstallation of solar panels and

the use of alternative-fuel vehicles for transportation.

Following a review of our sustainability performance

and related ongoing and planned investment projects,

the Company identiﬁed opportunities for improving

operational efﬁciency and set annual targets for

reducing GHG emissions through 2023 to limit its

climate impact.

All new outlets and stores slated for refurbishment

are being equipped with a smart store system, which

deploys special sensors, monitoring devices and

software to integrate into existing operating processes,

thereby helping to reduce energy consumption,

automate equipment control (for refrigerators,

refrigerated display cabinets, heating and air

conditioning units, lighting and heating solutions

forselling space and utility rooms) and minimise

therisk of accidents.

Pyaterochka

In 2021, Pyaterochka signed

anagreement to switch its stores

in the Karelia Region to renewable

energy sources. 17% of total

energy consumption in

Pyaterochka’s stores in the region

now constitutes green energy.

Pyaterochka is piloting a transition

to more environmentally friendly

CO2 refrigerants (the Podolsk DC

is the ﬁrst to pilot the new

refrigerants).

In 2021 four of our Pyaterochka

shops installed solar panels.

STRATEGIC REPORT

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RATIONAL CONSUMPTION OF RESOURCES

129

Waste management

IMPROVING INTERNAL WASTE

MANAGEMENT PROCESSES

PREVENTING WASTE

GENERATION

Improving waste management is a key

priority of X5. The Company’s retail formats

have been working hard to evaluate and

advance their waste management

processes and to educate their employees

in this direction.

Pyaterochka has improved its waste

management processes – for example,

bysetting standards for the generation

ofrecyclable materials for each store

depending on its turnover, improving

thesystem for monitoring the volume

ofrecyclable materials being transferred

from stores to DCs, equipping DCs with

scales and screening incoming materials

inorder to check actual amounts against

the established standards.

Improving the accuracy of inventory

planning is an important tool for reducing

waste generation.

We continue to manage waste generation

by reducing waste through big data–driven

demand modelling, more frequent product

deliveries, better adaptation of the product

mix to customer needs, smaller minimum

orders negotiated with suppliers and strict

compliance with temperature requirements

during transportation.

We are piloting new solutions that help

prevent waste: in 2021, Perekrestok

launched a pilot of irrigated shelves

toextend the shelf life of greens.

Doing away with printed receipts

Both Pyaterochka and Perekrestok now

enable customers to choose electronic

receipts instead of printed ones, thereby

reducing wastepaper. Customers can

choose this option in each retail format’s

mobile app.

RECYCLING OF WASTE

GENERATED BY X5

Vprok.ru Perekrestok continued collecting

delivery plastic bags for further recycling.

Customers can return plastic bags used

during delivery to the courier.

X5 continued projects with Unilever and

Henkel, collecting used plastic and

aluminium containers via reverse vending

machines installed in our stores.

Wecontinued to expand our reﬁlling project

for household chemical containers with

BioMio by installing reﬁlling stations at

Perekrestok stores. Containers for collecting

clothes were installed at Perekrestok.

Weadded a range of interchangeable soft

containers produced with 50% less plastic.

In partnership with Henkel, 343 Perekrestok

supermarkets installed containers for

collecting plastic caps, the recycled plastic

from which will be used to create special

ramps that will be installed at the entrance

to the format’s supermarkets in various

regions.

In an effort to expand the reuse of materials

in its logistics operations, Pyaterochka

began repairing pallets at DCs so that they

can be reused.

FOOD WASTE

As a food retailer, we are committed

tominimising food waste and the impact

ofits disposal.

All food waste generated by X5 stores

issent to third parties for landﬁlling

orrecycling. We are looking for opportunities

and piloting technological solutions

totransfer food waste for further processing.

As noted above, in 2020, Pyaterochka and

Perekrestok launched an initiative

toincrease deliveries of unsold food

forrecycling into animal feed; in 2021,

Vprok.ru Perekrestok joined the initiative

aswell. Since the project was launched in

2020, we have increased deliveries ﬁvefold.

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

RATIONAL CONSUMPTION OF RESOURCES

130

Developing a responsible supply chain

In June 2020, X5 Group developed and published

sustainability recommendations for suppliers based

on an analysis of publicly available research; materials

from government, public and environmental

organisations; a supplier survey; and the results

of open expert hearings.

In 2021, X5 published detailed recommendations on

sustainable packaging for 13 product categories; we

worked on the recommendations with manufacturers,

suppliers, industry associations and the expert

community, and we received feedback from 23

partners and 16 experts in total. We also held an open

discussion of the project that was attended by over

100 stakeholder representatives. The document

includes speciﬁc examples of both the most and least

preferred raw materials for packaging. We continue to

work on reﬁning the recommendations and are open

to dialogue with all partners in order to share our

experience for the beneﬁt of the entire market.

X5 updated its procurement policies in line with its

sustainability recommendations for suppliers. In

August, we developed a special training course on the

topic of sustainable development for X5’s suppliers,

which is publicly available on the Company’s website.

X5 Group will keep a record of suppliers that follow its

sustainability recommendations via a dedicated survey

on its Supplier Portal (the Company’s ofﬁcial interface

for supplier relations) and will also focus on raising

supplier awareness and improving feedback collection

in relation to sustainability. Going forward, the

Company plans to verify suppliers’ ESG performance

on a selective basis by reviewing their public reporting

and interacting directly with suppliers. In addition, X5’s

sustainability recommendations are being

incorporated into joint marketing programmes with

suppliers.

We also added mandatory sustainability ﬁelds to our

Supplier Portal. The ﬁelds contain information on

packaging as well as voluntary certiﬁcation.

The recommendations do the following:

establish a list of voluntary environmental and social

certiﬁcations for different product categories to

inform consumers of responsible production

practices

reﬂect X5’s vision for sustainable packaging,

including reusable packaging material, its potential

to be recycled in Russia, the use of mono-materials,

reusable packaging and lean design

specify the most and least preferred raw materials

for packaging

Plans for 2022

In 2022, Pyaterochka will continue to use the smart store

system in its new stores while upgrading existing stores

and improving its monitoring of heat and electricity

consumption. In addition, we will start using a more

environmentally friendly refrigerant that is slated to replace

refrigerants based on hydroﬂuorocarbons (HFCs). In terms

of energy generation, we are going to prepare a feasibility

study for the installation of biogas generators at DCs and a

number of large supermarkets, and we are also going to

continue developing the use of alternative energy sources,

including the installation of solar panels.

We continue to look for ways to introduce greener

transportation methods across X5. We are converting

vehicles to natural gas alternatives based on infrastructure

capacity. We have begun a pilot programme of electric

and hydrogen-powered trucks, and we have started

purchasing light trucks in line with our Decarbonisation

Plan aimed at reducing GHG emissions.

Concerning waste management, Pyaterochka will continue

to automate its monitoring of food waste while also

reducing the overall volume of food waste by increasing

the amount of non-expired food sent for recycling by 15%

year-on-year. In addition, we will promote recycling among

customers by carrying out eco-projects in our stores.

We will also continue using bags made of at least 35%

recycled plastic and carrying out our work to introduce

sustainable/recyclable packaging for private label

products.

Perekrestok will also continue its pilot project to convert

non-expired food into animal feed. The recycling of store

waste through DCs will continue, and we have already

introduced a mandatory requirement for all suppliers

to use recycled plastic for bags.

In March 2021, after the announcement of sustainable

packaging guidelines, we began work to introduce these

guidelines for our private label goods and promote them

among suppliers. In 2022, we will continue working in this

direction.

For consumers, the further rollout of reverse vending

machines, containers and battery collection points will

facilitate recycling.

In 2022, we will continue to educate and enlighten our

customers about eco-friendly habits. Perekrestok will

introduce a single collection platform at its stores, as well

as bins for sorting waste at 400 Perekrestok supermarkets.

In addition to promoting eco-friendly habits, we plan to

launch programmes to develop food sharing together with

partners. Food sharing will support X5’s waste reduction

and waste management efforts and offers a sustainable

solution to saving unsold food.

Looking ahead, we remain committed to expanding the

use of renewable energy sources in our operations and

continuing work with partners to reduce Scope 3 GHG

emissions.

Reducing consumption

ofdisposable plastic

We are implementing a project to promote reusable

bags and weighing sacks for fruits and vegetables.

Pyaterochka encourages its customers to buy

eco-bags made of raw cotton and to use reusable

weighing sacks for fruits and vegetables by crediting

double bonus points to their loyalty cards. This is the

ﬁrst such circular economy initiative in Russia.

Pyaterochka and Perekrestok updated the

requirements for all plastic bags sold at their checkout

counters, making it compulsory to use a high

percentage of recycled materials. All of Pyaterochka’s

new-concept stores have started using shopping

baskets made of recycled plastics, and all

new-concept stores will use such baskets from 2020

onwards. Perekrestok’s transition to similar baskets

is in progress. Using recycled plastic in baskets is now

a mandatory requirement for manufacturers engaged

by all our retail chains.

In addition to introducing reusable sacks for weighing

fruits and vegetables and lamps made from recycled

materials, Pyaterochka has launched a marketing

campaign conducted in tandem with the Russian pop

singer the Russian pop singer Glukoza called “Going

Green Is Easier than It Seems” – the campaign

encourages the purchase of eco-products, such as

food containers made from recycled plastic as well as

water bottles.

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SUSTAINABLE DEVELOPMENT

HEALTH

131

Perekrestok expanded its Green

Line by

items. The Green Line

range offers products that help

customers lead a healthy lifestyle

with foods like gluten-free bread

and meat alternatives.

121

We promoted healthy lifestyles

tocustomers during our Healthy

Lifestyle Festival, where we

introduced customers to a

variety of products inthe healthy

lifestyle category.

Healthy corners and healthy

shelves can be found at both

Perekrestok andPyaterochka

stores.

The healthy lifestyle assortment includes gluten-free, sugar-free, organic, farm-based, natural,

high-protein, low-calorie and vegan products

2021 highlights

Health

In line with our sustainable development

strategy, promoting healthy lifestyles has

become a key part of our retail formats’

CVPs.

This includes increasing the share of healthy

foods in our assortment and implementing

speciﬁc measures to attract customers’

attention to healthy options in stores. These

initiatives are described in greater detail in

the Pyaterochka and Perekrestok

performance review sections (pages 51–57

and 58-64, respectively) and will be included

in X5 Group’s 2021 Sustainability Report.

Medium-term goals for 2023

Share of fresh products

and fruits and vegetables

UP TO

Expansion of the healthy

lifestyle assortment

Long-term 30x30 goals

Expand the healthy

lifestyle assortment

Promote responsible

programmes and

principles across the

supply chain

STRATEGIC REPORT

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PEOPLE REVIEW

132

People review

Supporting change

2021 highlights

X5 Group celebrated its 15th anniversary in2021, which was

another year oftransformation and renewal. Emphasising

itstransition from retail to food, the Company updated its

name and changed its logo as an indication of the

importance of sustainability and caring for the community.

The well-being of staff – health and safety, improved working

conditions, development and career growth – remains a

priority for management and HR, inaddition to supporting

the transformation ofthe organisation’s management

model.

The Company is focused on bolstering collaboration

andsynergies among its divisions, improving internal

efﬁciency and creating an entrepreneurial environment

through the expansion of powers and responsibilities

atalllevels of management. Digital tools, ongoing

automation and advanced HR analytics increased

theorganization’s ﬂexibility and speed in decision-making

and supported thepersonalisation of X5’s interaction with

each group ofemployees – run, change and disrupt.

X5’s HR processes are focused on managing the employee

experience: by identifying needs, providing feedback,

conducting research and testing hypotheses, we are moving

towards the high-quality results our workforce expects.

By taking a systematic, integrated approach to team

management, applying best Russian and international

practices and paying careful attention to our people and

their needs, X5 has become an HR trendsetter and is on

itsway tobecoming the best-possible employer for its staff.

The transition to a new management operating

model continued to improve the speed and

precision of operational decisions, both at the level

of X5 as a whole and in the Group’s individual

assets.

X5’s HR function supported the Company’s

expansion through successful staff acquisition

andretention in the face of growing competition

fortalent and the restructuring of the labour market.

In line with its strategy, the Company established

the new businesses X5 Media and X5 Bank,

transitioned Chizhik from a project to a retail format

and integrated Mnogo Lososya into its operations.

All X5 assets are systematically improving working

conditions and constantly monitoring market wages

for line personnel in order to ensure that X5’s offer

remains competitive. Flexible systems of incentives

are being developed for various categories

ofemployees, and a wide range of beneﬁts

areavailable to staff. For example, the retail staff

ofthePyaterochka and Perekrestok retail formats

have access to a new beneﬁt: telemedicine.

X5 Group fully adapted its processes in line with

COVID-19-related working conditions.

Measures to ensure the safety of employees

evolved into comprehensive support for the health

and well-being of staff. The Company has a system

in place for monitoring the health of employees:

aset of processes that enables it to receive rapid

updates about sick employees and their condition

in every business, region and site. In 2021,

vaccination data was added to this.

Thanks to a large-scale vaccination campaign,

thepercentage of X5 staff vaccinated against

COVID-19 continues to grow. By taking a proactive

approach to the health of its workforce, X5 was able

toachieve a lower rate of COVID-19 infection

among its employees than in the country

asawhole.

82.5

Employee engagement

compared with 77.7% in 2020

29.2

Net promoter score (eNPS)

in2021

rose from 25.4% in 2020

This means that there are more

peoplein the Company who see it

asagood place to work compared

withthose who are not prepared

torecommend the Company

as a potential employer.

Staff turnover

decreased by 2 p.p.

STRATEGIC REPORT

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PEOPLE REVIEW

133

2021 highlights

Share of vacant

management-level positions

within X5 Group that were

ﬁlled byinternal candidates

in2021

Share of X5 managers

whoarewomen

men and women follow the same paths

in terms of career progression

Equal

Opportunities Policy

In accordance with its

, X5 guarantees

employees equal treatment regardless

of gender.

A pilot programme encouraging entrepreneurship

was launched for the managers of Pyaterochka

andPerekrestok stores. The development of an

entrepreneurial approach aligns the potential

andinterests of store managers with X5 Group’s

development goals.

X5’s methodology for succession and talent

development was updated.

To support internal career growth, a page showing

all vacancies open to X5 Group employees was

launched on the X5 corporate portal, and

programmes for the development of a candidates

pool for all personnel categories continued.

A single methodology concerning X5’s talent pool

was put in place for personnel committees.

Itsintroduction enables the Company to enhance

the internal exchange of promising employees

andto bring to light the potential of top talent

within X5 Group.

The Company is making a systematic effort

toimprove the efﬁciency of the HR function:

itisautomating and simplifying processes,

switching to electronic personnel document

management, transferring HR services to a digital

format and providing platforms and mobile

applications, and making services available to every

employee.

The Company is putting in place a tech-based

HRplatform that makes it possible to quickly reuse

developments and services from various Group

divisions. This is how we are creating a single digital

space with solutions available to functions and

employees.

HR analytics is becoming more diverse and

in-depth both at the Group level and across divisions.

This is helping us improve the quality and impact

ofour decisions. For example, our HR monitoring

product – a payroll management system based

onreal-time data on the labour market – has been

incorporated at both Pyaterochka and Perekrestok.

Analytical tools are being made available to more

and more managers. For example, our Clue product

(data-driven personnel management) is already

available at 100% of Perekrestok stores.

A joint educational programme called “Innovations

in Retail” was launched by the National Research

University Higher School of Economics and

X5Group; X5 opened a Retail Data Analysis

Department in the Phystech School of Applied

Mathematics and Informatics at the Moscow

Institute of Physics and Technology.

In 2021, the Company was, according to Forbes,

oneof 11 platinum employers in Russia; it was also

among the top 20 most attractive companies

forITspecialists in the Changellenge rating,

andinthe top 30 employers in the “Best

oftheBest” rating by Future Today. Х5 Group,

Pyaterochka andPerekrestok took ﬁrst, second

andthird place, respectively, among grocery

retailers inHeadHunter’s rating of the best

employers inRussia.

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134

Management model

Declaration on Human Rights

Protection

Incentives, fair remuneration andworking conditions

Every X5 business has its own HR function, which

reports directly to the respective managing director.

The work of new businesses is supported by the

business partnership model. In addition to recruitment

and onboarding, evaluations, compensation and

beneﬁts management, as well as personnel training

and development, the HR function is responsible

fororganisational design, HR brand development

andinternal communications.

The central ofﬁces of X5’s retail formats carry out

strategic management of HR processes and shape key

HR planning for their businesses. In 2021, the Company

continued the trend towards augmenting the powers

of regional divisions by expanding the range of HR

processes in their area of responsibility.

X5 Group has a remuneration and incentives system

inplace that outlines general corporate rules;

atthesame time, the system takes into account the

speciﬁcs of the Company’s retail formats, digital

businesses and developing assets.

In the context of our Equal Opportunities Policy,

wearecommitted to always ensuring that employees

are treated equally as well as to providing fair

remuneration in accordance with qualiﬁcations, skills,

effort and time spent, the complexity of the work

performed, and the quantity and quality of labour

invested. Compensation does not depend on age,

gender, race, religious beliefs, sexual orientation

orphysical abilities. Company-wide guidelines and

approaches to staff remuneration are set out

intheX5Policy on Remuneration.

In 2021, X5’s retail formats began developing

entrepreneurial incentive programmes for store

managers. Entrepreneurial managers have more

authority and greater opportunities in terms of how

they manage standard processes. The incentive

component, which calls for additional remuneration

inthe event the respective store’s ﬁnancial results

exceed targets, applies to both entrepreneurial

managers and store employees. The development

ofan entrepreneurial approach aligns the potential

andinterests of store managers with X5 Group’s

development goals.

X5’s Declaration on Human Rights Protection deﬁnes

principles and rules in respect of compliance with

andpromotion of high international standards for

theprotection of human rights at every level of the

Company’s operations:

As a complement to the Code of Business Conduct

and Ethics, the Declaration on Human Rights

Protection is a binding document for all X5 employees.

Prohibition of discrimination and forced labour

Prohibition of harassment

Respect for cultural diversity and values

Respect for the right to freedom of assembly

andassociation

Occupational health and safety

Code of Business Conduct

andEthics

The Company is building a corporate culture based

onshared values, adherence to ethical standards,

mutual respect and compliance with legal

requirements. Our corporate values are respect,

customer-centricity, honesty and integrity, as well

asacommitment to excellent performance. These

values and principles are reﬂected in the Code

ofBusiness Conduct and Ethics (the "Code"), related

policies and procedures, as well as training, evaluation

and development programmes. The Code of Business

Conduct and Ethics sets standards of conduct that

employees are expected to strictly observe in relations

with customers, suppliers and other employees, as well

as a set of basic principles that guide our business

practices.

The HR function supports the Company’s transition

to a new management operating model: X5’s

Business Support department set up a dedicated

Legal Support Centre and established an HR unit,

aﬁnance unit and a non-commercial procurement

management unit; the centralisation of HR

processes at the multifunctional shared service

centre in Nizhny Novgorod is ongoing.

Corporate culture and values

In support of the Group’s strategy, the Company’s

management model is evolving towards a less

hierarchical one that provides more freedom and

authority to X5’s businesses. Based on a common

strategy, mission and values, X5’s corporate culture

supports the Company’s evolution. In 2021, the agenda

for development, incentives, training and

entertainment programmes and activities included

theissues of partnership, the quality of collaboration

between the Group’s divisions, entrepreneurship

andoperating efﬁciency.

X5 supports a systematic approach to

communicating with and informing staff about

changes and the Company’s operations through

allavailable channels. In 2021, COVID-19 vaccination

as well as support for the transformation of X5’s

management operating model were key topics

ofcommunication.

During the year, the Company conducted a

communications campaign dedicated to X5 Group’s

15th anniversary, called “The First 15”. Mindful

ofworking in a pandemic, it focused on the health

and well-being of staff, as the health of the business

depends on employees’ energy and engagement.

Another theme of the anniversary year was the

recognition of employees who have spent at least

15years working for X5.

The X5 Home Ofﬁce programme for remote and hybrid

work is being developed: a tool for organising remote

work on the part of MS teams was launched, as

wasaservice for reserving workplaces and meeting

rooms. The Company began delivering equipment and

souvenirs to employees from its online store to parcel

lockers through its 5Post logistics service. The hybrid

online–ofﬂine format opened up new opportunities

toengage more employees in X5’s traditional

operations.

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PEOPLE REVIEW

135

Plans for 2022

In 2022, the Company will continue to transform its

management model, including by developing its Board

of Directors, amending the powers ofits collegial

management bodies and expanding the powers

of on-site managers.

X5 will improve its business management ﬂexibility,

process adaptability and service personalisation

forboth customers and employees. In 2022, the HR

function will focus on the development of ﬂexible

resource planning tools, including work with shift

schedules for various employee groups, the ongoing

transition to electronic document management,

thedigitalisation of services and process automation,

and the enhancement of HR analytics.

Retaining staff and increasing their engagement

through comprehensive work in all HR areas, from

improving working conditions to personalised

onboarding and training programmes, will remain

apriority for the function. Work will continue on staff

well-being as part of the Company’s efforts to look

after its employees and their health. Career

opportunities will be expanded within various

X5assets by means of internal transfers.

Occupational health and safety is one ofthe

most challenging and most important aspects

of creating a healthy workforce, since the

average employee spends eight hours a day

at work.

We are constantly focused on identifying and implementing

measures to improve our occupational health and safety (OHS)

practices to create a sustainable culture of safety. In order

to achieve this, we adhere to the following principles:

Occupational

health and

safety

Approach to occupational health and safety

Be a leader: X5 managers at all

levels pay special attention to

OHS issues and set an example

for employees byadhering to the

principles ofasustainable safety

culture; employees are actively

involved in improving

occupational health and safety, as

well as personal and public safety

at work and at home.

Identify dangers: we seek to

identify hazards, regularly assess

occupational risks and analyse

the causes of and circumstances

surrounding accidents.

Set goals: we develop action

plans tomitigate risks to the life

and health ofemployees, as well

as the risks of property damage.

Improve the OHS management

system: our OHS management

system complies with national

standards and practices; we have

a process in place aimed at the

continuous improvement of the

system.

Ensure a safe working

environment: our equipment,

premises and workplaces comply

with current national OHS

standards.

Improve qualiﬁcations: we

monitor the qualiﬁcations of every

employee to ensure that they are

in line with their duties; we also

strive to ensure that employees

continue to develop their

professional skills and

OHS-related knowledge.

Invest in personnel: we incentivise

employees to comply with OHS

requirements and to play a role

inimproving the OHS

management system.

Focus on safety: our employees

behave responsibly in respect of

their own life and health and the

life and health of those around

them in the workplace.

Managers at all levels play a leading role in these activities.

X5 has adopted an OHS Policy. As a responsible employer, we guarantee

every employee the right to a favourable work environment that meets

state OHS regulations. Aware of our responsibility to create and maintain

safe working conditions and to protect the life and health of our employees,

X5 is committed to carrying out OHS-related activities; in doing so, it is

guided by the following principles:

complying with legal requirements

prioritising the life and the health of employees

continuously developing a culture of safety

creating and ensuring a safe working environment for suppliers

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

OCCUPATIONAL HEALTH AND SAFETY

136

STRATEGIC REPORT

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OCCUPATIONAL HEALTH AND SAFETY

137

Health and Safety

Manager

Pyaterochka

(distribution

centres)

OHS specialists

Regional OHS

specialists

Head of Health

andSafety

Perekrestok

(distribution

centres)

OHS specialists

Regional OHS

specialists

Health and Safety

Manager

Agro-Avto

(transportation)

(transport service)

OHS specialists

Head of Health

andSafety

Perekrestok Online

(online stores)

OHS specialists

Chief Health and

Safety Specialist

Perekrestok Vkusov

Senior Health

andSafety Engineer

RVI

(imports)

(hubs)

OHS specialists

Lead Health and

Safety Specialist

X5 Technologies

(IT)

Other subsidiaries

Chief Health and

Safety Specialist

Karusel, Chizhik, X5

Hyper

Lead Health

andSafety

Specialist

5Post

Head of Health

andSafety

Synergia

Head of Health

andSafety for X5

X5’s OHS organisational chart

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

OCCUPATIONAL HEALTH AND SAFETY

138

Our main OHS-related activities include:

monitoring employees’ rights and legally protected

interests in the ﬁeld of OHS

planning OHS-related activities and developing

measures to improve working conditions in order

toprevent workplace injuries and occupational

diseases

organising OHS-related activities in accordance with

Russian legislation

inspecting working conditions and workplace safety

assessing work-related risks and informing

employees about any identiﬁed risks

providing compensation for work in harmful

orhazardous conditions

providing employees with personal protective

equipment

providing OSH training

operating and improving the OHS management

system

Protecting the health ofemployees

Since a healthy workforce is an important prerequisite

for household incomes, productivity and economic

development, restoring and maintaining the capacity

to work is an important function. Maintaining the health

of employees isanintegral part of X5’s OHS Policy.

The main measures that X5 takes to protect the health

of its employees include arranging safe working

conditions, conducting regular medical examinations,

providing ﬁrst-aid training and developing

a health-conscious culture in the workplace.

Managing occupational risks

Occupational risk management is at the foundation

ofour OHS management system. Identifying

occupational risk factors, determining safe and harmful

exposure levels related to such risk factors, monitoring

workplace health and safety, analysing the causes

ofaccidents and occupational diseases.

and a number of other issues are included intherange

of tasks involved in assessing and managing

occupational risks. Our policy, which is aimed

atimproving working conditions, establishes a risk

risks inherent in employees’ work.

Improving OHS qualiﬁcations

We have a duty to arrange OHS training in order

toimprove the relevant qualiﬁcations of our

employees. Training employees in OHS standards

isone of our strategic preventive measures aimed

atavoiding workplace injuries and occupational

diseases.

Upon being hired, every employee receives an e-mail

about the need to take part inOHS training, along with

a link to an interactive training course.

Monitoring compliance

Continuous preventive monitoring of working

conditions and compliance with OHS standards

intheworkplace – one of the most effective means

ofpreventing accidents, workplace injuries and

occupational diseases – is carried out through internal

audits, as a result of which deviations from OHS

regulations are identiﬁed, and the necessary measures

to address those deviations are promptly taken.

Periodic assessments of OHS compliance with state

regulations is carried out to improve theeffectiveness

of OHS management within our subsidiaries and

business units.

Safety management for external contractors

The main goals of OHS management in relations with

external contractors are to coordinate efforts and

achieve consistent results based on trust, while

systematically monitoring the implementation of OHS

requirements on the part ofthecontractor’s personnel.

All employees ofcontractors working on X5 property

take part ina mandatory brieﬁng on occupational

health andsafety for third-party organisations.

Preventing workplace injuries

It is crucial that measures be put in place to avoid

workplace injuries.

X5’s Occupational Safety Department has identiﬁed

the following priorities for the prevention of workplace

injuries:

Identifying and preventing possible hazardous

situations in the workplace and ensuring that

employees know how to avoid and address such

situations.

Carrying out campaigns and outreach work toraise

employees’ awareness.

Continuously training employees at all levels

onworkplace safety rules.

Investigating the causes of workplace accidents

and occupational diseases, and developing and

implementing measures to prevent their recurrence.

Measures to prevent workplace injuries are not limited

to the general measures described above; every retail

network and business unit – depending on its

particular needs – takes additional measures to avoid

workplace injuries.

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

OCCUPATIONAL HEALTH AND SAFETY

139

2021 OHS highlights

The successful functioning

oftheOHS management system,

including the following:

A special assessment of working

conditions wasconducted covering

100% of positions inaccordance with

approved schedules.

OHS brieﬁngs were carried out

inaccordance with the approved

procedure for OHS training and

attheestablished intervals.

OHS training was provided at licensed

training centres and business

commissions inaccordance with

theestablished schedule andatthe

established intervals.

Internal audits (including gemba walks)

werecompleted in order to identify

andprevent OHSviolations

inaccordance with the approved

schedules.

X5’s business divisions took part

inaprogramme to cover injury

prevention expenses through

theSocial Insurance Fund, which

helped the Company save about

RUB18million in 2021.

Thanks to X5’s compliance with

OHSrequirements and health

standards, no cases ofoccupational

diseases were reported.

Key OHS managers at X5’s business

divisions took part in an OHS

exhibition in Moscow, which enabled

them to improve their knowledge

and exchange experiences

inresolving pressing issues

withcounterparts from other

organisations.

A number of functions were

updatedandimproved as part

ofanautomated programme

toensure that employees

undergomedical examinations.

Pyaterochka

Pyaterochka launched a visualisation

tool toassess the quality of goods

delivered tostores, which reduced

injuries caused bypallets that

arenot properly stacked.

As part of a questionnaire in the

system, employees evaluated the

quality of wrapping and packaging;

feedback is sent to logistics, where

corrective actions are taken.

Perekrestok

Routine OHS processes

weretransferred to the shared

services centre, which made

itpossible to improve them

andreduce the time needed

fortheirimplementation.

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

OCCUPATIONAL HEALTH AND SAFETY

140

OHS priorities for 2022

Development of leadership

and a culture of safety

Dissemination of best Russian

and international practices

in terms of improving working

conditions and occupational

health and safety

Transition to electronic

document management in the

following areas of

occupational health and

safety: OHS training and

special assessments of

working conditions

Launch of a project to

automate record-keeping

concerning the issuance of

protective clothing at

Pyaterochka and 5Post

Prevention of workplace

injuries and occupational

diseases

Review of by-laws in

connection with amendments

to the Labour Code of the

Russian Federation and

amendments to OHS laws

Implementation of a project

to automate record-keeping

related to medical

examinations (a medical

examinations portal) for all X5

business units (four business

units planned for 2022)

Implementation of action

plans to improve OHS

conditions within business

units

Plans to describe OHS

processes within Pyaterochka

working groups in an effort

to optimise them

Perekrestok

The introduction of the

fundamental rules on

occupational health and safety

atdistribution centres and a focus

on safe operations at distribution

centres

(a number of events are planned

to train the management

ofdistribution centres

onthefundamental rules and

toensure that workers are familiar

with them)

Governance structure

142

How we manage risk

150

Supervisory and Management Boards

159

Report of the Supervisory Board

161

Remuneration Report

167

Corporate

governance

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

142

Governance

structure

The Company has a two-tier

board structure, comprising

aManagement Board and

aSupervisory Board.

The Management Board and the Supervisory Board

are independent of one another and accountable to

the General Meeting of Shareholders. The overview

below shows the governance structure of X5.

General Meeting ofShareholders

Supervisory Board

Management Board

Executive Board

Audit and Risk Committee

Sustainable Development andInnovation Committtee

Nomination and Remuneration Committee

Pyaterochka

Karusel

Chizhik

X5 Retail Group N.V. is a public limited-liability company

incorporated under the laws of the Netherlands, with global

depositary receipts listed on the London Stock Exchange.

The Company is required to comply with, among other

regulations, the Dutch Corporate Governance Code

(the “Code”). The full text of the Code can be viewed on

X5’s website at www.x5.ru.

In accordance with the Code, a broad outline of the

Company’s corporate governance structure is presented

inthis section, including any deviations from the Code’s

principles and best practices. X5 aspires to high standards

ofcorporate governance and is committed to a corporate

governance structure that best supports its business, meets

the needs of its stakeholders and is in compliance with

applicable rules and regulations.

Following Brexit, X5 Retail Group N.V., as a Dutch company

whose shares are listed on the London Stock Exchange,

isasof 1 January 2021 no longer considered to be a listed

company whose securities are admitted to trading on an

EU-regulated market. This report will reﬂect the changes in

our regulatory framework following Brexit.

Corporate

governance

report

Digital

businesses

Perekrestok

Given the composition of the Supervisory Board following recent events, the duties and responsibilities of the Sustainable Development and Innovation Committee

will be included in the remit of the full Supervisory Board as of 16 March 2022.

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

143

Management Board

The Management Board has ultimate responsibility for

the overall management of the Company and oversees

all corporate governance activities. It is accountable for

the Company’s pursuit and achievement of corporate

goals and objectives, its strategies and policies.

TheManagement Board is responsible for complying

with allrelevant laws and regulations, for managing

therisks associated with the Company’s activities and

for ﬁnancing and external communication.

In managing X5’s general affairs and its day-to-day

operations, the Management Board is supported by the

Executive Board, which was established to provide for a

leadership team at the level of the Company’s operating

subsidiaries in Russia in order to best support X5’s

strategy and businesses at the local operating level.

The current members of the statutory Management

Board and the Executive Board (the broader

management team that handles day-to-day strategic,

operational and ﬁnancial issues), including their

biographies, are presented on pages 48–50 and161.

In 2021, the Management Board conducted a self-

assessment by means of a questionnaire. Items that

were assessed and discussed included the

composition of the Management Board, its role versus

that of the Supervisory Board and Executive Board, its

tasks and duties as well as remuneration. The results of

the evaluation will be taken into account in 2022.

Supervisory Board

NAME

YEAR

OFBIRTH

YEAR OF FIRST

APPOINTMENT

YEAR OF POSSIBLE

REAPPOINTMENT

Peter Demchenkov

(Chairman)

1973

2015

2023

Nadia Shouraboura

1970

2018

2022

Marat Atnashev

1977

2020

2023

Alexander Tynkovan

1967

2021

2024

Karl-Heinz Holland

1967

2018

−

Stephan DuCharme

1964

2015

−

Mikhail Fridman

1964

2006

−

Richard Brasher

1961

2021

−

Geoff King

1965

2015

−

Michael Kuchment

1973

2015

−

NAME

YEAR

OFBIRTH

YEAR OF FIRST

APPOINTMENT

END OF

CURRENT TERM

OFAPPOINTMENT

Igor Shekhterman

1970

2015

2023

Frank Lhoëst

1962

2007

2023

Quinten Peer

1974

2019

2023

The Supervisory Board is responsible for supervising

and advising the Management Board and overseeing

the general course of affairs, strategy and operational

performance of X5 and its businesses. It ensures that

external experience and knowledge are embedded in

the Company’s operations. In performing its duties, the

Supervisory Board takes into account the relevant

interests of the Company and all its stakeholders, and,

to that end, considers all appropriate interests

associated with the Company and its afﬁliated

businesses, including corporate responsibility issues

that are relevant to the Company. Major business

decisions require the approval of the Supervisory Board.

The Supervisory Board is responsible for monitoring

and assessing its own performance.

The Supervisory Board determines the number of its

members. X5’s Supervisory Board currently consists

offour members, with a majority of three independent

members. The current members, including their

biographies, are presented on page 159.

The Supervisory Board has prepared a proﬁle of its size

and composition, taking account of the nature of the

Company’s business and its activities and the desired

expertise and background of the members of the

Supervisory Board. The Supervisory Board evaluates its

proﬁle and composition annually. The results of the

evaluation in 2021, along with the Board’s proﬁle and

skill matrix, will be taken into account in future Board

nominations. For further details, please refer to the

Supervisory Board Report on pages 161–166.

Starting in 2020, the Supervisory Board resolved to

reduce the term of (re-)appointment for Supervisory

Board members to a maximum of three years, to

promote agility and diversity and to create more

ﬂexibility in view of rapidly changing skill requirements

at the Supervisory Board level. The total term of ofﬁce

may not exceed 12 years. The Supervisory Board has

prepared a retirement and reappointment schedule to,

as far as possible, prevent simultaneous reappoint-

ments. The Supervisory Board’s proﬁle and rotation

plan can be viewed on the Company’s website.

Composition and reappointment schedule

of the Management Board

Composition and reappointment schedule of the Supervisory Board

The terms of Nadia Shouraboura will expire

in 2022.

Richard Brasher and Alexander Tynkovan

were appointed on 12 May 2021.

Karl-Heinz Holland stepped down

asof12May 2021. Stephan DuCharme

andMikhail Fridman stepped down

asof1March 2022. Richard Brasher

stepped down as of 4 March 2022. Geoff

King stepped down as of 11 March 2022.

Michael Kuchment stepped down as

of25March 2022.

In accordance with the Supervisory Board’s

Rules of Procedure, a Supervisory Board

member who directly or indirectly holds

atleast 10% of the shares in the issued

share capital of the Company may hold

ofﬁce for more than 12 years and is eligible

for reappointment after that term (see

“Compliance with the Dutch Corporate

Governance Code” in this report).

2, 3

3, 4

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

144

Committees of the Supervisory Board

Audit and Risk Committee

Nomination and

Remuneration Committee

Sustainable Development

and Innovation Committee

Composition of the Supervisory Board Committees

The Audit and Risk Committee assists the Supervisory Board in overseeing

the integrity of X5’s ﬁnancial statements, system of internal business

controls and risk management, ﬁnancing and ﬁnance-related strategies,

taxation, the Company’s compliance with legal and regulatory requirements,

as well as the qualiﬁcations, performance and independence of the external

auditor and the performance of the internal audit function. Furthermore, the

Audit and Risk Committee advises the Supervisory Board on handling and

deciding on reported (potential) conﬂicts of interest and/or related party

transactions involving members of the Supervisory Board and members

of the Management Board.

The Nomination and Remuneration Committee recommends the

remuneration policy for the Management Board to be adopted by the

General Meeting of Shareholders, prepares proposals for the Supervisory

Board for remuneration of the individual members of the Management

Board in line with the remuneration policy and advises the Management

Board on the level and structure of compensation for other senior

personnel. The Nomination and Remuneration Committee also advises in

respect of the selection and appointment of members of the Supervisory

Board, the Management Board and the Executive Board.

The Sustainable Development and Innovation Committee assists the

Supervisory Board in its responsibility to advise on the Company’s

long-term vision on sustainability, strategy and target setting, monitor the

Company’s performance on sustainability targets and oversee X5’s

e-commerce activities and initiatives in the area of technical and

commercial innovation.

The Supervisory Board currently has three standing

committees: the Audit and Risk Committee, the

Nomination and Remuneration Committee and the

Sustainable Development and Innovation Committee.

The members of each committee are appointed by the

Supervisory Board and from among its members. Each

committee has a charter describing its role and

responsibilities and the manner in which it discharges

its duties and reports to the full Supervisory Board.

These charters are included in the Rules of Procedure

of the Supervisory Board, which can be viewed on X5’s

website. In September 2021, the Innovation and

Technology Committee was renamed the Sustainable

Development and Innovation Committee to strengthen

the focus of the Supervisory Board on ESG matters.

NAME

AUDIT AND RISK

COMMITTEE

NOMINATION AND

REMUNERATION

COMMITTEE

SUSTAINABLE

DEVELOPMENT AND

INNOVATION COMMITTEE

Peter Demchenkov

Member

Chairman

Nadia Shouraboura

Chair

Marat Atnashev

Member

Alexander Tynkovan

Member

Given the composition of the Supervisory Board following recent events, the duties and responsibilities of the Sustainable Development and Innovation

Committee will be included in the remit of the full Supervisory Board as of 16 March 2022.

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

145

Diversity

The Supervisory Board operates a Leadership Diversity

Policy that aims for a diverse composition of both the

Management Board and the Supervisory Board in

particular areas of relevance for X5. This includes

diversity of experience, nationality and background.

Appointments to the Management Board and

Supervisory Board are evaluated against the relevant

proﬁle; the existing balance of skills, knowledge and

experience on the respective board; and the need for

the relevant board to be prepared for disruption and

change. Management Board and Supervisory Board

members are prompted to be mindful of diversity,

inclusiveness and meritocracy considerations when

examining and proposing nominations to the

Management Board and Supervisory Board. In the

selection and appointment of new Management Board

or Supervisory Board members, the Supervisory Board

will consider a diverse range of candidates. This will

also include diversity of gender and age so that, when

the ﬁnal appointment is made, the Supervisory Board

can be conﬁdent that the most effective candidate

has been selected.

Each year, the Supervisory Board conducts an

evaluation of its functioning and the functioning of the

Management Board. In this context, the Supervisory

Board gives careful consideration to the diversity of its

own composition, as well as that of the Management

Board, so as to be effective in performing its role. The

results of the 2021 evaluation of the Supervisory Board

and the Management Board are described in the

Supervisory Board Report on page 163.

While the Management and Supervisory Boards are

currently not balanced with regard to gender, X5

recognises the beneﬁts of gender diversity and of the

importance that is attached to achieving this. We feel

that gender is only one part of diversity, and future

members of the Management Board and Supervisory

Board will continue to be selected on the basis of

speciﬁc experience, background, skills, knowledge and

insights. X5 recognises the importance of diversity,

including gender, at all levels of the Group and has a

very strong track record of developing a critical

executive layer of female business leaders. Across all of

the Group’s operations, speciﬁc diversity targets are

taken into account in recruitment, talent development,

appointments, retention of employees, mentoring and

coaching programmes, succession planning, training

and development.

Appointment, suspension and dismissal

Remuneration

The General Meeting of Shareholders appoints the

members of the Management Board and Supervisory

Board based on binding nominations made by the

Supervisory Board. The recommended candidate is

appointed by the General Meeting of Shareholders

unless the nomination is deprived of its binding

character by a qualiﬁed majority vote of at least

two-thirds of the votes cast, representing more than

one-half of the issued share capital of the Company.

Members of the Supervisory Board may in principle

serve for a maximum term of four years from the date

of their appointment or a shorter period if determined

upon their appointment by the General Meeting of

Shareholders or as per the Supervisory Board’s

rotation schedule. A Supervisory Board member can

be reappointed after their ﬁrst term of four years for

one additional term of four years, followed by two

additional terms of two years. Starting in 2020, the

Supervisory Board resolved to reduce the term of

(re-)appointment for Supervisory Board members to

amaximum of three years, to promote agility and

diversity and to create more ﬂexibility in view of rapidly

changing skill requirements at the Supervisory Board

level.

A Supervisory Board member may not serve more

than 12 years. A Supervisory Board member who

directly or indirectly holds at least 10% of the shares

in the issued share capital of the Company may hold

ofﬁce for more than 12 years and is eligible for

reappointment after that term (see “Compliance with

the Dutch Corporate Governance Code” in this

report).

Members of the Management Board are elected for

a period of four years or a shorter period if

determined upon their nomination for appointment

by the General Meeting of Shareholders. Neither the

Articles of Association nor the Code limits the total

term of ofﬁce for Management Board members.

Each member of the Supervisory Board and

Management Board may, at any time, be dismissed

or suspended by the General Meeting of

Shareholders. A member of the Management Board

may, at any time, be suspended by the Supervisory

Board. Such suspension may be discontinued by the

General Meeting of Shareholders at any time.

In line with the current remuneration policy, as

adopted by the 2021 Annual General Meeting of

Shareholders, the remuneration of the individual

members of the Management Board will be decided

by the Supervisory Board upon the recommendation

of its Nomination and Remuneration Committee.

The remuneration policy for the members of the

Supervisory Board was adopted by the 2020 Annual

General Meeting of Shareholders. The remuneration

policies can be found on the Company’s website.

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

146

Shareholders and their rights

General Meeting of Shareholders

Voting rights

X5 Retail Group N.V. is required to hold a General

Meeting of Shareholders within six months after the

end of the ﬁnancial year in order to, among other

things, adopt the ﬁnancial statements, decide on any

proposal concerning proﬁt allocation and discharge

the members of the Management Board and

Supervisory Board from their responsibility for the

performance of their respective duties for the previous

ﬁnancial year.

Extraordinary meetings are held as often as the

Management Board or the Supervisory Board deems

necessary. In addition, shareholders and holders of

global depositary receipts (GDRs) jointly representing

10% of the outstanding share capital may ask the

Management Board and the Supervisory Board to hold

a General Meeting of Shareholders, stating their

proposed agenda in detail when doing so.

The powers of the General Meeting of Shareholders

are speciﬁed in the Articles of Association. Apart from

the decisions taken at the Annual General Meeting of

Shareholders, the main powers of the General Meeting

of Shareholders are to appoint (subject to the

Supervisory Board’s right to make binding

nominations), suspend and dismiss members of the

Management Board and Supervisory Board; to appoint

the external auditor; to adopt amendments to the

Articles of Association; to issue shares and grant

subscriptions for shares; to authorise the Management

Board or the Supervisory Board to issue shares and

grant subscriptions for shares; to authorise the

Management Board or the Supervisory Board to

restrict or exclude pre-emptive rights of shareholders

upon the issuance of shares; to authorise the

Management Board to repurchase outstanding shares

in the Company; to adopt the remuneration policy of

the Management Board; to determine the

remuneration of members of the Supervisory Board;

and to merge, demerge or dissolve the Company.

The notice for a General Meeting of Shareholders

needs to be published no later than 42 days prior to

the day of the meeting. The mandatory record date,

establishing which shareholders are entitled to attend

and vote at the General Meeting of Shareholders, is set

at least 28 days prior to the date of the meeting.

Shareholders and/or holders of GDRs are entitled to

propose items for the agenda of the annual General

Meeting of Shareholders provided that they hold at

least 3% of the issued share capital. Proposals for

agenda items for the annual General Meeting of

Shareholders must be submitted at least 60 days prior

to the date of the meeting.

All shareholders and other persons who, pursuant to

Dutch law or the Articles of Association, are entitled to

attend and/or vote at a General Meeting of

Shareholders are entitled to address the General

Meeting of Shareholders. X5 uses the Bank of New

York Mellon, the depositary for X5’s GDR facility (the

“Depositary”), to enable GDR holders to exercise their

voting rights represented by the shares underlying the

GDRs. As described in the “Terms and Conditions of

the Global Depositary Receipts”, holders of GDRs may

instruct the Depositary with regard to the exercise of

the voting rights connected to the shares underlying

their GDRs. Alternatively, upon request of the holders

of such depositary receipts, the Depositary will grant a

proxy to such holders who wish to vote in person at a

General Meeting of Shareholders. Persons who hold a

written proxy may represent shareholders at a General

Meeting of Shareholders. The written proxy must be

duly executed and legalised in accordance with the

applicable laws and may be submitted electronically.

Each share confers the right to cast one vote at the

General Meeting of Shareholders. There are no

restrictions, either under Dutch law or in the Articles of

Association, on the right of non-residents of the

Netherlands or foreign owners to hold shares or to

vote, other than those also imposed on residents of

the Netherlands. Resolutions of the General Meeting of

Shareholders are passed by a simple majority of the

votes cast in a meeting where more than 25% of the

issued share capital is present or represented. If 25%

or less of the issued share capital is present or

represented, a second meeting should be convened

no later than four weeks following the ﬁrst meeting. At

the second meeting, no quorum requirement will apply.

However, the General Meeting of Shareholders can

only resolve on (i) a merger or demerger, (ii) the

authorisation to limit or exclude pre-emptive rights and

(iii) cancellation of shares with a majority of at least

two-thirds of the votes cast if less than 50% of the

issued capital is represented in that meeting.

Reporting on conﬂicts of interest

A member of the Management Board or Supervisory

Board is required to immediately report and provide

all relevant information to the Chairman of the

Supervisory Board (and to the other members of the

Management Board if it concerns a member of that

board) on any conﬂict of interest, or potential conﬂict

of interest, that they may have with the Company and

that may be of material signiﬁcance to them or the

Company.

If a member of the Supervisory Board or a member of

the Management Board has a conﬂict of interest with

the Company, that member may not participate in the

discussions or decision-making process on subjects

or transactions relating to the conﬂict of interest.

A decision taken by X5 to enter into a transaction

involving a conﬂict of interest with a member of the

Management Board or a member of the Supervisory

Board that is of material signiﬁcance to them or the

Company requires the approval of the Supervisory

Board. The Audit and Risk Committee advises the

Supervisory Board on handling and deciding on

(potential) conﬂicts of interest and prepares resolutions

of the Supervisory Board in relation thereto.

In 2021, the Supervisory Board approved a new conﬂict

of interest protocol to identify and handle conﬂicts

of interest involving Supervisory Board members, in

addition to the existing conﬂict of interest provisions

in the Board’s Rules of Procedure. The reason for the

new protocol is the increased risk of conﬂicts of

interest involving Supervisory Board members, as the

scope of activities of the Group is becoming broader

while it increasingly operates as an omnichannel

retailer.

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

147

Dividend rights

Substantial shareholdings

Securities owned by Board members

Any distribution of proﬁts to shareholders will be

made after the adoption by the General Meeting

ofShareholders of the annual accounts of the

Company from which it appears that such distribution

is permitted. The Company may only declare proﬁt

distributions insofar as its net assets exceed the sum

of its issued share capital plus any legal reserves

required to be maintained pursuant to Dutch law.

Aloss may only be applied against such reserves

tothe extent permitted by Dutch law. On a proposal

ofthe Supervisory Board, the General Meeting of

Shareholders will determine which part of the proﬁts

will be added to the reserves and the allocation of the

remaining proﬁts.

On a proposal of the Supervisory Board, the General

Meeting of Shareholders may resolve to pay an

interim dividend insofar as X5’s net assets exceed the

sum of its issued share capital and the reserves that

are required to be maintained pursuant to Dutch law,

as evidenced by an interim ﬁnancial statement

prepared and signed by all the members of the

Management Board. In addition, on a proposal ofthe

Supervisory Board, the General Meeting of

Shareholders may resolve to make distributions to the

shareholders out of any reserves that need not be

maintained pursuant to Dutch law.

The Company’s dividend policy was approved

in 2017 and amended in2020. The Company intends

to pay afull-year dividend per share that willremain

stable or grow over time inabsolute Russian

rouble–denominated terms. The dividend payout

will be based on operating cash ﬂow and a target

consolidated net debt

/adjusted EBITDA

ratio

of below 2.0× as of the end of the year for which the

dividend is proposed, taking into account

considerations including but not limited to the

Company’s growth proﬁle, capital requirements and

return on capital. Starting in 2020, X5 is committed

to semi-annual dividend payments. The interim

dividend will be announced following the release

Detailed information on the dividend policy and

dividend history is available on the Company’s website.

of the third-quarter results.

According to the Disclosure Guidance and

Transparency Rules, any person or legal entity who,

directly or indirectly, acquires or disposes of an

interest in X5’s capital and/or voting rights must

immediately give written notice to the Company and

the Financial Conduct Authority (FCA) if the

acquisition or disposal causes the percentage of

outstanding capital interest and/or voting rights held

by that person or legal entity to reach, exceed or fall

below any of the following thresholds: 5%, 10%, 15%,

20%, 25%, 30%, 50% or75%.

The members of the Management Board and

Supervisory Board and X5’s other senior

management are subject to the Company’s Inside

Information and Dealing Code. This Code contains

rules of conduct to prevent trading in X5’s GDRs

ofshares or other ﬁnancial instruments when holding

inside information or during blackout periods when

trading is not permitted (for instance, prior to the

publication of quarterly ﬁnancial results). The Inside

Information and Dealing Code can be viewed on

theCompany’s website.

Under the Inside Information and Dealing Code,

members of the Management Board and Supervisory

Board must notify the FCA of X5 securities and

voting rights at their disposal. These positions can be

viewed in the FCA’s public register.

The following table lists the shareholders on record

on 19 May 2022 in the FCA’s public register that hold

an interest of 5% or more in the share capital of the

Company:

SHAREHOLDER

DATE OF

DISCLOSURE

CAPITAL

INTEREST

⁴

VOTING

RIGHTS

⁴

CTF Holdings S.A.

01.01.2021

47.86%

The Axon Trust

01.01.2021

11.43%

Following Brexit, all notiﬁcations regarding the Company need to be made to the Financial Conduct Authority in the UK; such notiﬁcations were

madeon1January 2021.

In accordance with the ﬁling requirements, the percentages shown include both direct and indirect capital interests and voting rights. The percentages may

differ from the actual shareholders’ interests due to the fact that changes within the thresholds mentioned above do not require a notiﬁcation to the FCA.

Further details can be obtained at

www.fca.org.uk

Calculated based on the Company’s full-year consolidated ﬁnancial statements or information in accordance with IFRS 16 as of the end of each reporting

period as the sum of short-term borrowings and long-term borrowings less cash and cash equivalents.

EBITDA shall be adjusted (decreased) by the amount that would have been recognised as operating lease, other store costs, third-party services and other

expenses payable during the period, but which is not recognised as such under IFRS 16, as well as the amount of the net effect from the decrease in the

scope of the lease and terminations of lease agreements recognised under IFRS 16.

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

148

Repurchase by the Company ofits

own shares

Issue of new shares and

pre-emptive rights

Shares in X5 may be issued, and rights to subscribe

for shares may be granted, pursuant to a resolution

of the General Meeting of Shareholders or another

X5 corporate body to which the General Meeting of

Shareholders has delegated such authority for a time

not exceeding ﬁve years. In 2021, the General Meeting

of Shareholders approved a delegation of this

authority to the Supervisory Board relating to the

issuance and/or granting of rights to acquire up to

6,789,322 shares (10% of the issued share capital)

through 12 November 2022.

Upon the issue of new shares, holders of X5’s shares

have a pre-emptive right to subscribe for shares in

proportion to the aggregate amount of their existing

holdings of X5’s shares. According to the Company’s

Articles of Association, this pre-emptive right does not

apply to any issue of shares to employees of X5 or a

Group company. Pre-emptive rights may be restricted

or excluded pursuant to a resolution of the General

Meeting of Shareholders or another X5 corporate body

to which the General Meeting of Shareholders has

delegated such authority for a time not exceeding ﬁve

years. The General Meeting of Shareholders has

delegated the authority to restrict or exclude the

pre-emptive rights of shareholders upon the issue

of shares and/or the granting of rights to subscribe

for shares to the Supervisory Board through

12November2022.

Articles of Association

Auditor

Anti-takeover measures and

change-of-control provisions

X5’s Articles of Association contain rules on the

Company’s organisation and corporate governance.

Amending the Company’s Articles of Association

requires a resolution of the General Meeting

ofShareholders. A proposal to amend the Articles

ofAssociation, including the text of the proposed

amendment, must be made available to the holders

ofshares and GDRs for inspection at the ofﬁces of X5

as of the date of the notice convening the meeting

ofthe General Meeting of Shareholders until the end

of the meeting of the General Meeting of Shareholders

at which the proposed amendment is voted on.

The current text of the Articles of Association

isavailable on the Company’s website.

The General Meeting of Shareholders appoints the

Company’s external auditor. The Audit and Risk

Committee makes a recommendation to the

Supervisory Board with respect to the external auditor

to be proposed for appointment or reappointment by

the General Meeting of Shareholders. In addition, the

Audit and Risk Committee evaluates and, where

appropriate, recommends the replacement of the

external auditor. The Audit and Risk Committee also

pre-approves the fees for audit and permitted

non-audit services to be performed by the external

auditor. The Audit and Risk Committee will not approve

the engagement of an external auditor to render

non-audit services prohibited by applicable laws and

regulations or that would compromise the

independence of the auditor. Speciﬁc rules relating to

non-audit work performed by the external auditor are

included in X5’s “Rules on External Auditor

Independence and Selection”. This document

is available on the Company’s website.

On 12 May 2021, the General Meeting of Shareholders

reappointed Ernst & Young Accountants LLP as

external auditor for the 2021 ﬁnancial year.

According to provision 4.2.6 of the Code, the Company

is required to provide a survey of its actual or potential

anti-takeover measures and to indicate in what

circumstances it is expected that they may be issued.

There are no agreements to which the Company

isaparty and that will automatically come into force

orbe amended or terminated under the condition

ofachange of control over the Company as a result

ofa public offer. However, the contractual conditions

ofmost of X5’s important ﬁnancing agreements and

notes issued (potentially) entitle the banks and

noteholders, respectively, to claim early repayment

ofthe amounts borrowed by the Company in the

situation of a change of control over the Company

(asspeciﬁed in the respective agreement).

In 2021, the Management Board was authorised to

acquire up to 10% of the Company’s shares or GDRs

thereof. This authorisation is valid through

12November 2022. In addition, the Supervisory Board

resolved that, in case a purchase of shares or

depositary receipts thereof by X5 would lead to X5

holding more than 5% of the shares or GDRs thereof,

the Management Board would require the Supervisory

Board’s prior approval for such purchase.

Shares or GDRs thereof held by X5 or a subsidiary may

not be voted on and are not taken into account for

determining whether quorum requirements, if any, are

satisﬁed.

In order to fulﬁl the Company’s obligations under the

Restricted Stock Unit Plan, the Company from time

to time acquires GDRs under a restricted buyback

programme pursuant to an authorisation of the

General Meeting of Shareholders in accordance with

Article 9 of the Company’s Articles of Association.

TheCompany did not repurchase any GDRs in 2021.

The Company may acquire fully paid shares, or GDRs

thereof, in its capital for a consideration only following

authorisation by the General Meeting of Shareholders

and subject to certain provisions of Dutch law and

theCompany’s Articles of Association if:

Shareholders’ equity minus the purchase price is not

less than the sum of X5’s issued and fully paid-in

capital plus any reserves required to be maintained

by Dutch law

X5 and its subsidiaries would not, as a result, hold

shares or GDRs thereof with an aggregate nominal

value exceeding half of the issued share capital

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

149

Compliance with theDutch

Corporate Governance Code

In accordance with best practice provisions 2.1.7 and

2.1.8, at most one Supervisory Board member may

represent, or be afﬁliated with, a shareholder who

directly or indirectly holds more than 10% of the shares

in the Company.

Supervisory Board members Mikhail Fridman and

Marat Atnashev are both afﬁliated with CTF Holdings

S.A. , which has a capital interest of 47.86% in X5.

Stephan DuCharme serves as Managing Partner of L1

Retail, part of the LetterOne investment group, which is

partially controlled by the ultimate shareholders of CTF

Holdings S.A. Therefore, Mikhail Fridman, Marat

Atnashev and Stephan DuCharme are not

independent in the sense of the Dutch Corporate

Governance Code .

X5 believes that the non-independent members of the

Supervisory Board have in-depth knowledge of the

geographic market, of business in general and of retail

speciﬁcally, as well as a relevant track record in the

markets in which X5 operates. This is of particular

beneﬁt to X5 and its shareholders.

It is Company policy that a majority of the members

of the Supervisory Board must be independent at all

times. A majority of the Supervisory Board, which

currently consists of four members, qualiﬁes as

independent within the meaning of the Dutch

Corporate Governance Code.

X5 applies the relevant principles and best

practices of the Code in the manner as

described in this Corporate Governance Report.

Committed to a corporate governance structure

that best serves the interests of all stakeholders,

including shareholders, X5 continues to seek

ways to improve and enhance its corporate

governance standards in line with international

best practices. X5 generally adheres to the

Code but does not comply with the following

recommendations:

The Code states: “If the Supervisory Board consists

ofmore than four members, it should designate […]

aRemuneration Committee and a Selection and

Appointment Committee.” As it is felt that issues

related to selection, appointment and remuneration

are interlinked, the Supervisory Board decided that all

these activities should be dealt with by one

committee: the Nomination and Remuneration

Committee.

The Code prescribes that the remuneration committee

should not be chaired by the chairman of the

supervisory board. Currently the chairman of the

Supervisory Board is also the chairman of the

combined Nomination and Remuneration Committee,

which constitutes a deviation from the Code. However,

it is not uncommon for a Board chair to also chair the

selection and appointment or nomination committee.

In view hereof and the fact that the Board safeguards

its statutory responsibilities in remuneration matters, as

reﬂected in the Supervisory Board Rules of Procedure,

X5 believes that the Chairman, being an independent

Supervisory Board member, is the right person to chair

the Nomination and Remuneration Committee.

Mikhail Fridman is the founder and chairman of the

Alfa Group Consortium; he was appointed as

a member of the Supervisory Board in 2006. In 2021,

he was reappointed for a ﬁfth term, thus exceeding

the maximum of 12 years prescribed by the Code .

X5 believes that long-term value creation stands to

beneﬁt from committed shareholders, and that the

interests of Supervisory Board members largely

coincide with those of the Company. Supervisory

Board members generally perform their duties for

a prolonged period of time, which ﬁts in well with

long-term value creation for the Company.

The Code prescribes that Supervisory Board members

may not be awarded remuneration in the form of

shares and/or rights to shares. Members of the

Supervisory Board of the Company are entitled to

restricted stock units (RSUs). The number of annual

RSU awards equals 100% of a Supervisory Board

member’s ﬁxed base fee in the year of the award,

divided by the average market value of an X5 GDR on

the relevant award date. RSU awards to members of

the Supervisory Board are not subject to performance

criteria.

X5 acknowledges that the award of shares to

members of the Supervisory Board constitutes a

deviation from the Code. However, in order to attract

and reward experienced individuals with a track record

that is of speciﬁc relevance to the Company, X5

believes it is necessary to allow members of the

Supervisory Board to participate in the Company’s

equity-based remuneration plan. This structure aligns

the interests of Supervisory Board members with those

of shareholders and strengthens their commitment to

and conﬁdence in the future of the Company.

The equity-based awards to members of the

Supervisory Board are computed with respect to the

ﬁxed board fee of each member and are therefore not

performance-based. X5 believes that the level and

structure of the remuneration of the Supervisory Board

members safeguard their independence of judgement

and thought, and adequately reﬂect the time spent

and responsibilities of their role. All equity awards to

Supervisory Board members are determined by the

General Meeting of Shareholders.

Moreover, with a three-year vesting followed by

a two-year lock-up, the equity award programme

is in line with the spirit of the Dutch Corporate

Governance Code, which states that shares held

by Supervisory Board members should be long-term

2.1.7–

2.1.8

Independence of the Supervisory

Board and Its Members

2.2.2

Appointment and Reappointment

Periods of Supervisory Board

Members

3.3.2

Award of Shares and/or Rights to

Shares to Members of the

Supervisory Board

2.3.4

Composition of the Committees

2.3.2

Supervisory Board Committees

Mikhail Fridman and Stephan DuCharme resigned from the Supervisory

Board on 1 March 2022.

investments.

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

150

How we

manage risk

The Management Board, supported by the

Executive Board and the Risk Management

team, is responsible for designing, implementing

and operating an adequately functioning risk

management system for the Company. The aim

is to ensure that the extent to which the

Company’s strategic and operational objectives

are being achieved is understood, that the

Company’s reporting is reliable and that the

Company complies with relevant laws and

regulations.

Risk management

a comprehensive review of both internal and external risks

is carried out at least annually

set up and conﬁrmations of risk appetite

key risk indicators are reviewed

risks for both our strategic and short-term objectives are assessed

emerging risks are continuously monitored

required risk responses and risk mitigating activities are put

in place

reporting is accurate and reliable

full compliance with relevant laws and regulations

X5’s risk management activities seek to identify and appropriately

address any signiﬁcant threat to the achievement of the Company’s

strategy and business objectives, its reputation and the continuity of

its operations. X5’s risk management system enables management

to identify, assess, prioritise and manage risks on a continuous and

systematic basis, and covers all businesses and corporate functions

within X5 Group. Ongoing identiﬁcation and assessment of risks,

including new risks arising through an early-warning system of key

risk indicators, are part of X5’s planning, performance and risk

management cycles.

Management teams at all levels of the Group are responsible for

identifying, managing and monitoring relevant risks. The Risk

Management team facilitates a Company-wide view of risk-relevant

issues, helps to develop risk management activities in both business

and functional divisions and ensures that the Management Board is

continuously and promptly informed of important risk management

developments.

Throughout the year, the Risk Management team reviews X5’s risks

and develops action plans to mitigate risks and allocate appropriate

resources for risk mitigation. The results of the risk mitigation actions

are monitored and reported to the Audit and Risk Committee on a

quarterly basis. Attention is paid to strengthening the design and

effectiveness of the risk management and internal control systems,

ensuring that:

Risk appetite

X5’s risk appetite is deﬁned by the Management Board and approved by the Supervisory Board,

and is integrated into the businesses through our strategy, Group policies, procedures, controls

and budgets. Our appetite for each risk is determined by considering key opportunities and

potential threats to achieving our strategic objectives and can be categorised as reﬂected

in the table below.

X5 applies a “three lines of defence” model to ensure the effectiveness and completeness

of the Company’s risk management and internal control system:

STRATEGY

In addition, speciﬁcally in 2021, the Company was resilient in handling

the risks associated with the COVID-19 pandemic and demonstrated

the ability to quickly adapt to changes in the market and its business.

OPERATIONS

COMPLIANCE

REPORTING

AND FINANCING

RISK CATEGORY

case

Risks are

unacceptable in any

despite

mitigating factors

and considerable

potential reward.

Averse

Potential losses

from these risks

should be

calculated and

planned in advance,

provisions should

be created or

insurance contracts

should be in place,

and necessary

controls should be

in effect.

Minimal



minimal



The maximum

potential impact

from these risks

should be lower

equal to the

return.

The

necessary

mitigation actions

and controls should

prevent losses.

Cautious

The risk impact

may exceed the

potential level

of return;

compensating

factors may partly

mitigate this

impact.

Open

Averse

Minimal

Cautious

Open

FIRST LINE

SECOND LINE

THIRD LINE

Business unit / risk owners

Risk Management, Internal

Control and Compliance

Internal Audit

Manage risks on a daily basis and

provide assurance regarding the

effectiveness of controls

Steer, monitor and support

line management in (1) managing

risks and (2) developing and

maintaining an adequate

framework for control and

compliance

Conduct audits and test the

internal control and compliance

framework for assurance of the

effectiveness of control

Monitoring and assurance

A key element of our risk management framework

is monitoring and assurance. We use a comprehensive

business planning and performance review process

to monitor the Company’s performance. This process

covers the adoption of strategy, budgeting and the

reporting of current and projected results. We assess

business performance according to both ﬁnancial and

non-ﬁnancial (including sustainability) targets.

X5’s internal control activities aim to provide

reasonable assurance as to the accuracy of ﬁnancial

information, non-ﬁnancial disclosures, the Company’s

compliance with applicable laws and internal policies,

and the effectiveness of internal processes. Internal

controls have been deﬁned at the level of operating

entities and across all functions. Compliance with

company policies is periodically assessed. The

Company’s policies, procedures and controls are

periodically updated to reﬂect both the Company’s key

risks and the extent to which the Company is willing

and able to mitigate them.

The Internal Audit Department (IAD) is mandated

to perform reviews of key processes, projects and

systems across the Group, based on X5’s strategic

priorities and most signiﬁcant risk areas. The IAD

provides independent, objective assurance and

value-adding advisory services that assist the

Company in achieving business objectives and

improving its operations. Based on a systemic

assessment of the design and effectiveness of the

Company’s risk management and internal control

systems, the IAD reports its audit ﬁndings to the

Management Board and the Audit and Risk Committee,

and makes recommendations to improve the

effectiveness of the risk management and internal

control systems and their integration into the

Company’s business processes.

Ethics and compliance

We recognise that ethics and integrity are key

components in the fulﬁlment of X5’s sustainable health

and long-term value creation.

Our Code of Business Conduct and Ethics reﬂects our

values and principles, which, together with underlying

policies and procedures, are promoted and

implemented across the group through learning and

training programmes.

Climate change

X5 Group acknowledges the urgency of acting on

climate change, especially in light of COP26 and the

latest IPCC report ﬁndings. Cognisant of the fact that

the climate agenda will only become more important

over time, X5 closely monitors changes in international

and local climate regulation and stakeholder

engagement. Likewise, it continues to monitor and

manage climate-related risks, implementing multiple

initiatives to achieve carbon neutrality by 2050.

X5 Group’s management and Management Board are

responsible for effectively monitoring and managing

risks and opportunities associated with climate

change. Thus, in 2021 a climate risk and opportunity

assessment was conducted following TCFD

recommendations to test the Group’s resilience and

business strategy regarding the consequences

of climate change.

We recognise that, as the world shifts to a low-carbon

economy, joining the SBTi and verifying our climate

targets are steps we must take in order to decarbonise

and improve X5’s global sustainability proﬁle. In 2021,

X5 developed a decarbonisation plan and road map

for all stages of its value chain. We are already sourcing

sustainable power for some of our distribution centres,

and we are exploring the feasibility of using solar

energy for our logistics operations. Among other

sustainability goals, X5 aims to increase the share

of renewable energy used in its operations to 30%

by 2030.

The Company’s principal risks

X5’s principal risks – those that may impede the

achievement of X5’s objectives on strategy, operations,

compliance and reporting – are addressed below.

It should be noted that there are additional risks which

management considers immaterial or common

to companies in the same industry. Risks and

corresponding management actions following

sanctions, imposed on Russia, and credit rating

downgrades by foreign credit rating agencies are

additionally covered in the section bellow since the

negative consequences for the Russian economy,

retail industry and X5 are signiﬁcant.

Further information on these objectives can be found in the sections

“Compliance and Business Ethics” on page 120

and “Risk Proﬁle” below

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

151

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT

KEY CONTROLS AND MITIGATING FACTORS

Strategy

Major changes in the economic environment may challenge the existing business

strategy or have a material impact on ﬁnancial performance.

Market and macroeconomics

Macroeconomic and regulatory factors became increasingly

important for the food market in 2021, as food supplies, labour and

other resources became more scarce and caused prices to rise. This

was partly a result and compounded by the ongoing impact of the

COVID-19 pandemic.

Sanctions imposed on Russia will signiﬁcantly worsen

macroeconomic environment. Currently it is too early to anticipate all

the details but in general unemployment and inﬂation will rise, GDP

and personal income level will fall.

We constantly monitor and forecast the economic environment and make adjustments to our strategy

as needed.

We are developing a hard discounter format (Chizhik) and taking other steps to address the pressure

on personal income.

Actions taken by competitors or new entrants to the market affect the Company’s

competitive advantage and performance.

Competitive environment

During 2021, the rapid growth of hard discounters and specialist

chains caused additional competitive threats to our businesses.

The pandemic and continued digitalisation of the economy, with

an increasing number of omnichannel participants in the retail

landscape, are driving rapid growth of online services, especially

in larger cities across Russia.

Sanctions, imposed on Russia, can probably change the competitive

landscape in retail.

We constantly analyse customer behaviour and adjust our strategy accordingly.

We continue to roll out new concepts and CVPs in our proximity and supermarket formats.

We sustain our lead over traditional and new competitors by creating a digital infrastructure around

the core business that covers all stages of the customer journey in food and complementary

categories.

We are developing a new hard discounter format (Chizhik).

Insufﬁcient return from investments in new business lines, and capital costs

for thedevelopment of our retail formats.

Business development investments

–

We adhere to strong investment control procedures. All new business initiatives are subject to pilot

validation.

For non-performing stores, we implement action plans to increase their efﬁciency and proﬁtability.

We decreased our plans for capital expenditure in growth, development and certain digital products

for 2022 following imposed sanction on Russia and downgrades of credit ratings

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

152

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT

KEY CONTROLS AND MITIGATING FACTORS

Operations

Non-effective and inconsistent operational management may affect X5’s ability

to provide its customers with an attractive shopping experience.

Retail and customer service

–

We use commercial and research data to assess our performance in meeting customer priorities and

expectations regarding prices, product range, availability and service.

Every year we assess and where required strengthen regional management teams to ensure our

stores are well supported across all locations.

Insufﬁciencies in our retail operations infrastructure and inventory management may

lead to an inability to maintain effective inventory management and ensure a reliable

supply of goods for our customers while minimising shrinkage and excessive stock.

Supply chain

In 2021, many of our suppliers faced a shortage of vehicles for

deliveries. X5’s active development of services for suppliers kept this

risk at a medium level.

Sanctions imposed on Russia have material impact on cross border

supply chains and import of goods, spare parts and etc.

We run comprehensive supply chain operations with a decentralised logistics function, which allows

our retail formats to effectively manage inventory across the supply chain.

We strengthened our supply chain in order to fulﬁl the elevated demand for social goods in February

2022.

We continue to develop X5’s direct import business to diversify and reduce dependency on local

distributors and move up the value chain to optimise the balance of demand and supply and shift

focus from quality control to quality assurance.

We are also optimising operations across the supply chain and constantly reviewing ways to further

leverage X5 Group’s purchasing power and the scale of its infrastructure.

Also see “Retail infrastructure” on pages 98–116.

Failure to recruit, retain and develop people with the required skills and to instil

aculture that reﬂects our values could impact business performance.

Failure to meet the necessary standards to protect the health and safety of

personnel may impact operations and lead to adverse ﬁnancial and reputational

consequences. This risk became imminent as a result of the COVID-19 pandemic.

Human resources

One of the key challenges we faced in 2021 was the increasing

labour shortage because of the decrease in migration and the

signiﬁcant increase in demand for labour from the growing

construction, retail and e-grocery segments.

New waves of the COVID-19 pandemic made it more important

to ensure that the necessary quantities of vaccines were available.

Decrease of production, increase of unemployment should increase

the supply and decrease demand for labour.

We monitor the labour market and regularly assess X5’s employer value proposition to ensure that we

offer employee beneﬁts in line with the market.

We have a system for employee onboarding, training and development in place, along with a talent

pool.

We create a culture that enables us to recruit, retain and promote the best professionals in the

industry, and to promote an environment that stimulates professional growth, collaboration and

accountability together with safety and ﬂexibility.

We have made vaccines widely available in all regions of the Russian Federation to protect the health

of our personnel.

We have a health and safety policy in place to cover workplaces across various functional divisions.

We are committed to promoting the highest health and safety standards by implementing advanced

safety technologies and techniques and through ongoing risk monitoring, analysis and mitigation.

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

153

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT

KEY CONTROLS AND MITIGATING FACTORS

Operations

Interruptions in business processes due to crisis situations and emergencies.

Disruptions of business continuity due to emergencies may lead to a situation

where core business operations and resources are unavailable.

Business continuity performance

In 2021, no new signiﬁcant risk factors were identiﬁed.

Sanctions imposed on Russia and other consequences have

material impact on our IT. A signiﬁcant number of vendors,

producers of equipment are freezing their operations or exiting the

Russian market. This will bring additional challenges for stability

of our IT infrastructure.

We constantly monitor and control business processes.

We implement business continuity plans for our key business processes and disaster recovery plans

for our critical IT systems.

Also see “X5 Technologies” on pages 106–109.

Inability to implement and develop state-of-the-art IT solutions on a timely basis.

Lack of infrastructure capacity to maintain the required level of service.

In 2021, no new signiﬁcant risk factors were identiﬁed.

Sanctions imposed on Russia and other consequences have

material impact on our IT. A signiﬁcant number of vendors,

producers of equipment are freezing their operations or exiting the

Russian market. This will bring additional challenges for stability

of our IT infrastructure.

We are developing existing controls to maintain the integrity and efﬁciency of our IT systems,

including detailed recovery and contingency plans. This is our key priority.

We manage the capacity of our IT systems in order to ensure that our IT resources are able to meet

current and future business requirements in a cost-effective manner.

External and internal threats to information security, including cyberattacks, viruses

and other malicious actions to, for instance, inﬁltrate our IT systems or damage data.

Cybersecurity

–

We implement all necessary policies and procedures and use all necessary tools, hardware and

software to ensure the conﬁdentiality, integrity and availability of our information assets.

We strengthened our cyber security team to increase our protection in the current environment.

Also see “X5 Technologies” on pages 106–109.

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

154

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT

KEY CONTROLS AND MITIGATING FACTORS

Compliance

The inability to establish and promote a Company-wide culture of integrity and the

failure to detect or prevent corruption and fraud can lead to a decline in economic

value and signiﬁcant reputation damage.

Fraud and corruption

–

We uphold a zero-tolerance policy for non-compliance with the principles of business ethics, and

continuously provide personnel with training on prevention of bribery and corruption.

We implement automated and manual controls in business processes, and segregate rights to access

information systems (SoD).

We require that all employees complete a declaration on conﬂicts of interest to monitor potential

conﬂicts.

Inability to identify, quickly respond to and attempt to modify unfavourable

proposed changes to applicable laws.

The conclusion of contracts that are unfavourable for the Company and the

failure to comply with or monitor contract terms to protect the Company from

ﬁnancial losses.

Legislation and litigation

Risks of state regulation of the retail market in the current

macroeconomic and political environment remain signiﬁcant but not

critical.

Vaccination requirements in different regions put additional pressure

on the Company but haven’t been critical for the Company.

Our legal team participates in every stage of important business negotiations and analyses business

terms and conditions to minimise risk.

Contracts are largely standardised to ensure our rights are consistently and uniformly protected.

We are strongly committed to complying with all applicable laws and regulations.

We have made vaccines widely available in all regions of the Russian Federation to protect the health

of our personnel and fulﬁl regulatory requirements. We haven't experienced any material effect on the

business.

Failure to identify and prevent non-compliance with privacy rules and regulations

standards, resulting in improper disclosure of conﬁdential customer information.

Data privacy and security

–

We regularly report on the progress of our security and privacy programmes to management and

oversight committees.

Ongoing monitoring of our processes, which includes assessment and monitoring of risk, continues

to drive compliance throughout our business.

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

155

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT

KEY CONTROLS AND MITIGATING FACTORS

Reporting and ﬁnancing

X5 could be affected by common ﬁnancial risks:

Financial risks

Increases in interest rates and/or banking fees

Signiﬁcant volatility of foreign exchange rates

Liquidity risk and credit risk

The increasing volatility of the rouble exchange rate and rising

interest rates may adversely affect our ﬁnancial performance.

We plan and monitor our budget and performance, and introduce changes where needed to achieve

ﬁnancial targets.

We monitor repayment schedules for long-term and short-term accounts receivable, and oversee the

use of short-term lending via available credit lines to manage liquidity.

We manage the effective ﬁnancing rate as well as undrawn credit limits in banks.

Other principal risks

Risk of sanctions and credit rating downgrade

Imposition of new sanctions and downgrades in credit ratings

Credit rating downgrades from foreign credit rating agencies

(S&p, Fitch, Moody’s)

Different countries impose sanctions on particular sectors of the

Russian economy and companies.

Foreign credit rating agencies downgrade credit ratings

As part of our business continuity process, we develop plans in case of new sanctions and possible

legal restrictions or requirements for the Russian retail market.

See section bellow with details of our key risks and corresponding management actions.

All climate-related risks

Climate change

Climate change has become a widely acknowledged global

emergency.

We closely monitor changes in international and local climate regulation and stakeholder

engagement.

In 2021, we developed a decarbonisation plan and road map for all stages of our value chain. We are

already sourcing sustainable power for some of our distribution centres, and we are exploring the

feasibility of using solar energy for our logistics operations.

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

156

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

157

Risk of sanctions and

creditrating downgrade

andcorresponding

Managementactions

Information security

On-shelf availability of goods

Payment continuity and ﬁnancing

Prevention of any disruptions to the supply chain or

supplier relationships is our key priority. We’re working

with our key suppliers to ensure the availability of

social goods.

Supply chains, especially those for imported goods, are

facing restrictions. In the short term, we are looking for

alternative suppliers of domestic goods, and in the

medium term for alternative supply routes through

other countries (Turkey, Egypt, Azerbaijan, Armenia,

etc.). Overall, this is a small fraction of X5’s sales (5.7%),

and the assortment of our retail chains will be

adjusted to the new situation.

X5 is not subject to any sanctions. All correspondent

banks carry out settlements for X5 in foreign

currencies. In order to reduce forex risks, X5 is looking

for options to avoid settlements in USD and EUR and

make direct settlements in other currencies with major

importers (Turkey, Egypt, China and etc.).

In any case, the share of imported goods in X5's

business is relatively limited, and the bulk of

settlements are rouble-denominated.

In terms of our ﬁnancing needs in roubles, all banks

are paying in full and on time. X5’s operating cash ﬂow

is strong enough for us to service and repay our loans.

In the near future, we expect support from the state

authorities in terms of offering soft ﬁnancing to the

retail sector.

Technological risks

Х5 depends to a certain extent on Western vendors

and IT companies. Some of these vendors and IT

companies are freezing their supplies to companies

under sanctions and to Russian companies. Our IT

teams have their action plans in place for the near

term, so we do not expect any material impact on our

availability to operate.

We are facing increased cyberattacks. Though X5 is

not targeted, our infrastructure is suffering additional

strain. Our Information Security Department knows our

potential weaknesses and has reallocated resources to

ensure sufﬁcient security. As of now, we have not met

with any failures or losses resulting from information

security risks.

In response to ongoing geopolitical developments,

X5set up a special-purpose team to collect all key and

critical information as well as to propose solutions and

take immediate decisions, as necessary. The Company

also created a working group focused on mitigating

risks, taking strategic decisions and ensuring business

stability over a period of three to six months.

Equipment supplies and other

non-commercial procurement

Our Company depends to a certain extent on supplies

of imported components for our supply chain, IT and

stores. X5 has built up a stock of spare parts and

components to ensure business continuity. In the

mid-term, we are looking for alternatives or substitutes

among domestic and foreign suppliers.

Human resources

Our security service has deployed additional security

measures in our stores where the highest threat level is

expected.

To the extent our employees may be suffering from

stress or fear, we strive to mitigate such risks and

provide adequate support to our staff. The risk of staff

shortages may increase in certain areas; however, this

risk is assessed as not critical.

X5 Group is not subject to any sanctions or restrictions at the moment, and we do not expect any jurisdiction to

target X5 Group speciﬁcally in the future due to the nature of our business. While X5 is likely to encounter challenges

due to sanctions targeting the ﬁnancial system and certain imports into Russia, it is expected to be able to maintain

its work as a going concern.

Audit

Securities trading

The Group may encounter limitations in its ability

toengage audit and consultant ﬁrms in some

jurisdictions due to local formal and informal

restrictions for companies operating in a primarily

Russian environment.

Trading in X5 securities has been limited in certain

jurisdictions. For example, the London Stock Exchange

imposed a suspension of trading in securities

ofanumber of companies with operations in Russia,

including X5, and this suspension currently remains

inplace. There is no assurance that this suspension

willbe lifted, and it is difﬁcult to predict how long this

suspension may last.

X5's new key risks are in the following areas:

On-shelf availability of goods

Information security

Continuity of payments and ﬁnancing

Equipment supplies and other

non-commercial procurement

Technological risks

Human resources

Audit

Securities trading

Statement of the Management Board

The Management Board reviewed and analysed

the strategic, operational, compliance and

reporting risks to which the Company was

exposed, as well as the effectiveness of our risk

management and internal control systems over

the course of 2021.

The outcome of this review and analysis has

been shared with the Audit and Risk Committee

and the Supervisory Board and has been

discussed with X5’s external auditor.

The Management Board reviewed the effectiveness

of X5’s internal risk management and control systems

based on:

For more information on X5’s risk management

activities, internal control, risk management systems

and key risks, see the section “How we manage risk”

above. The purpose of X5’s risk management and

internal control systems is to adequately and

effectively manage the signiﬁcant risks to which the

Company is exposed. Such systems can never provide

absolute assurance as to the realisation of operational

and strategic business objectives, nor can they prevent

all misstatements, inaccuracies, errors, fraud and

non-compliance with legislation, rules and regulations.

These systems do not provide certainty that the

Company will achieve its objectives.

In view of all of the above, the Management Board

conﬁrms that, to the best of its knowledge, the

ﬁnancial statements give a true and fair view of the

assets, liabilities, ﬁnancial position and proﬁt or loss

of the Company and its consolidated subsidiaries, and

the management report includes a fair review of the

position on the balance sheet date and of the

development and performance of the business during

the ﬁnancial year together with a description of the

principal risks and uncertainties that the Company

faces.

19 MAY 2022

The Management Board

internal audit reports on reviews performed

throughout the year; observations and measures to

address issues were discussed with management

and the Audit and Risk Committee

a systematic review of scoping, control execution

and control assessments in the context of the

internal control strategy

periodic risk reports provided by the management

of corporate functions and the main business

segments

ongoing monitoring of key risk management

initiatives aimed at mitigating risks and keeping risks

at an acceptable level

the external auditor’s ongoing reﬂections on the

control framework, and the management letter from

the external auditor with observations and remarks

regarding internal controls; this letter has been

discussed with the Audit and Risk Committee and

the Supervisory Board

Based on the annual evaluation and discussion of X5’s

risk management and internal control systems and

identiﬁed risk factors, the Management Board conﬁrms

that, according to the current state of affairs and to the

best of its knowledge:

X5’s risk management and internal control systems

provide reasonable assurance that the Company’s

ﬁnancial reporting does not contain any material

inaccuracies

there have been no material failings in the

effectiveness of X5’s risk management and internal

control systems

there are no material risks or uncertainties that could

reasonably be expected to have a material adverse

effect on the continuity of X5’s operations in the

coming 12 months

it is appropriate that the ﬁnancial reporting is

prepared on a going concern basis, based on our

review of the strategic plan, the budget 2022 and

our estimate of the economic outlook

CORPORATE GOVERNANCE

HOW WE MANAGE RISK

158

CORPORATE GOVERNANCE

SUPERVISORY AND MANAGEMENT BOARDS

159

Supervisory and Management Boards

Supervisory Board

Peter Demchenkov

CHAIRMAN OF THE SUPERVISORY BOARD, CHAIRMAN OF THE

NOMINATION AND REMUNERATION COMMITTEE

Peter Demchenkov, a Russian citizen (1973), from 2006

till October 2021 was CEO of ALIDI, a leading provider

of distribution and logistics services in Russia. From

2004 to 2005, he was Development Director of KIT

Finance (JSC), and from 1997 to 2004, Peter worked

inProcter & Gamble’s Business Development

Department in Eastern Europe. Peter graduated from

the St.Petersburg Polytechnical University with a

degree in Technical Cybernetics.

Nadia Shouraboura

MEMBER OF THE SUPERVISORY BOARD, CHAIR OF THE

SUSTAINABLE DEVELOPMENT AND INNOVATION COMMITTEE

Nadia Shouraboura, a US citizen (1970), joined X5 in

2018. She has extensive experience in development

of innovative concepts for modern retail, as well as

technology and data-driven solutions for consumers.

From 2004 to 2012, Nadia served as Technology Vice

President for Amazon’s global supply chain and

fulﬁlment platforms and was a member of Amazon’s

management board. Subsequently, she launched her

own technology consultancy for the retail industry

globally, aimed at combining the best of the online and

ofﬂine worlds. Nadia is a senior advisor to New

Mountain Capital and serves as an independent non-

executive director at Ferguson plc, MTS Russia and

Ocado Group. Nadia holds a degree in Mathematics

and Computer Science from Moscow State University

and a PhD in Mathematics from Princeton University.

Marat Atnashev

MEMBER OF THE SUPERVISORY BOARD

Marat Atnashev, a Russian citizen (1977), is the Director

of Group Portfolio Management at CTF Consultancy

Limited. He is a member of the Boards of Directors of

Management Company Rosvodo-kanal, A1 Investment

Holding S.A., ABH Holdings S.A., Alfa Bank (Russia) and

AlfaStrakhovanie PLC. From 2016 to 2019, Mr Atnashev

was Dean of the Skolkovo Moscow School of

Management. Before that, he worked at EVRAZ plc as

Vice President, Major Projects, Head of the Iron Ore

Division; he held the position of Director of the

Directorate of Major Projects at JSC Gazprom Neft and

worked at TNK-BP in various positions in supply chain

management, ﬁnance and major project management.

MrAtnashev graduated with honours from the Energy

Department of the State University of Management,

Moscow, in 1999; in 2003, he received a PhD

(Candidate) in Economics. Furthermore, he also holds

an MBA from INSEAD, France (2002). In 2008, he

graduated from the BP Projects Academy, MIT (USA),

and in 2016 he received an MPA from the Harvard

Kennedy School (USA).

Alexander Tynkovan

MEMBER OF THE SUPERVISORY BOARD

Alexander Tynkovan, a Russian national (1967), is a

returning member of the Supervisory Board of X5

Retail Group N.V. , having previously served from 2008

to 2015. He is the founder of M.Video (currently

M.Video-Eldorado Group), the leading consumer

electronics and home appliance retailer in the Russian

Federation. Alexander currently serves as the Chairman

of M.Video’s Board, focused on digitalisation and

increasing the company's online presence. He is also a

non-executive Deputy Chairman of the Board of Fix

Price Group Ltd., a Russia-based retail chain of

discount variety value stores. Alexander graduated

summa cum laude from the Moscow Energy Institute,

majoring in Aircraft Electric Equipment.

CORPORATE GOVERNANCE

SUPERVISORY AND MANAGEMENT BOARDS

160

Igor Shekhterman

X5 CHIEF EXECUTIVE OFFICER, CHAIRMAN

AND MEMBER OF THE MANAGEMENT BOARD

Frank Lhoёst

COMPANY SECRETARY, MEMBER OF THE MANAGEMENT BOARD

Quinten Peer

MEMBER OF THE MANAGEMENT BOARD

Management Board

Igor Shekhterman, a Russian national (1970), has served

on X5’s Supervisory Board since 2013. He was

previously the Managing Partner and CEO at

RosExpert, which he co-founded in 1996 and

subsequently successfully developed into the Russian

partner of Korn Ferry International. Igor started his

career as Finance Manager at the Russian branch of

Beoluna, the Japanese jewellery producer. Igor holds a

degree in Economics from the Kaliningrad Technical

Institute (1992) and degrees in Business Administration

from the Institut d’Administration des Entreprises

(France, 1994) and the Danish Management School

(1995).

Frank Lhoёst, a Dutch national (1962), joined X5

in 2007, having previously held several positions

at Intertrust Group. Frank graduated from Leiden

University inthe Netherlands with a degree inLaw.

Quinten Peer, a Dutch national (1974), joined X5

in 2018. Previously, he worked for Gazprom

intheNetherlands, where he managed Gazprom’s

50% interest inthe Sakhalin-II project. He lived

in Russia from 2012 to 2016, where he managed

international business development and the expansion

ofamajor capital project as COO for Sakhalin Energy.

Quinten holds a degree in Law from the University

ofGroningen in the Netherlands.

Supervisory and Management Boards

The Supervisory Board is responsible for supervising

and advising the Management Board and overseeing

the general course of affairs, strategy and operational

performance of the Company.

In performing its duties, the Supervisory Board acts

in accordance with the interests of the Company

and its afﬁliated businesses, taking into consideration

the overall good of the Company and the relevant

interests of all its stakeholders. In X5’s two-tier

corporate structure under Dutch law, the Supervisory

Board is a separate body operating fully

independently of the Management Board.

Recognising the value and increasing importance of leveraging different

points of view from among its members, the Supervisory Board aims for a

diverse composition in particular areas of relevance for X5. Supervisory

Board candidates are evaluated against the Board’s proﬁle, existing balance

of skills, knowledge and experience, and the need for the Board to be

prepared for disruption and change. Supervisory Board members are

prompted to be mindful of diversity, inclusiveness and meritocracy

considerations when examining and nominating Board candidates. While

the Supervisory Board is currently not balanced with regard to gender, it

recognises the beneﬁts of gender diversity, and importance is attached to

achieving this. The Board is conscious of the public debate and regulatory

developments in this respect, and takes this into account in its succession

planning, in line with the Group’s Leadership Diversity Policy.

An overview of the current composition of the Supervisory Board

and a short biography of each member is presented in the Corporate

Governance Report on page 159.

X5’s Supervisory Board determines the number of its members.

The Supervisory Board currently consists of four members, with a majority

of three independent members. On an ongoing basis, the Supervisory

Board reviews the proﬁle of its size and composition, taking into account

the evolving nature of X5’s business and activities and the desired

expertise and background of the members of the Supervisory Board.

The Supervisory Board proﬁle is published on X5’s corporate website.

At the 2021 Annual General Meeting of Shareholders, Richard Brasher

and Alexander Tynkovan were appointed as new members of the

Supervisory Board. Richard Brasher was appointed in view of his proven

track record and leadership experience in the food retail industry, and his

strong operational background with functional experience in different

roles, including store operations, supply chain, category management,

buying and private label, coupled with the ability to think strategically

and take a long-term view. Alexander Tynkovan strengthened the

Supervisory Board in view of his proven track record and leadership

experience in the Russian retail industry, his in-depth knowledge and

experience in the ﬁelds of digitalisation and e-commerce, and his

knowledge of X5, having previously served as a member of the

Company’s Supervisory Board.

On 12 May 2021, Karl-Heinz Holland resigned as a member of the

Supervisory Board in view of his new executive responsibilities outside

the Group. The Supervisory Board expresses its sincere appreciation for

the strong expertise and support Karl-Heinz provided to the Group.

Also at the 2021 Annual General Meeting of Shareholders, following their

nomination in line with the Supervisory Board’s rotation schedule,

Stephan DuCharme was reappointed for an additional two-year term, and

Mikhail Fridman was reappointed for an additional three-year term. The

Board deeply regrets that, following unexpected recent developments,

Stephan DuCharme and Mikhail Fridman stepped down as of 1 March

2022, and Richard Brasher, Geoff King and Michael Kuchment stepped

down asof4, 11 and 25 March 2022, respectively. The Board thanks each

of them for their valuable and signiﬁcant contribution to the Company.

At the 2022 Annual General Meeting of Shareholders, the terms of

Nadia Shouraboura will expire in accordance with the Board’s retirement

and reappointment schedule. Nadia Shouraboura will not be eligible for

reappointment.

Report

of the

Supervisory

Board

Composition and proﬁle of the Supervisory Board

CORPORATE GOVERNANCE

REPORT OF THE SUPERVISORY BOARD

161

While retaining overall responsibility, the Supervisory Board assigns certain

tasks to three committees: the Audit and Risk Committee, the Nomination

and Remuneration Committee and the Sustainable Development and

Innovation Committee.

In September 2021, the Innovation and Technology Committee was

renamed the Sustainable Development and Innovation Committee

to strengthen the Supervisory Board’s focus on ESG matters.

Following their appointments, Richard Brasher became a member of the

Audit and Risk Committee, and Alexander Tynkovan joined the Sustainable

Development and Innovation Committee and the Nomination and

Remuneration Committee.

In March 2021, the Supervisory Board elected Peter Demchenkov as its

Chair, succeeding Stephan DuCharme, who had served as Chairman of the

Supervisory Board since November 2015. Peter had served as Vice

Chairman of the Supervisory Board since March 2019.

An overview of the current composition of the Supervisory Board and its

committees is presented in the Corporate Governance Report.

Composition of the committees

Induction and ongoing education

Induction and permanent education are key elements

of good governance. Following their appointment, new

Supervisory Board members go through X5’s strategic,

ﬁnancial, legal and reporting affairs with senior

executives of the Company. In addition, prior to their

appointment, they are invited to meetings of the

Supervisory Board and its committees. On an ongoing

basis, and together with members of senior

management, members of the Supervisory Board visit

stores, distribution centres and other operational

facilities to gain a more in-depth understanding of

local operations, opportunities and challenges.

Same as in 2020, these visits were limited in 2021 due

to travel restrictions stemming from the ongoing

COVID-19 pandemic.

As an additional source of informal learning, external

guest speakers with expert knowledge of topics that

are of particular relevance to the Company are invited

to plenary Board meetings on a regular basis.

The Supervisory Board remains committed to the

ongoing education of its members in order to comply

with the highest standards of excellence and

governance.

Activities in 2021

Throughout the year, the Supervisory Board focused

on a number of key topics. An ongoing point of

attention was the COVID-19 pandemic and its impact

on the health and safety of employees and customers

as well as its impact on the Company’s businesses and

their supply chains. The Supervisory Board received

regular updates from the CEO and other members of

the management team and, in the context of the

annual strategy update, assessed the impact of the

pandemic on the Company’s long-term strategy.

Against the background of the pandemic and

deteriorating macroeconomic conditions, the

Supervisory Board continued to monitor the

implementation of X5’s corporate strategy, with a focus

on long-term value creation through operational

excellence and X5’s capacity to continuously adjust

to market trends and changing customer needs.

In addition, the Supervisory Board reviewed various

matters related to all signiﬁcant aspects of the

Company, its activities and operational results, its

strategy going forward and the management team

and its development.

A key topic during 2021 was the Company’s digital

strategy, including e-commerce and proﬁtability. With

the continued surge of online sales as a result of the

pandemic, and resilient customer habits favouring

food-at-home consumption, the Supervisory Board

had several discussions with management on the

impact of these market dynamics on the evolution of

the Company’s business model. An important dilemma

discussed was how to develop the Group’s

omnichannel capabilities to ensure the right balance

between traditional brick-and-mortar operations and

e-commerce capabilities, while maintaining a healthy

margin. As part of these discussions, the Board

extensively reviewed strategic options for the Group’s

digital businesses, including organic growth, strategic

partnerships and/or selective spin-offs.

Meanwhile, the Board continued to review measures

and initiatives to strengthen X5’s core businesses.

The Board closely reviewed opportunities to automate

and digitalise key functions and processes inside the

Company to increase efﬁciencies and decrease

operational risks. Throughout the year, the Board

extensively reviewed the operational performance

of its key banners, Pyaterochka and Perekrestok, and

in particular measured the Company’s success

in translating new store concepts and in-store

innovations into expanded customer reach and

increased trafﬁc and sales. Also, the Board extensively

reviewed the performance and development plan

of the new hard discounter format Chizhik, and the

implementation of the Company’s private label

strategy across all formats.

The Supervisory Board continued to discuss key

trends and opportunities for the Company to improve

customer experience and accelerate growth. As part of

these discussions, Board members reviewed various

initiatives to strengthen X5’s position in the Russian

food market, including the new Food.ru media platform

launched in July, and the acquisition of the Mnogo

Lososya ‘dark kitchen’ chain in support of the

Company’s offering in the fast-growing ready-to-eat

segment. Also, as part of further initiatives to

accommodate customers , the Board discussed the

introduction of ﬁnancial services under the ‘X5 Bank’

brand, allowing the Company to leverage its large

customer base to cross-sell ﬁnancial services in a joint

venture with Alfa Bank, in ﬁrst instance by combining

the functionality of the Pyaterochka and Perekrestok

loyalty cards with banking services.

Meetings of the Supervisory Board

In 2021, the Supervisory Board held four regular

meetings and one additional meeting in November to

approve the interim dividend. In addition, resolutions in

writing were taken when necessary during the year.

Each of the four meetings of the Supervisory Board

was preceded by meetings of the Audit and Risk

Committee, the Nomination and Remuneration

Committee and the Sustainable Development and

Innovation Committee. Due to ongoing travel

restrictions imposed as a result of the pandemic, most

Board members attended the meetings by

videoconference, which actually enabled effective

communication and interaction.

The plenary Supervisory Board meetings also included

a half-day strategy session, thus ensuring sufﬁcient

time for the meetings and discussions on speciﬁc

themes, such as operational performance, digital

transformation and new businesses, sustainability and

management development. In December, the strategy

session took a full day partially dedicated to digital

development only. The CEO and CFO attended all

meetings, and other members of senior management

were regularly invited to present.

In 2021, the Supervisory Board held regular private

sessions without members of the Management Board

present to independently discuss matters related to

the performance, functioning and development of

members of the Executive Board. The external auditor

attended the meeting in March at which the 2020

Annual Report and ﬁnancial statements were

recommended for adoption by the Annual General

Meeting of Shareholders. In between Supervisory

Board meetings, several informal meetings and

telephone calls took place among Supervisory Board

members and members of the Management Board

and other Company management to consult with each

other on various topics and to ensure that the

Supervisory Board remained well informed about the

running of the Company’s operations.

The Supervisory Board conﬁrms that all Supervisory

Board members have adequate time available to give

sufﬁcient attention to the concerns of the Company.

In 2021, the attendance rate was 100% for both the

Supervisory Board and the committee meetings.

CORPORATE GOVERNANCE

REPORT OF THE SUPERVISORY BOARD

162

Activities in 2021

On various occasions during the year, the Supervisory

Board discussed corporate governance requirements

to support a culture of agile entrepreneurship in the

increasingly competitive omnichannel retail

environment. In this context, through the work of its

Nomination and Remuneration Committee, the Board

reviewed adjustments to the Group’s operational

model, as well as tailored incentive schemes for key

employees across traditional and new businesses alike,

ranging from store managers to key executives in the

Company’s new businesses.

The Board’s sustainability oversight took centre stage

in 2021. As the Company further developed and

reﬁned its sustainability strategy in 2021, the Board

enhanced its oversight of environmental, social and

governance matters, which was also reﬂected in the

Board’s decision to include ESG responsibilities in the

work of its renamed Sustainable Development and

Innovation Committee. Through the work of this

committee, the Board closely monitored X5’s progress

against the medium- and long-term goals set out in

X5’s sustainability strategy, encouraging management

to set ambitious targets and making sure that these

are integrated into the Company’s overall business

strategy.

Furthermore, during its meetings in 2021 the

Supervisory Board reviewed reports from its various

committees and discussed the following (regular)

topics:

The ﬁnancial reporting process and in particular the

approval of the 2020 Annual Report and

Sustainability Report, and review of the 2021

half-yearly and quarterly ﬁnancial reports

The agenda and explanatory notes for the Annual

General Meeting of Shareholders held in May 2021,

including the dividend proposal for the year 2020

The 2021 interim dividend based on the Q3 ﬁnancial

results

Reports by the internal and external auditors

The assessment of the cooperation with the external

auditor, based on a report from the Audit and Risk

Committee

The composition of the Executive Board and the

evaluation of its individual members, including talent

management and succession planning

The proﬁle and effectiveness of the Supervisory

Board in the context of the annual board evaluation,

as described in more detail below

The composition and proﬁle of the Supervisory

Board and its committees

The annual review of the ﬁnancing strategy

Updates on X5’s risk management and risk appetite,

as well as risk mitigation measures and internal

controls

The annual budget for 2022

Board evaluation

X5 undertakes an annual review of the Supervisory

Board, its committees and its individual members. The

objective is to provide a framework for discussion on

the effectiveness of the Supervisory Board and its

members and committees, and to come up with an

updated Board Development Plan with speciﬁc actions

to facilitate improvement.

Under the leadership of the new Chair, the 2021

evaluation was performed by an external party by

means of a questionnaire, individual interviews and

observation of the Board and committee meetings

held in December. Ward Howell was engaged as the

external evaluator.

Items assessed and subsequently discussed included:

the proﬁle and composition of the Supervisory Board,

level of skills and expertise, oversight of business

performance, priorities and work processes of the

Board, effectiveness in overseeing strategy,

effectiveness of the committees in alleviating the

Board’s overall oversight, and the Supervisory Board’s

relationship with the Executive Board. In addition to the

self-assessment by the Supervisory Board members,

input was also solicited and received from members of

the Executive Board and members of the Management

Board.

Overall, the Board positively assessed its own

functioning and its relationship with management,

despite the limited opportunities to meet in person

due to the travel restrictions brought on by the

pandemic. Board discussions were open and

constructive, and good progress was made in striking

the right balance between the Board’s operational

oversight and strategic responsibilities. The Board

continued to function as a team where different

opinions and perspectives are valued and respected.

The Supervisory Board attaches great value to these

evaluations. They ensure continuous focus on the

quality of its activities, the composition and functioning

of the Supervisory Board and its committees and the

Supervisory Board’s relationship with the Executive

Board. Given the recent geopolitical developments,

having immediate impact on composition and proﬁle of

the Supervisory Board, the Supervisory Board shall

make a thorough reassessment of its composition and

proﬁle during 2022.

CORPORATE GOVERNANCE

REPORT OF THE SUPERVISORY BOARD

163

Meetings of the committees

Audit and Risk Committee

The role of the Audit and Risk Committee is described

in its charter, which is available on the Company’s

website. On 31 December 2021, the Audit and Risk

Committee consisted of Geoff King (Chairman), Peter

Demchenkov, Richard Brasher and Marat Atnashev.

In 2021, the Committee held ﬁve regular meetings.

To allow for a more in-depth review of the broad range

of topics covered by the Audit and Risk Committee,

meetings were held over the course of two half-day

sessions each. In connection with ongoing travel

restrictions brought on by the COVID-19 pandemic,

certain committee members had to attend all

meetings by videoconference. The meeting in August

to review the half-yearly results was held entirely by

videoconference. As a rule, all meetings were attended

by the CFO, the external auditor and the internal audit

director, while the CEO was invited to, and attended, all

meetings. Other members of the Supervisory Board

and senior management were invited when necessary

or appropriate. The Committee met once with the

external auditor without the presence of management.

The Audit and Risk Committee assists the Supervisory

Board in its responsibility to oversee X5’s ﬁnancing,

ﬁnancial statements, ﬁnancial reporting process and

system of internal business controls and risk

management.

Throughout the year, the Committee reviewed the

Company’s annual and interim ﬁnancial statements,

quarterly results and related press releases, as well as

the outcomes of the year-end audit. The Committee

also periodically reviewed the level of ﬁnancial

provisions, key movements in the balance sheet and

any contingent liability movements.

Throughout the year, the Committee closely monitored

risk management and the risk management process,

including the timely follow-up to high-priority actions

and risk mitigation measures based on quarterly

progress updates. As part thereof, the Committee

received several updates on the impact of the

pandemic on the risk proﬁle of the Company and its

ﬁnancial position. As one of the emerging risks in this

respect, the Committee discussed the increasingly

tight labour market and inherent impact on operational

capacity and personnel costs. The Committee was

informed regularly on compliance and reviewed and

received regular updates on the Company’s

whistleblower programmes. Furthermore, the

Committee reviewed activities and initiatives relating to

detection and prevention of misconduct and

irregularities, and risk mitigating measures to protect

the Company in these areas.

The Committee also closely monitored the

effectiveness of the capital investment process, the

appraisal methodology and the safeguarding of core

assets. Twice during the year, the Committee reviewed

an assessment of the level of returns from recent

investments, as well as management actions

addressing underperforming stores and assets whose

carrying value were impaired.

Each quarter, the agenda included a discussion of

current control topics, including internal audit ﬁndings

and the external auditor’s reﬂections on the control

framework. These discussions guided management

and Internal Audit to focus on the right priorities

throughout the year, to mitigate any signiﬁcant risks or

weaknesses and to build a relevant internal audit plan

for 2022.

The Audit and Risk Committee and its Chair held

several private meetings together with the CFO, the

Internal Audit Director and the external independent

auditor. During the private sessions with the new CFO,

his onboarding and start at the Company were

regularly discussed.

With respect to the external auditor’s management

letter about the 2021 ﬁnancial year, the Audit and Risk

Committee conﬁrmed that the management letter

contained no signiﬁcant items that need to be

mentioned in this report.

The Committee also discussed other issues and

recurring topics, including the following:

The external auditor’s report with respect to

accounting and audit issues and internal control

recommendations in respect of their audit of the

2020 consolidated ﬁnancial statements

Quarterly interim ﬁnancial reports and trading

updates

Audit plans of the internal and external auditors, and

the approval thereof

The annual assessment of the functioning and

independence of the external auditor

X5’s ﬁnancing strategy

Tax matters, including speciﬁc attention to the

denunciation of the double tax treaty between

Russia and the Netherlands, effective as of 1 January

2022, and the implications for the Company

IT infrastructure, cybersecurity and data protection

Ethics and compliance, including updates to the

Company’s whistleblower programmes, as well as

activities and initiatives relating to detection and

prevention of misconduct and irregularities, and risk

mitigating measures to protect the Company in

these areas

Changes in the Company’s regulatory and

compliance framework as of 1 January 2021, following

Brexit

CORPORATE GOVERNANCE

REPORT OF THE SUPERVISORY BOARD

164

CORPORATE GOVERNANCE

REPORT OF THE SUPERVISORY BOARD

165

Related party transactions

The Company operates a Related Party Transaction

Policy, which prescribes the internal reporting and

approval mechanism for related party transactions.

Under this policy, review and approval of related party

transactions is delegated to the Audit and Risk

Committee, whereby related party transactions

exceeding a certain threshold remain subject to the

approval of the Supervisory Board. The policy requires

that the Audit and Risk Committee or the Supervisory

Board approve a related party transaction only if it is

agreed on competitive terms which are customary in

the market and in the best interest of X5 Group.

During the year, the Audit and Risk Committee

reviewed and/or approved related party transactions

which, by their nature or materiality, could potentially

have constituted a conﬂict of interest for members of

the Supervisory Board and Management Board. In

2021, the following related party transactions were of

material signiﬁcance to the Company and/or members

of the Management Board or Supervisory Board:

procurement of goods (for resale) from Borjomi

Group

agreements with Home Interior for the lease of retail

and warehouse space

agreements with VimpelCom for the lease of retail

space

telecommunication services provided by VimpelCom

agreement for development, purchase and

maintenance of online cash registers with

VimpelCom

procurement of goods (for resale) from RusBioTrade

procurement of goods (for resale) from Alidi-Nord

service agreement with CTF Holdings S.A.

commercial relationship agreement with DIA;

joint venture with Alfa Bank for the establishment of

X5 Bank

foreign exchange agreements, bond issues, revolving

credit facilities and other bank products with

Alfa Bank

advertising and marketing agreements with

Alfa Bank

payroll service agreement with Alfa Bank

insurance services from Alfa Insurance

(AlfaStrakhovanie)

lease agreements with Alfa Capital Holdings Limited

These transactions were discussed and/or approved

by the Audit and Risk Committee and the Supervisory

Board with due observance of provisions 2.7.3 to 2.7.5

of the Corporate Governance Code, the Related Party

Transactions Policy and the Rules of Procedure of the

Supervisory Board, which Rules are available on the

Company’s website.

While members of the Supervisory Board who have a

conﬂict of interest in relation to a certain matter do not

participate in the Supervisory Board’s deliberations

and decision-making on such matters, the Supervisory

Board assessed that, to the extent that any of the

listed transactions constituted a conﬂict of interest for

certain members of the Supervisory Board, such

conﬂict did not undermine the independent

judgement of these Board members while performing

their duties for X5.

Nomination and Remuneration Committee

The role of the Nomination and Remuneration

Committee is described in its charter, which is available

on the Company’s website. On 31 December 2021, the

Nomination and Remuneration Committee consisted

of Peter Demchenkov (Chairman), Geoff King,

Alexander Tynkovan and Marat Atnashev. In 2021, the

Nomination and Remuneration Committee held six

regular meetings, all of which were attended virtually

due to COVID-19 travel restrictions. The CEO and the

Director of HR and Organisational Development were

invited to attend every meeting, and other members of

the Supervisory Board and senior management were

invited when necessary or appropriate.

The Committee regularly reviews the composition and

proﬁle of the Supervisory Board and its сommittees to

ensure they continue to provide informed and

constructive support and challenge to the

management team. The committees is responsible for

identifying and reviewing suitable candidates through

a formal and transparent process, ensuring that plans

are in place for orderly succession to the Board. Early

in the year, the Committee focused on the succession

of Karl-Heinz Holland, who informed the Board of his

intention to step down at the Annual General Meeting

of Shareholders in May 2021. Egon Zehnder assisted

the Committee in its search for a successor. Following

a rigorous selection process, the Committee

recommended the nomination of Richard Brasher as a

new member of the Supervisory Board. Furthermore,

as successor of Alexander Torbakhov, who stepped

down earlier, on 3 July 2020, the Committee

recommended the nomination of Alexander Tynkovan

in view of his in-depth knowledge and experience in

the ﬁelds of digitalisation and e-commerce, and his

knowledge of X5, having previously served on the

Supervisory Board. Finally, the Committee

recommended the reappointment of Stephan

DuCharme and Mikhail Fridman for a new term, in line

with the rotation schedule of the Supervisory Board.

In 2021, the Nomination and Remuneration Committee

continued to monitor succession planning,

management development and human resource

needs in relation to the Company’s sustainable growth

objectives. Building on previous year discussions, the

Committee reviewed the Group’s organisational

structure in support of the Company’s strategic

objectives to strengthen its the key formats while

growing e-commerce and improving omnichannel

productivity.

In November, the Committee dedicated a full meeting

to stafﬁng implications resulting from the Company’s

transformation into omnichannel retailing with

new employee requirements based on digital and

e-commerce competencies. In particular, the

Committee reviewed implications for staff recruitment

and retention, training and development, and

remuneration benchmarking based on distinct peer

groups for the various key positions at senior

management level.

Furthermore, as part of its regular review of variable

remuneration principles, the Committee reviewed

and discussed tailored incentive schemes for key

employees across the Group, ranging from store

managers to key executives in the Company’s

new businesses. Meanwhile, taking into account

pandemic-related and macroeconomic uncertainties,

and their impact on the retail environment, the

Committee assessed and evaluated options to

restructure the Company’s incentive plans for 2022

and beyond.

The Nomination and Remuneration Committee further

reviewed and prepared the following items for

recommendation or report to the full Supervisory

Board as part of its ongoing responsibilities:

CORPORATE GOVERNANCE

REPORT OF THE SUPERVISORY BOARD

166

Nomination and Remuneration

Committee

The role of the Sustainable Development and

Innovation Committee is described in its charter, which

is available on the Company’s website. On 31

December 2021, the Sustainable Development and

Innovation Committee consisted of Nadia Shouraboura

(Chair), Michael Kuchment and Alexander Tynkovan.

The Sustainable Development and Innovation

Committee held four meetings in 2021, all of which

were attended virtually due to COVID-19 travel

restrictions. The CEO was invited to attend every

meeting, and other members of the Supervisory Board

and senior management were invited when necessary

or appropriate.

The Sustainable Development and Innovation

Committee assists the Supervisory Board in its

responsibility to closely monitor X5’s progress against

the medium- and long-term goals set out in X5’s

sustainability strategy as well as X5’s e-commerce

activities and initiatives in the area of technical and

commercial innovation.

In 2021, the Committee reviewed and discussed

various tech- and/or data-driven processes and

initiatives to enhance operational efﬁciencies, as well

as innovative in-store solutions to improve the

customer experience. Also, the Committee closely

monitored the performance of new activities in the

Group’s omnichannel offering, including the media

platform Food.ru launched in May.

In September, the Innovation and Technology

Committee was renamed the Sustainable

Development and Innovation Committee to strengthen

the Supervisory Board’s focus on the Company’s

ambitious ESG agenda. During the second half of the

year, following the release of X5’s ﬁrst Sustainability

Report in May, the Committee closely monitored the

implementation of X5’s sustainability strategy and

performance on sustainability targets, also reviewing

ways to apply innovations to accelerate the

achievement of these targets.

Independence

Financial statements

Sustainable Development and

Innovation Committee

The Supervisory Board endorses the principle that the

composition of the Supervisory Board shall be such

that its members are able to act critically and

independently of one another and of the Management

and Executive Boards and any particular interests. It is

Company policy that a majority of the members of the

Supervisory Board must be independent at all times.

The majority of the members of the Supervisory Board,

which currently consists of four members, qualify as

independent.

According to best practice provisions 2.1.7 and 2.1.8

of the Dutch Corporate Governance Code, there can

only be one Supervisory Board member who can

be considered to be afﬁliated with or representing

a shareholder who directly or indirectly holds more

than 10% of the shares in the Company.

As of 31 December 2021, Supervisory Board members

Mikhail Fridman and Marat Atnashev are both afﬁliated

with CTF Holdings S.A., which has a capital interest

of 47.86% in X5. Stephan DuCharme, Chairman of the

Board, serves as Managing Partner of L1 Retail, part

of the LetterOne investment group, which is partially

controlled by the ultimate shareholders of CTF

Holdings S.A. Therefore, Mikhail Fridman, Marat

Atnashev and Stephan DuCharme are not

independent in the sense of the Dutch Corporate

Governance Code.

This Annual Report and the 2021 consolidated

ﬁnancial statements, audited by Ernst & Young

Accountants LLP, were presented to the Supervisory

Board in the presence of the Management Board and

the external auditor. Ernst & Young’s report can be

found on page 266.

The Supervisory Board recommends that the

shareholders adopt these ﬁnancial statements. Due to

the current geopolitical developments having severe

impact on the Russian consumer market and, as a

result, the Company’s strategic outlook and ﬁnancial

position, the Supervisory Board recommends to

exceptionally deviate from the dividend policy and

Company guidance by not declaring the ﬁnal dividend

for the year 2021, in addition to the amount of RUB

73.65 per GDR that was paid as interim dividend in

December 2021. The Supervisory Board therefore

recommends, in the best interest of the Company and

as proposed by the Management Board, to add an

amount of RUB 22,738 million, representing the

remaining amount of the proﬁt in the ﬁnancial year

2021, to the retained earnings of the Company.

The Supervisory Board furthermore requests that the

Annual General Meeting of Shareholders grant

discharge to the members of the Management Board

for their management and to the members of the

Supervisory Board for their supervision in 2021.

The COVID-19 pandemic has had, and is still having, a

signiﬁcant impact on X5’s businesses, employees and

customers. The continued dedication and efforts of

the entire X5 team has ensured the safety of our

stores and distribution centres, sustained the strength

of our supply chains and helped nourish families and

local communities in 66 regions of Russia. The

Supervisory Board wishes to thank everyone at X5 for

going the extra mile last year to build a stronger

business and serve customers better every day.

Annual assessment of the Executive Board and its

individual members, and changes in the composition

of the Executive Board

The proposed reappointment of the CEO for an

additional two-year term

Management changes, including the appointment of

Vsevolod Starukhin as CFO and member of the

Executive Board, succeeding Svetlana

Demyashkevich in May 2021

Proposals on ﬁxed and variable remuneration of the

members of the Executive Board, including

adjustments following the annual remuneration

benchmarking analysis

The remuneration policy of the Executive Board

adjusted in line with the updated 2021-2023 LTI

programme, as proposed to and approved by the

Annual General Meeting of Shareholders

in May 2021

The proﬁle and effectiveness of the Supervisory

Board in the context of the annual Board evaluation

Review of X5’s Leadership Diversity Policy and

diversity levels across the Group

Details of actual remuneration in 2021 can be found

in notes 28 and 29 to the consolidated ﬁnancial

statements.

Remuneration

The General Meeting of Shareholders determines the

remuneration of the members of the Supervisory

Board in accordance with the remuneration policy for

members of the Supervisory Board. The remuneration

policy for the Supervisory Board was approved by the

2020 Annual General Meeting of Shareholders. The

detailed amounts are reﬂected in the Remuneration

Report on page 174, as well as notes 28 and 29 to the

consolidated ﬁnancial statements.

The Supervisory Board

19 May 2022

Given the composition of the Supervisory Board following recent events,

the duties and responsibilities of the Sustainable Development and

Innovation Committee will be included in the remit of the full Supervisory

Board as of 16 March 2022.

Mikhail Fridman and Stephan DuCharme resigned from the Supervisory

Board on 1 March 2022.

Remuneration

Report

Statement from the Chairman

ofthe Nomination and

Remuneration Committee

CORPORATE GOVERNANCE

REMUNERATION REPORT

167

On behalf of the Nomination and Remuneration

Committee, I am pleased to present the Remuneration

Report 2021, providing a summary of the remuneration

policies for the Management Board and the

Supervisory Board, and an account of the

implementation of these policies in 2021.

At the 2021 Annual General Meeting of Shareholders,

apositive advisory vote was cast for the Remuneration

Report 2020. Meanwhile, we took into account

feedback received from shareholders and improved

our disclosures inthis Remuneration Report, creating

more transparency in the link between performance

and payout. Going forward, we will continue tohave an

open dialogue with our shareholders and other

stakeholders on remuneration principles and

remuneration of the Management Board and

Supervisory Board.

The year 2021 was another challenging one for X5, as

COVID-19 continued to impact our customers,

employees and their families. Their health and safety

will remain a key focus of our oversight as long as the

pandemic is ongoing. In these extraordinary

circumstances, X5 continued to serve its vital role in

society, as frontline employees did their utmost to

meet customer needs and care for people in their

communities.

Meanwhile, despite the pandemic and challenging

macroeconomic conditions in Russia’s food market,

with strong competition and inﬂation putting pressure

on consumers, the Company continued to grow in

2021, and maintained proﬁtability margins in line with

our strategic targets. Total revenue rose by 11.5%

year-on-year, while EBITDA margin for FY 2021 was

7.3% under pre-IFRS 16. In addition, to meet consumer

needs in line with e-grocery and ready-to-eat trends,

X5 continued to invest in omnichannel solutions for

customers, resulting in 140% net growth in online sales

year-on-year.

Throughout the year, the Committee continued to

reﬂect on the remuneration policy for the Executive

Board to ensure that it continues to support the

Company’s strategy and long-term growth. The

Committee performed its annual remuneration

benchmark review and evaluated performance

measures under the short- and long-term incentive

programmes.

Apart from the Group’s key ﬁnancial measures applied

for the 2021 short-term incentive programme, speciﬁc

business priorities were reﬂected in additional

short-term performance measures to drive business

efﬁciencies and online performance. Furthermore,

recognising the strategic importance of our new hard

discounter format, Chizik, speciﬁc rollout targets were

added as an additional performance measure for the

CEO. We feel that these performance measures

adequately contribute to the Company’s success in

the short term, while addressing strategic imperatives

that contribute to long-term value creation for the

Company.

In May, the Annual General Meeting of Shareholders

approved the new 2021–2023 long-term incentive (LTI)

programme as part of the remuneration policy for the

Management Board. The LTI programme is designed

tosupport the Company’s goal of strengthening its

leadership by enterprise value multiples and market

share, while focusing on revenue, as well as margins to

increase proﬁtability, and prudently managing capital

spending and expenses. In addition, as the Company

has integrated sustainable development goals into its

overall business strategy, the LTI programme includes

ESG targets supporting the Company’s sustainability

strategy.

As part of our broader responsibility, we also discussed

the remuneration principles for other key staff or

divisions within the Group. As such, underlining our

customer-centric business model, we reviewed new

incentive programmes designed to reward a more

entrepreneurial approach on the part of store

managers. Also, as we continue to invest in our digital

and omnichannel ambitions, we recognised the need

for tailored incentive schemes for our new businesses,

and various management initiatives in this respect

have been reviewed.

Finally, with respect to remuneration of the Supervisory

Board, certain technical adjustments and mandatory

legal updates to the rules of the Restricted Stock Unit

Plan were reviewed in 2021. Although these

amendments do not change the remuneration policy

for the Supervisory Board, an executive summary of

the plan will be submitted to the upcoming 2022

Annual General Meeting of Shareholders.

Looking forward, the Supervisory Board will closely

engage with management on a thorough

re-assessment of both the short- and long term

remuneration principles and targets, taking into

account the impact of current developments on the

Company’s strategic priorities. In doing so, we will

continue to collect feedback from shareholders and

other stakeholders in order to achieve maximum

alignment on our remuneration policies.

Peter Demchenkov

Chair of the Nomination and Remuneration Committee

Remuneration of the

Management Board

The Supervisory Board resolved that the remuneration

policy for the Management Board serves as a basis

forthe remuneration policy for the Executive Board.

Inview of the relative size and composition of both

boards, this Remuneration Report refers to the

Executive Board unless speciﬁc provisions apply

tomembers of the Management Board only, which

willbe clearly indicated.

Objectives

The remuneration policy for the Management Board

isaligned with the Company’s strategy and supports

the Company’s long-term development, while aiming

to be effective, transparent and simple. The objective

of the remuneration policy is twofold:

While developing the remuneration policy, the

Nomination and Remuneration Committee conducted

scenario analyses to determine the risks to which

variable remuneration may expose the Company.

To create a remuneration structure that supports

ahealthy corporate culture and allows the Company

to attract, reward and retain the best-qualiﬁed talent

to lead the Company towards its strategic objectives

To provide for a balanced remuneration package

that is focused on achieving sustainable ﬁnancial

results, that is aligned with the long-term strategy

ofthe Company and that will foster alignment of the

interests of management with those of shareholders

and other stakeholders, including customers,

employees and wider society

CORPORATE GOVERNANCE

REMUNERATION REPORT

168

Remuneration in context

The table below reﬂects the total remuneration of each member of the Management Board and the average

remuneration of all other X5 employees (on a full-time equivalent basis), set against the Company’s performance over

the ﬁve most recent ﬁnancial years.

Benchmarking

Internal pay ratio

The remuneration of Executive Board members is

benchmarked against the labour market peer group

every year. As a company with operations mainly in

Russia, the reference group created for the

benchmarking is composed of Russian companies

equivalent in terms of size of business and complexity

of operations, as well as international, non-Russian

retail companies. In total, the reference group is

composed of 58 companies in various sectors

including retail (26%), digital and telecommunications

(21%), industrial (19%), ﬁnancial (10%), FMCG (9%),

transportation and logistics (9%) and other (6%).

Although external market data provide useful context,

it is ultimately the responsibility of the Supervisory

Board to determine remuneration packages at an

appropriate level that reﬂect the skills, level of

responsibility and performance of each individual. As

we aim to recruit and retain the most qualiﬁed talent

available, the target Total Direct Compensation level for

Management and Executive Board members is set

between the 50th and the 75th percentile.

For the current CEO, the Supervisory Board resolved to

make an exception in recognition of the size and

complexity of X5. Following his re-appointment for a

two-year term at the 2021 AGM, the CEO’s total direct

compensation was set, in case of on-target

performance, at the 90th percentile.

As is commonly understood, pay ratios are speciﬁc to

the company’s industry, geographical footprint and

organisational model. As a major food retail company,

the relatively small number of executive staff vs

operational staff in stores and warehouses across

seven federal districts in Russia adds to the variety of

pay within the Company and substantially

differentiates the average employee compensation

with compensation levels of Management Board

members. For companies in other industries, this will be

different. Furthermore, pay ratios can be volatile over

time, as they can be heavily dependent on the

Company’s annual performance since that

performance impacts the remuneration of the

Management Board (and Executive Board) much more

than that of all other employees.

2017

2018

2019

2020

2021

Revenue, RUB bln

1,295

1,533

1,734

1,978

2,205

Company performance

Selling space, ths sqm

5,480

6,464

7,239

7,840

8,410

Number of stores

12,121

14,431

16,297

17,707

19,121

Net proﬁt (pre-IFRS 16), RUB bln

Share price, $ eop

37.8

24.8

34.5

36.1

26.5

Management Board remuneration (RUB, mln)

I. Shekhterman

344

347

259

275

358

F. Lhoëst

Q. Peer

Average employee remuneration, RUB

659,344

701,192

754,990

782,079

799,555

Internal pay ratio (CEO vs employee remuneration)

174

209

211

198

273

Management Board remuneration (RUB, mln)

I. Shekhterman

F. Lhoëst

Q. Peer

—

The pay ratio is calculated by dividing the CEO’s total remuneration (base salary and short-term incentive) by the average remuneration of all X5 employees.

Given the irregular nature of awards under the LTI programme, LTI awards are not included in the pay ratio for fair and consistent presentation purposes. The

average remuneration per employee is calculated as the total labour costs derived from note 28 on page 232 divided by the number of employees on an FTE

basis. In 2021, the internal pay ratio increased due to the increase in the CEO’s base salary upon his reappointment at the 2021 AGM.

CORPORATE GOVERNANCE

REMUNERATION REPORT

169

Summary of remuneration elements and implementation in 2021

Base Salary

Short-Term

Incentive

Base salaries are in line with compensation

levels in peer group companies based on the

salary benchmarking survey conducted

annually.

Annual cash bonus

Target payout for CEO: 100%

Target payout for Management Board members

based in the Netherlands: 60%

Maximum level: 140% of target payout per

quantitative target, and 120% of target payout

per qualitative target

The total STI payout may be adjusted up- or

downwards by up to 20% of the target payout

at the discretion of the Supervisory Board.

Igor Shekhterman

Frank Lhoëst

Quinten Peer

RUB 120,000,000

EUR 315,000

EUR 275,000

Enterprise value / EBITDA multiple: 50%

Market share: 45%

Sustainability targets: 5%

Long-Term

Incentive

Cash incentive programme over a three-year

period from 1 January 2021 until 31 December

2023

Payout thresholds: EBITDA margin and net

debt/EBITDA ratio to ensure business

efﬁciency and retain focus on prudent

ﬁnancial and balance sheet management

50% of the total award is paid in 2024

subject to maintaining achieved targets

through the end of 2023, while the other

50% is deferred to 2025 with a proﬁtability

threshold as a condition for deferred payout.

Igor Shekhterman

Frank Lhoëst: N/A

Quinten Peer: N/A

Targets

2021 SUMMARY

POLICY SUMMARY

Elements of remuneration

The remuneration provided to Executive Board

members consists of the following ﬁxed and variable

components (the “Total Direct Compensation”): a base

salary, an annual cash incentive (STI) and a long-term

cash incentive (LTI). Both the STI and LTI are built

around performance measures, both ﬁnancial and

non-ﬁnancial, to support the Company’s strategic

objective of achieving long-term value creation

through sustainable leadership in customer, employee

and shareholder recognition.

The Executive Board’s Total Direct Compensation

is equally balanced between the ﬁxed and annual

variable remuneration components, and more heavily

weighted on the LTI to strengthen the focus on

long-term goals. The ratio between ﬁxed and variable

pay components for members of the Executive Board

is as follows in case of on-target performance.

In addition to the Total Direct Compensation, members

of the Executive Board are entitled to other beneﬁts

as described below under “Other remuneration

components” and “Contractual arrangements”.

30%

40%

Base salary

STI

LT I

Igor Shekhterman

Group targets: 100%

Actual payout: 86.2% of base salary

Frank Lhoëst

Group targets: 50%

Divisional targets: 25%

Individual targets: 25%

Actual payout: 61.2% of base salary

Quinten Peer:

Group targets: 50%

Divisional targets: 25%

Individual targets: 25%

Actual payout: 63.2% of base salary

Total Direct Compensation

CORPORATE GOVERNANCE

REMUNERATION REPORT

170

2021 Management Board remuneration

Ad (2) Short-term incentive (STI)

The following table provides an overview of the

Management Board’s remuneration in 2021 (in millions

of Russian roubles).

The short-term incentive is an annual cash bonus

ensuring focus on the achievement of performance

targets over the ﬁnancial year. It drives behaviour and

reﬂects the key priorities for the year. At the beginning

of each ﬁnancial year, the Supervisory Board

determines the performance measures and their

relative weight, and the targets to be achieved for each

performance measure, based on X5’s business

priorities for that year. For each measure, performance

ranges are set, i.e. the value below which no payout will

be made (the threshold), the on-target value and the

maximum payout level.

Performance measures are aligned with the

Company’s objective to deliver sustainable value to

shareholders and other stakeholders, and include:

Furthermore, divisional and individual targets may be

set for other members of the Management Board and

Executive Board. All performance measures contribute

to the Company’s success in the short term, while also

securing the Company’s long-term objectives. X5 does

not disclose the actual targets as this is considered

commercially sensitive information.

The following table reﬂects the STI achievement and

payout for 2021.

Ad (1) Base salary

The base salary of the CEO and the other members of

the Management Board is determined by the

Supervisory Board and derived from compensation

levels in peer group companies based on the salary

benchmarking survey conducted annually.

For Igor Shekhterman, the total remuneration in the

table includes remuneration paid in the Netherlands

and Russia: as a Russia-based member of the

Management Board, Igor Shekhterman also has a

contract of employment with an operational subsidiary

in Russia. Under this contract, 75% of his total base

salary as well as variable remuneration components

are paid in Russia. No other remuneration has been

granted or allocated by subsidiaries or other

companies whose ﬁnancials are consolidated by the

Company to members of the Management Board.

Following his re-appointment for a two-year term at

the 2021 Annual General Meeting, the CEO’s total

direct compensation was set, in case of on target

performance, at the 90th percentile. The total

contractual annual base salary for Igor Shekhterman

was increased to RUB 120,000,000 (2020:

RUB 70,000,000), in recognition of the rapidly increasing

size and complexity of X5. In accordance with Russian

labour law, the base salary is adjusted based on the

number of days spent on vacation. The amount also

includes other ﬁxed beneﬁts not exceeding 2% of the

total contractual annual base salary.

The base salaries of Frank Lhoëst and Quinten Peer

are set at, respectively, EUR 315,000 and EUR 275,000.

Financial measures related to the Company’s

operational performance, consisting of key ﬁnancial

metrics which typically reﬂect X5’s goal of expanding

market share while focusing on margins to increase

proﬁtability and prudently managing capital

spending and expenses

Measures that reﬂect speciﬁc strategic and key

business priorities of the Company. In 2021, these

measures consisted of e-commerce performance,

the level of digitalisation to achieve business

efﬁciencies, as well as the expansion of the hard

discounter format Chizhik launched in 2020

YEAR

BASE

SALARY ¹

SHORT-TERM

INCENTIVE ²

LONG-TERM

INCENTIVE

SOCIAL

SECURITY

COST

⁴

FIXED

VS VARIABLE

REMUNERATION

TOTAL

NAME

I. Shekhterman

2021

2020

104

122

108

358

275

33%–67%

31%–69%

F. Lhoëst

2021

2020

63%–37%

61%–39%

Q. Peer

2021

2020

62%-38%

61%–39%

Total

2021

2020

155

124

119

122

108

442

357

—

CORPORATE GOVERNANCE

REMUNERATION REPORT

171

Ad (2) Short-term incentive (STI)

Igor Shekhterman

Frank Lhoëst

Quinten Peer

Chief Executive Ofﬁcer

Company Secretary

Chief Operating Ofﬁcer

(X5 Retail Group N.V.)

61.20%

63.20%

86.20%

Revenue X5

X5 revenue

X5 LFL sales

X5 ROI

X5 digital channels revenue

Digitalisation index

Individual KPI

Rollout of Chizhik

Divisional KPI

Total

PERFORMANCE

MEASURE *

20%

12.5%

15%

10%

25%

12.5%

10%

20%

10%

25%

10%

25%

100%

WEIGHT

97.1%

Below threshold

107.3%

87.7%

105.6%

110%

120%

Achieved

118.4%

120%

REALISED

PERFORMANCE

88.6%

114.7%

75.4%

111.2%

110%

120%

100%

136.8%

140%

RESULTING PAYOUT

AS % OF TARGET

0.0%

17.72%

11.08%

0.0%

28.67%

14.34%

7.54%

3.77%

22.24%

11.12%

27.50%

30.00%

10.00%

34.21%

35.00%

102.0%

105.3%

86.2%

ACTUAL BONUS

(% OF PAYOUT *WEIGHT)

TOTAL BONUS PAYOUT

OF BASE SALARY

The total STI payout may be adjusted up- or

downwards by up to 20% of the target payout at the

discretion of the Supervisory Board. The target payout

as a percentage of base salary is 100% for the CEO

and other members of the Executive Board and 60%

for Management Board members, contingent on the

targets being fully achieved.

For the reporting year 2021, the achievement of

performance targets was assessed and determined

by the Supervisory Board for each Management Board

member individually.

For Igor Shekhterman, the STI opportunities are

weighted 100% based on the Group’s ﬁnancial and

non-ﬁnancial performance measures. For 2021, it

results in a total payout of 86.2% of the target payout

(or base salary).

For Frank Lhoëst and Quinten Peer, the STI targets

are weighted at 50% for the Group’s ﬁnancial and

non-ﬁnancial performance measures, 25% for

division-related targets and 25% for individual,

function-related performance measures, also with

revenue and proﬁtability thresholds as a condition

for STI payout. For 2021, it results in an aggregate

cash payout of 102.0% of the target payout, or 61,2%

of the base salary for Frank Lhoëst and 105.3%

of the target payout or 63.2% of the base salary

for Quinten Peer consequently.

* For each performance measure, a threshold, target and maximum

performance level is set with the following STI payout, as a percentage

oftarget payout:

Threshold performance: varies per performance measure and reﬂects

the level of ambition to achieve it

For each measure, payout in between these performance levels is on

astraight-line basis; below threshold performance the payout is zero,

whereas beyond maximum performance it is capped at 140% of payout

attarget.

Target performance: 100% of target payout

Maximum performance: 140% of target payout (per quantitative target)

and 120% of target payout (per qualitative target)

CORPORATE GOVERNANCE

REMUNERATION REPORT

172

Ad (3) Long-term incentive (LTI)

Ad (4) Social security cost

The CEO and other members of the Executive Board

participate in the Company’s long-term incentive

programme. Under the LTI programme, performance is

calculated and cash awards are paid after a revolving

three-year performance period, with a 50% deferred

payout subject to maintaining achieved targets in the

fourth year, with a proﬁtability threshold as a condition

for deferred payout. This creates a focus on long-term

goals throughout the programme and provides an

effective mechanism for motivating and retaining

members of management who are critical to the

ongoing success of the Company.

For the CEO, the long-term incentive amount in 2020

represents an accrual-based amount in line with IFRS

requirements (see note 28, “Staff costs”, on pages

232-237). On 31 December 2020, the 2018–2020 LTI

programme came to an end, with targets and

thresholds achieved. In recognition of exceptional

results and efforts during the period, the LTI reward

includes an additional one-off amount of RUB

30,000,000 awarded at the discretion of the

Supervisory Board. This additional reward represents a

deviation from the remuneration policy and increases

the weight of the LTI in the Total Direct Compensation.

The 2021 Annual General Meeting approved the

2021–2023 LTI programme. Performance indicators

tunder he programme have a one- or three-year

vesting period.

Targets under the LTI reﬂect the Company’s strategy to

achieve leadership in customer recognition through

continuously evolving value propositions in the food

market, while setting the industry standard in digital

transformation and omnichannel growth. Long-term

performance measures to support this strategy are

sustained leadership in terms of enterprise value

multiple and market share, with proﬁtability and net

debt/EBITDA thresholds to remain focused on margins,

business efﬁciency and prudent ﬁnancial and balance

sheet management. In addition, the LTI programme

includes a non-ﬁnancial target to support the

Company’s ESG strategy.

For the year ended 31 December 2021, the social

security costs include statutory pension contributions

in the amount of RUB 29 (2020: RUB 22).

The following table reﬂects the LTI performance and payout for the CEO (in millions of Russian roubles) for the

2018–2020 LTI programme:

The size of each individual cash award is based on the participant’s annual base salary and LTI scale reﬂecting his/her

role and position as well as his/her contribution to meeting the LTI targets at both the individual and team levels, with

a maximum of 133% per year of the participant’s base salary during the three-year programme.

PERFORMANCE

MEASURE

WEIGHT

TARGET

PAYOUT %

ACHIEVEMENT

CASH

REWARD ¹

50% PAYOUT

IN 2021

50% PAYOUT

IN 2022 ²

LTI 2018–2020

Revenue

EV/EBITDA

multiple

50%

100%

155

77.5

80.3

50%

100%

155

77.5

80.3

Multiple calculated and accrued on an annual basis.

Long-term shareholder value creation through

sustained leadership in the Russian food

market, with a 15% share in grocery and a 20%

share in e-grocery by the end of 2023.

Long-term shareholder value creation through

sustained leadership in the Russian food

market, with a 15% share in grocery and a 20%

share in e-grocery by the end of 2023.

Achievement of ESG targets under X5’s

“30×30” Sustainability Plan.

Net debt/EBITDA

EBITDA margin

Net debt/EBITDA

EBITDA margin

In 2024 (50%) and

2025 (50%, subject

to EBITDA threshold)

In 2024 (50%) and

2025 (50%, subject

to EBITDA threshold)

Net debt/EBITDA

EBITDA margin

In 2024 (50%) and

2025 (50%, subject

to EBITDA threshold)

EV/EBITDA

multiple

Market share

45%

50%

Sustainability

X5 market share relative to competition in the

Russian food retail segment throughout the

programme, with an annual revenue growth

threshold. If the threshold is not achieved in a

speciﬁc year, one-third of the target payout is

not accrued. The minimum payout level is 60%,

and the maximum is 140%, depending on

achievement level.

PERFORMANCE

MEASURE

WEIGHT

DEFINITION

THRESHOLDS

LINK TO STRATEGY

PAYOUT

To achieve by the end of 2023:

Reduce CO

emissions by 10%

₂

Increase the share of recycled solid waste

to 95%

Increase the share of private label goods

in sustainable packaging to >50%

Including an additional one-off amount of RUB 30,000,000 awarded at the discretion of the Supervisory Board.

The EBITDA threshold as a condition for payout of the deferred LTI component was achieved throughout 2021. According to the LTI programme rules, the

deferred payout in 2022 equals 50% of the cash reward increased with 12 months’ interest at the Sberbank deposit rate of 3.65% on 31 December 2020.

CORPORATE GOVERNANCE

REMUNERATION REPORT

173

Other policy information and contract terms

Other remuneration components

Members of the Executive Board may be offered a

number of other arrangements, such as an expense

allowance, medical insurance, accident insurance and

life insurance, in accordance with Company policy. The

Company’s policy does not allow personal loans or

guarantees to members of the Executive Board, nor

does the Company provide pension arrangements for

members of the Executive Board.

Legacy arrangements

As disclosed when Mr Shekhterman took ofﬁce in 2015,

he is entitled to a minimum annual compensation

package of USD 4,000,000. Should the minimum

annual compensation exceed the total annual

remuneration based on ﬁxed and variable

components, Mr Shekhterman will be entitled to the

difference upon completion of his full term as CEO.

Furthermore, Mr Shekhterman is eligible for termination

compensation of up to USD 5,000,000 at the

discretion of the Supervisory Board, repayable in case

of breach of the non-competition obligations as

described herein under “Contractual arrangements”.

Clawback

The Supervisory Board may recover from the

Management Board members all or part of a paid

bonus derived from the STI or LTI if such bonus is

based on incorrect information regarding the targets

or the conditions of the bonus. Furthermore, the

Supervisory Board has the discretionary authority to

adjust an unpaid bonus to an appropriate amount if

payment of the bonus is considered unreasonable or

unfair.

Contractual arrangements

Members of the Management Board are engaged on

the basis of a Management Services Agreement with a

maximum four-year term, to be extended upon

reappointment by the General Meeting of

Shareholders. The CEO, as a Russia-based member of

the Management Board, also has a contract of

employment with an operational subsidiary in Russia.

The ﬁxed and variable salary components stipulated in

each contract reﬂect the relevant responsibilities of the

CEO in the Netherlands and in Russia.

The severance payment is generally limited to six

months’ base salary; however, the Supervisory Board

may increase this to a maximum of one year’s base

salary if required under individual circumstances. For

the CEO and other members of the Executive Board,

the severance pay is structured as a non-competition

reward payable in quarterly instalments following

contract termination, subject to compliance with non-

competition conditions. The non-competition period

for the CEO is 12 months and six months for other

Executive Board members. In case of breach of the

non-competition obligations, the contract provides for

a penalty in the amount of two annual base salaries for

the CEO and one annual base salary for other

Executive Board members. No severance pay will be

awarded if the agreement is terminated at the initiative

of the Management or Executive Board member, or in

the event of seriously culpable or negligent behaviour

on his/her part.

Agreements with members of the Management Board

may be terminated by either party with a notice period

of two months or, in the case of the CEO, three

months.

Insurance and indemnity arrangements

Members of the Management Board as well as certain

senior management members are insured under X5’s

Directors and Ofﬁcers Insurance Policy.

Although the insurance policy provides broad

coverage, X5’s directors and ofﬁcers may incur

uninsured liabilities. Under the Company’s Articles of

Association, members of the Management Board are

indemniﬁed by the Company against any claims arising

out of or in connection with the general performance

of their duties, provided that such claim is not

attributable to gross negligence, wilful misconduct or

intentional misrepresentation by the director or ofﬁcer

in question.

CORPORATE GOVERNANCE

REMUNERATION REPORT

174

Remuneration of the Supervisory Board

Objectives and benchmarking

2021 Supervisory Board remuneration

Supervisory Board fees are set at an appropriate level

to attract individuals with the necessary experience,

knowledge and ability to make a signiﬁcant

contribution to the Company’s strategy, long-term

development and sustainability. As such, the

remuneration policy supports the long-term

development of the Company, while aiming to fulﬁl all

stakeholders’ requirements.

The level and structure of remuneration for members

of the Supervisory Board is periodically benchmarked

against a reference group of Dutch and other

European companies that are comparable in size and

complexity, as well as leading Russian and international

retailers. In order to attract the most talented

individuals with the necessary experience, knowledge

and ability, the cash allowances for members of the

Supervisory Board are set between the 50th and the

75th percentile. For the current Supervisory Board

fees, the peer group consisted of 33 mostly

non-Russian international companies in various retail

sectors, i.e. food retail and wholesale (61%), drug retail

(9%), specialty retail and other types of retail (30%).

In 2021, the remuneration policy for members of the Supervisory Board was applied.

The following table provides an overview of the Supervisory Board’s remuneration that became unconditional

in 2021 or at year end (in millions of Russian roubles).

The Company acknowledges that the awarding of

shares to members of the Supervisory Board

constitutes a deviation from the Dutch Corporate

Governance Code. However, in addition to the cash

allowance, X5 believes it is necessary to compensate

members of the Supervisory Board in the form of

equity to align the interests of Supervisory Board

members with the long-term interests of shareholders

and to strengthen their commitment to the future of

the Company. The equity-based awards paid to

members of the Supervisory Board are computed with

respect to the ﬁxed board fee of each member and are

therefore not performance-based. While the total

remuneration including the equity component may

exceed the benchmark for the chairman and

committee chairs, X5 believes that the level and

structure of the remuneration of the Supervisory Board

members safeguard their independence of judgement

and thought, and adequately reﬂect the time spent

and the responsibilities of their role.

NAME

POSITION

2021

2020

Peter Demchenkov

Geoff King

Chairman, Nomination and

Remuneration Committee

Chairman, Audit and Risk

Committee

−

Michael Kuchment

Nadia Shouraboura

Chair, Sustainable Development

and Innovation Committee

Marat Atnashev

−

Alexander Tynkovan

−

Karl-Heinz Holland

Mikhail Fridman

1, 3

Stephan DuCharme

Richard Brasher

2, 3

Mikhail Fridman and Marat Atnashev, in their role as representatives of CTF Holdings S.A. , have waived any entitlement to Supervisory Board remuneration,

whether in cash or restricted stock units.

Richard Brasher and Alexander Tynkovan were appointed on 12 May 2021.

Karl-Heinz Holland stepped down as of 12 May 2021. Stephan DuCharme and Mikhail Fridman stepped down as of 1 March 2022. Richard Brasher stepped

down as of 4 March 2022. Geoff King stepped down as of 11 March 2022. Michael Kuchment stepped down as of 25 March 2022.

TOTAL

REMUNERATION ³

SHARE-BASED

COMPENSATION ²

BASE

REMUNERATION ¹

CORPORATE GOVERNANCE

REMUNERATION REPORT

175

Restricted stock units awarded and outstanding to members of the Supervisory Board

Ad (2) Share-based compensation

The share-based compensation reﬂects the accrued

amounts related to the Restricted Stock Unit Plan

(see table to the right).

Each remunerated Supervisory Board member is

entitled to an annual equity award in the form of

restricted stock units (RSUs), for an award value equal

to his/her annual cash allowance.

In accordance with the remuneration policy,

Supervisory Board members Stephan DuCharme, Peter

Demchenkov, Geoff King, Michael Kuchment, Nadia

Shouraboura, Richard Brasher and Alexander Tynkovan

were awarded a number of RSUs equal to 100% of

their gross annual cash allowance in 2021 divided by

USD 31.36, the average market value of one GDR as of

20 May 2021

, the award date. The RSUs awarded in

2021 will vest in 2024, followed by a lock-in period

ending in 2026.

Ad (3) Total remuneration

No other remuneration has been granted or allocated

by subsidiaries or other companies whose ﬁnancials

are consolidated by the Company to members of the

Supervisory Board.

Ad (1) Base remuneration

In 2020, the General Meeting of Shareholders

approved the remuneration policy for the Supervisory

Board. Annual fees are as follows:

NAME

TRANCHE

RSU

AWARDED

IN 2017

RSU

AWARDED

IN 2018

⁴

RSU

AWARDED

IN 2019

⁵

RSU

AWARDED

IN 2020

RSU

AWARDED

IN 2021

YEAR OF

VESTING

RSU

VESTED

VALUE ON

VESTING

DATE

VESTED

GDR

AFTER

TAX

GDR

LOCKED UP

AS OF

31/12/2021

RSU

OUTSTANDING

AS OF

31/12/2021

RSU

OUTSTANDING

AS OF

31/12/2020

END OF

LOCK-UP

PERIOD

9,631

5,618

8,026

3,210

9,977

7,982

9,977

3,991

9,722

8,942

9,373

4,099

9,335

9,800

1,995

3,749

3,684

9,211

4,274

5,133

13,448

1,995

4,099

4,274

7,798

3,245

9,747

4,523

2020

2021

2022

2023

2024

9,631

5,618

8,026

3,210

9,977

7,982

1,995

2,498

1,228

9,977

3,991

–

9,631

3,803

5,433

2,173

9,977

4,240

1,304

1,633

802

5,300

3,991

9,631

3,803

5,433

2,173

9,977

4,240

5,300

3,991

9,722

8,942

9,373

4,099

9,335

9,800

9,211

4,274

5,133

13,448

9,747

4,523

9,722

8,942

9,373

4,099

9,977

7,982

9,977

3,991

9,335

9,800

9,211

4,274

2022

2024

2023

2025

2026

S. DuCharme

P. Demchenkov

K.-H. Holland

⁵

G. King

M. Kuchment

2021

2022

2021

2023

2022

2024

2023

1,995

1,502

4,274

4,099

7,798

1,995

3,749

3,684

4,099

1,995

4,274

3,245

3,425

2023

2025

2024

2026

2025

N. Shouraboura

2024

2026

R. Brasher

⁶

2024

2026

A. Tynkovan

⁶

Under the rules of the RSU Plan, the average market value is deﬁned as the volume-weighted average price of a GDR over the 30 calendar days immediately preceding 19 May 2019. The volume-weighted average price is calculated using the

closing price of a GDR taken from the Ofﬁcial List of the London Stock Exchange.

The vesting date is 19 May of each respective year of vesting. If 19 May falls on a weekend, the vesting date is the immediately following business day (in 2018: 21 May; in 2019: 20 May).

The number of GDRs held during the lock-up period is equal to the number of vested RSUs minus GDRs sold to cover taxes, if any.

The 2018 RSUs for Karl-Heinz Holland and Nadia Shouraboura were effectively awarded in 2019, as both were appointed as Supervisory Board members after the award date in 2018. The awards were based on a 6/12 pro rata factor.

Karl-Heinz Holland stepped down from the Supervisory Board on 12 May 2021. As per the RSU Plan, all of the RSUs awarded in 2019 under tranche 9 (i.e. 1,995 RSUs), two-thirds of the RSUs awarded in 2019 under tranche 10 (i.e. 2,499 RSUs)

and one-third of the RSUs awarded in 2020 under tranche 11 (i.e. 1,228 RSUs) vested on 12 May 2021. The lock-up on vested GDRs (i.e. 5,722 RSUs) under tranches 9, 10 and 11 was lifted as of 12 May 2021. After tax, Mr Holland was entitled to the

immediate release of 3,739 GDRs relating to awards under tranches 9–11.

The awards made under tranche 12 are based on a 9/12 pro rata factor, as both Richard Brasher and Alexander Tynkovan were appointed as Supervisory Board members during 2021.

ROLE

FEE (EUR)

Additional allowance for:

Supervisory Board Chair

250,000

Supervisory Board Member

100,000

Committee Chair

100,000

Supervisory Board Vice Chair

50,000

Committee Member

16,000

CORPORATE GOVERNANCE

REMUNERATION REPORT

176

Other policy information and contract termsOther policy information and contract terms

Other information

Other items

Total remuneration

Supervisory Board members beneﬁt from liability

insurance coverage and reimbursement of expenses.

The Company does not grant variable remuneration

toSupervisory Board members; they do not accrue

any pension rights and are not eligible for personal

loans or guarantees.

The annual remuneration for Management Board

andSupervisory Board members during 2021

amounted toRUB 640 mln (2020: RUB 519 mln).

Other arrangements

No (personal) loans were granted to the members

ofthe Management Board or of the Supervisory Board,

and no guarantees or the like were granted in favour

ofany of the members of the Management Board

orofthe Supervisory Board. No severance payments

were granted to members of the Management Board

or of the Supervisory Board in 2021, and no variable

remuneration was clawed back.

Shareholder voting

This Remuneration Report will be submitted to the

2022 Annual General Meeting of Shareholders for

anadvisory vote.

Supervisory Board members do not receive any other

beneﬁts or entitlements and are not entitled to any

severance payment or beneﬁts upon termination

oftheir appointment. Supervisory Board members are

appointed and reappointed based on the provisions

ofthe law and Articles of Association of the Company.

No clawback or change-in-control arrangements are

inplace for Supervisory Board members.

Legacy arrangements

Mr King was appointed as a member of the

Supervisory Board by the General Meeting of

Shareholders on 7 May 2015 and, as of the same date,

he was appointed by the Board as Chairman of both

the Audit and Risk Committee and the Related Party

Committee, with an annual base fee of EUR 250,000.

In December 2019, the Board resolved to dissolve the

Related Party Committee as of 1 January 2020,

integrating its responsibilities into the overall remit

ofthe Audit and Risk Committee. In view of the

additional tasks assumed by Mr King as Chairman

ofthe Audit and Risk Committee, and his membership

of the Nomination and Remuneration Committee

asof18 March 2020, Mr King’s annual fee remained

unchanged.

The table to the right reﬂects the total remuneration

ofeach member of the Supervisory Board in the ﬁve

most recent ﬁnancial years (in millions of Russian

roubles).

The Supervisory Board

19 May 2022

Mikhail Fridman and Marat Atnashev, in their role as representatives of CTF Holdings S.A. , have waived any entitlement to Supervisory Board remuneration, whether in cash or restricted stock units.

Karl-Heinz Holland stepped down as of 12 May 2021. Stephan DuCharme and Mikhail Fridman stepped down as of 1 March 2022. Richard Brasher stepped down as of 4 March 2022. Geoff King stepped down as of 11 March 2022.

MichaelKuchment stepped down as of 25 March 2022.

Richard Brasher and Alexander Tynkovan were appointed on 12 May 2021.

NAME

2021

2019

2017

2020

2018

Peter Demchenkov

Karl-Heinz Holland

Geoff King

Marat Atnashev

Mikhail Fridman

Nadia Shouraboura

Stephan DuCharme

Richard Brasher

Michael Kuchment

Alexander Tynkovan

−

², ³

¹, ²

Financial

Statements

Consolidated Financial Statements

179

Notes to the Consolidated Financial Statements

184

Company Financial Statements

250

Notes to the Company Financial Statements

252

Other information

265

FINANCIAL STATEMENTS

178

Contents

Consolidated Financial Statements Company Financial Statements

Notes to the Company Financial Statements

1 Principal activities and the Group structure ��184

2 Summary of signiﬁcant accounting policies �� 185

3 Critical accounting estimates and judgements

in applying accounting policies �� 195

4 Adoption of new and revised standards

and interpretations and new accounting

pronouncements ��198

5 Segment reporting ��199

6 Subsidiaries �� 201

7 Acquisition of businesses �� 202

8 Related party transactions �� 204

9 Cash and cash equivalents, short-term

ﬁnancial investments �� 205

10 Property, plant and equipment �� 206

11 Leases �� 209

12 Investment properties ��211

13 Goodwill �� 212

14 Other intangible assets �� 214

15 Inventories �� 215

16 Financial instruments by category �� 216

17 Trade, other accounts receivable

and prepayments

�� 217

18 VAT and other taxes receivable �� 221

19 Provisions and other liabilities �� 222

20 Contract liabilities �� 223

21 Borrowings �� 224

22 Share capital �� 226

23 Earnings per share ��227

24 Revenue �� 228

25 Expenses by nature �� 229

26 Lease/sublease and other income �� 230

27 Finance income and costs �� 231

28 Staff costs �� 232

29 Share-based payments �� 238

30 Income tax �� 239

31 Financial risk management �� 242

32 Operating environment of the Group �� 244

33 Capital risk management �� 245

34 Fair value of ﬁnancial instruments �� 246

35 Commitments and contingencies �� 247

36 Subsequent events for the Group �� 249

Notes to the Consolidated Financial Statements

Consolidated Statement of Financial Position �� 179

Consolidated Statement of Proﬁt or Loss ��180

Consolidated Statement

of Comprehensive Income �� 181

Consolidated Statement of Cash Flows �� 182

Consolidated Statement of Changes In Equity �� 183

Company Statement of Financial Position �� 250

Company Statement of Proﬁt or Loss �� 251

37 Accounting principles �� 252

38 Financial ﬁxed assets �� 253

39 Shareholders’ equity �� 255

40 Loans from group companies �� 256

41 Share-based payments ��257

42 General and administrative expenses �� 258

43 Income tax expense �� 259

44 Staff numbers and employee expenses �� 261

45 Contingent rights and liabilities �� 262

46 Related party transactions �� 263

47 Subsequent events for the Company �� 264

FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OFFINANCIAL POSITION

179

NOTE

31DECEMBER

2021

31DECEMBER

2020

Assets

Non-current assets

Property, plant and equipment 10 332,144 322,707

Right-of-use assets 11 502,325 480,511

Investment properties 12 4,461 4,502

Goodwill 13 105,028 104,890

Other intangible assets 14 39,006 30,757

Investments in associates and

joint ventures

8 50 −

Other non-current assets 4,209 3,120

Deferred tax assets 30 23,047 20,458

1,010,270 966,945

Current assets

Inventories 15 166,840 144,393

Indemniﬁcation asset 7 435 171

Trade, other accounts

receivable and prepayments

17 20,190 19,277

Current income tax receivable 4,057 12,119

VAT and other taxes

receivable

18 8,802 10,316

Short-term ﬁnancial

investments

9 50,092 −

Cash and cash equivalents 9 26,062 20,008

276,478 206,284

TOTAL ASSETS

1,286,748 1,173,229

NOTE

31DECEMBER

2021

31DECEMBER

2020

Equity and liabilities

Equity attributable to equity holders of the parent

Share capital 22 2,458 2,458

Share premium 46,127 46,086

Retained earnings 38,926 46,194

Share-based payment reserve 29 118 104

87,629 94,842

TOTAL EQUITY

87,629 94,842

Non-current liabilities

Long-term borrowings 21 206,571 184,921

Long-term lease liabilities 11 507,099 480,059

Deferred tax liabilities 30 928 2,769

Other non-current liabilities 1,670 1,954

716,268 669,703

Current liabilities

Trade accounts payable 212,949 170,909

Short-term borrowings 21 87,767 77,026

Interest accrued 1,792 1,380

Short-term lease liabilities 11 70,264 68,442

Short-term contract liabilities 20 2,392 2,198

Current income tax payable 3,014 2,753

Provisions and other liabilities 19 104,673 85,976

482,851 408,684

TOTAL LIABILITIES

1,199,119 1,078,387

TOTAL EQUITY AND

LIABILITIES

1,286,748 1,173,229

X5 RETAIL GROUP N.V.

Consolidated

Statement

ofFinancial

Position

at 31December 2021

(expressed in millions of Russian Roubles, unless otherwise stated)

Igor Shekhterman

CHIEF EXECUTIVE OFFICER

19 May 2022

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER

19 May 2022

ESEF reporting and the ﬁnancial statements are unaudited

FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF PROFIT OR LOSS

180

X5 RETAIL GROUP N.V.

Consolidated

Statement of

Proﬁt or Loss

for the year ended 31December 2021

(expressed in millions of Russian Roubles, unless otherwise stated)

NOTE 2021 2020

Revenue 24 2,204,819 1,978,026

Cost of sales 25 (1,643,502) (1,483,406)

Gross proﬁt 561,317 494,620

Selling, general and administrative expenses 25 (467,468) (406,389)

Net impairment losses on ﬁnancial assets 17 (154) (251)

Lease / sublease and other income 26 23,877 17,737

Operating proﬁt 117,572 105,717

Finance costs 27 (57,815) (56,686)

Finance income 27 586 50

Share of loss of associates and joint ventures - (20)

Net foreign exchange gain / (loss) 399 (3,391)

Proﬁt before tax 60,742 45,670

Income tax expense 30 (18,004) (17,326)

Proﬁt for the year 42,738 28,344

Proﬁt for the year attributable to:

Equity holders of the parent 42,738 28,344

Basic earnings per share for proﬁt attributable to the equity holders of the parent

(expressed in RUBper share)

23 629.55 417.54

Diluted earnings per share for proﬁt attributable to the equity holders of the parent

(expressed in RUBper share)

23 629.54 417.52

Igor Shekhterman

CHIEF EXECUTIVE OFFICER

19 May 2022

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER

19 May 2022

ESEF reporting and the ﬁnancial statements are unaudited

FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

181

X5 RETAIL GROUP N.V.

Consolidated

Statement of

Comprehensive

Income

for the year ended 31December 2021

(expressed in millions of Russian Roubles, unless otherwise stated)

2021 2020

Proﬁt for the year 42,738 28,344

Total comprehensive income for the year, net of tax 42,738 28,344

Total comprehensive income for the year attributable to:

Equity holders of the parent 42,738 28,344

Igor Shekhterman

CHIEF EXECUTIVE OFFICER

19 May 2022

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER

19 May 2022

ESEF reporting and the ﬁnancial statements are unaudited

FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OFCASH FLOWS

182

X5 RETAIL GROUP N.V.

Consolidated

Statement

ofCash Flows

for the year ended 31December 2021

(expressed in millions of Russian Roubles, unless otherwise stated)

NOTE 2021 2020

Proﬁt before tax 60,742 45,670

Adjustments for:

Depreciation, amortisation and impairment

of property, plant and equipment,

right-of-use assets, investment properties,

other intangible assets and goodwill

25 150,278 137,905

Gain on disposal of property plant

and equipment, investment properties

and intangible assets and gain

on derecognition of right-of-use assets

(3,345) (3,705)

Finance costs, net 27 57,229 56,636

Net impairment losses on ﬁnancial assets 17 154 251

Impairment of prepayments 17 221 237

Share-based compensation expense 29 89 60

Net foreign exchange (gain) / loss (399) 3,391

Share of loss of associates

and joint ventures

- 20

Other non-cash items 559 336

Net cash from operating activities before

changes in working capital

265,528 240,801

Increase in trade, other accounts

receivable and prepayments

and VAT and other taxes receivable

(1,198) (2,119)

Increase in inventories (22,447) (16,931)

Increase in trade payable 42,108 10,491

Increase in other accounts payable

and contract liabilities

13,952 10,806

Net cash ﬂows from operations 297,943 243,048

Interest paid (56,561) (55,461)

Interest received 60 44

Income tax paid (13,980) (28,071)

Net cash ﬂows from operating activities 227,462 159,560

Igor Shekhterman

CHIEF EXECUTIVE OFFICER

19 May 2022

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER

19 May 2022

NOTE 2021 2020

Cash ﬂows from investing activities

Purchase of property, plant

and equipment and initial direct costs

associated with right-of-use assets

(76,574) (73,427)

Acquisition of businesses,

net of cash acquired

7 (1,771) (3,138)

Proceeds from disposal of property,

plant and equipment, investment

properties and intangible assets

4,392 4,365

Purchase of other intangible assets (15,482) (12,084)

Acquisition of interest in associates

and joint ventures

- (150)

Proceeds from sale of interest

in associates and joint ventures

- 120

Payments for ﬁnancial investments 9 (50,000) −

Net cash ﬂows used in investing activities (139,435) (84,314)

Cash ﬂows from ﬁnancing activities

Proceeds from loans 21 132,345 203,046

Repayment of loans 21 (99,585) (169,175)

Purchase of treasury shares (34) (126)

Payments of principal portion

of lease liabilities

11 (64,610) (57,557)

Dividends paid to equity holders

of the parent

22 (50,006) (49,993)

Net cash ﬂows used in ﬁnancing activities (81,890) (73,805)

Effect of exchange rate changes

on cash and cash equivalents

(83) (35)

Net increase in cash and cash equivalents 6,054 1,406

Movements in cash and cash equivalents

Cash and cash equivalents

at the beginning of the year

9 20,008 18,602

Net increase in cash and cash equivalents 6,054 1,406

Cash and cash equivalents

at the end of the year

9 26,062 20,008

ESEF reporting and the ﬁnancial statements are unaudited

FINANCIAL STATEMENTS CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

183

X5 RETAIL GROUP N.V.

Consolidated

Statement of

Changes In Equity

for the year ended 31December 2021

(expressed in millions of Russian Roubles, unless otherwise stated)

Igor Shekhterman

CHIEF EXECUTIVE OFFICER

19 May 2022

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER

19 May 2022

NOTE

NUMBER

OF SHARES

CAPITAL

PREMIUM

SHAREBASED

PAYMENT

RESERVE

RETAINED

EARNINGS

TOTAL

SHAREHOLDERS’

EQUITY TOTAL

Balance as at 1 January 2020 67,890,054 2,458 46,150 105 67,843 116,556 116,556

Proﬁt for the period − − − − 28,344 28,344 28,344

Total comprehensive income

for the period

− − − − 28,344 28,344 28,344

Acquisition of treasury shares (12,870) − (107) − − (107) (107)

Dividends 22 − − − − (49,993) (49,993) (49,993)

Share-based payment

compensation

29 − − − 60 − 60 60

Transfer and waiving of vested

equity rights

29 5,260 − 43 (61) − (18) (18)

Balance as at 31December 2020 67,882,444 2,458 46,086 104 46,194 94,842 94,842

Balance as at 1 January 2021 67,882,444 2,458 46,086 104 46,194 94,842 94,842

Proﬁt for the period − − − − 42,738 42,738 42,738

Total comprehensive income

for the period

− − − − 42,738 42,738 42,738

Dividends 22 − − − − (50,006) (50,006) (50,006)

Share-based payment

compensation

29 − − − 89 − 89 89

Transfer and waiving of vested

equity rights

29 6,252 − 41 (75) − (34) (34)

Balance as at 31December 2021 67,888,696 2,458 46,127 118 38,926 87,629 87,629

ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT

ESEF reporting and the ﬁnancial statements are unaudited

FINANCIAL STATEMENTS

184

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Principal activities

and the Group structure

The main activity of the Group is the development and

operation of grocery retail stores. As at 31December

2021 the Group operated a retail chain of 19,121

proximity stores, supermarket, hypermarket, hard

discounter, online hypermarket stores and dark kitchens

under the brand names “Pyaterochka”, “Perekrestok”,

“Karusel”, “Chizhik”, “Perekrestok Vprok” and “Mnogo

Lososya” (each representing separate format) in major

population centres in Russia, including but not limited

to Moscow, St. Petersburg, Nizhniy Novgorod, Rostov-

on-Don, Kazan, Samara, Lipetsk, Chelyabinsk, Perm,

Ekaterinburg (31December 2020: 17,707 proximity

stores, supermarket, hypermarket, hard discounter

and online hypermarket stores under the brand names

“Pyaterochka”, “Perekrestok”, “Karusel”, “Chizhik” and

“Perekrestok Vprok”), with the number of stores as

presented in the table.

As at 31December 2021 and 31December 2020 the

principal shareholder exerting signiﬁcant inﬂuence

over the Company was CTF Holdings S.A. (“CTF”). As

at 31December 2021 and 31December 2020 CTF

directly owned 47.86% of total issued shares in the

Company. As at 31December 2021 and 31December

2020 the Company’s shares were listed on the London

and Moscow Stock Exchanges in the form of Global

Depositary Receipts (GDRs) with each GDR representing

an interest of 0.25 in an ordinary share (Note 22).

31 DEC 2021 31 DEC 2020

“Perekrestok” — Supermarket

Central FD 552 519

North-Western FD 151 129

Volga FD 142 144

Ural FD 76 75

Southern FD 60 56

Northern Caucasus 9 10

TOTAL 990 933

“Pyaterochka” — Proximity store

Central FD 6,489 6,147

Volga FD 4,745 4,462

Southern FD 1,890 1,660

North-Western FD 1,838 1,772

Ural FD 1,596 1,459

Siberian FD 1,036 886

Northern Caucasus 378 323

TOTAL 17,972 16,709

These consolidated ﬁnancial statements are for the

economic entity comprising X5 Retail Group N.V. (the

“Company”) and its subsidiaries, as set out in Note 6 (the

“Group”).

X5 Retail Group N.V. is a joint stock limited liability

company established in August 1975 under the laws of

the Netherlands. The principal activity of the Company

is to act as a holding company for a group of companies

that operate retail grocery stores. The Company’s

address and tax domicile is Zuidplein 196, 1077 XV

Amsterdam, the Netherlands.

31 DEC 2021 31 DEC 2020

“Karusel” — Hypermarket

Central FD 21 30

Volga FD 7 14

North-Western FD 3 8

Southern FD 1 2

Northern Caucasus 1 1

Ural FD − 1

TOTAL 33 56

“Perekrestok Vprok” — Online hypermarket

Central FD 4 3

Volga FD 1 1

North-Western FD 1 1

TOTAL

6 5

“Chizhik”— Hard discounter

Central FD 72 4

TOTAL 72 4

“Mnogo Lososya” — Dark kitchen

Central FD 43 −

North-Western FD 5 −

TOTAL 48 −

TOTAL STORES

19,121 17,707

FINANCIAL STATEMENTS

185

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

The principal accounting policies applied in the

preparation of these consolidated ﬁnancial statements

are set out below. These policies have been consistently

applied to all years presented, unless otherwise stated.

2.1 Basis of preparation

These consolidated ﬁnancial statements for the year

ended 31December 2021 have been prepared in

accordance with and comply with International Financial

Reporting Standards as adopted by the European Union

and with Part 9 Book 2 of the Dutch Civil Code.

The consolidated ﬁnancial statements have been

prepared under the historical cost convention, except

for ﬁnancial assets and ﬁnancial liabilities (including

derivative instruments) that have been measured at

fair value. The preparation of the consolidated ﬁnancial

statements in conformity with IFRS requires the use of

certain critical accounting estimates. It also requires

management to exercise its judgement in the process

of applying the Group’s accounting policies. The areas

involving a higher degree of judgement or complexity, or

areas where assumptions and estimates are signiﬁcant

to the consolidated ﬁnancial statements are disclosed

in Note 3. Management prepared these consolidated

ﬁnancial statements on a going concern basis. In making

this judgment management considered the Group’s

ﬁnancial position, current intentions, proﬁtability of

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

operations, access to ﬁnancial resources (Note 31) and

the potential impact of COVID-19 and the sanctions

being imposed against certain entities and individuals

in Russia (Note 36). On 19 May 2022, the Management

Board authorised the consolidated ﬁnancial statements

for issue. Publication is on 19 May 2022.

2.2 Basis of consolidation

Subsidiaries are those investees, including structured

entities, that the Group controls because the Group (i)

has power to direct relevant activities of the investees

that 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 investor’s returns.

The existence and effect of substantive rights, including

substantive potential voting rights, are considered when

assessing whether the Group has power over another

entity. For a right to be substantive, the holder must have

practical ability to exercise that right when decisions

about the direction of the relevant activities of the

investee need to be made. The Group may have power

over an investee even when it holds less than majority

of voting power in an investee. In such a case, the Group

assesses the size of its voting rights relative to the size

and dispersion of holdings of the other vote holders

to determine if it has de-facto power over the investee.

Protective rights of other investors, such as those that

relate to fundamental changes of investee’s activities or

apply only in exceptional circumstances, do not prevent

the Group from controlling an investee. Subsidiaries

are consolidated from the date on which control is

transferred to the Group (acquisition date) and are

deconsolidated from the date on which control ceases.

The acquisition method of accounting is used to

account for the acquisition of businesses other than

those acquired from parties under common control. The

consideration transferred is measured at the fair value

of the assets given up, equity instruments issued and

liabilities incurred or assumed at the date of exchange,

including fair value of assets or liabilities from contingent

consideration arrangements but excludes acquisition

related costs such as advisory, legal, valuation and similar

professional services. Transaction costs related to the

acquisition and incurred for issuing equity instruments

are deducted from equity; transaction costs incurred

for issuing debt as part of the business combination are

deducted from the carrying amount of the debt and all

other transaction costs associated with the acquisition

are expensed. The date of exchange is the acquisition

date where a business combination is achieved

in a single transaction. However, when a business

combination is achieved in stages by successive share

purchases, the date of exchange is the date of each

exchange transaction; whereas the acquisition date

is the date on which acquirer obtains control of the

subsidiary.

Identiﬁable assets acquired and liabilities and contingent

liabilities assumed in a business combination are

measured at their fair values at the acquisition date.

Goodwill is initially measured at cost (being the excess

of the aggregate of the consideration transferred and

the amount recognised for non-controlling interests

and any previous interest held over the net identiﬁable

assets acquired and liabilities assumed). If the fair value

of the net assets acquired is in excess of the aggregate

consideration transferred, the Group re-assesses

whether it has correctly identiﬁed all of the assets

acquired and all of the liabilities assumed and reviews

the procedures used to measure the amounts to be

recognised at the acquisition date. If the reassessment

still results in an excess of the fair value of net assets

acquired over the aggregate consideration transferred,

then the gain is recognised in proﬁt or loss.

Intercompany transactions, balances and unrealised

gains on transactions between group companies are

eliminated; unrealised losses are also eliminated unless

the cost cannot be recovered. The Company and all

of its subsidiaries use uniform accounting policies

consistent with the Group’s policies.

Purchases of subsidiaries from parties under common

control are accounted for using the pooling of interest

method (also referred as “the predecessor values

method”). Under this method the consolidated ﬁnancial

statements of the combined entity are presented

as if the businesses had been combined from the

beginning of the earliest period presented or, if later,

the date when the combining entities were ﬁrst brought

under common control. The assets and liabilities of the

subsidiary transferred under common control are at the

predecessor entity’s carrying amounts.

The predecessor entity is considered to be the highest

reporting entity in which the subsidiary’s IFRS ﬁnancial

information was consolidated. Related goodwill inherent

in the predecessor entity’s original acquisitions is also

recorded in these consolidated ﬁnancial statements.

Any difference between the carrying amount of net

assets, including the predecessor entity’s goodwill,

and the consideration for the acquisition is accounted

for in these consolidated ﬁnancial statements as an

adjustment to other reserve within equity.

FINANCIAL STATEMENTS

186

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

2.3 Foreign currency translation

and transactions

(a) Functional and presentation currency

The functional currency of the Group’s entities is the

national currency of the Russian Federation, the Russian

Rouble (“RUB”). The presentation currency of the Group

is the Russian Rouble (“RUB”), which management

believes is the most useful currency to adopt for users of

these consolidated ﬁnancial statements.

(b) Transactions and balances

Monetary assets and liabilities denominated in foreign

currencies are translated into the functional currency at

the ofﬁcial exchange rate of the Central Bank of Russian

Federation (“CBRF”) at the respective reporting dates.

Foreign exchange gains and losses resulting from the

settlement of the transactions and from the translation

of monetary assets and liabilities into the functional

currency at period-end ofﬁcial exchange rates of the

CBRF are recognised in proﬁt or loss. Translation at

period-end rates does not apply to non-monetary items.

2.4 Segment reporting

Operating segment is reported in a manner consistent

with the internal reporting provided to the chief

operating decision-maker. The chief operating decision-

maker has been identiﬁed as the Management Board.

The chief operating decision-maker is responsible for

allocating resources and assessing performance of the

operating segments. The Group identiﬁes retail chains of

each format and dark kitchens (see Note 1) as separate

operating segments in accordance with the criteria set

forth in IFRS 8. Reportable segments whose revenue,

result or assets are ten percent or more of all the

segments are reported separately.

2.5 Property, plant and equipment

Property, plant and equipment are stated at cost less

accumulated depreciation and accumulated impairment,

where required. Cost includes expenditure that is directly

attributable to the acquisition or construction of the

item.

Costs of minor repairs and maintenance are expensed

when incurred. Costs of replacing major parts or

components of property, plant and equipment are

capitalised and the replaced parts are retired. Capitalised

costs are depreciated over the remaining useful life of

the property, plant and equipment or part’s estimated

useful life whichever is sooner.

Leasehold improvements are capitalised when it is

probable that future economic beneﬁts associated with

the improvements will ﬂow to the Group and the cost

can be measured reliably.

At each reporting date management assesses whether

there is any indication of impairment of property, plant

and equipment including construction in progress.

If any such indication exists, management estimates

the recoverable amount, which is determined as the

higher of an asset’s fair value less costs of disposal

and its value in use. The carrying amount is reduced

to the recoverable amount and the impairment loss

is recognised in the consolidated statement of proﬁt

or loss. An impairment loss recognised for an asset in

prior years is reversed if there has been a favourable

change in circumstances affecting estimates used to

determine the asset’s value in use or fair value less costs

of disposal.

Gains and losses on disposals determined by comparing

the proceeds with the carrying amount are recognised in

proﬁt or loss.

Land and assets under construction are not

depreciated. Depreciation on other items of property,

plant and equipment is calculated using the straight-line

method to allocate their cost to their residual values over

their estimated useful lives. Buildings are divided into

foundation and frame with a depreciation period of 40-

50 years and other parts of 7-8 years. Other parts mainly

include ﬁxtures and ﬁtting.

The depreciation periods, which approximate the

estimated useful economic lives of the respective assets,

are as follows:

USEFUL LIVES

Buildings (foundation and frame) 40−50 years

Buildings (other parts) 7−8 years

Machinery and equipment >1−10 years

Refrigerating equipment 7−10 years

Vehicles 4−7 years

Other 3−5 years

The residual value of an asset is the estimated amount

that the Group would currently obtain from the disposal

of the asset less the estimated costs of disposal, if

the asset were already of the age and in the condition

expected at the end of its useful life. The residual value

of an asset is nil if the Group expects to use the asset

until the end of its physical life. The assets’ residual

values and useful lives are reviewed, and adjusted

prospectively if appropriate, at ach reporting date.

2.6 Investment properties

Investment properties consist of buildings held by the

Group to earn rental income or for capital appreciation,

or both, and which are not occupied by the Group. The

Group recognises the part of owned shopping centres

that are leased to third party retailers as investment

properties, unless they represent insigniﬁcant portions of

the property and are used primarily to provide auxiliary

services to retail customers not provided by the Group

rather than to earn rental income.

FINANCIAL STATEMENTS

187

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

2.6 Investment properties (continued)

After purchase or construction of the building the

Group assesses the main purpose of its use and, if the

main purpose is to earn rental income or for capital

appreciation, or both, the building is classiﬁed as

investment property.

Investment properties are stated at cost less

accumulated depreciation and provision for impairment,

where required. If any indication exists that investment

properties may be impaired, the Group estimates the

recoverable amount as the higher of value in use and fair

value less costs of disposal. Subsequent expenditure is

capitalised only when it is probable that future economic

beneﬁts associated with it will ﬂow to the Group and

the cost can be measured reliably. All other repairs and

maintenance costs are expensed when incurred.

Transfers are made to (or from) investment properties

only when there is a change in use. Transfers between

investment property and owner occupied property do not

change the carrying amount of the property transferred

and they do not change the cost of that property for

measurement or disclosure purposes. Depreciation on

items of investment properties is calculated using the

straight-line method to allocate their cost to their residual

values over their estimated useful lives. The depreciation

periods, which approximate the estimated useful

economic lives of the respective assets, are 40-50 years.

Investment properties are derecognised either when

they have been disposed of (i.e., at the date the

recipient obtains control) or when they are permanently

withdrawn from use and no future economic beneﬁt is

expected from their disposal. The difference between

the net disposal proceeds and the carrying amount

of the asset is recognised in proﬁt or loss in the

period of derecognition. The amount of consideration

to be included in the gain or loss arising from the

derecognition of investment property is determined in

accordance with the requirements for determining the

transaction price in IFRS 15.

Fair value determined for the disclosure purposes (Note

12) represents the price that would be received to sell

an asset in an orderly transaction between market

participants at the measurement date. The measurement

is classiﬁed in level 3 of the fair value hierarchy.

2.7 Intangible assets

(a) Goodwill

Goodwill is carried at cost less accumulated impairment

losses. Goodwill represents the excess of the

consideration transferred for the acquiree, the amount

of non-controlling interest in the acquiree and fair value

of an interest in the acquiree held immediately before

the acquisition date over the fair value of the net assets

of the acquired subsidiary at the date of exchange.

Goodwill is not deductible for tax purposes.

The Group tests goodwill for impairment at least annually

and whenever there are indications that goodwill may be

impaired. Goodwill is tested on the operating segment

level.

(b) Brand and private labels

Brand and private labels acquired in a business

combination are recognised initially at fair value. Private

labels are amortised using the straight-line method

over their useful lives. The useful life of “Pyaterochka”

brand is estimated to be indeﬁnite-lived as there is no

foreseeable limit to the period over which the brand is

expected to generate net cash inﬂows for the Group.

In 2021 the Group revised the useful live of brand

“Karusel” and determined that the useful life of 5 years

fairly reﬂects the period over which the Group expects

net cash inﬂows from the asset. Change in estimate

was based on the demonstration of the brands’ ability

to survive changes in the economic environment and

Karusel reorganisation.

USEFUL LIVES

Brand “Karusel” 5 years

Private labels 1−8 years

Expenditure on acquired patents, licenses and software

development is capitalised and amortised using the

straight-line method over their useful lives ranging from 1

to 10 years (5 on average).

Research costs related to software development

are expensed as incurred. Software development

expenditures on an individual project are recognised as

an intangible asset when the following criteria are met:

•

It is technically feasible to complete the intangible

asset so that the asset will be available for use or sale;

•

The Group intends to complete the asset and use or

sell it;

•

There is an ability to use or sell the asset;

•

It can be demonstrated how the asset will generate

probable future economic beneﬁts;

•

Adequate technical, ﬁnancial and other resources

to complete the development and to use or sell the

asset are available;

•

The expenditure attributable to the asset during its

development can be reliably measured.

Following initial recognition of the development

expenditure as an asset, the asset is carried at cost

less any accumulated amortisation and accumulated

impairment losses. Amortisation of the asset begins when

development is complete and the asset is ready for use.

(d) Impairment of intangible assets

Where an indication of impairment exists, the

recoverable amount of any intangible asset, including

goodwill, is assessed and, when impaired, the asset is

written down immediately to its recoverable amount.

Goodwill and intangible assets not yet available for use

are tested for impairment at least annually and whenever

impairment indicators exist.

FINANCIAL STATEMENTS

188

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

2.8 Leases

The Group assesses at contract inception whether a

contract is, or contains, a lease. That is, if the contract

conveys the right to control the use of an identiﬁed

asset for a period of time in exchange for consideration.

GROUP AS A LESSEE

Right-of-use assets

The Group recognises right-of-use assets at the

commencement date of the lease (i.e. , the date the

underlying asset is available for use). Right-of-use

assets are measured at cost, less any accumulated

depreciation and impairment losses, and adjusted for

any remeasurement of lease liabilities. The cost of right-

of-use assets includes the amount of lease liabilities

recognised, initial direct costs incurred and lease

payments made at or before the commencement date

less any lease incentives received. Unless the Group is

reasonably certain to obtain ownership of the leased

asset at the end of the lease term, the recognised right-

of-use assets are depreciated on a straight-line basis

over the shorter of its estimated useful life and the lease

term. The Group’s right-of-use assets comprise leased

land and buildings with depreciation periods mostly

ranging from 5 to 45 years.

Right-of-use assets obtained as part of acquisition of

business are recognised at an amount equal to the lease

liabilities and lease payments made at or before the

acquisition date and adjusted to reﬂect the favourable

terms of the lease relative to market terms.

Where an indication of impairment exists, the

recoverable amount of any right-of-use assets is

assessed and, when impaired, the asset is written down

to its recoverable amount (Note 3).

Lease liabilities

At the commencement date of the lease, the Group

recognises lease liabilities measured at the present value

of lease payments to be made over the lease term. The

lease payments include ﬁxed payments (including in-

substance ﬁxed payments) less any lease incentives

receivable, variable lease payments that depend on

an index or a rate, and amounts expected to be paid

under residual value guarantees. The lease payments

also include the exercise price of a purchase option

reasonably certain to be exercised by the Group and

payments of penalties for terminating a lease, if the

lease term reﬂects the Group exercising the option

to terminate. The variable lease payments that do not

depend on an index or a rate are recognised as expense

in the period on which the event or condition that

triggers the payment occurs.

Lease liabilities obtained as part of acquisition of

business are recognised at the present value of the

remaining lease payments at the date of acquisition.

In calculating the present value of lease payments,

the Group uses the incremental borrowing rate at the

lease commencement date if the interest rate implicit

in the lease is not readily determinable. After the

commencement date, the amount of lease liabilities

is increased to reﬂect the accretion of interest and

reduced for the lease payments made. In addition, the

carrying amount of lease liabilities is remeasured if there

is a modiﬁcation, a change in the lease term, a change

in the in-substance ﬁxed lease payments or a change in

the assessment to purchase the underlying asset.

In the consolidated ﬁnancial statement of cash ﬂows

payments of principal portion of lease liabilities are

recognised as cash outﬂows related to ﬁnancing

activities, payments of interest portion of the lease

liabilities are recognised within operating cash ﬂows.

Sale and leaseback

When the Group sells an asset and immediately

reacquires the use of the asset by entering into a lease

with the buyer, such an operation is treated as sale and

leaseback transaction. A sale occurs when control of

the underlying asset passes to the buyer. A lease liability

is recognised, the associated non-current asset is

derecognised, and a right-of-use asset is recognised at

the proportion of the carrying value relating to the rights

retained. Any gain or loss arising relates to the rights

transferred to the buyer.

Short-term leases

The Group applies the short-term lease recognition

exemption to its short-term leases of assets other than

land and buildings (i.e., those leases that have a lease

term of 12 months or less from the commencement date

and do not contain a purchase option). Lease payments

on short-term leases are recognised as expense on a

straight-line basis over the lease term.

GROUP AS A LESSOR

Leases in which the Group does not transfer

substantially all the risks and rewards incidental to

ownership of an asset are classiﬁed as operating leases.

Rental income arising is accounted for on a straight-

line basis over the lease terms and is included in

Lease / sublease and other income in the consolidated

statement of proﬁt or loss. Initial direct costs incurred

in negotiating and arranging an operating lease are

added to the carrying amount of the leased asset and

recognised over the lease term on the same basis as

rental income. Contingent rent is recognised as income

in the period in which it is earned.

2.9 Inventories

Inventories at distribution centres and retail outlets

are stated at the lower of cost and net realisable value.

Cost comprises direct costs of goods, transportation

and handling costs. Cost is determined by the weighted

average method. Net realisable value is the estimated

selling price in the ordinary course of business less the

estimated costs of completion and the estimated costs

necessary to make the sale.

FINANCIAL STATEMENTS

189

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Summary of signiﬁcant

accounting policies

2.9 Inventories (continued)

The Group provides for estimated inventory losses

(shrinkage) between physical inventory counts on the

basis of a percentage of cost of sales. The provision is

adjusted to actual shrinkage based on regular inventory

counts. The provision is recorded as a component of

cost of sales. The Group also provides for aged stock

provision where the net realisable value is below cost.

2.10 Financial instruments

A ﬁnancial instrument is any contract that gives rise to

a ﬁnancial asset of one entity and a ﬁnancial liability or

equity instrument of another entity.

(a) Financial assets

Initial recognition and measurement

The Group classiﬁes its ﬁnancial assets as those to be

measured subsequently at amortised cost, fair value

through other comprehensive income or fair value

through proﬁt and loss. The classiﬁcation depends on

the ﬁnancial asset’s contractual cash ﬂow characteristics

and the business model for managing the ﬁnancial

assets.

With the exception of trade receivables that do not

contain a signiﬁcant ﬁnancing component or for which

the Group has applied the practical expedient, the

Group initially measures a ﬁnancial asset at its fair

value plus, in the case of a ﬁnancial asset not at fair

value through proﬁt or loss, transaction costs. Trade

receivables that do not contain a signiﬁcant ﬁnancing

component or for which the Group has applied the

practical expedient are measured at the transaction

price determined under IFRS 15. Refer to the accounting

policies in section 2.24 (a) Revenue from contracts with

customers.

Management determines the classiﬁcation of its ﬁnancial

assets at initial recognition and re-evaluates this

designation at every reporting date, if required under

IFRS. In order for a ﬁnancial asset to be classiﬁed and

measured at amortised cost or fair value through OCI, it

needs to give rise to cash ﬂows that are ‘solely payments

of principal and interest (SPPI)’ on the principal amount

outstanding. This assessment is referred to as the SPPI

test and is performed at an instrument level.

The Group’s business model for managing ﬁnancial

assets refers to how it manages its ﬁnancial assets

in order to generate cash ﬂows. The business model

determines whether cash ﬂows will result from collecting

contractual cash ﬂows, selling the ﬁnancial assets, or

both. Purchases or sales of ﬁnancial assets that require

delivery of assets within a time frame established by

regulation or convention in the market place (regular way

trades) are recognised on the trade date, i.e., the date

that the Group commits to purchase or sell the asset.

Subsequent measurement

For purposes of subsequent measurement, ﬁnancial

assets are classiﬁed in four categories:

•

Financial assets at amortised cost

(debt instruments);

•

Financial assets at fair value through OCI with

recycling of cumulative gains and losses

(debt instruments);

•

Financial assets designated at fair value through OCI

with no recycling of cumulative gains and losses upon

derecognition (equity instruments);

•

Financial assets at fair value through proﬁt or loss.

Financial assets at amortised cost (debt instruments)

is the most relevant to the Group. The Group measures

ﬁnancial assets at amortised cost if both of the following

conditions are met:

•

The ﬁnancial asset is held within a business model

with the objective to hold ﬁnancial assets in order to

collect contractual cash ﬂows; and

•

The contractual terms of the ﬁnancial asset give

rise on speciﬁed dates to cash ﬂows that are solely

payments of principal and interest on the principal

amount outstanding.

Financial assets at amortised cost are subsequently

measured using the effective interest (EIR) method

and are subject to impairment. Gains and losses

are recognised in proﬁt or loss when the asset is

derecognised, modiﬁed or impaired.

Derecognition

A ﬁnancial asset (or, where applicable, a part of a

ﬁnancial asset or part of a group of similar ﬁnancial

assets) is primarily derecognised (i.e., removed from the

Group’s consolidated statement of ﬁnancial position)

when:

•

The rights to receive cash ﬂows from the asset have

expired; or

•

The Group has transferred its rights to receive cash

ﬂows from the asset or has assumed an obligation

to pay the received cash ﬂows in full without

material delay to a third party under a ‘pass-through’

arrangement; and either (a) the Group has transferred

substantially all the risks and rewards of the asset,

or (b) the Group has neither transferred nor retained

substantially all the risks and rewards of the asset, but

has transferred control of the asset.

When the Group has transferred its rights to receive

cash ﬂows from an asset or has entered into a pass-

through arrangement, it evaluates if, and to what extent,

it has retained the risks and rewards of ownership. When

it has neither transferred nor retained substantially all

of the risks and rewards of the asset, nor transferred

control of the asset, the Group continues to recognise

the transferred asset to the extent of its continuing

involvement. In that case, the Group also recognises

an associated liability. The transferred asset and the

associated liability are measured on a basis that reﬂects

the rights and obligations that the Group has retained.

FINANCIAL STATEMENTS

190

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

2.10 Financial instruments (continued)

Continuing involvement that takes the form of a

guarantee over the transferred asset is measured at the

lower of the original carrying amount of the asset and

the maximum amount of consideration that the Group

could be required to repay.

Impairment of ﬁnancial assets

The Group recognises an allowance for expected credit

losses (ECLs) for all debt instruments not held at fair

value through proﬁt or loss. ECLs are based on the

difference between the contractual cash ﬂows due in

accordance with the contract and all the cash ﬂows

that the Group expects to receive, discounted at an

approximation of the original effective interest rate. The

expected cash ﬂows will include cash ﬂows from the sale

of collateral held or other credit enhancements that are

integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures

for which there has not been a signiﬁcant increase in

credit risk since initial recognition, ECLs are provided

for credit losses that result from default events that are

possible within the next 12-months (a 12-month ECL).

For those credit exposures for which there has been a

signiﬁcant increase in credit risk since initial recognition,

a loss allowance is required for credit losses expected

over the remaining life of the exposure, irrespective of

the timing of the default (a lifetime ECL).

For trade and other receivables the Group applies a

simpliﬁed approach in calculating ECLs. Therefore, the

Group does not track changes in credit risk, but instead

recognises a loss allowance based on lifetime ECLs

at each reporting date. The Group has established a

provision matrix that is based on its historical credit loss

experience, adjusted for forward-looking factors speciﬁc

to the debtors and the economic environment.

(b) Financial liabilities

Financial liabilities are classiﬁed, at initial recognition, as

ﬁnancial liabilities at fair value through proﬁt or loss, loans

and borrowings, payables, or as derivatives designated

as hedging instruments in an effective hedge, as

appropriate.

All ﬁnancial liabilities are recognised initially at fair value

and, in the case of loans and borrowings and payables,

net of directly attributable transaction costs.

The Group’s ﬁnancial liabilities include trade and other

payables, loans and borrowings. For more information

refer to Note 2.11 and Note 2.12.

Derecognition

A ﬁnancial liability is derecognised when the obligation

under the liability is discharged or cancelled or expires.

When an existing ﬁnancial liability is replaced by another

from the same lender on substantially different terms,

or the terms of an existing liability are substantially

modiﬁed, such an exchange or modiﬁcation is treated

as the derecognition of the original liability and the

recognition of a new liability. The difference in the

respective carrying amounts is recognised in the

statement of proﬁt or loss.

2.11 Borrowings

Borrowings are initially recognised at their fair value, net

of transaction costs, and are subsequently stated at

amortised cost; any difference between the proceeds

(net of transaction costs) and the redemption value

is recognised in the consolidated statement of proﬁt

or loss over the period of the borrowings using the

effective interest method. Borrowings are classiﬁed as

current liabilities unless the Group has an unconditional

right to defer settlement of the liability for at least

12 months after the reporting date. Borrowing costs

directly attributable to the acquisition, construction or

production of assets that necessarily take a substantial

period of time to get ready for intended use or sale

(qualifying assets) are capitalised as part of the costs of

those assets.

The commencement date for capitalisation is when (a)

the Group incurs expenditures for the qualifying asset;

(b) it incurs borrowing costs; and (c) it undertakes

activities that are necessary to prepare the asset for its

intended use or sale.

Capitalisation of borrowing costs continues up to the

date when the assets are substantially ready for their use

or sale.

The Group capitalises borrowing costs that could have

been avoided if it had not made capital expenditure

on qualifying assets. Borrowing costs capitalised

are calculated at the Group’s average funding cost

(the weighted average interest cost is applied to the

expenditures on the qualifying assets), except to

the extent that funds are borrowed speciﬁcally for

the purpose of obtaining a qualifying asset. Where

this occurs, actual borrowing costs incurred less any

investment income on the temporary investment of

those borrowings are capitalised.

After initial recognition, interest-bearing borrowings

are subsequently measured at amortised cost using

the effective interest (“EIR”) method. Gains and losses

are recognised in proﬁt or loss when the liabilities are

derecognised as well as through the EIR amortisation

process.

Amortised cost is calculated by taking into account any

discount or premium on acquisition and fees or costs

that are an integral part of the EIR. The EIR amortisation

is included as ﬁnance costs in the consolidated

statement of proﬁt or loss.

2.12 Trade and other payables

Trade and other payables are accrued when the

counterparty performs its obligation under the contract

and are carried at amortised cost using the effective

interest method. Trade payables are recognised initially

at fair value and measured subsequently at amortised

cost.

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

FINANCIAL STATEMENTS

191

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

2.13 Cash and cash equivalents

Cash and cash equivalents include cash in hand,

deposits held at call with banks, and other short-term

highly liquid investments used for meeting short term

cash commitments.

2.14 Provisions

Provisions are recognised when the Group has a

present legal or constructive obligation as a result of

past events, it is probable that an outﬂow of resources

embodying economic beneﬁts will be required to settle

the obligation, and a reliable estimate of the amount of

the obligation can be made. Provisions are measured as

the best estimate of the expenditure required to settle

the present obligation at the reporting date.

2.15 Value added tax

Output VAT related to sales is payable to tax authorities

on the earliest of (a) collection of the receivables from

customers or (b) delivery of the goods or services to

customers. Input VAT is generally recoverable against

output VAT upon receipt of the VAT invoice and

fulﬁlment of other conditions in compliance with Russian

tax legislation.

The tax authorities permit the settlement of VAT on a net

basis. VAT related to sales and purchases is recognised

in the consolidated statement of ﬁnancial position on

a gross basis and disclosed separately as an asset and

liability, except for VAT, presented within other non-

current assets. Where a provision has been made for

the impairment of receivables, the impairment loss is

recorded for the gross amount of the debtor, including

VAT.

2.16 Employee beneﬁts

Wages, salaries, bonuses, paid annual leave and sick

leave are accrued in the period in which the associated

services are rendered by the employees of the

Group. The Group’s entities contribute to the Russian

Federation’s state pension and social insurance funds

in respect of their employees. These contributions are

accrued when incurred. The Group’s commitment ends

with the payment of these contributions.

2.17 Share-based payments

EMPLOYEE STOCK PLAN

The Group receives services from employees as

consideration for conditional rights to receive GDRs

after vesting period of 3 years and fulﬁlment of certain

predetermined performance conditions.

Share-based payment transactions under the employee

stock plan are accounted for as equity-settled

transactions.

The fair value of the employee services received in

exchange for the grant of the conditional rights is

recognised as an expense over the vesting period with

the corresponding increase in equity (Share-based

payment reserve) and measured by reference to the

market price of the GDRs which is determined at grant

date.

Service and non-market performance conditions are not

taken into account when determining the grant date fair

value of awards, but the likelihood of the conditions being

met is assessed as part of the Group’s best estimate of

the number of equity instruments that will ultimately vest.

Market performance conditions are reﬂected within the

grant date fair value. Any other conditions attached to an

award, but without an associated service requirement, are

considered to be non-vesting conditions. Non-vesting

conditions are reﬂected in the fair value of an award

and lead to an immediate expensing of an award unless

there are also service and/or performance conditions. No

expense is recognised for awards that do not ultimately

vest because non-market performance and/or service

conditions have not been met. Where awards include

a market or non-vesting condition, the transactions are

treated as vested irrespective of whether the market or

non-vesting condition is satisﬁed, provided that all other

performance and/or service conditions are satisﬁed.

The cumulative expense recognised for equity-settled

transactions at each reporting date until the vesting

date reﬂects the extent to which the vesting period has

expired and the Group’s best estimate of the number

of equity instruments that will ultimately vest. The

expense or credit in the statement of proﬁt or loss for a

period represents the movement in cumulative expense

recognised as at the beginning and end of that period.

2.18 Share capital

Ordinary shares are classiﬁed as equity. External costs

directly attributable to the issue of new shares are

shown as a deduction in equity from the proceeds. Any

excess of the fair value of consideration received over

the par value of shares issued is recognised as share

premium.

2.19 Dividends

Dividends are recognised as a liability and deducted

from equity at the reporting date only if they are

declared on or before the reporting date. Dividends are

disclosed when they are proposed before the reporting

date or proposed or declared after the reporting date

but before the consolidated ﬁnancial statements are

authorised for issue.

2.20 Treasury shares

Where any group company purchases the Company’s

equity share capital, the paid consideration, including

any directly attributable incremental costs (net of

income taxes) is deducted from equity attributable

to the Company’s equity holders until the shares

are cancelled, reissued or disposed of. Where such

shares are subsequently sold or reissued, any received

consideration, net of any directly attributable incremental

transaction costs and the related income tax effects, is

included in equity attributable to the Company’s equity

holders.

FINANCIAL STATEMENTS

192

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

2.21 Earnings per share

Earnings per share are determined by dividing the proﬁt

or loss attributable to equity holders of the Company

by the weighted average number of participating

shares outstanding during the reporting period. Diluted

earnings per share are calculated by adjusting the

earnings and the number of shares for the effects of

dilutive options.

2.22 Taxes

Current tax is the amount expected to be paid to, or

recovered from, the state budget in respect of taxable

proﬁts or losses for the current and prior periods.

Taxable proﬁts or losses are based on estimates if

consolidated ﬁnancial statements are authorised prior

to ﬁling relevant tax returns. Taxes other than on income

are recorded within operating expenses.

Current income tax liabilities (assets) are measured in

accordance with IAS 12 Income Taxes and IFRIC 23

Uncertainty over Income Tax Treatments, based on

legislation that is enacted or substantively enacted at

the reporting date, taking into consideration applicable

tax rates and tax exemptions.

Deferred income tax is provided using the reporting

liability method for temporary differences arising between

the tax bases of assets and liabilities and their carrying

values for ﬁnancial reporting purposes. A deferred tax

asset is recorded only to the extent that it is probable

that taxable proﬁt will be available against which the

deductible temporary differences can be utilised. In

accordance with the initial recognition exception, deferred

tax liabilities are not recorded for temporary differences

on initial recognition of goodwill and subsequently

for goodwill which is not deductible for tax purposes.

Deferred tax assets and liabilities are measured at tax

rates that are expected to apply to the period in which

the asset is realised or the liability is settled, based on

tax rates which are enacted or substantially enacted at

the reporting date.

Deferred income tax assets and liabilities are offset

when there is a legally enforceable right to offset current

tax assets against current tax liabilities and when the

deferred income tax assets and liabilities relate to

income taxes levied by the same taxation authority

on either the same taxable entity or different taxable

entities where there is an intention to settle the balances

on a net basis. Deferred tax assets and liabilities are

netted within the consolidated group of taxpayers (CGT)

and within individual companies of the Group for the

entities that are not members of the CGT.

The Group considers whether it is probable that a

taxation authority will accept an uncertain tax treatment.

If the Group concludes it is probable that the taxation

authority will accept an uncertain tax treatment, the

Group determines the taxable proﬁt (tax loss), tax bases,

unused tax losses, unused tax credits or tax rates

consistently with the tax treatment used or planned to

be used in its income tax ﬁlings.

If the Group concludes it is not probable that the

taxation authority will accept an uncertain tax

treatment, the Group reﬂects the effect of uncertainty

in determining the related taxable proﬁt (tax loss), tax

bases, unused tax losses, unused tax credits or tax

rates. The Group reﬂects the effect of uncertainty for

each uncertain tax treatment by using either of the

following methods, depending on which method the

entity expects to better predict the resolution of the

uncertainty: the most likely amount or the expected

value.

If an uncertain tax treatment affects current tax and

deferred tax (for example, if it affects both taxable proﬁt

used to determine current tax and tax bases used to

determine deferred tax), the Group makes consistent

judgements and estimates for both current tax and

deferred tax.

The Group’s uncertain tax positions are reassessed by

management at the end of each reporting period. The

assessment is based on the interpretation of tax laws

that have been enacted or substantively enacted by the

end of the reporting period, any known court or other

rulings on such issues, and relevance and effect of a

change in facts and circumstances or of new information

in the context of applicable tax laws. Liabilities for

penalties, interest and taxes other than on income are

recognised based on management’s best estimate of

the expenditure required to settle the obligations at the

end of the reporting period. Adjustments for uncertain

income tax positions are recorded within the income

tax charge and included in current income tax payable

line of the consolidated statement of ﬁnancial position.

Interest incurred in relation to taxation is included in

ﬁnance costs in the consolidated statement of proﬁt or

loss. Provisions are maintained, and updated if necessary,

for the period over which the respective tax positions

remain subject to review by the tax and customs

authorities, being 3 years from the year of ﬁling.

2.23 Fair value measurement

Fair values of ﬁnancial instruments measured at

amortised cost are disclosed in Note 34.

Fair value is the price that would be received to sell

an asset or paid to transfer a liability in an orderly

transaction between market participants at the

measurement date. The fair value measurement is based

on the presumption that the transaction to sell the asset

or transfer the liability takes place either:

•

In the principal market for the asset or liability; or

•

In the absence of a principal market, in the most

advantageous market for the asset or liability.

The principal or the most advantageous market must be

accessible by the Group.

The fair value of an asset or a liability is measured using

the assumptions that market participants would use

when pricing the asset or liability, assuming that market

participants act in their economic best interest.

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

FINANCIAL STATEMENTS

193

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

2.23 Fair value measurement (continued)

A fair value measurement of a non-ﬁnancial asset takes

into account a market participant’s ability to generate

economic beneﬁts by using the asset in its highest and

best use or by selling it to another market participant

that would use the asset in its highest and best use.

The Group uses valuation techniques that are

appropriate in the circumstances and for which sufﬁcient

data are available to measure fair value, maximising the

use of relevant observable inputs and minimising the

use of unobservable inputs.

All assets and liabilities for which fair value is measured

or disclosed in the ﬁnancial statements are categorised

within the fair value hierarchy, described as follows,

based on the lowest level input that is signiﬁcant to the

fair value measurement as a whole:

•

Level 1— quoted (unadjusted) market prices in active

markets for identical assets or liabilities;

•

Level 2— valuation techniques for which the

lowest level input that is signiﬁcant to the fair value

measurement is directly or indirectly observable;

•

Level 3— valuation techniques for which the

lowest level input that is signiﬁcant to the fair value

measurement is unobservable.

For assets and liabilities that are recognised in the

ﬁnancial statements on a recurring basis, the Group

determines whether transfers have occurred between

Levels in the hierarchy by re-assessing categorisation

(based on the lowest level input that is signiﬁcant to the

fair value measurement as a whole) at the end of each

reporting period.

2.24 Income and expense recognition

Income and expenses are recognised on an accrual

basis as earned or incurred. Recognition of the principal

types of income and expenses is as follows:

(a) Revenue from contracts with customers

The Group is in the retail business and sells its goods

both through stores operated by the Group and through

franchisees (agents) acting as a principal. The revenue

recognised by the Group meets the deﬁnition of

revenue from contracts with customers as per IFRS 15.

The Group recognises revenue when control of goods

and services is transferred to the customer, generally

for the retail customers it is occurred in the stores at the

point of sale. Payment of the transaction price is due

immediately when the customer purchases goods.

The Group has loyalty points programmes, which

allow customers to accumulate points that can be

redeemed for free products. The loyalty points give

rise to a separate performance obligation as they

provide a material right to the customer. A portion of

the transaction price is allocated to the loyalty points

awarded to customers based on relative stand-alone

selling price and recognised as a contract liability until

the points are redeemed. Revenue is recognised upon

redemption of products by the customer.

When estimating the stand-alone selling price of the

loyalty points, the Group considers the likelihood that

the customer will redeem the points. The Group updates

its estimates of the points that will be redeemed on

a monthly basis and any adjustments to the contract

liability balance are charged against revenue.

(b) Cost of sales

Cost of sales includes the purchase price of the

products sold and other costs incurred in bringing

the inventories to the location and condition ready

for sale, i.e. retail outlets. These costs include costs

of purchasing, storing, rent, salaries and transporting

the products to the extent it relates to bringing the

inventories to the location and condition ready for sale.

The Group receives various types of allowances from

suppliers in the form of volume discounts and other

forms of payment. In accounting for supplier bonuses

received by the Group, the Group determined that

these bonuses are a reduction in prices paid for the

product and are reported as part of the cost of sales as

the related inventory is sold. Bonuses receivable from

suppliers in cash are presented as trade receivables.

Interest income and expense are recognised on an

effective yield basis.

(d) Selling, general and administrative expenses

Selling expenses consist of salaries and wages of stores

employees, store expenses, variable lease expenses,

depreciation of stores, utilities, advertising costs and

other selling expenses. General and administrative

expenses include costs of salaries and wages of support

ofﬁce employees, depreciation of support ofﬁces,

impairment and amortisation charges of non-current

assets and other general and administrative expenses.

Selling, general and administrative expenses are

recognised on an accrual basis as incurred.

2.25 Contract liability

A contract liability is the obligation to transfer goods or

services to a customer for which the Group has received

consideration (or an amount of consideration is due)

from the customer. If a customer pays consideration

before the Group transfers goods or services to the

customer, a contract liability is recognised when the

payment is made or the payment is due (whichever is

earlier). Contract liabilities are recognised as revenue

when the Group performs under the contract.

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

FINANCIAL STATEMENTS

194

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Summary of signiﬁcant

accounting policies

2.26 Impairment of non-current assets

other than goodwill

The Group periodically assesses whether there is any

indication that non-current assets may be impaired.

If any such indicators exist, the Group estimates the

recoverable amount of the asset. Where it is not possible

to estimate the recoverable amount of an individual

asset, the Group estimates the recoverable amount of

the cash generating unit to which it belongs. Individual

stores are considered separate cash-generating units

for impairment testing purposes. Impairment loss is

recognised whenever the carrying amount of an asset or

the related cash-generating unit exceeds its recoverable

amount. Impairment losses are recognised in the

consolidated statement of proﬁt or loss. Non-ﬁnancial

assets other than goodwill that suffered an impairment

are reviewed for possible reversal of the impairment at

each reporting date.

2.27 Fair value of assets and liabilities

at the acquisition date

A primary valuation of assets and liabilities of acquired

companies was performed on a provisional basis. Once

the valuation is ﬁnalised, any adjustments arising are

recognised retrospectively.

2.28 Indemniﬁcation asset

The indemniﬁcation asset equivalent to the fair value

of the indemniﬁed liabilities is included in net assets

acquired in the business combination if the selling

shareholders of the acquiree agreed to compensate

possible claims or contingencies. Subsequent

measurement of the indemniﬁcation asset and

contingent liability does not have any impact on future

earnings, unless the indemniﬁcation asset becomes

impaired.

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

2.29 Offsetting of ﬁnancial assets

and ﬁnancial liabilities

Accounts receivable and accounts payable are offset

and the net amount is presented in the consolidated

statement of ﬁnancial position when, and only when, the

Group currently has a legally enforceable right to set off

the recognised amounts and intends to settle on a net

basis.

2.30 Long-term employee beneﬁts

The Group recognises the liability and respective

expenses in relation to long-term employee beneﬁts

when there is a present obligation as a result of past

events and a reliable estimate of the obligation can

be made. The Group recognises the net total of the

following amounts in proﬁt or loss:

•

Service cost;

•

Net interest on the net deﬁned beneﬁt liability;

•

Remeasurements of the net deﬁned beneﬁt liability.

FINANCIAL STATEMENTS

195

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Critical accounting

estimates and

judgements in applying

accounting policies

The Group makes estimates and assumptions that affect

the reported amounts of assets and liabilities within

the next ﬁnancial year. Estimates and judgements are

continually evaluated and are based on management’s

experience and other factors including expectations of

future events that are believed to be reasonable under

the circumstances. Management also makes certain

judgements, apart from those involving estimations,

in the process of applying accounting policies.

Judgements that have the most signiﬁcant effect on

the amounts recognised in the consolidated ﬁnancial

statements and estimates that can cause a signiﬁcant

adjustment to the carrying amount of assets and

liabilities include:

IMPAIRMENT OF GOODWILL

The Group tests goodwill for impairment at least

annually. The recoverable amount of a cash-generating

unit has been determined based on the higher of fair

value less costs to sell or value-in-use calculations.

These calculations require the use of estimates as

further detailed in Note 13.

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

IDENTIFYING A BUSINESS COMBINATION

The Group enters into transactions to acquire integrated

set of assets and operations of retail stores. The Group

determines whether such transactions represent a

business combination or assets acquisitions. The Group

determines that it has acquired a business when the

acquired set of activities and assets include an input

and a substantive process that together signiﬁcantly

contribute to the ability to create outputs. The acquired

process is considered substantive if it is critical to the

ability to continue producing outputs, and the inputs

acquired include an organised workforce with the

necessary skills, knowledge, or experience to perform

that process or it signiﬁcantly contributes to the ability to

continue producing outputs and is considered unique

or scarce or cannot be replaced without signiﬁcant

cost, effort, or delay in the ability to continue producing

outputs. All acquisitions of assets and operations of retail

stores occurred in 2021 and 2020 were treated by the

Group as business combinations.

LITIGATIONS

The Group exercises considerable judgment in measuring

and recognising provisions and the exposure to

contingent liabilities related to pending litigations or other

outstanding claims subject to negotiated settlement,

mediation, arbitration or government regulation, as well

as other contingent liabilities. Judgement is necessary in

assessing the likelihood that a pending claim will succeed,

or a liability will arise, and to quantify the possible range of

the ﬁnal settlement. Because of the inherent uncertainties

in this evaluation process, actual losses may be different

from the originally estimated provision. These estimates

are subject to change as new information becomes

available, primarily with the support of internal specialists,

if available, or with the support of outside consultants,

such as actuaries or legal counsel. Revisions to the

estimates may signiﬁcantly affect future operating results.

TAX LEGISLATION

Russian tax, currency and customs legislation is subject

to varying interpretations (Note 35).

DEFERRED TAX ASSETS AND LIABILITIES

Group’s management judgment is required for the

calculation of current and deferred income taxes.

Deferred tax assets are recognised to the extent that

their utilisation is probable. The utilisation of deferred

tax assets will depend on whether it is possible to

generate sufﬁcient taxable income in respective tax type

and jurisdiction. Various factors are used to assess the

probability of the future utilisation of deferred tax assets,

including past operating results, the operational plan,

expiration of tax losses carried forward, and tax planning

strategies. In the event that an assessment of future

utilisation indicates that the carrying amount of deferred

tax assets must be reduced, this reduction is recognised

in proﬁt or loss.

IAS 12 requires a deferred tax liability to be recognised

for all taxable temporary differences associated with

investments in subsidiaries unless: (a) the parent,

investor, joint venturer or joint operator is able to control

the timing of the reversal of the temporary difference;

and (b) it is probable that the temporary difference

will not reverse in the foreseeable future. The Group

exercises signiﬁcant judgment in assessing the amount

of taxable temporary differences associated with

investments in subsidiaries (unremitted earnings) that

will not reverse in the foreseeable future.

If actual results differ from these estimates or if these

estimates must be adjusted in future periods, the

ﬁnancial position, results of operations and cash ﬂows

may be negatively affected.

PROPERTY, PLANT AND EQUIPMENT

The Group’s management determines the estimated

useful lives and related depreciation charges for its plant

and equipment (Note 10). The estimation of the useful

life of the asset is a matter of judgement based on the

experience of the entity with similar assets. Management

increases the depreciation charge where useful lives

are less than previously estimated lives or it writes-off or

writes-down technically obsolete or non-strategic assets

that have been abandoned or reclassiﬁed as held for sale.

The Group periodically assesses whether there is any

indication that property, plant and equipment may

be impaired. The Group performs assets impairment

testing (Note 10). The Group estimates the recoverable

amount of the asset or cash generating unit and if it

is less than the carrying amount of an asset or cash

generating unit an impairment loss is recognised in the

consolidated statement of proﬁt or loss. For the year

ended 31December 2021 the Group recognised an

impairment loss in the amount of RUB3,105 (year ended

31December 2020: a net impairment loss in the amount

of RUB4,010).

FINANCIAL STATEMENTS

196

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Critical accounting

estimates and

judgements in applying

accounting policies

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

INVESTMENT PROPERTY

The Group’s management determines the estimated

useful lives and related depreciation charges for its

investment properties (Note 12). Management increases

the depreciation charge where useful lives are less than

previously estimated lives or it writes-off or writes-down

technically obsolete or non-strategic assets that have

been abandoned or reclassiﬁed as held for sale.

The Group periodically assesses whether there is any

indication that investment property may be impaired. The

Group performs assets impairment testing (Note 12). The

Group estimates the recoverable amount of the asset or

cash generating unit and if it is less than the carrying

amount of an asset or cash generating unit an impairment

loss is recognised in the consolidated statement of

proﬁt or loss. For the year ended 31December 2021 the

Group recognised a net impairment gain in the amount

of RUB343 (year ended 31December 2020: a net

impairment gain in the amount of RUB50).

RIGHTOFUSE ASSETS

The Group periodically assesses whether there is any

indication that right-of-use assets may be impaired. The

Group performs assets impairment testing (Note 11). The

Group estimates the recoverable amount of the asset

or cash generating unit and if it is less than the carrying

amount of an asset or cash generating unit an impairment

loss is recognised in the consolidated statement of

proﬁt or loss. For the year ended 31December 2021 the

Group recognised a net impairment loss in the amount

of RUB630 (year ended 31December 2020: a net

impairment gain in the amount of RUB350).

INVENTORIES PROVISIONS

The Group provides for estimated inventory shrinkage on

the basis of historical shrinkage as a percentage of cost

of sales. This provision is adjusted at the end of each

reporting period to reﬂect the historical trend of the

actual physical inventory count results. The Group also

provides for aged stock where the net realisable value is

below cost (Note 15).

REVENUE RECOGNITION LOYALTY PROGRAMMES

The Group estimates the amount of obligations

related to customer loyalty programmes by allocating

transaction price to loyalty points based on the

standalone selling price of the points. The standalone

selling price of the points is reduced for the expected

amount of the points that will expire unredeemed.

The Group estimates the stand-alone selling price of the

loyalty points awarded under loyalty programmes. The

stand-alone selling price of the loyalty points issued is

calculated by multiplying to the estimated redemption

rate and to the monetary value assigned to the loyalty

points. In estimating the redemption rate, the Group

considers breakage which represents the portion of the

points issued that will never be redeemed. The Group

applies statistical projection methods in its estimation

using customers’ historical redemption patterns as the

main input. The redemption rate is updated monthly

and the liability for the unredeemed points is adjusted

accordingly. The Group ensures that the value assigned

to the loyalty points is commensurate to the stand-alone

selling price of the products eligible for redemption

(i.e., the value of each point is equivalent to the stand-

alone selling price of any product eligible for redemption

divided by number of points required).

Points issued under the loyalty programmes normally

expires in twelve months from their recognition. However

due to periodic changes in customer redemption

patterns estimates of the stand-alone selling price are

subject to signiﬁcant uncertainty.

Any signiﬁcant changes in customers’ redemption

patterns will impact the estimated redemption rate. As at

31December 2021, the estimated liability for unredeemed

points was RUB2,146 (31December 2020: RUB1,955).

PROVISION FOR EXPECTED CREDIT LOSSES OF

TRADE AND OTHER RECEIVABLES

The Group uses a provision matrix to calculate ECLs

for trade and other receivables. The provision rates

are based on days past due for groupings of various

customer segments that have similar loss patterns (by

customer type). The calculation reﬂects the probability-

weighted outcome, the time value of money and

reasonable and supportable information that is available

at the reporting date about past events, current

conditions and forecasts of future economic conditions.

Generally, trade and other receivables are written-off if

past due for more than 3 years and are no subject to

enforcement activity. The maximum exposure to credit

risk at the reporting date is the carrying value of each

class of ﬁnancial assets.

The provision matrix is initially based on the Group’s

historical observed default rates. The Group calibrates

the matrix to adjust the historical credit loss experience

with forward-looking information. For instance, if forecast

economic conditions (i.e., gross domestic product) are

expected to deteriorate over the next year which can

lead to an increased number of defaults, the historical

default rates are adjusted. At every reporting date,

the historical observed default rates are updated and

changes in the forward-looking estimates are analysed.

FINANCIAL STATEMENTS

197

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

Critical accounting

estimates and

judgements in applying

accounting policies

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

PROVISION FOR EXPECTED CREDIT LOSSES OF

TRADE AND OTHER RECEIVABLES (CONTINUED)

The assessment of the correlation between historical

observed default rates, forecast economic conditions

and ECLs is a signiﬁcant estimate. The amount of ECLs

is sensitive to changes in circumstances and of forecast

economic conditions. The Group’s historical credit loss

experience and forecast of economic conditions may

also not be representative of customer’s actual default

in the future. The information about the ECLs on the

Group’s trade and other receivables is disclosed in Note

17.

BRAND AND PRIVATE LABELS

The Group periodically assesses whether there is any

indication that brand and private labels may be impaired.

The Group performs assets impairment testing of brands

with indeﬁnite useful lives at least annually (Note 14). The

Group estimates the recoverable amount of the asset

and if it is less than the carrying amount an impairment

loss is recognised in the consolidated statement of proﬁt

or loss. For the year ended 31December 2021 the Group

did not recognise any impairment of brand and private

labels (year ended 31December 2020: impairment loss

in amount of RUB885).

LEASE TERM OF CONTRACTS WITH EXTENSION

OPTIONS AND TERMINATION OPTIONS

In determining the lease term, the Group considers

all facts and circumstances that create an economic

incentive to exercise an extension option, or not

exercise a termination option. For leases of retail stores

the most relevant factors are proﬁtability and revenue

of particular stores, the value to the business in a

particular region and investment strategy. For leases

of distribution centres and ofﬁces the most relevant

factors are the value to the business, signiﬁcance of

termination penalties and signiﬁcance of leasehold

improvements’ remaining value. At commencement

of the lease such considerations generally result in

determining the lease term equal to the non-cancellable

lease period including the period covered by an option

to terminate. The assessment of reasonable certainty is

only revised if a signiﬁcant event or a signiﬁcant change

in circumstances occurs, which affects this assessment,

and that is within the control of the lessee.

INCREMENTAL BORROWING RATES FOR

CALCULATION OF LEASE LIABILITY

Incremental borrowing rate is the rate of interest that

a lessee would have to pay to borrow over a similar

term, and with a similar security, the funds necessary

to obtain an asset of a similar value to the right-of-use

asset in a similar economic environment. Because there

are normally no absolutely similar to lease agreements

borrowings, which interest rates are observable in open

market, the Group derives incremental borrowing rates

from both internal and external data sources applying

signiﬁcant judgement in such calculations. The Group

estimates incremental borrowing rates by adjusting

Russian government risk-free bonds in a relevant

currency by the risk-premium inherent to the Group

which in turn is determined by comparing Group’s rate

of borrowing with Russian government risk-free bonds

of the same duration. Incremental borrowing rates are

calculated on a monthly basis.

FINANCIAL STATEMENTS

198

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Adoption of new and

revised standards

and interpretations

and new accounting

pronouncements

The Group has not early adopted any other standard,

interpretation or amendment that has been issued but is

not yet effective:

STANDARDS ISSUED BUT NOT YET

EFFECTIVE IN THE EUROPEAN UNION

EFFECTIVE FOR

ANNUAL PERIODS

Amendments to IAS 1 Presentation of

Financial Statements: Classiﬁcation of

Liabilities as Current or Non-current and

Classiﬁcation of Liabilities as Current or Non-

current— Deferral of Effective Date

1 January 2023

Amendments to IFRS 17 Insurance contracts:

Initial Application of IFRS 17 and IFRS 9—

Comparative Information

1 January 2023

Amendments to IAS 1 Presentation of

Financial Statements and IFRS Practice

Statement 2: Disclosure of Accounting

policies

1 January 2023

Amendments to IAS 8 Accounting policies,

Changes in Accounting Estimates and Errors:

Deﬁnition of Accounting Estimates

1 January 2023

Amendments to IAS 12 Income Taxes:

Deferred Tax related to Assets and Liabilities

arising from a Single Transaction

1 January 2023

Amendments to IFRS 3 Business

Combinations; IAS 16 Property, Plant and

Equipment; IAS 37 Provisions, Contingent

Liabilities and Contingent Assets as well as

Annual Improvements 2018-2020

1 January 2022

IFRS 17 Insurance Contracts including

Amendments to IFRS 17

1 January 2023

* Subject to EU endorsement.

The Group expects that the adoption of other

pronouncements listed above will not have a signiﬁcant

impact on the Group’s results of operations and ﬁnancial

positions in the period of initial application except for

amendments to IAS 12 Income Taxes.

The amendments to IAS 12 Income Taxes may require

to recognise deferred tax on transactions that, on

initial recognition, give rise to equal amounts of taxable

and deductible temporary differences. The impact

for the Group would be the recognition of additional

deferred tax assets and liabilities attributable to right-

of-use assets and lease liabilities. The Group is currently

assessing the potential effect of the amendments to

IAS12 on its consolidated ﬁnancial statements.

In the preparation of these consolidated ﬁnancial

statements, the Group followed the same accounting

policies and methods of computation as compared

with those applied in the previous year, except for the

adoption of new standards and interpretations and

revision of the existing standards as of 1 January 2021.

Standards, Interpretations and amendments effective

1 January 2021 did not have a material impact on the

ﬁnancial position or performance of the Group.

As a result of the amendments the Group changed

its accounting policy for determination of whether

an acquisition is an acquisition of business. The

amendments did not have material impact on the

ﬁnancial position of the Group.

The following other new standards and amendments

to IFRSs effective for the ﬁnancial year beginning on or

after 1 January 2021 do not have a material impact on

the Group and do not result in change of the Group’s

accounting policy:

•

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and

IFRS 16 Interest Rate Benchmark Reform— Phase 2;

•

Amendments to IFRS 4 Insurance Contracts— deferral

of IFRS 9;

•

Amendments to IFRS 16 Leases: Covid-19-Related

Rent Concessions beyond 30 June 2021.

FINANCIAL STATEMENTS

199

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Segment reporting

The Group identiﬁes retail chains of each format

and (see Note 1) as separate operating segments in

accordance with the criteria set forth in IFRS 8.

The following signiﬁcant operating functions

are decentralised by formats:

•

Category management, including purchasing, pricing,

assortment management, promotion management;

•

Distribution centres logistics;

•

Development function.

The formats’ general managers are determined as

segment managers in accordance with IFRS 8. The chief

operating decision-maker has been determined as the

Management Board. The Management Board reviews

each format’s internal reporting in order to assess

performance and allocate resources.

Upon adoption of IFRS 16 the Management Board

started to assess the performance of the operating

segments based on a measure of sales and adjusted

earnings before interest, tax, depreciation, amortisation

and impairment pre-IFRS 16 (EBITDA pre-IFRS 16).

EBITDA pre-IFRS 16 is calculated by adjusting EBITDA

to include ﬁxed lease expenses, ﬁxed non-lease

components of lease contracts, exclude gain on

derecognition of right-of-use assets and lease liabilities

and exclude adjustment of gain / loss from sale of asset

under sale and leaseback operations for the proportion

of the rights retained. Adjusted capital expenditures

include additions of property, plant and equipment,

investment properties and intangible assets adjusted to

replace capitalised depreciation of right-of-use assets

with capitalisation of ﬁxed lease expenses, acquisitions

of property, plant and equipment, investment properties

and intangible assets through business combinations

as well as goodwill acquired through such business

combinations.

The accounting policies used for segments are the same

as accounting policies applied for these consolidated

ﬁnancial statements. In 2021 a new methodology of

overhead expenses allocation was used for more

accurate measurements of segments’ performance.

The comparative ﬁgures for earlier periods have been

adjusted in order to provide meaningful comparative

information.

The segment information for the year ended

31December 2021, comparative ﬁgures for earlier

periods and reconciliation of EBITDA pre-IFRS 16 to

proﬁt for the year is provided as follows:

FINANCIAL STATEMENTS

200

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Segment reporting

YEAR ENDED 31DECEMBER 2021 PYATEROCHKA PEREKRESTOK

OTHER

SEGMENTS

CORPORATE

CENTRE TOTAL

Revenue (Note 24) 1,795,018 351,100 58,701 – 2,204,819

EBITDA pre-IFRS 16 145,350 24,213 (4,375) (4,164) 161,024

Fixed lease expenses and ﬁxed

non-lease components of lease contracts

104,141

Gain on derecognition of right-of-use assets

and lease liabilities

2,940

Reversal of adjustment for the proportion of

the rights retained under sale and leaseback

operations (Note 11)

(255)

Depreciation, amortisation and impairment (150,278)

Operating proﬁt 117,572

Finance cost, net (57,229)

Net foreign exchange result 399

Proﬁt before income tax 60,742

Income tax expense (18,004)

Proﬁt for the year 42,738

Adjusted capital expenditure 72,079 18,656 7,189 – 97,924

31December 2021

Inventories 137,489 25,638 3,713 – 166,840

YEAR ENDED 31DECEMBER 2020 PYATEROCHKA PEREKRESTOK

OTHER

SEGMENTS

CORPORATE

CENTRE TOTAL

Revenue (Note 24) 1,598,315 309,460 70,251 − 1,978,026

EBITDA pre-IFRS 16 129,268 22,116 (2,409) (3,838) 145,137

Fixed lease expenses and ﬁxed

non-lease components of lease contracts

96,630

Gain on derecognition of right-of-use assets

and lease liabilities

1,855

Depreciation, amortisation andimpairment (137,905)

Operating proﬁt 105,717

Share of loss of associates and joint ventures (20)

Finance cost, net (56,636)

Net foreign exchange result (3,391)

Proﬁt before income tax 45,670

Income tax expense (17,326)

Proﬁt for the year 28,344

Adjusted capital expenditure 66,895 17,588 5,444 3 89,930

31December 2020

Inventories 115,674 23,963 4,756 − 144,393

FINANCIAL STATEMENTS

201

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Subsidiaries

Details of the Company’s signiﬁcant subsidiaries at 31December 2021 and 31December 2020 were as follows:

COMPANY COUNTRY NATURE OF OPERATIONS

OWNERSHIP (%)

31DECEMBER 2021

OWNERSHIP (%)

31DECEMBER 2020

Agrotorg LLC Russia Retailing 100 100

Trade House PEREKRIOSTOK JSC Russia Retailing 100 100

Agroaspect LLC Russia Retailing 100 100

X5 Nedvizhimost CJSC Russia Assets holding company 100 100

KOPEYKA-MOSCOW Ltd Russia Retailing 100 100

Krasnoborskoe LLC Russia Assets holding company 100 100

Perekrestok Holdings B.V. The Netherlands Holding company −

100

PEREKRIOSTOK-2000 LLC Russia Assets holding company 100 100

Beta Estate LLC Russia Assets holding company 100 100

X5 FINANSE LLC Russia Bond issuer 100 100

Agro-Avto LLC Russia Assets holding company 100 100

X5 Corporate Center LLC Russia Assets holding company 100 100

* In 2021 Perekrestok Holdings B.V. was reorganised by merger with X5 Retail Group N.V.

FINANCIAL STATEMENTS

202

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Acquisition

of businesses

ACQUISITIONS IN 2021

In 2021 the Group acquired 100% of several businesses

of other retail chains in Russian regions. The acquisitions

were individually immaterial.

In the year ended 31December 2021 the acquired

businesses contributed revenue of RUB5,996 from

the date of acquisition. As the businesses were not

acquired as separate legal entities, it is impracticable to

disclose net proﬁt from the date of acquisition. These

businesses did not prepare relevant ﬁnancial information

immediately before the acquisition, therefore, it is

impracticable to disclose revenue and net proﬁt of the

Group for the year ended 31December 2021 as though

the acquisition date had been the beginning of that

period.

Details of assets and liabilities of acquired businesses

and the related goodwill are as follows:

PROVISIONAL FAIR

VALUES AT THE

ACQUISITION DATE

Other intangible assets (Note 14) 10

Right-of-use assets (Note 11) 3,928

Deferred tax assets (Note 30) 244

Indemniﬁcation asset 6

Trade, other accounts receivable

and prepayments

Lease liabilities (Note 11) (3,928)

Current income tax payable (34)

Provisions and other liabilities (80)

Net assets acquired 168

Goodwill (Note 13) 1,118

Purchase consideration 1,286

Net cash outﬂow arising from the

acquisition

1,021

The Group assigned provisional fair values to net assets

acquired. The Group will ﬁnalise the purchase price

allocation within a 12-month period from the acquisition

date which is not yet ﬁnished at the date of approval of

these consolidated ﬁnancial statements.

The purchase consideration for the reporting period

comprised consideration paid in cash of RUB1,021 and

RUB265 as deferred consideration measured at fair

value.

The goodwill recognised was attributable to:

i) the business concentration in the Russian regions;

ii) expected cost synergies from the business

combination and iii) acquired trafﬁc from existing

customers. The goodwill related to these acquisitions

was allocated to Pyaterochka segment in amount of

RUB 1,063, Perekrestok segment in amount of RUB 35

and other segment in amount of RUB 20.

During the 12 months ended 31December 2021 the

Group transferred RUB750 as deferred payments for

the prior periods acquisitions.

ACQUISITIONS IN 2020

During 2020 the Group acquired 100% of several

businesses of other retail chains in Russian regions. The

acquisitions were individually immaterial.

In the year ended 31December 2020 the acquired

businesses contributed revenue of RUB8,137 from

the date of acquisition. As the businesses were not

acquired as separate legal entities, it is impracticable to

disclose net proﬁt from the date of acquisition. These

businesses did not prepare relevant ﬁnancial information

immediately before the acquisition, therefore, it is

impracticable to disclose revenue and net proﬁt of the

Group for the year ended 31December 2020 as though

the acquisition date had been the beginning of that

period.

FINANCIAL STATEMENTS

203

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Acquisition

of businesses

PROVISIONAL FAIR

VALUES AT THE

ACQUISITION DATE

FINALISED FAIR

VALUES AT THE

ACQUISITION DATE

EFFECT OF CHANGE IN PURCHASE PRICE

ALLOCATION ON THE CONSOLIDATED

STATEMENT OF FINANCIAL POSITION

AS AT 31DECEMBER 2021

Indemniﬁcation asset − 258 258

Right-of-use assets (Note 11) 8,507 8,507 −

Deferred tax assets (Note 30) 575 575 −

Cash and cash equivalents 55 55 −

Lease liabilities (Note 11) (8,505) (8,505) −

Current income tax payable − (79) (79)

Provisions and other liabilities − (179) (179)

Net assets acquired 632 632 −

Goodwill (Note 13) 2,963 2,963 −

Purchase consideration 3,595 3,595 −

Net cash outﬂow arising

from the acquisition

2,699 2,699 −

The purchase consideration for the reporting period

comprised consideration paid in cash of RUB2,754 and

RUB841 as deferred consideration measured at fair

value.

The goodwill recognised was attributable to:

i) the business concentration in the Russian regions;

ii) expected cost synergies from the business

combination and iii) acquired trafﬁc from existing

customers. The goodwill related to these acquisitions

was allocated to Pyaterochka segment in amount of

RUB 1,142, Perekrestok segment in amount of RUB 1,158

and other segments in amount of RUB 663.

During the 12 months ended 31December 2020 the

Group transferred RUB439 as deferred payments for

the prior periods’ acquisitions.

At 31December 2020 the Group assigned provisional

fair values to net assets acquired, in estimating

provisional fair values of acquired assets. In 2021 the

Group completed the purchase price allocation, which

resulted in the following changes in fair values at the

acquisition date:

FINANCIAL STATEMENTS

204

The following transactions were carried out

with related parties:

RELATIONSHIP 2021 2020

CTF Holdings S.A.

Entity with signiﬁcant

inﬂuence over the

Company

Management

services received

113 125

Other

Under control by the

entity with signiﬁcant

inﬂuence over the

Company

Purchases from

related parties

4,122 3,826

Other operating

expenses

1 −

Bonuses from

related parties

201 185

Other Other

Other operating

expenses

44 39

The consolidated ﬁnancial statements include

the following balances with the related parties:

RELATIONSHIP

31DEC

2021

31DEC

2020

CTF Holdings S.A.

Entity with signiﬁcant

inﬂuence over the

Company

Other accounts

payable

27 −

Other

Under control by the

entity with signiﬁcant

inﬂuence over the

Company

Other receivables

from related parties

45 −

Trade accounts

payable

759 757

Trade accounts

receivable

23 24

Other accounts

payable

50 −

Other

Other, including

associates

Advances 26 −

Other accounts

payable

4 12

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Related party

transactions

In considering each 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.

The nature of the relationships for those related

parties with which the Group entered into signiﬁcant

transactions or had signiﬁcant balances outstanding

at 31December 2021 and at 31December 2020 are

provided below. The ownership structure is disclosed in

Note 1.

During 2021 the Group together with ALFA-BANK JSC

and Alfa Investments LLC formed associate company X5

FINANCIAL SOLUTIONS LLC. The company is to launch

and develop ﬁnancial services under the X5 Bank brand.

The Group has a 49.99% interest in X5 FINANCIAL

SOLUTIONS LLC with Group’s share in equity amounted

to RUB 50 at 31 December 2021.

KEY MANAGEMENT PERSONNEL COMPENSATION

Key management personnel compensation is disclosed

in Note 28.

TERMS AND CONDITIONS OF TRANSACTIONS

WITH RELATED PARTIES

The sales to and purchases from related parties are

made on terms equivalent to those that prevail in arm’s

length transactions. Outstanding balances at the year-

end are unsecured and interest free and settlement

occurs in cash. There have been no guarantees

provided or received for any related party receivables

or payables. For the years ended 31December 2021

and 31December 2020, the Group did not record any

material expected credit loss provisions for trade and

other receivables nor did it recognise any impairment

provisions for prepayments.

FINANCIAL STATEMENTS

205

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Cash and cash

equivalents,

short-term ﬁnancial

investments

31DECEMBER

2021

31DECEMBER

2020

Bank current account —

Roubles 2,733 528

Bank current account —

other currencies

49 2

Cash in transit— Roubles 14,997 12,590

Cash in hand— Roubles 8,278 6,888

Deposits— Roubles 5 −

TOTAL

26,062 20,008

The bank accounts represent current accounts. Interest

income on overnights / term deposits was immaterial.

Cash in transit is cash transferred from retail outlets

to bank accounts and bank card payments being

processed.

Short-term ﬁnancial investments at 31December 2021

represent irrevocable bank deposits in Russian Roubles

with maturity not more than a year that earned interest

income at the rates in the range of 8.0%— 9.0% per

annum.

The Group assessed credit quality of outstanding cash

and cash equivalents balances as high and considered

that there was no signiﬁcant individual exposure. The

maximum exposure to credit risk at the reporting date

was the carrying value of cash and bank balances.

Credit quality of cash and cash equivalents and short-term ﬁnancial investments balances

are summarised as follows:

BANK MOODY’S FITCH S&P

31DECEMBER

2021

31DECEMBER

2020

Cash and cash equivalents

Alfa-Bank Ba1 BBB− BBB− 1,559 263

Sberbank Baa3 BBB  — 1,025 11

Gazprombank Ba1 BBB− BBB− 31 25

GPB International S.A. − − BBB− 5 −

Vneshtorgbank Baa3 − BBB− 108 181

Other banks 59 50

Cash in transit and in hand 23,275 19,478

TOTAL

26,062 20,008

Short-term ﬁnancial investments

GPB International S.A. − − BBB− 50,092 −

TOTAL

50,092 −

FINANCIAL STATEMENTS

206

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Property, plant

and equipment

LAND AND

BUILDINGS

MACHINERY AND

EQUIPMENT

REFRIGERATING

EQUIPMENT VEHICLES OTHER

CONSTRUCTION

IN PROGRESS

TOTAL

Cost

At 1 January 2020 299,815 55,317 64,657 25,547 52,428 4,637 502,401

Additions − − − − − 74,275 74,275

Transfers 30,216 15,585 12,077 1,142 12,499 (71,519) −

Disposals (13,486) (4,915) (4,006) (1,016) (5,837) (119) (29,379)

At 31December 2020 316,545 65,987 72,728 25,673 59,090 7,274 547,297

Additions − − − − − 79,716 79,716

Transfers 31,764 16,375 11,208 5,795 13,140 (78,282) −

Disposals (7,360) (5,536) (4,098) (921) (3,835) (282) (22,032)

At 31December 2021 340, 949 76,826 79,838 30,547 68,395 8,426 604,981

* This category also includes machinery and equipment, refrigerating equipment, vehicles and other items of property, plant and equipment not yet available for use.

FINANCIAL STATEMENTS

207

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Property, plant

and equipment

LAND AND

BUILDINGS

MACHINERY AND

EQUIPMENT

REFRIGERATING

EQUIPMENT VEHICLES OTHER

CONSTRUCTION

IN PROGRESS

TOTAL

Accumulated depreciation and impairment

At 1 January 2020 (96,152) (24,221) (26,319) (8,847) (31,384) (221) (187,144)

Depreciation charge (27,764) (9,171) (8,668) (3,636) (10,484) − (59,723)

Impairment charge (3,151) (1,096) (884) (5) (385) (58) (5,579)

Reversal of impairment 1,508 − − 61 − − 1,569

Disposals 10,884 4,700 3,897 914 5,773 119 26,287

At 31December 2020 (114,675) (29,788) (31,974) (11,513) (36,480) (160) (224,590)

Depreciation charge (28,408) (10,709) (9,513) (4,044) (10,865) − (63,539)

Impairment charge (3,160) (872) (585) (27) (196) (131) (4,971)

Reversal of impairment 1,829 9 4 22 2 − 1,866

Disposals 4,539 5,161 3,946 808 3,745 198 18,397

At 31December 2021 (139, 875) (36,199) (38,122) (14,754) (43,794) (93) (272,837)

Net book value at 31December 2021 201,074 40,627 41,716 15,793 24,601 8,333 332,144

Net book value at 31December 2020 201,870 36,199 40,754 14,160 22,610 7,114 322,707

Net book value at 1 January 2020 203,663 31,096 38,338 16,700 21,044 4,416 315,257

* This category also includes machinery and equipment, refrigerating equipment, vehicles and other items of property, plant and equipment not yet available for use.

FINANCIAL STATEMENTS

208

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Property, plant

and equipment

Depreciation charge, impairment charge and reversal

of impairment were included in selling, general and

administrative expenses in the consolidated statement

of proﬁt or loss for the years ended 31December 2021

and 31December 2020.

Construction in progress predominantly related to

the development of stores through the use of sub-

contractors.

The buildings are mostly located on leased land. No

loans were collateralised by land and buildings including

investment property as of 31December 2021.

IMPAIRMENT TEST

At the end of 2021 management performed an

impairment test of property, plant and equipment, right-

of-use assets, other intangible assets and investment

property. The approach for determination of the

recoverable amount of an asset was different for each

class of property, plant and equipment, right-of-use

assets, other intangible assets and investment property.

The evaluation for long-lived assets is performed at the

lowest level of identiﬁable cash ﬂows, which is generally

at the individual store / unit level (cash generating unit—

CGU). The variability of these factors depends on a

number of conditions, including uncertainty about future

events and changes in demand.

The impairment review has been carried out by

comparing recoverable amount of the individual

store / unit with their carrying values. The recoverable

amount of store / unit is determined as the higher of fair

value less cost of disposal or value in use.

The resulting impairment charge arose primarily from

underperforming stores and Karusel transformation.

At the same time the Group recognised the reversal

of previously recorded impairment charges due to

improved performance of certain stores. Due to the

great number of CGUs being tested for impairment

it is considered impracticable to disclose detailed

information for each individual CGU.

The Group analysed external and internal sources of

information including the potential impact of COVID-19

pandemic on the Group itself and on the macro

economic environment and identiﬁed that COVID-19

caused lower trafﬁc in certain stores located in shopping

malls which however was partly compensated by

improved performance of other stores and segments.

Fair value of land and buildings and construction

in progress is determined by management internal

specialists by reference to current observable prices

on an active market subsequently adjusted for speciﬁc

characteristics of respective assets. The fair value

measurement of these assets is classiﬁed at level 3 of

the fair value hierarchy.

Value in use

For property, plant and equipment, right-of-use assets,

other intangible assets and investment property the

discounted future cash ﬂow approach is applied and

covers a 10-year period from 2022 onwards. The Group

believes that use of 10 year forecast better reﬂects

expected future cash ﬂows of its cash generating units

due to cyclical nature of their renovation expenditures.

The future cash ﬂows are based on the current budgets

and forecasts approved by the management. For the

forecast period, the data of the strategic business plan

is extrapolated based on the consumer price indices as

obtained from external resources and key performance

indicators inherent to the strategic plan. One of the main

assumptions used for the forecast period is revenue

growth being in the range from 4.00% to 7.86% in

accordance with the internal forecasts based on budget

and consumer price index projections (31December

2020: 4.00% to 6.78%). For the years beyond the forecast

period the long-term consumer price index forecast of

4.00% at 31December 2021 is used (31December 2020:

4.00%). The projections are made in the functional

currency of the Group’s entities, being Russian Rouble,

on a pre-tax basis and discounted at the Group pre-tax

weighted average cost of capital which is then adjusted

to reﬂect the risks speciﬁc to the respective assets (cash-

generating units (CGUs)) — 13.39% (31December 2020:

12.14%). Inﬂation rates are in line with the consumer price

index forecast published by the Ministry of Economic

Development of Russian Federation. The Group’s

management believes that all of its estimates are

reasonable and consistent with the internal reporting

and reﬂect management’s best knowledge.

The result of applying discounted cash ﬂows model

reﬂects expectations about possible variations in the

amount and timing of future cash ﬂows and is based on

reasonable and supportable assumptions that represent

management’s best estimate of the range of uncertain

economic conditions. If the revised estimated discount

rate consistently applied to the discounted cash ﬂows

had been 200 b.p. higher than management’s estimates,

the Group would need to reduce the carrying value

of property, plant and equipment, right-of-use assets,

investment property and intangible assets by RUB

1,544 (31 December 2020: RUB 2,216), if 200 b.p. lower —

increase by RUB 1,198 (31 December 2020: RUB 1,487).

If the annual revenue growth rate used in calculations of

value in use had been 200 b.p. higher, the Group would

need to increase the carrying value of property, plant

and equipment, right-of-use assets, investment property

and intangible assets by RUB 809 (31 December 2020:

RUB 619), lower — decrease by RUB 1,026 (31December

2020: RUB 705).

FINANCIAL STATEMENTS

209

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Leases

RIGHTOFUSE

ASSETS (LAND

AND BUILDINGS)

LEASE

LIABILITIES

At 1 January 2020 428,166 (484,795)

Additions 115,529 (114,970)

Acquisition of businesses

(Note 7)

8,507 (8,505)

Depreciation expense (69,206) −

Impairment charge (1,806) −

Reversal of impairment 2,156 −

Derecognition (decrease in

the scope of the lease

and terminations of lease

agreements)

(2,835) 4,690

Interest accrued − (39,996)

Payments − 97,553

Effect of changes in foreign

exchange rates

− (2,478)

At 31December 2020 480,511 (548,501)

GROUP AS A LESSEE

The Group has lease contracts for land and buildings

used in its operations. Leases of land and buildings

generally have ﬁxed lease terms between 5 and 45

years and contain extension options provided by the

law. However vast majority of lease contracts include

cancellation options on 2-12 months notice.

Lease terms are negotiated on an individual basis and

contain a wide range of different terms and conditions.

The lease agreements do not impose any covenants

other than the security interests in the leased assets that

are held by the lessor.

Set out below, are the carrying amounts of the Group’s right-of-use assets and lease liabilities and the movements

during the period:

RIGHTOFUSE

ASSETS (LAND

AND BUILDINGS)

LEASE

LIABILITIES

At 1 January 2021 480,511 (548,501)

Additions 96,964 (96,555)

Acquisition of businesses

(Note 7)

3,928 (3,928)

Depreciation expense (74,601) −

Impairment charge (1,596) −

Reversal of impairment 966 −

Derecognition (decrease

in the scope of the lease

and terminations of lease

agreements)

(3,847) 6,787

Interest accrued − (40,572)

Payments − 105,182

Effect of changes in foreign

exchange rates

− 224

At 31December 2021 502,325 (577,363)

FINANCIAL STATEMENTS

210

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Leases

The rental income from operating leases recognised

in the consolidated statement of proﬁt or loss for the

year ended 31December 2021 amounted to RUB7,007

(2020: RUB6,284) (Note 26). The contingent rents

recognised in the consolidated statement of proﬁt or

loss in the year ended 31December 2021 amounted to

RUB202 (2020: 276).

Income from subleasing right-of-use assets under

operating lease agreement for the year ended

31December 2021 amounted to RUB2,618 (2020:

RUB2,464).

Impairment test

At the end of 2021 management performed an

impairment test of right-of-use assets. The evaluation

performed and reasons for it are consistent with the

approach for impairment testing of Property, Plant and

Equipment (Note 10).

The expenses related to short-term leases for the

year ended 31December 2021 amounted to RUB97

(31December 2020: 15). The expense related to variable

lease payments not included in the measurement of

lease liabilities for the year ended 31December 2021

amounted to RUB14,444 (31December 2020: 11,271).

Variable lease payments are mainly linked to sales

generated from a store. Variable payment terms are used

for a variety of reasons, including minimising the ﬁxed

costs base.

The total cash outﬂow for leases for the year ended 31

December 2021 amounted to RUB 119,238 (2020: RUB

108,737).

Maturity analysis of the lease liabilities is disclosed in the

Note 31.

As at 31 December 2021 potential future cash outﬂows

of RUB 3,134 (undiscounted) (31 December 2020: 3,057)

have not been included in the lease liability because it

was assessed reasonably certain that the leases will be

terminated.

GROUP AS A LESSOR

The lease arrangements are operating leases, the

majority of which are short-term. The future minimum

lease and sublease payments receivable under

operating leases were as follows:

31DECEMBER

2021

31DECEMBER

2020

Within 1 year 2,928 2,863

Between 1 and 2 years 403 984

Between 2 and 3 years 329 733

Between 3 and 4 years 272 571

Between 4 and 5 years 138 397

Later than 5 years 418 773

TOTAL

4,488 6,321

In an ordinary course of the business the Group

constantly arranges for leases of new premises and

land. As at 31December 2021 and 31December 2020

the Group had a certain number of leases to which the

Group was committed but the lease did not commence.

The Group assesses that the amount of future cash

outﬂows to which the lessee is potentially exposed is not

signiﬁcant.

In 2021 the Group completed a sale and leaseback

transaction in respect of a store located in Saint-

Petersburg. The cash proceeds amounted to RUB594

recognised in the consolidated statement of cash

ﬂows and gain amounted to RUB124 recognised in the

consolidated statement of proﬁt or loss for the year

ended 31December 2021. When measuring the lease

liability, the Group included ﬁxed lease payments per

lease agreement and the estimate of variable payments

calculated as a percentage of the expected revenue

generated from the leased asset. The lease term of the

leaseback was 12 years.

FINANCIAL STATEMENTS

211

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Investment

properties

The Group held the following investment properties at 31December 2021 and 31December 2020:

Cost 2021 2020

Cost at 1 January 8,356 9,383

Disposals (447) (1,027)

Cost at 31December 7,909 8,356

Accumulated depreciation and impairment

Accumulated depreciation and impairment at 1 January (3,854) (3,819)

Depreciation charge (169) (188)

Impairment charge (65) (16)

Reversal of impairment 408 66

Disposals 232 103

Accumulated depreciation and impairment at 31December (3,448) (3,854)

Net book value at 31December 4,461 4,502

Net book value at 1 January 4,502 5,564

Depreciation charge, impairment charge and reversal

of impairment are included in selling, general and

administrative expenses in the consolidated statement

of proﬁt or loss for the years ended 31December 2021

and 31December 2020.

The Group’s investment properties consist of land and

buildings. Rental income from investment property

amounted to RUB1,140 (2020: RUB1,235). Direct

operating expenses incurred by the Group in relation

to investment property amounted to RUB796 (2020:

RUB821). There were no signiﬁcant direct operating

expenses incurred by the Group in relation to investment

property that did not generate rental income.

Management estimates that the fair value of investment

property at 31December 2021 amounted to RUB6,700

(31December 2020: RUB7,666). The fair value was

estimated using market approach with key inputs being

rent income rates and market value of comparable

assets.

Impairment test

At the end of 2021 management performed an

impairment test of investment property. The evaluation

performed and reasons for it are consistent with the

approach for impairment testing of Property, Plant and

Equipment (Note 10).

FINANCIAL STATEMENTS

212

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Goodwill

Movements in goodwill arising on the acquisition of businesses at 31December 2021 and 31December 2020 are:

Cost 2021 2020

Gross book value at 1 January 171,202 168,239

Acquisition of businesses (Note 7) 1,118 2,963

Disposal (221) −

Gross book value at 31December 172,099 171,202

Accumulated impairment losses

Accumulated impairment losses at 1 January (66,312) (66,312)

Impairment charge (980) −

Disposal 221 −

Accumulated impairment losses at 31December (67,071) (66,312)

Carrying amount at 1 January 104,890 101,927

Carrying amount at 31December 105,028 104,890

GOODWILL IMPAIRMENT TEST

For the purposes of impairment testing, goodwill is

allocated to groups of cash-generating units (groups

of CGUs) being store chains of each format and dark

kitchens. This represents the lowest level within the

Group at which the goodwill is monitored for internal

management purposes.

The group of CGUs to which goodwill has been

allocated is tested for impairment annually or more

frequently if there are indications that the particular

group of CGUs might be impaired. Goodwill is tested for

impairment at the group of CGUs level by comparing

carrying values of particular group of CGU assets

including allocated goodwill to their value in use. The

Karusel group of CGUs started reorganisation in 2019.

The reorganisation is expected to be ﬁnalised in 2023.

The reorganisation resulted in a transfer of goodwill to

Perekrestok group of CGUs in amount of RUB644 and

impairment charge for the year ended 31December

2021 in amount of RUB980.

The Group analysed the potential impacts and effects

of the COVID-19 pandemic, including the estimated

impact on the macro economic environment. COVID-19

pandemic did not negatively affect the overall Group’s

performance during the reporting period as demand for

food products remains stable.

FINANCIAL STATEMENTS

213

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Goodwill

GOODWILL IMPAIRMENT TEST (CONTINUED)

Value in use

For items of land, buildings and construction in progress

the discounted future cash ﬂow approach is applied and

covers a 10-year period from 2021 onwards. The Group

believes that use of 10 year forecast better reﬂects

expected future cash ﬂows of its cash generating units

due to cyclical nature of their renovation expenditures.

The future cash ﬂows are based on the current budgets

and forecasts approved by the management. For the

forecast period, the data of the strategic business

plan are extrapolated based on the consumer price

indices as obtained from external resources and key

performance indicators inherent to the strategic plan.

One of the main assumptions used for the forecast

period is revenue growth being in the range from 4.00%

to 7.86% in accordance with the internal forecasts

based on budget and consumer price index projections

(31December 2020: 4.00% to 6.78%). For the years

beyond the forecast period the long-term consumer

price index forecast of 4.00% at 31December 2021

is used (31December 2020: 4.00%). The projections

are made in the functional currency of the Group’s

entities, being Russian Rouble, on a pre-tax basis and

discounted at the Group pre-tax weighted average

cost of capital which is then adjusted to reﬂect the risks

speciﬁc to the respective assets (cash-generating units

(CGUs))— 13.39% (31December 2020: 12.14%). Inﬂation

rates are in line with the consumer price index forecast

published by the Ministry of Economic Development of

Russian Federation. The Group’s management believes

that all of its estimates are reasonable and consistent

with the internal reporting and reﬂect management’s

best knowledge.

The changes in assumptions applied in the model used

for impairment testing do not indicate any trigger for

impairment because the fair value less cost of disposal

and the value in use are signiﬁcantly higher than the

carrying values of the cash generating unit assets.

The result of applying discounted cash ﬂows model

reﬂects expectations about possible variations in the

amount and timing of future cash ﬂows and is based on

reasonable and supportable assumptions that represent

management’s best estimate of the range of uncertain

economic conditions.

Impairment test

The recoverable amount of the groups of CGUs

calculated exceeds their carrying amounts and therefore

no impairment was recognised for them during the year

ended 31December 2021 (year ended 31December

2020: Nil).

The allocation of carrying amounts of goodwill to each group of CGUs was as follows:

PYATEROCHKA PEREKRESTOK OTHER TOTAL

31December 2021

Goodwill 80,756 23,334 938 105,028

31December 2020

Goodwill 79,693 22,655 2,542 104,890

FINANCIAL STATEMENTS

214

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Other intangible

assets

BRAND AND PRIVATE LABELS SOFTWARE AND OTHER TOTAL

Cost

At 1 January 2020 16,843 30,504 47,347

Additions − 12,160 12,160

Disposals − (362) (362)

At 31December 2020 16,843 42,302 59,145

Additions − 16,520 16,520

Acquisition of businesses (Note 7) − 10 10

Disposals − (415) (415)

At 31December 2021 16,843 58,417 75,260

Accumulated amortisation and impairment

At 1 January 2020 (11,554) (11,455) (23,009)

Amortisation charge − (4,323) (4,323)

Impairment charge (885) (533) (1,418)

Disposals − 362 362

At 31December 2020 (12,439) (15,949) (28,388)

Amortisation charge (76) (7,846) (7,922)

Impairment charge − (352) (352)

Disposals − 408 408

At 31December 2021 (12,515) (23,739) (36,254)

Net book value at 31December 2021 4,328 34,678 39,006

Net book value at 31December 2020 4,404 26,353 30,757

Net book value at 1 January 2020 5,289 19,049 24,338

The majority of additions of software are represented

with internally generated development costs. Brand and

private labels includes brand “Pyaterochka” with the

carrying amount of RUB 4,029 (31 December 2020: RUB

4,029) and brand “Karusel” with the carrying amount

of RUB 298 (31 December 2020: RUB373). In 2021 the

Group revised the useful life of the brand “Karusel” to

ﬁnite terms and started to amortise it (Note 2.7), in 2020

the brand “Karusel” was impaired in amount of RUB 885.

Amortisation charge, impairment charge and reversal

of impairment are included in selling, general and

administrative expenses in the consolidated statement

of proﬁt or loss for the years ended 31December 2021

and 31December 2020.

Impairment test

At the end of 2021 management performed an

impairment test of brands.

For private labels the evaluation performed and reasons

for it are consistent with the approach for impairment

testing of property, plant and equipment (Note 10).

For brands, which are tested annually for impairment,

evaluation performed is consistent with the approach for

goodwill (Note 13).

Also the Group recognised an impairment of software

which was no longer used.

Other intangible assets comprise the following:

FINANCIAL STATEMENTS

215

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Inventories

At 31December 2021 inventories in the amount

of RUB 166,840 were accounted at the lower of

cost and net realisable value (31December 2020:

RUB144,393). Write-off of inventory to net realisable

value at 31December 2021 amounted to RUB3,021

(31December 2020: RUB2,590). At 31December 2021

and 31December 2020 inventories consisted mainly of

goods for resale.

FINANCIAL STATEMENTS

216

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Financial

instruments

by category

FINANCIAL ASSETS AT AMORTISED COST

31DECEMBER 2021 31DECEMBER 2020

Assets as per consolidated statement of ﬁnancial position

Short-term ﬁnancial investments 50,092 —

Trade and other receivables excluding prepayments 15,338 16,626

Cash and cash equivalents 26,062 20,008

TOTAL

91,492 36,634

FINANCIAL LIABILITIES AT AMORTISED COST

31DECEMBER 2021 31DECEMBER 2020

Liabilities as per consolidated statement of ﬁnancial position

Lease liabilities 577,363 548,501

Borrowings 294,338 261,947

Interest accrued 1,792 1,380

Trade, other current and non-current payables excluding statutory

liabilities and advances

290,074 236,863

TOTAL

1,163,567 1,048,691

FINANCIAL STATEMENTS

217

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Trade, other accounts

receivable and

prepayments

31DECEMBER 2021 31DECEMBER 2020

Trade accounts receivable 11,499 13,828

Other receivables 4,658 3,879

Allowance for expected credit losses of trade and other receivables (819) (1,081)

TOTAL TRADE AND OTHER ACCOUNTS RECEIVABLE 15,338 16,626

Prepayments 4,327 2,452

Advances made to trade suppliers 1,086 699

Allowance for impairment of prepayments and advances (561) (500)

TOTAL PREPAYMENTS

4,852 2,651

TOTAL

20,190 19,277

The carrying amounts of the Group’s trade and other

receivables were primarily denominated in Russian

Roubles. Trade receivables and other receivables are

non-interest bearing and are generally on terms of 30 to

90 days.

During the year ended 2021 the Group made a detailed

analysis of coronavirus inﬂuence on the expected credit

losses and did not identify signiﬁcant effects. In general,

COVID-19 did not negatively affect the Group’s main

debtors mostly being food suppliers, as well as other

receivables turnover except for minor debtors, so there

was no need for the revision of the provision matrix for

expected credit losses.

FINANCIAL STATEMENTS

218

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Trade, other accounts

receivable and

prepayments

EXPECTED CREDIT

LOSS RATE AT

31DECEMBER 2021

ESTIMATED TOTAL

GROSS CARRYING

AMOUNT AT DEFAULT

31DECEMBER 2021

EXPECTED

CREDIT LOSS

31DECEMBER 2021

EXPECTED CREDIT

LOSS RATE AT

31DECEMBER 2020

ESTIMATED TOTAL

GROSS CARRYING

AMOUNT AT DEFAULT

31DECEMBER 2020

EXPECTED

CREDIT LOSS

31DECEMBER 2020

Not overdue— 1 month 0.28% 11,018 31 0.18% 13,116 24

1-6 months 3.91% 256 10 7.37% 190 14

6-12 months 45.16% 62 28 29.41% 34 10

Over 1 year 71.17% 163 116 86.89% 488 424

TOTAL

11,499 185 13,828 472

Movements on the allowance for expected credit losses of trade receivables were as follows:

2021 2020

At 1 January (472) (451)

Addition of allowance for expected credit losses (110) (77)

Release of allowance for expected credit losses 104 29

Trade receivables written off as uncollectable 293 27

At 31December (185) (472)

The creation and release of the allowance for expected credit losses have been included in net

impairment losses on ﬁnancial assets in the consolidated statement of proﬁt or loss.

TRADE RECEIVABLES

Trade receivables are mainly bonuses from suppliers

of goods for resale with a low historic default rate. The

maximum exposure to credit risk at the reporting date

was the carrying amount of each class of receivable. The

Group did not hold any collateral as security.

Set out below is the information about the credit risk

exposure on the Group’s trade receivables using a

provision matrix:

FINANCIAL STATEMENTS

219

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Trade, other accounts

receivable and

prepayments

EXPECTED CREDIT

LOSS RATE AT

31DECEMBER 2021

ESTIMATED TOTAL

GROSS CARRYING

AMOUNT AT DEFAULT

31DECEMBER 2021

EXPECTED

CREDIT LOSS

31DECEMBER 2021

EXPECTED CREDIT

LOSS RATE AT

31DECEMBER 2020

ESTIMATED TOTAL

GROSS CARRYING

AMOUNT AT DEFAULT

31DECEMBER 2020

EXPECTED

CREDIT LOSS

31DECEMBER 2020

Not overdue— 1 month 1.50% 1,538 23 1.15% 2,606 30

1-6 months 3.53% 1,896 67 15.51% 690 107

6-12 months 44.12% 204 90 68.42% 190 130

Over 1 year 44.51% 1,020 454 87.02% 393 342

TOTAL

4,658 634 3,879 609

Movements on the allowance for expected credit losses of other receivables were as follows:

2021 2020

At 1 January (609) (608)

Addition of allowance for expected credit losses (356) (440)

Release of allowance for expected credit losses 208 237

Other receivables written off as uncollectable 123 202

At 31December (634) (609)

The creation and release of the allowance for expected credit losses have been included in net

impairment losses on ﬁnancial assets in the consolidated statement of proﬁt or loss.

OTHER RECEIVABLES

The maximum exposure to credit risk at the reporting

date was the carrying amount of each class of

receivable. The Group did not hold any collateral

assecurity.

Set out below is the information about the credit risk

exposure on the Group’s other receivables using a

provision matrix:

FINANCIAL STATEMENTS

220

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Trade, other accounts

receivable and

prepayments

PREPAYMENTS AND ADVANCES

MADE TO TRADE SUPPLIERS

Movements on the allowance for impairment of prepayments and advances made to trade suppliers were as follows:

2021 2020

At 1 January (500) (492)

Addition of allowance for prepayments and advances to trade suppliers impairment (372) (312)

Release of allowance for prepayments and advances to trade suppliers impairment 151 75

Prepayments and advances to trade suppliers written off as uncollectable 160 229

At 31December (561) (500)

The creation and release of the allowance for impaired

prepayments have been included in general and

administrative costs in the consolidated statement of

proﬁt or loss.

The individually impaired prepayments mainly related to

debtors that expected ﬁnancial difﬁculties or there was

likelihood of the debtor’s insolvency. It was assessed

that a portion of the prepayments was expected to be

recovered.

FINANCIAL STATEMENTS

221

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

VAT and other

taxes receivable

31DECEMBER 2021 31DECEMBER 2020

VAT receivable 8,462 8,216

Other taxes receivable 340 2,100

TOTAL 8,802 10,316

FINANCIAL STATEMENTS

222

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Provisions

and other

liabilities

31DECEMBER 2021 31DECEMBER 2020

Other accounts payable and accruals 31,896 26,604

Accrued salaries and bonuses 26,153 23,318

Accounts payable for property, plant and equipment 16,191 13,264

Taxes other than income tax 21,261 15,689

Advances received 1,680 1,844

Payables to landlords 1,443 1,055

Provisions and liabilities for tax uncertainties (Note 35) 6,049 4,202

TOTAL

104,673 85,976

There were no signiﬁcant amounts of other payables to foreign counterparties

as at 31December 2021 and 31December 2020.

FINANCIAL STATEMENTS

223

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Contract

liabilities

31DECEMBER 2021 31DECEMBER 2020

Short-term contract liabilities

Short-term contract liabilities related to loyalty programmes 2,146 1,955

Advances received from wholesales customers 40 32

Advances received from other customers 206 211

TOTAL

2,392 2,198

Movements in short-term contract liabilities related to loyalty programmes comprise the following:

2021 2020

At 1 January 1,955 1,836

Deferred during the year 2,146 1,955

Recognised as revenue during the year (1,955) (1,836)

At 31December 2,146 1,955

FINANCIAL STATEMENTS

224

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Borrowings

The Group had the following borrowings at 31December 2021 and 31December 2020:

CURRENT

FINAL

MATURITY

YEAR

FAIR VALUE CARRYING VALUE

2021 2020 2021 2020

RUBBonds X5 FINANSE LLC series BО-05 − 386 − 390

RUBBonds X5 FINANSE LLC series BО-04 2022 2,091 − 2,150 −

RUBBonds X5 FINANSE LLC series BО-06 2022 1,201 − 1,201 −

RUBBonds X5 FINANSE LLC series BО-07 2022 5,023 − 5,000 −

RUBBonds X5 FINANSE LLC series 001P-04 − 5,115 − 4,998

RUBBonds X5 FINANSE LLC series 001P-05 2022 5,017 − 4,999 −

RUBBonds X5 FINANSE LLC series 001P-06 2022 9,920 − 9,999 −

RUBBonds X5 FINANSE LLC series 001Р-07 2022 4,967 − 4,999 −

RUBBonds X5 FINANSE LLC series 001Р-08 2022 4,915 − 4,998 −

RUBBonds X5 FINANSE LLC series 001Р-09 2022 4,915 − 4,998 −

RUBBonds X5 FINANSE LLC series 001Р-10 2022 9,875 − 9,998 −

RUBBonds X5 FINANSE LLC series 001Р-11 2022 9,726 − 9,994 −

RUBBilateral Loans 2022 29,431 71,638 29,431 71,638

TOTAL CURRENT BORROWINGS 87,081 77,139 87,767 77,026

* In case of the Group’s Bonds— the next put-option date.

In September 2021 the Group passed the put-option on

the exchange-registered corporate bonds series BO-05

in the amount of RUB390 and bought back RUB381

from the issue. For the remaining RUB9 the new annual

rate for the next 3 semi-annual coupon periods was

ﬁxed at 0.01%.

In September 2021 the Group issued RUB10,000

exchange-registered corporate bonds series 002P-01

with 7.60% coupon rate with put-option in 3 years.

The weighted average effective interest rate on X5’s

total borrowings for the year ended 31December 2021

comprised 6.56% per annum (year ended 31December

2020: 6.78%).

All borrowings at 31December 2021 are shown net of

related transaction costs of RUB119 which are amortised

over the term of the loans using the effective interest

method (31December 2020: RUB98). Borrowing

costs capitalised for the year ended 31December 2021

amounted to RUB24 (for year ended 31December

2020: RUB25). The capitalisation rate used to determine

the amount of borrowing costs eligible for capitalisation

was approximate to weighted average effective interest

rate for the period.

FINANCIAL STATEMENTS

225

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Borrowings

NONCURRENT

FINAL MATURITY

YEAR

FAIR VALUE CARRYING VALUE

2021 2020 2021 2020

RUBBonds X5 FINANSE LLC series BО-04 − 2,134 − 2,149

RUBBonds X5 FINANSE LLC series BО-05 2023 8 − 9 −

RUBBonds X5 FINANSE LLC series BО-06 − 1,330 − 1,201

RUBBonds X5 FINANSE LLC series BО-07 − 5,188 − 4,998

RUBBonds X5 FINANSE LLC series 001P-01 2023 98 99 96 96

RUBBonds X5 FINANSE LLC series 001P-02 2023 7 8 8 8

RUBBonds X5 FINANSE LLC series 001P-03 2023 43 42 48 48

RUBBonds X5 FINANSE LLC series 001P-05 − 5,163 − 4,997

RUBBonds X5 FINANSE LLC series 001P-06 − 10,245 − 9,993

RUBBonds X5 FINANSE LLC series 001P-07 − 5,080 − 4,996

RUBBonds X5 FINANSE LLC series 001P-08 − 5,100 − 4,996

RUBBonds X5 FINANSE LLC series 001P-09 − 5,100 − 4,996

RUBBonds X5 FINANSE LLC series 001P-10 − 10,215 − 9,990

RUBBonds X5 FINANSE LLC series 001P-11 − 10,025 − 9,998

RUBBonds X5 FINANSE LLC series 001P-12 2023 9,609 9,991 9,989 9,999

RUBBonds X5 FINANSE LLC series 002P-01 2024 9,951 − 9,998 −

RUBBilateral Loans 2024 179,255 116,536 186,423 116,456

TOTAL NONCURRENT BORROWINGS 198,971 186,256 206,571 184,921

TOTAL BORROWINGS 286,052 263,395 294,338 261,947

* In case of the Group’s Bonds— the next put-option date.

Change in total borrowings in amount of RUB32,391

in 2021 equals to the proceeds from borrowings in

amount of RUB132,345, repayment of borrowings in

amount of RUB99,585 (the Consolidated Statement of

Cash Flows) and other non-cash movements in amount

of RUB447 plus amortisation of transaction costs in

amount of RUB78. Changes in lease liabilities which

also form liabilities arising from ﬁnancing activities are

disclosed in the Note 11.

Change in total borrowings in amount of RUB34,014 in

2020 equals to the proceeds from borrowings in amount

of RUB203,046, repayment of borrowings in amount

of RUB169,175 (the Consolidated Statement of Cash

Flows) plus amortisation of transaction costs in amount

of RUB143. Changes in lease liabilities which also form

liabilities arising from ﬁnancing activities are disclosed in

the Note 11.

In accordance with a few loan agreements, the

Group maintains an optimal leverage ratio by tracking

covenant: the maximum level of Net Debt / EBITDA pre-

IFRS 16 (4.00 / 4.25 during 2 quarters after acquisition).

At 31December 2021 the Group complied with this

covenant and Net Debt / EBITDA pre-IFRS 16 was

equal to 1.67 (31December 2020: 1.67). Metric EBITDA

speciﬁed in all loan agreements is equal to EBITDA pre-

IFRS 16 (for calculation please refer to Note 5).

The Group had the following borrowings at 31 December

2021 and 31 December 2020:

FINANCIAL STATEMENTS

226

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

capital

As at 31December 2021 the Group had 190,000,000

authorised ordinary shares (31December 2020:

190,000,000) of which 67,888,696 ordinary shares

were outstanding (31December 2020: 67,882,444) and

4,521 ordinary shares in amount of RUB41 were held

as treasury stock (31December 2020: 10,774 ordinary

shares in amount of RUB92). The nominal par value of

each ordinary share is EUR 1.

Dividends approved for distribution at the General

Meeting in May 2020 have been paid in the amount of

RUB29,996 during the year ended 31December 2020

(RUB441.88 per share).

In December 2020 interim dividends proposed by

the Supervisory Board for the nine months ended

30 September 2020 have been paid in amount of

RUB19,997 (RUB294.58 per share).

Dividends approved for distribution at the General

Meeting in May 2021 have been paid in the amount of

RUB30,006 during the year ended 31December 2021

(RUB441.99 per share).

In December 2021 interim dividends proposed by

the Supervisory Board for the nine months ended

30 September 2021 have been paid in amount of

RUB20,000 (RUB294.60 per share).

FINANCIAL STATEMENTS

227

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Earnings

per share

Basic earnings per share are calculated by dividing the proﬁt or loss attributable to equity holders of the Company

by the weighted average number of ordinary shares in issue during the year, excluding treasury shares.

Earnings per share were calculated as follows:

2021 2020

Proﬁt attributable to equity holders of the parent 42,738 28,344

Weighted average number of ordinary shares in issue 67,886,315 67,883,361

Effect of share options granted to employees, number of shares 1,801 3,135

Weighted average number of ordinary shares for the purposes of diluted earnings per share 67,888,116 67,886,496

Basic earnings per share for proﬁt (expressed in RUBper share) 629.55 417.54

Diluted earnings per share for proﬁt (expressed in RUBper share) 629.54 417.52

FINANCIAL STATEMENTS

228

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Revenue

2021

PYATEROCHKA PEREKRESTOK OTHER SEGMENTS TOTAL

Revenue from sale of goods through own stores (at a point of time) 1,770,731 348,553 51,858 2,171,142

Revenue from sale of goods through franchisees (at a point of time) 22,946 389  — 23,335

Revenue from wholesale of goods (at a point of time) 372 1,596 3,558 5,526

Revenue from other services (over time) 969 562 3,285 4,816

TOTAL

1,795,018 351,100 58,701 2,204,819

2020

PYATEROCHKA PEREKRESTOK OTHER SEGMENTS TOTAL

Revenue from sale of goods through own stores (at a point of time) 1,581,157 307,292 68,441 1,956,890

Revenue from sale of goods through franchisees (at a point of time) 16,017 438 − 16,455

Revenue from wholesale of goods (at a point of time) 215 1,156 963 2,334

Revenue from other services (over time) 926 574 847 2,347

TOTAL

1,598,315 309,460 70,251 1,978,026

FINANCIAL STATEMENTS

229

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Expenses

by nature

2021 2020

Cost of goods sold 1,580,063 1,427,974

Staff costs (Note 28) 218,948 188,863

Lease expenses (Note 11) 14,541 11,286

Depreciation, amortisation 145,554 132,877

Impairment of non-current assets 4,724 5,028

Other store costs 31,430 29,664

Utilities 47,935 41,940

Net impairment losses

on ﬁnancial assets

154 251

Other 67,775 52,163

TOTAL

2,111,124 1,890,046

Other expenses included impairment of prepayments in

amount to RUB221 in 2021 (2020: RUB237).

The fees listed below related to the procedures applied

to the Group by Ernst & Young Accountants LLP and

Other EY Network as referred to in article 1(1) of the

Dutch Accounting Firms Oversight Act (Dutch acronym:

Wta):

2021 2020

Statutory audit of ﬁnancial

statements performed by Ernst &

Young Accountants LLP

26 26

Statutory audit of ﬁnancial

statements performed by Other EY

Network

44 46

Other assurance services

performed by Other EY Network

7  —

Non-audit services by Other EY

Network

43 40

TOTAL

120 112

In addition to the statutory audit of the ﬁnancial

statements the EY member ﬁrm in Russia provided

non-audit services in the areas of supply chain network

design, retail pricing proof, business trainings and tax

advisory.

The external auditor of the Group is Ernst & Young

Accountants LLP.

FINANCIAL STATEMENTS

230

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Lease / sublease

and other income

2021 2020

Lease / sublease income (Note 11) 7,007 6,284

Income from sales of waste 8,412 3,820

Other 8,458 7,633

TOTAL

23,877 17,737

FINANCIAL STATEMENTS

231

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Finance income

and costs

2021 2020

Interest expense on lease liabilities 40,562 39,916

Interest expense on borrowings 16,412 15,191

Interest income (154) (44)

Other ﬁnance costs, net 409 1,573

TOTAL

57,229 56,636

FINANCIAL STATEMENTS

232

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Staff costs

Total compensation of key management personnel:

2021 2020

Management Board and Executive Board 1,558 1,543

Supervisory Board 198 162

TOTAL

1,756 1,705

Wages and salaries in 2021 included expenses

of RUB2,535 related to the long-term incentive

programme (LTI) for key employees, including members

of the Management Board, other key management and

other key employees (2020: RUB247).

Social security costs in 2021 included pension

contributions amounted to RUB32,052 (2020:

RUB28,024).

The number of employees as at 31December 2021

amounted to 340,928 (31December 2020: 339,716).

Key management personnel

Key management personnel are those persons having

authority and responsibility for planning, directing

and controlling the activities of the Group. The Group

considers all members of the Management Board,

Executive Board and the Supervisory Board to be key

management personnel as deﬁned in IAS 24 Related

Party Disclosures. The CEO is a member of both the

Management Board and the Executive Board.

At the end of 2021 the Executive Board consisted of

nine members. The total direct compensation for the

CEO and other Executive Board members consists of a

base salary, a performance related annual cash incentive

(STI) and a performance related long-term cash incentive

(LTI). Members of the Supervisory Board receive an

annual base compensation in cash and share-based

payments.

2021 2020

Wages and salaries 171,225 147,148

Social security costs 47,634 41,655

Share-based payments expense 89 60

TOTAL

218,948 188,863

FINANCIAL STATEMENTS

233

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Staff costs

instalments. In case of breach of the non-competition

obligations, the agreement provides for a penalty in

the amount of two annual base salaries on a net basis,

and repayment of the termination compensation. The

agreement with Igor Shekhterman may be terminated by

either party with a notice period of three months.

Frank Lhoёst

In 2021, the Company provided Frank Lhoёst with an

annual base salary and participation in the annual cash

incentive plan. Frank Lhoёst was re-appointed in 2019

for another four-year term, until the annual General

Meeting of Shareholders in 2023. His annual base salary

is EUR 315,000. The target pay-out under the annual

cash incentive plan is 60% of base salary and is capped

at 120% in the event of above-target performance. The

agreement with Frank Lhoёst provides for a severance

payment of six month’s base salary, and may be

terminated by either party with a notice period of two

months.

Quinten Peer

In 2021, the Company provided Quinten Peer with an

annual base salary and participation in the annual cash

incentive plan. Quinten Peer was appointed in 2019 for

a four-year term, until the annual General Meeting of

Shareholders in 2023. His annual base salary amounts

to EUR 275,000. The target pay-out under the annual

cash incentive plan is 60% of base salary and is capped

at 120% in the event of above-target performance. The

agreement with Quinten Peer provides for a severance

payment of six month’s base salary and may be

terminated by either party with a notice period of two

months.

Igor Shekhterman

In 2021 the Company provided Igor Shekhterman with

an annual base salary, participation in the annual cash

incentive plan and participation in the Company’s long-

term incentive plan. The 2021 Annual General Meeting

approved the re-appointment of Igor Shekhterman, for

another two-year term, until the annual General Meeting

of Shareholders in 2023, whereby his annual base salary

was increased from RUB70 million to RUB120 million.

The target pay-out under the annual cash incentive plan

is 100% of base salary and is capped at 140% in the

event of above-target performance. The target award

under the long-term incentive plan is 100% of base

salary per year for the period of the implementation

of the long-term incentive plan. As disclosed when

Mr. Shekhterman took ofﬁce in 2015, he is entitled to

a minimum annual compensation package of USD

4,000,000. Should the minimum annual compensation

exceed the total annual remuneration based on ﬁxed

and variable components, Mr. Shekhterman shall be

entitled to the difference upon completion of his full

term as CEO. Furthermore, Mr. Shekhterman is eligible

to a termination compensation of up to USD 5,000,000

at the discretion of the Supervisory Board. Upon

contract termination and subsequent compliance with

non-competition obligations, Igor Shekhterman shall

be entitled to an amount equal to the net annual base

salary under his contract, payable in four quarterly

REMUNERATION OF THE MANAGEMENT BOARD

Service agreements with individual Management

Board members

Expenses recognised for remuneration of the members of the Management Board:

NAME YEAR

BASE

SALARY

SHORTTERM

INCENTIVE

LONGTERM

INCENTIVE

SOCIAL

SECURITY

COST

TOTAL

I. Shekhterman 2021 104 88 122 44 358

2020 74 59 108 34 275

F. Lhoёst 2021 27 16  — 1 44

2020 27 17 − − 44

Q. Peer 2021 24 15  — 1 40

2020 23 15 − − 38

Total 2021 155 119 122 46 442

2020 124 91 108 34 357

1 The table reﬂects actual base salary amounts, including

adjustments based on number

of days spent on vacation, in accordance with Russian labour

law.

2 Short-term incentives are based on results achieved in 2021

and payable in 2022. The short-term incentive levels are based

on achievement of individual and group targets, resulting

in payouts of 86.2% of base salary for Mr. Shekhterman

(31December 2020: 85.3%), 61.2% of base salary for Mr.

Lhoёst (31December 2020: 61.1%) and 63.2% of base salary

for Mr. Peer (31December 2020: 61.1%).

3 For Igor Shekhterman the expense recognised in 2021 for the

long-term incentive award is based on the deferred payout

under the 2018-2020 LTI programme and an accrual based on

the probability of achieving the targets under the 2021-2023

LTI programme.

4 For the year ended 31December 2021 statutory pension

contributions amounted to RUB29 (2020: RUB22).

FINANCIAL STATEMENTS

234

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Staff costs

NAME YEAR

BASE

SALARY

SHORTTERM

INCENTIVE

LONGTERM

INCENTIVE

EXIT

PAYMENT

NONCOM

PETITION

REWARD

SOCIAL

SECURITY

COST

TOTAL

Other key

management

personnel

2021 314 236 416 − − 150 1,116

2020 296 218 446 70 3 153 1,186

1 Base salary remuneration reﬂects the increase in salary for some key management personnel, as well as ﬂuctuation in base salary due to

the number of days spent on vacation, in accordance with Russian labor law.

2 Short-term incentive for performance in the year 2021 (2020) paid in cash in 2022 (2021).

3 The expense recognised in 2021 for the long-term incentive award is based on the deferred payout under the 2018-2020 LTI programme

and an accrual based on the probability of achieving the targets under the 2021-2023 LTI programme.

4 For other key management personnel the severance payment is structured as a non-competition reward payable in two equal

installments after the expiry of the period of three months from the Termination Date and after the expiry of the period of six months

from the Termination Date following contract termination, subject to compliance with non-competition conditions. The non-competition

period for other key management personnel is six months.

5 For the year ended 31December 2021 statutory pension contributions amounted to RUB98 (2020: RUB100).

REMUNERATION OF THE EXECUTIVE BOARD

(‘OTHER KEY MANAGEMENT PERSONNEL’)

Other key management personnel comprises all

members of the Executive Board excluding the CEO.

In accordance with the remuneration policy for the

Executive Board, the total direct compensation of other

key management personnel consists of a base salary, a

performance-related annual cash incentive (STI) and a

performance-related long-term cash incentive (LTI).

Expenses recognised for remuneration of the Executive

Board members (excluding the CEO):

REMUNERATION OF THE SUPERVISORY BOARD

The table to the right speciﬁes the remuneration of

the members of the Supervisory Board. Details on

Supervisory Board remuneration in 2021 are reﬂected in

the Remuneration Report on pages 167-176.

In accordance with the remuneration policy for the

Supervisory Board, as approved by the Annual General

Meeting of Shareholders held on 12 May 2021, members

of the Supervisory Board receive remuneration in cash

and an annual award of Restricted Stock Units (RSUs).

Expenses recognised for remuneration of the members

of the Supervisory Board:

BASE

REMUNERATION

SHAREBASED

COMPENSATION

2021 2020 2021 2020

P. Demchenkov 30 22 22 13

G. King 22 21 21 13

S. DuCharme 12 21 19 20

N. Shouraboura 17 12 11 6

M. Kuchment 10 10 10 6

R. Brasher

7 − 2 −

A. Tynkovan

8 − 2 −

K.-H. Holland

3 8 2 5

A. Torbakhov

− 8 − (3)

M. Fridman

− − − −

A. Elinson

− − − −

TOTAL

109 102 89 60

1 The annual membership allowance for remunerated

Supervisory Board members is determined and paid in Euro,

as follows: chairman EUR 250,000; members EUR 100,000;

additional fee for vice-chair EUR 50,000; members chairing

a committee EUR 100,000 and committee members EUR

16,000 per committee. Mikhail Fridman, Andrei Elinson and

Marat Atnashev, in their role as representatives of CTF Holdings

S.A., have waived any entitlement to Supervisory Board

remuneration, whether in cash or restricted stock units.

2 Based on 100% of the board member’s ﬁxed annual

remuneration, divided by the average market value of a GDR

on the relevant award date. RSU awards are subject to a three-

year vesting period and a further two-year lock-in period. RSU

awards to members of the Supervisory Board are not subject

to performance criteria, and determined by the General

Meeting of Shareholders. The share-based compensation

reﬂects the accrued amounts related to the Restricted Stock

Unit Plan and includes beneﬁts resulting from the reduction

in the value of the cash settled share-based payment

compensation.

3 Richard Brasher and Alexander Tynkovan were appointed as

members of the Supervisory Board on 12 May 2021.

4 Andrei Elinson stepped down as member of the Supervisory

Board on 12 May 2020, Alexander Torbakhov stepped down on

3 July 2020, Karl-Heinz Holland stepped down on 12 May 2021.

FINANCIAL STATEMENTS

235

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Staff costs

TRANCHE

RSUs

AWARDED

IN 2017

RSUs

AWARDED

IN 2018

RSUs

AWARDED

IN 2019

RSUs

AWARDED

IN 2020

RSUs

AWARDED

IN 2021

YEAR OF

VESTING

RSUs

VESTED

VALUE ON

VESTING

DATE

VESTED

GDRs

AFTER TAX

GDRs

LOCKEDUP

AS PER

DECEMBER

2021

END OF

LOCKUP

PERIOD

RSUs OUT

STANDING

AS PER

DECEMBER

2021

RSUs OUT

STANDING

AS PER

DECEMBER

2020

S. DuCharme 8 9,631 − − − − 2020 9,631 21 9,631 9,631 2022 −  —

9 − 9,977 − − − 2021 9,977 23 9,977 9,977 2023 − 9,977

10 − − 9,722 − − 2022 − − − − 2024 9,722 9,722

11 − − − 9,335 − 2023 − − − − 2025 9,335 9,335

12 − − − − 5,133 2024 − − − − 2026 5,133 −

G. King 8 8,026 − − − − 2020 8,026 18 5,433 5,433 2022 − −

9 − 9,977 − − − 2021 9,977 23 5,300 5,300 2023 − 9,977

10 − − 9,373 − − 2022 − − − − 2024 9,373 9,373

11 − − − 9,211 − 2023 − − − − 2025 9,211 9211

12 − − − − 9,747 2024 − − − − 2026 9,747 −

RESTRICTED STOCK UNITS

Furthermore, in 2021 the Annual General Meeting of

Shareholders approved the RSU awards under tranche

12, meaning that the Supervisory Board members

Stephan DuCharme, Petr Demchenkov, Geoff King,

Mikhail Kuchment, Nadia Shouraboura, Richard Brasher

and Alexander Tynkovan were awarded a number of

RSUs with award date 19 May 2021, equal to 100% of the

gross annual remuneration of the relevant Supervisory

Director in 2021, divided by USD 31.36 , the volume

weighted average closing market price of one GDR over

the thirty immediately preceding calendar days of 19 May

2021. The RSUs awarded under tranche 12 will vest on 19

May 2024, followed by a lock-in period ending on 19 May

2026.

The number of RSUs awarded and outstanding to the

members of the Supervisory Board is shown below. For

the calculation of the intrinsic value and further details

please refer to Note 29.

Restricted Stock Units awarded and outstanding to members of the Supervisory Board:

1 Vesting date is 19 May of each respective year of vesting. If

19 May falls in a weekend, vesting date is the immediately

following business day.

2 Number of GDRs held during lock-up period equal the number

of vested RSUs minus GDRs sold to cover taxes, if any.

3 2018 RSUs for Karl-Heinz Holland and Nadia Shouraboura

were effectively awarded on in 2019, as both were appointed

as Supervisory Board member after the award date in 2018.

The awards were based on a 6 / 12 pro rata factor.

4 Karl Heinz Holland stepped down from the Supervisory Board

on 12 May 2021. As per the RSU Plan rules all of the RSUs

awarded in 2019 under tranche 9 (i.e. 1995 RSUs), two third of

the RSUs awarded in 2019 under tranche 10 (i.e. 2,499 RSUs),

one third of the RSUs awarded in 2020 under tranche 11 (i.e.

1,228 RSUs) vested on 12 May 2021. The lock-up on vested

GDRs (i.e. 5,722 RSUs) under tranches 9,10 and 11 has been

lifted as per 12 May 2021. After tax, Mr. Holland was entitled

to immediate release of 3,739 GDRs relating to awards under

tranches 9-11.

5 The awards made under tranche 12 are based on a 9 / 12 pro

rata factor, as both Richard Brasher and Alexander Tynkovan

were appointed as Supervisory Board member during 2021.

FINANCIAL STATEMENTS

236

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Staff costs

REMUNERATION OF THE SUPERVISORY BOARD

RESTRICTED STOCK UNITS

TRANCHE

RSUs

AWARDED

IN 2017

RSUs

AWARDED

IN 2018

RSUs

AWARDED

IN 2019

RSUs

AWARDED

IN 2020

RSUs

AWARDED

IN 2021

YEAR OF

VESTING

RSUs

VESTED

VALUE ON

VESTING

DATE

VESTED

GDRs

AFTER TAX

GDRs

LOCKEDUP

AS PER

DECEMBER

2021

END OF

LOCKUP

PERIOD

RSUs OUT

STANDING

AS PER

DECEMBER

2021

RSUs OUT

STANDING

AS PER

DECEMBER

2020

P. Demchenkov 8 5,618 − − − − 2020 5,618 12 3,803 3,803 2022 − −

9 − 7,982 − − − 2021 7,982 18 4,240 4,240 2023 − 7,982

10 − − 8,942 − − 2022 − − − − 2024 8,942 8,942

11 − − − 9,800 − 2023 − − − − 2025 9,800 9,800

12 − − − − 13,448 2024 − − − − 2026 13,448 −

M. Kuchment 8 3,210 − − − − 2020 3,210 7 2,173 2,173 2022 − −

9 − 3,991 − − − 2021 3,991 9 3,991 3,991 2023 − 3,991

10 − − 4,099 − − 2022 − − − − 2024 4,099 4,099

11 − − − 4,274 − 2023 − − − − 2025 4,274 4,274

12 − − − − 4,523 2024 − − − − 2026 4,523 −

K.-H. Holland

9 − 1,995 − − − 2021 1,995 5 1,304 − 2023 − 1,995

10 − − 3,749 − − 2022 2,498 − 1,633 − 2024 − 3,749

11 − − − 3,684 − 2023 1,228 − 802 − 2025 − 3,684

1 Vesting date is 19 May of each respective year of vesting. If

19 May falls in a weekend, vesting date is the immediately

following business day.

2 Number of GDRs held during lock-up period equal the number

of vested RSUs minus GDRs sold to cover taxes, if any.

3 2018 RSUs for Karl-Heinz Holland and Nadia Shouraboura

were effectively awarded on in 2019, as both were appointed

as Supervisory Board member after the award date in 2018.

The awards were based on a 6 / 12 pro rata factor.

4 Karl Heinz Holland stepped down from the Supervisory Board

on 12 May 2021. As per the RSU Plan rules all of the RSUs

awarded in 2019 under tranche 9 (i.e. 1995 RSUs), two third of

the RSUs awarded in 2019 under tranche 10 (i.e. 2,499 RSUs),

one third of the RSUs awarded in 2020 under tranche 11 (i.e.

1,228 RSUs) vested on 12 May 2021. The lock-up on vested

GDRs (i.e. 5,722 RSUs) under tranches 9,10 and 11 has been

lifted as per 12 May 2021. After tax, Mr. Holland was entitled

to immediate release of 3,739 GDRs relating to awards under

tranches 9-11.

5 The awards made under tranche 12 are based on a 9 / 12 pro

rata factor, as both Richard Brasher and Alexander Tynkovan

were appointed as Supervisory Board member during 2021.

FINANCIAL STATEMENTS

237

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Staff costs

REMUNERATION OF THE SUPERVISORY BOARD

RESTRICTED STOCK UNITS

TRANCHE

RSUs

AWARDED

IN 2017

RSUs

AWARDED

IN 2018

RSUs

AWARDED

IN 2019

RSUs

AWARDED

IN 2020

RSUs

AWARDED

IN 2021

YEAR OF

VESTING

RSUs

VESTED

VALUE ON

VESTING

DATE

VESTED

GDRs

AFTER TAX

GDRs

LOCKEDUP

AS PER

DECEMBER

2021

END OF

LOCKUP

PERIOD

RSUs OUT

STANDING

AS PER

DECEMBER

2021

RSUs OUT

STANDING

AS PER

DECEMBER

2020

N. Shouraboura 9 − 1,995 − − − 2021 1,995 5 1,502 1,502 2023 − 1,995

10 − − 4,099 − − 2022 − − − − 2024 4,099 4,099

11 − − − 4,274 − 2023 − − − − 2025 4,274 4,274

12 − − − − 7,798 2024 − − − − 2026 7,798 −

R. Brasher

12 − − − − 3.245 2024 − − − − 2026 3,245 −

A. Tynkovan

12 − − − − 3,425 2024 − − − − 2026 3,425 −

1 Vesting date is 19 May of each respective year of vesting. If

19 May falls in a weekend, vesting date is the immediately

following business day.

2 Number of GDRs held during lock-up period equal the number

of vested RSUs minus GDRs sold to cover taxes, if any.

3 2018 RSUs for Karl-Heinz Holland and Nadia Shouraboura

were effectively awarded on in 2019, as both were appointed

as Supervisory Board member after the award date in 2018.

The awards were based on a 6 / 12 pro rata factor.

4 Karl Heinz Holland stepped down from the Supervisory Board

on 12 May 2021. As per the RSU Plan rules all of the RSUs

awarded in 2019 under tranche 9 (i.e. 1995 RSUs), two third of

the RSUs awarded in 2019 under tranche 10 (i.e. 2,499 RSUs),

one third of the RSUs awarded in 2020 under tranche 11 (i.e.

1,228 RSUs) vested on 12 May 2021. The lock-up on vested

GDRs (i.e. 5,722 RSUs) under tranches 9,10 and 11 has been

lifted as per 12 May 2021. After tax, Mr. Holland was entitled

to immediate release of 3,739 GDRs relating to awards under

tranches 9-11.

5 The awards made under tranche 12 are based on a 9 / 12 pro

rata factor, as both Richard Brasher and Alexander Tynkovan

were appointed as Supervisory Board member during 2021.

FINANCIAL STATEMENTS

238

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Share-based

payments

RESTRICTED STOCK UNIT PLAN

Members of the Supervisory Board are entitled to

annual awards of restricted stock units (RSUs) under

the Group’s Restricted Stock Unit Plan (RSU Plan)

approved at the AGM in 2010. RSU awards to members

of the Supervisory Board are not subject to performance

criteria, and determined by the General Meeting of

Shareholders.

During the year ended 31December 2021, a total

number of 47,319 RSUs were awarded under tranche

12 of the RSU Plan and will vest in 2024. In 2021 39,643

RSUs vested. Upon vesting these RSUs were converted

into GDRs registered in the participant’s name. The

GDRs are kept in custody during a two-year lock-

in period during which the GDRs cannot be traded.

In accordance with the RSU Plan rules the lock-in

restrictions do not apply in case of accelerated release

of GDRs, if and when a Supervisory Board member

ceases to be a member of the Supervisory Board.

In total, during the year ended 31December 2021 the

Group recognised expense related to the RSU Plan in

the amount of RUB89 (expense during the year ended

31December 2020: RUB60). At 31December 2021 the

equity component was RUB 118 (31December 2020:

RUB104). The fair value of services received in return for

the conditional RSUs granted to employees is measured

by reference to the market price of the GDRs which is

determined at grant date.

Details of the conditional rights outstanding were as follows:

2021 2020

NUMBER

OF CONDITIONAL

RIGHTS

WEIGHTED

AVERAGE FAIR

VALUE, RUB

NUMBER

OF CONDITIONAL

RIGHTS

WEIGHTED

AVERAGE FAIR

VALUE, RUB

Outstanding at the beginning

of the period

116,479 2,025.96 109,751 1,987.74

Awarded during the period 47,319 2,243.40 48,536 2,185.02

Vested during the period (39,643) 1,878.34 (28,940) 2,105.86

Forfeited during the period (3,707) 2,127.76 (12,868) 2,120.24

Outstanding at the end

of the period

120,448 2,156.84 116,479 2,025.96

FINANCIAL STATEMENTS

239

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Income tax

2021 2020

Current income tax charge 22,190 23,463

Deferred income tax beneﬁt (4,186) (6,137)

Income tax charge for the year 18,004 17,326

The theoretical and effective tax rates are reconciled as follows:

2021 2020

Proﬁt before taxation 60,742 45,670

Theoretical tax at the effective statutory rate

12,148 9,134

Tax effect of items which are not deductible or assessable for taxation purposes

Current tax on dividends distributed by the Group’s subsidiaries 5,305 5,087

Change in deferred tax liability associated with investments in subsidiaries (1,580) (2,451)

Expenses on inventory shortage 337 215

Unrecognised tax loss carry forwards for the year 153 338

Effect of income taxable at rates different from standard statutory rates 14 (138)

Other non-deductible expense 1,627 5,141

Income tax charge for the year 18,004 17,326

* Proﬁt before taxation on Russian operations is assessed based on the statutory rate of 20%.

As at 31December 2021 37 Russian subsidiaries of the

Group were the members of the CGT (consolidated

group oftaxpayers) with X5 Corporate Center LLC acting

as a responsible CGT member.

FINANCIAL STATEMENTS

240

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Income tax

Deferred tax assets and liabilities and the deferred tax charge in the consolidated

statement of proﬁt or loss were attributable to the following items for the year ended

31December 2021:

1 JANUARY

2021

CREDITED /

(DEBITED)

TO PROFIT

AND LOSS

DEFERRED TAX

ON BUSINESS

COMBINATIONS

(NOTE 7)

31DECEMBER

2021

Tax effects of deductible temporary differences and tax loss carry forwards

Tax losses available for carry forward 5,487 (118) − 5,369

Right-of-use assets and lease liabilities 18,506 1,365 244 20,115

Property, plant and equipment and

Investment property

276 57 − 333

Other intangible assets 52 1 − 53

Inventories 2,293 133 − 2,426

Accounts receivable 27 4 − 31

Accounts payable 7,997 2,490 − 10,487

Other 396 41 − 437

Gross deferred tax assets 35,034 3,973 244 39,251

Less offsetting with deferred tax liabilities (14,576) (1,628) − (16,204)

Recognised deferred tax assets 20,458 2,345 244 23,047

1 JANUARY

2021

CREDITED /

(DEBITED)

TO PROFIT

AND LOSS

DEFERRED TAX

ON BUSINESS

COMBINATIONS

(NOTE 7)

31DECEMBER

2021

Tax effects of taxable temporary differences

Right-of-use assets and lease liabilities (11) (42) − (53)

Property, plant and equipment and

Investment property

(9,559) 1,155 − (8,404)

Investments into subsidiary (1,580) 1,580 − −

Other intangible assets (4,880) (1,926) − (6,806)

Accounts receivable (1,149) (549) − (1,698)

Accounts payable (4) 2 − (2)

Other (162) (7) − (169)

Gross deferred tax liabilities (17,345) 213 − (17,132)

Less offsetting with deferred tax assets 14,576 1,628 − 16,204

Recognised deferred tax liabilities (2,769) 1,841 − (928)

DEFERRED INCOME TAX

At 31December 2021 unrecognised deferred tax liability

on unremitted earnings of certain subsidiaries amounted

to RUBNil for which the deferred tax liability was not

recognised (2020: RUB3,834).

Management believes that the future taxable proﬁts

in tax jurisdictions that suffered a loss in the current or

preceding years will be available to utilise the deferred

tax asset of RUB5,369 recognised at 31December 2021

for the carry forward of unused tax losses (31December

2020: RUB5,487).

The Group estimated unrecognised potential deferred

tax assets in respect of unused tax loss carry forwards

at 31December 2021 of RUB3,206 (31December 2020:

RUB2,949). At 31December 2021 these unused tax

losses have no time restrictions for carry forward. At

31December 2020 unused tax losses in the amount

of 905 were available for carry forward for a period not

less than two years, unused tax losses in the amount of

2,044 had no time restrictions for carry forward.

FINANCIAL STATEMENTS

241

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Income tax

Deferred tax assets and liabilities and the deferred tax charge in the consolidated

statement of proﬁt or loss were attributable to the following items for the year ended

31December 2020:

1 JANUARY

2020

CREDITED /

(DEBITED)

TO PROFIT

AND LOSS

DEFERRED TAX

ON BUSINESS

COMBINATIONS

(NOTE 7)

31DECEMBER

2020

Tax effects of deductible temporary differences and tax loss carry forwards

Tax losses available for carry forward 5,537 (50) − 5,487

Right-of-use assets and lease liabilities 15,442 2,489 575 18,506

Property, plant and equipment and

Investment property

402 (126) − 276

Other intangible assets 121 (69) − 52

Inventories 2,107 186 − 2,293

Accounts receivable 11 16 − 27

Accounts payable 6,621 1,376 − 7,997

Other 375 21 − 396

Gross deferred tax assets 30,616 3,843 575 35,034

Less offsetting with deferred tax liabilities (14,138) (438) − (14,576)

Recognised deferred tax assets 16,478 3,405 575 20,458

1 JANUARY

2020

CREDITED /

(DEBITED)

TO PROFIT

AND LOSS

DEFERRED TAX

ON BUSINESS

COMBINATIONS

(NOTE 7)

31DECEMBER

2020

Tax effects of taxable temporary differences

Right-of-use assets and lease liabilities (40) 29 − (11)

Property, plant and equipment and

Investment property

(11,125) 1,566 − (9,559)

Investments into subsidiary (4,031) 2,451 − (1,580)

Other intangible assets (3,293) (1,587) − (4,880)

Accounts receivable (849) (300) − (1,149)

Accounts payable (3) (1) − (4)

Other (298) 136 − (162)

Gross deferred tax liabilities (19,639) 2,294 − (17,345)

Less offsetting with deferred tax assets 14,138 438 − 14,576

Recognised deferred tax liabilities (5,501) 2,732 − (2,769)

FINANCIAL STATEMENTS

242

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Financial risk

management

Financial risk management is a part of integrated risk

management and internal control framework described

in “Corporate Governance” section of this Annual Report.

The primary objectives of the ﬁnancial risk management

are to establish risk limits, and then ensure that exposure

to risks stays within these limits.

Financial risk management is carried out by the

Group’s centralised Finance Department. The Finance

Department monitors and measures ﬁnancial risks and

undertakes steps to limit their inﬂuence on the Group’s

performance.

(a) Market risk

Currency risk

Group is exposed to foreign exchange risk arising from

foreign currency denominated assets and liabilities with

respect to import purchases and lease liabilities mainly

in USD and EUR. As at 31 December 2021 the Group

had trade accounts payable denominated in USD in the

amount of RUB 7,827 and in EUR in the amount of RUB

2,163 (31 December 2020: denominated in USD in the

amount of RUB 4,762 and in EUR in the amount of RUB

1,574) and leases denominated in USD in the amount of

RUB 7,028 andin EUR in the amount of RUB 3,506 (31

December 2020: denominated in USD in the amount of

RUB 9,855 and in EUR in the amount of RUB 4,794). As

at 31 December 2021 the Group did not have any other

signiﬁcant assets and liabilities denominated in foreign

currency and the exposure for the Group was estimated

as not signiﬁcant.

Interest rates risk

As at 31December 2021 the Group had no ﬂoating

interest-bearing assets (31December 2020: Nil), but

had 16% (31December 2020: 28%) share of borrowings

with ﬂoating interest rates based on the Key rate of

the Central Bank of the Russian Federation. As at

31December 2020, additionally tothe borrowings

with ﬂoating interest rates the Group had ﬁnancial

instruments limiting the corridor of rate ﬂuctuations for

share of borrowings.

If the Key rate had been 100 b.p. higher the proﬁt before

tax for the year ended 31December 2021 had been

RUB398 lower. If the Key rate had been 100 b.p. lower

the proﬁt before tax for the year ended 31December

2021 had been RUB 398 higher. The Group’s income

and operating cash inﬂows were largely independent of

changes in market interest rates but part of The Group’s

interest expenses was marginally exposed to changes in

market interest rates.

(b) Credit risk

Financial assets, which are potentially subject to credit

risk, consisted principally of cash and cash equivalents

and short-term ﬁnancial investments held in banks,

trade and other receivables (Note 9 and Note 17). Due to

the nature of its main activities (retail sales to individual

customers) the Group had no signiﬁcant concentration

of credit risk. Cash was placed in ﬁnancial institutions

which were considered at the time of deposit to have

low risk of default (Note 9).

The Group has policies in place to ensure that in case

of credit sales of products and services to wholesale

customers and reverse franchise schemes only those

counteragents with an appropriate credit history are

selected. Although collection of receivables could be

inﬂuenced by economic factors, management believes

that there was no signiﬁcant risk of loss to the Group

beyond the allowance already recorded. In accordance

with the Group treasury policies and exposure

management practices, counterparty credit exposure

limits were continually monitored and no individual

exposure was considered signiﬁcant.

Liquidity risk is deﬁned as the risk that an entity will

encounter difﬁculty in meeting obligations associated

with ﬁnancial liabilities. Liquidity risk is managed by the

Corporate Finance Department.

The Group ﬁnances its operations by a combination of

cash ﬂows from operating activities and long-term and

short-term debt. The objective is to ensure continuity of

funding on the best available market terms. The policy is

to keep the Group’s credit portfolio diversiﬁed structure,

continue to improve the debt maturity proﬁle, to arrange

funding ahead of requirements and to maintain sufﬁcient

undrawn available bank lines / limits, and a strong credit

rating so that maturing debt may be reﬁnanced as it falls

due.

FINANCIAL STATEMENTS

243

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Financial risk

management

The following is an analysis of the contractual undiscounted cash ﬂows payable under ﬁnancial liabilities as at the

reporting date at spot foreign exchange rates:

YEAR ENDED 31DECEMBER 2021 DURING 1 YEAR IN 1 TO 5 YEARS OVER 5 YEARS

Lease liabilities 111,953 389,062 289,176

Borrowings 107,339 223,397 −

Trade payables 212,949 − −

Other ﬁnancial liabilities 75,683 1,442 −

TOTAL

507,924 613,901 289,176

YEAR ENDED 31DECEMBER 2020 DURING 1 YEAR IN 1 TO 5 YEARS OVER 5 YEARS

Lease liabilities 105,141 369,835 260,555

Borrowings 90,435 197,530 −

Trade payables 170,909 − −

Other ﬁnancial liabilities 64,627 1,935 −

TOTAL

431,112 569,300 260,555

At 31December 2021 the Group had net current

liabilities of RUB 206,373 (31December 2020:

RUB202,400) including short-term borrowings of

RUB87,767 (31December 2020: RUB77,026). At

31December 2021 the Group had available bank

credit lines of RUB482,263 (31December 2020:

RUB457,086). At 31December 2021 the Group

had RUBregistered bonds programme available for

issue on MOEX of RUB190,000 (31December 2020:

RUB200,000).

Management regularly monitors the Group’s operating

cash ﬂows and available credit lines / limits to ensure

that these are adequate to meet the Group’s ongoing

obligations and its expansion programmes. Part of the

existing lines is provided on rolling basis which is closely

monitored by detailed cash ﬂow forecasts and are

managed by the Corporate Finance Department.

The Group’s capital expenditure programme is highly

discretionary. The Group optimises its cash outﬂows

by managing the speed of execution of current capex

projects and by delaying future capital extensive

programmes, if required.

The Group is carefully monitoring its liquidity proﬁle

by optimizing the cost of funding and the drawdown

periods within revolving credit facilities as well as

extending existing credit facilities or obtaining new

credit lines. The Group manages liquidity requirements

by the use of both short-term and long-term projections

and maintaining the availability of funding. Based on

the review of the current liquidity position of the Group

management considers that the available credit lines

and expected cash ﬂows are more than sufﬁcient to

ﬁnance the Group’s current operations.

The Group has assessed the impact of climate related

matters on its ﬁnancial statements as not material.

FINANCIAL STATEMENTS

244

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Operating

environment

of the Group

Russia continues economic reforms and development

of its legal, tax and regulatory frameworks as required

by a market economy. The COVID-19 worldwide

outbreak was also increasing uncertainties. Mobility

restrictions, quarantines and similar lockdown measures

implemented in Russia to cope with the pandemic

affected the operations of the Group leading to less

frequent customer visits to stores but larger purchases

and shift towards digitalisation. From the beginning of

COVID-19 pandemic the Group has taken necessary

measures to avoid direct impact of the pandemic on

its operations with a special focus on protection of the

health of employees and customers and uninterrupted

business processes. The Group introduced measures

such as mandatory body temperature checks for all

employees entering its premises, provided masks and

disposable gloves to operational personnel, introduced

additional disinfection hours daily for all stores as well as

additional disinfection in stores and other premises. The

Group has assessed a potential impact of the COVID-19

outbreak on its going concern (Note 2), impairment

of non-current assets (Notes 10, 13) and allowance

for expected credit losses (Note 17). There have been

no modiﬁcations to ﬁnancial liability contracts and

covenants.

The future stability of the Russian economy is largely

dependent upon the impact and span of the COVID-19

and the impact of the sanctions being imposed as result

of the events subsequent to the reporting date (Note

36). Should the economy be in a long-term recession

after the pandemic and the sanctions, that may affect

the Group’s ﬁnancial position, cash ﬂows and results of

operations.

Management believes it is taking appropriate measures

to support the sustainability of the Group’s business in

the current circumstances.

FINANCIAL STATEMENTS

245

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Capital risk

management

The Group’s objectives when managing capital are to

safeguard the Group’s ability to continue as a going

concern in order to provide returns for shareholders

and beneﬁts for other stakeholders and to maintain an

optimal capital structure to reduce the cost of capital.

The Group manages total equity attributable to equity

holders recognised under IFRS requirements. The

Group is in compliance with externally imposed capital

requirements.

In accordance with a few loan facilities the Group

maintains an optimal leverage ratio by tracking

covenant: the maximum level of Net Debt / EBITDA pre-

IFRS 16 (4.00 / 4.25 during two quarters after acquisition).

Net debt is calculated as the sum of short-term and

long-term borrowings less cash and cash equivalents.

Reconciliation of EBITDA pre-IFRS 16 to operating

proﬁt is performed in Note 5. This ratio is included as

covenants into some of Group’s loan agreements (Note

21). At 31December 2021 the Group complied with the

requirements under the loan facilities.

FINANCIAL STATEMENTS

246

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Fair value

of ﬁnancial

instruments

Fair value is the price that would be received to sell

an asset or paid to transfer a liability in an orderly

transaction between market participants at the

measurement date. The best evidence of fair value is

price in an active market. An active market is one in

which transactions for the asset or liability take place

with sufﬁcient frequency and volume to provide pricing

information on an ongoing basis.

The estimated fair values of ﬁnancial instruments have

been determined by the Group using available market

information, where it exists, and appropriate valuation

methodologies. However, judgement is necessarily

required to interpret market data to determine the

estimated fair value.

FINANCIAL ASSETS CARRIED

AT AMORTISED COST

The estimated fair value of ﬁxed interest rate instruments

is based on estimated future cash ﬂows expected to

be received discounted at current interest rates for

new instruments with similar credit risk and remaining

maturity. Discount rates used depend on credit risk of

the counterparty.

The carrying amount of cash and cash equivalents and

trade and other ﬁnancial receivables approximates their

fair value.

LIABILITIES CARRIED AT AMORTISED COST

The fair value of bonds is based on quoted market

prices. Fair values of other liabilities are determined using

valuation techniques.

The fair value of bonds traded on the MOEX and the

SE is determined based on active market quotations

and amounted to RUB 77,366 at 31December 2021

(31December 2020: RUB75,221). The measurement

is classiﬁed in level 1 of the fair value hierarchy. The

carrying value of these bonds amounted to RUB78,484

at 31December 2021 (31December 2020: RUB73,853)

(Note 21). The fair value of long-term borrowings

amounted to RUB179,255 at 31December 2021

(31December 2020: RUB116,536). The measurement

is classiﬁed in level 3 of the fair value hierarchy and is

determined based on expected cash ﬂows discounted

using interest rate of similar instruments available on

the market. The sensitivity analysis shows that the

increase / decrease of the market interest rate by 10%

leads to the decrease / increase of fair value of long-

term borrowings by RUB2,470 at 31December 2021

(31December 2020: RUB1,273). The fair value of short-

term borrowings was not materially different from their

carrying amounts.

FINANCIAL STATEMENTS

247

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Commitments and

contingencies

CAPITAL EXPENDITURE COMMITMENTS

At 31December 2021 the Group contracted for capital

expenditure for the acquisition of property, plant and

equipment and intangible assets of RUB7,659 (net of

VAT) (31December 2020: RUB7,144).

LEGAL CONTINGENCIES

The Group has been and continues to be the subject of

legal proceedings and adjudications from time to time.

Management believes that there are no current legal

proceedings or other claims outstanding, which could

have a material effect on the result of operations or

ﬁnancial position of the Group and which have not been

accrued at 31December 2021.

TAX CONTINGENCIES, COMMITMENTS AND RISKS

Russian tax, customs, and currency legislation allows

for various interpretations and is subject to frequent

amendments. Relevant regional and federal authorities

can challenge the Group management interpretation

of legislation provisions in the context of the Group’s

transactions and operations. The Group includes

companies incorporated outside Russia. These

companies are subject to tax at the rates prescribed by

the legislation of the jurisdiction where the companies

are tax residents. According to the Russian legislation,

foreign companies of the Group are not subject to proﬁt

tax except for cases of withholding tax (i.e. dividends,

interest, capital gain, etc.), since tax obligations of the

foreign companies of the Group are determined on the

assumption that the foreign companies of the Group are

not Russian tax residents.

In 2021 Russian legislative authorities performed

further update of state taxation system and continue

to diligently collaborate with foreign tax authorities

in the framework of an international tax information

exchange which makes corporate operations more

transparent. After the speech of the Russian President

in 2020 about the intention to increase withholding

tax rate on dividends and interest paid from Russia

to the so-called “offshore jurisdictions” it is generally

known that the Russian Ministry of Finance sent letters

to ﬁnance ministries of some foreign jurisdictions

regarding proposed changes to the current tax rates

provided in Double Tax Treaties (DTTs), including Cyprus,

Luxembourg, Malta and the Netherlands.

In the second half of 2020 it was ofﬁcially announced

by the Russian Ministry of Finance, Russia signed a

Protocol to amend the double tax treaties with Cyprus,

Luxembourg and Malta. The parties agreed to raise the

basic tax rate on dividends and interest to 15% with

exceptions for public companies for which the rate stays

5%. The changes related to DTTs with Cyprus and Malta

come into force from 1 January 2021, with Luxemburg

from 1 January 2022 and would not apply retrospectively.

In May 2021 the Federal law of denunciation the DTT

with the Netherlands was adopted, as a result respective

DTT expires starting from 2022. These changes would

not apply retrospectively to income paid prior to 2022.

Besides that, the Russian Ministry of Finance plans to

change tax agreements with Hong Kong, Singapore and

Switzerland.

The Russian transfer pricing legislation is to the large

extent aligned with the international transfer pricing

principles developed by the Organisation for Economic

Cooperation and Development. Starting from 1 January

2019, a signiﬁcant number of domestic transactions

was excluded from the transfer pricing control in Russia.

Only transactions between Russian companies that

apply different tax rates on proﬁts or special tax regimes

are subject to the rules, and only if income from those

transactions exceeds RUB1 billion per year. Moreover,

starting from 1 January 2019, a threshold of RUB60

million applies for cross-border transactions to be

classiﬁed as controlled for transfer pricing purposes.

The amendments described above as well as recent

trends of interpretation and application of particular

provisions of the Russian tax legislation highlight the

fact that tax authorities can enter the more rigid position

with regards to the interpretation of the legislation and

tax calculations. Therefore, tax authorities can dispute

lawfulness of transactions and accounting methods

that were previously out of question. As a result, material

additional taxes, penalties and ﬁnes can be charged. It

is impossible to forecast the amount of potential claims

and to evaluate the probability of an unfavourable

outcome. Generally, tax audits can cover three calendar

years preceding the year in which the decision

on the performance of audit is adopted. In certain

circumstances a tax audit can cover earlier tax periods.

MLI standards came into effect on 1 January 2021. The

MLI requires the setting of minimum standards— rules

that must be observed in order to beneﬁt from reduced

rates under a tax treaty. The Russian Federation adopted

the following standards:

•

The principal purpose test (PPT); and

•

Simpliﬁed limitation on beneﬁts (sLoB).

The principal purpose test means that tax treaty beneﬁts

may not be applied if obtaining them was the principal

purpose of a transaction.

The simpliﬁed limitation on beneﬁts means that

reduced rates under a tax treaty may be enjoyed only

by “qualiﬁed persons” (individuals, a state or political

subdivision thereof, public companies, pension funds,

non-proﬁt organizations, etc.) and other persons who are

not “qualiﬁed persons” if they carry on “active business”

and the income received is connected to that business.

The term “active business” does not include activities

of holding companies, intra-group ﬁnancing, making

or managing investments (except for professional

participants in the market), etc.

It follows from the above that where income is paid

to a foreign company which qualiﬁes for reduced

rates or exemption from taxation only on the basis of

the provisions of a tax treaty with a speciﬁc state, it

is essential to ensure compliance both with local law

and with the provisions of the MLI as a document that

regulates the application of DTTs between speciﬁc

countries.

FINANCIAL STATEMENTS

248

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Commitments and

contingencies

TAX CONTINGENCIES, COMMITMENTS AND RISKS

(CONTINUED)

Management regularly reviews the Group’s taxation

compliance with applicable legislation, laws and decrees

and current interpretations published by the authorities

in the jurisdictions in which the Group has operations.

Furthermore, management regularly assesses the

potential ﬁnancial exposure relating to tax contingencies

not only for the periods open for tax audit but also

for which the three years’ tax inspection right has

expired but which, under certain circumstances, may be

challenged by the regulatory bodies. From time to time

potential exposures and contingencies are identiﬁed

and at any point in time a number of open matters may

exist.

Management estimates that possible exposure in

relation to the aforementioned risks, as well as other

proﬁts tax and non-proﬁts tax risks (e.g. imposition of

additional VAT liabilities), that are more than remote, but

for which no liability is required to be recognised under

IFRS, could be several times more than accrued liabilities

and provisions reﬂected on the statement of ﬁnancial

position at that date. This estimation is provided for the

IFRS requirement for disclosure of possible taxes and

should not be considered as an estimate of the Group’s

future tax liability.

In 2021 the Group made net accrual of provisions and

liabilities for tax uncertainties attributable to income

tax and non-income tax risks in amount of RUB 3,076

including net accrual of non-income tax provision of

RUB 1,891 , income tax provision of RUB 914 and net

accrual of indemniﬁcation asset of RUB 271.

In 2020 the Group made net accrual of provisions and

liabilities for tax uncertainties attributable to income

tax and non-income tax risks in amount of RUB5,286

including net accrual of non-income tax provision of

RUB1,882, income tax provision of RUB3,373 and net

accrual of indemniﬁcation asset of RUB31.

At the same time management has recorded liabilities

for income taxes in the amount of RUB2,443

(31December 2020: RUB2,384) and provisions for taxes

other than income taxes in the amount of RUB6,049

at 31December 2021 (31December 2020: RUB4,202)

in these consolidated ﬁnancial statements as their

best estimate of the Group’s liability related to tax

uncertainties as follows:

Balance at 1 January 2020 2,738

Release of provision (431)

Accrual of provision 5,717

Offset of provision (1,438)

Balance at 31December 2020 6,586

Release of provision (982)

Accrual of provision 4,058

Offset of provision (1,170)

Balance at 31December 2021 8,492

FINANCIAL STATEMENTS

249

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Subsequent events

for the Group

Since late February 2022 a number of countries

(including the US, UK and EU) imposed new sanctions

against certain entities and individuals in Russia as a

result of the ofﬁcial recognition of the Donetsk People

Republic and Lugansk People Republic by the Russian

Federation. Announcements of potential additional

sanctions have been made following military operations

initiated on 24 February 2022. Such sanctions can

directly impact the sanctioned entities and individuals,

and entities under their control. The Group is not subject

to any sanctions or restrictions at the moment, but

is likely to encounter challenges due to sanctions on

ﬁnancial system and certain imports into Russia. For the

management considerations of the potential risks arisen

from recent geopolitical changes please refer to the

section “How we manage risk” of the Annual report.

FINANCIAL STATEMENTS COMPANY STATEMENT OF FINANCIAL POSITION

250

X5 RETAIL GROUP N.V.

Company

Statement

of Financial

Position

at 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

NOTE

31DECEMBER

2021

31DECEMBER

2020

Assets

Non-current assets

Financial ﬁxed assets 38 75,516 125,231

Other non-current assets 9 −

Deferred tax assets 43 379 569

75,904 125,800

Current assets

Amounts due from group

companies

3,549 2,945

Prepaid expenses 8 6

Other receivables 50,627 470

Short-term ﬁnancial

investments

9 50,092 −

Other 535 470

Cash and cash equivalents 5 1

54,189 3,422

TOTAL ASSETS

130,093 129,222

Equity and liabilities

Paid up and called up share

capital

39 5,707 6,156

Share premium account 39 46,127 46,086

Share-based payment

reserve

39,41 118 104

Translation reserve 39 (3,249) (3,698)

Retained earnings 39 − 17,850

Undistributed proﬁt for the

year

39 38,926 28,344

TOTAL EQUITY

87,629 94,842

NOTE

31DECEMBER

2021

31DECEMBER

2020

Provisions

Deferred tax liabilities 43 − 395

− 395

Non-current liabilities

Loans from group

companies

40 1,829 1,175

1,829 1,175

Current liabilities

Loans from group

companies

40 446 −

Amounts due to group

companies

40,025 32,294

Accrued expenses and other

liabilities

164 516

40,635 32,810

TOTAL LIABILITIES

42,464 34,380

TOTAL EQUITY

AND LIABILITIES

130,093 129,222

Igor Shekhterman

CHIEF EXECUTIVE OFFICER

19 May 2022

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER

19 May 2022

The ﬁnancial statements are unaudited

FINANCIAL STATEMENTS COMPANY STATEMENT OF PROFIT OR LOSS

251

X5 RETAIL GROUP N.V.

Company

Statement

of Proﬁt

or Loss

at 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

NOTE 31DECEMBER 2021 31DECEMBER 2020

Other income 877 903

General and administrative expenses 42 (817) (745)

Operating proﬁt 60 158

Finance costs (347) (3,959)

Finance income 885 1,156

Net foreign exchange loss (5) (616)

Gain / (loss) before tax 593 (3,261)

Withholding tax 43 (4,097) (1,272)

Income tax beneﬁt 43 1,967 4,205

Income on participating interest after tax 38 44,275 28,672

Proﬁt for the year 42,738 28,344

Igor Shekhterman

CHIEF EXECUTIVE OFFICER

19 May 2022

Vsevolod Starukhin

CHIEF FINANCIAL OFFICER

19 May 2022

The ﬁnancial statements are unaudited

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

252

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Accounting

principles

As the Company mainly exploits Russian grocery stores,

the functional currency of the Company is the Russian

Rouble as this is the currency of its primary business

environment and reﬂects the economic reality. Unless

stated otherwise all amounts are in millions of Russian

Rouble (“RUB”).

INVESTMENTS IN GROUP COMPANIES

Investments in group companies are entities (including

intermediate subsidiaries and special purpose entities)

over which the Company has control, because the

Company (i) has power to direct relevant activities of

the investees that 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 investor’s returns. Group companies are recognised

from the date on which control is transferred to the

Company or its intermediate holding entities. They are

derecognised from the date that control ceases.

The Company applies the acquisition method to

account for acquired group companies, consistent

with the approach identiﬁed in the consolidated

ﬁnancial statements. Investments in group companies

are presented in accordance with the net asset value

method. When an acquisition of an investment in a group

company is achieved in stages, any previously held

equity interest is remeasured to fair value on the date of

acquisition. The measurement against the book value is

accounted for in the statement of proﬁt or loss.

The Company was incorporated as a limited liability

Company under the laws of The Netherlands on 13

August 1975 and has its statutory seat in Amsterdam.

The Company is publicly owned. The principal activity

of the Company is to act as holding company for retail

chains operating mainly in Russia. The Company is

registered with the Amsterdam Chamber of Commerce

under number 33143036.

BASIS OF PRESENTATION

The Company’s ﬁnancial statements have been

prepared in accordance with accounting principles

generally accepted in the Netherlands, in accordance

with Part 9 of Book 2 of the Dutch Civil Code (section

362.8).

ACCOUNTING PRINCIPLES

Unless stated otherwise below, the accounting principles

applied for the Company accounts are similar to those

used in the IFRS Consolidated Financial Statements

(refer to Note 2.1 to the Consolidated Financial

Statements). The consolidated accounts of companies

publicly listed in the European Union must be prepared

in accordance with International Financial Reporting

Standards (IFRS) as issued by the IASB and adopted by

the European Commission.

When the Company ceases to have control over a

group company, any retained interest is remeasured to

its fair value, with the change in carrying amount to be

accounted for in the statement of proﬁt or loss. When

parts of investments in group companies are bought or

sold, and such transaction does not result in the loss of

control, the difference between the consideration paid

or received and the carrying amount of the net assets

acquired or sold, is directly recognised in equity.

When the Company’s share of losses in an investment

in a group company equals or exceeds its interest in the

investment (including separately presented goodwill

or any other unsecured non-current receivables being

part of the net investment), the Company does not

recognise any further losses, unless it has incurred legal

or constructive obligations or made payments on behalf

of the investment. In such case the Company recognises

a provision.

AMOUNTS DUE FROM GROUP COMPANIES

Amounts due from group companies are stated initially

at fair value and subsequently at amortised cost.

Amortised cost is determined using the effective interest

rate.

To avoid the difference between equity in the

Consolidated and the Company’s Financial Statements

any expected credit losses on intercompany receivables

recognised in the Company’s statement of Proﬁt or

Loss are eliminated (reversed) through the respective

intercompany receivable account.

FINANCIAL GUARANTEE

At initial recognition the ﬁnancial guarantees contracts

are measured at the fair value.

On subsequent measurement ﬁnancial guarantees

contracts are measured at the ‘higher of’: The expected

credit losses allowance as deﬁned above, and the

amount initially recognised (i.e. fair value) less any

cumulative amount of income amortisation recognised.

For intercompany ﬁnancial guarantees issued by the

Company, the expected default is not signiﬁcant and

therefore the ﬁnancial guarantees are not recognised.

SHAREHOLDERS’ EQUITY

Issued and paid-up share capital, which is denominated

in Euro, is restated into Russian Rouble (“RUB”) at the

ofﬁcial exchange rate of the Central Bank of the Russian

Federation as at reporting date in accordance with

section 2:373.5 of the Dutch Civil Code. The difference is

settled in the translation reserve.

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

253

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Financial ﬁxed assets

The list of signiﬁcant group companies was disclosed in the consolidated ﬁnancial statements

(please refer to Note 6 of the consolidated ﬁnancial statements).

31DECEMBER 2021 31DECEMBER 2020

a. Movements in the interests in group companies have been as follows

Opening balance 114,141 183,481

Acquisitions / capital contribution 9,002 100

Deinvestment of Group company (404) (199)

Change in equity of a subsidiary as part of common control transaction (6,583) −

Change in equity of a subsidiary in the course of merge with parent 18,824 −

Change in equity of a subsidiary due to dividend distributions (104,301) (97,913)

Proﬁt from group companies for the year 44,275 28,672

Closing balance 74,954 114,141

b. Movements in the loans to group companies were as follows

Opening balance 11,090 21,586

Additions 287 9,619

Settlement / repayment (395) (20,154)

Offset as a part of merge with subsidiary

(10,404) −

Foreign exchange differences (16) 39

Closing balance 562 11,090

Non-current ﬁnancial assets 75,516 125,231

TOTAL FINANCIAL FIXED ASSETS

75,516 125,231

* In October 2021 the Company merge with its subsidiary Perekrestok Holdings B.V.

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

254

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Financial ﬁxed assets

31DECEMBER 2021

CARRYING

VALUE

INTEREST

RATE, % P.A.

MATURITY

DATE

Borrowing group company

RUBloans to group companies 105 7% December 2024

RUBloans to group companies 283 8.5% December 2024

RUBloans to group companies 1 10.50% December 2023

RUBloans to group companies 173 10.50% December 2024

TOTAL LOANS TO GROUP COMPANIES

562

31DECEMBER 2020

CARRYING

VALUE

INTEREST RATE,

% P.A.

MATURITY

DATE

Borrowing group company

RUBloans to group companies 10,654 10.50% December 2022

RUBloans to group companies 105 6.50% December 2024

USD loans to group companies 203 11% December 2022

EUR loans to group companies 18 11% December 2022

EUR loans to group companies 110 10% December 2022

TOTAL LOANS TO GROUP COMPANIES

11,090

The total amount of loans provided to group companies was RUB562 (2020: RUB11,090)

and it approximated the fair value. The loans have not been secured.

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

255

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Shareholders’

equity

CAPITAL

PREMIUM

SHAREBASED

PAYMENT

(EQUITY)

RETAINED

EARNINGS

UNDISTRIBUTED

PROFIT FOR

THE YEAR

TRANS

LATION

RESERVE TOTAL

Balance as at 1 January 2020 4,708 46,150 105 48,336 19,507 (2,250) 116,556

Acquisition of treasury shares − (107) − − − − (107)

Value of employee services − − 60 − − − 60

Transfer − − − 19,507 (19,507) − −

Currency translation 1,448 − − − − (1,448) −

Transfer of vested and waived equity rights (Note 29) − 43 (61) − − − (18)

Proﬁt for the year − − − − 28,344 − 28,344

Dividends − − − (49,993) − − (49,993)

Balance as at 1 January 2021 6,156 46,086 104 17,850 28,344 (3,698) 94,842

Value of employee services − − 89 − − − 89

Transfer − − − 28,344 (28,344) − −

Currency translation (449) − − − − 449 −

Transfer of vested and waived equity rights (Note 29) − 41 (75) − − − (34)

Proﬁt for the year − − − − 42,738 − 42,738

Dividends − − − (46,194) (3,812) − (50,006)

Balance as at 31December 2021 5,707 46,127 118  — 38,926 (3,249) 87,629

* Share capital translated at the year-end exchange rate EUR / RUBof 84.0695 (2020: 90.6824)

As at 31 December 2021 total equity included the

reserve for capitalised IT development costs in the

amount of RUB 26,122 (31 December 2020: RUB 17,116).

As at 31 December 2021 equity available for distribution

of dividends to shareholders comprised RUB 56,151 (31

December 2020: RUB 71,466).

Share capital issued

As at 31 December 2021 the Company had 190,000,000

authorised ordinary shares (31 December 2019:

190,000,000) of which 67,888,696 ordinary shares were

outstanding (31 December 2020: 67,882,444) and 4,521

ordinary shares held as treasury stock (31 December

2020: 10,774). The nominal value of each ordinary share

is EUR 1.

Statutory proﬁt appropriation

On 12 May 2021, in addition to interim dividend RUB

19,997 (RUB 294.58 per share) that was declared and

paid in 2020, the General Meeting of Shareholders

approved the dividend for 2020 in the amount of RUB

30,006 (RUB 441.99 per share). The total amount of

dividend for the full year 2020 was RUB 49,997 (RUB

736.52 per share).

On 25 November 2021, the Company announced the

interim dividend for 2021 in the amount of RUB 20,000

(RUB 294.60 per share), which was paid to shareholders

in December 2021.

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

256

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Loans from group

companies

NONCURRENT

31DECEMBER

2021

INTEREST RATE,

% P.A.

FINAL

MATURITY DATE

RUBloans to group companies 1,829 6.5% December 2023

TOTAL

1,829

NONCURRENT

31DECEMBER

2021

INTEREST RATE,

% P.A.

FINAL

MATURITY DATE

RUBloans from group companies

135 6.5% December 2022

RUBloans from group companies 311 4% December 2022

TOTAL

446

NONCURRENT

31DECEMBER

2020

INTEREST RATE,

% P.A.

FINAL

MATURITY DATE

RUBloans from group companies

1,175 6% December 2022

TOTAL

1,175

* During 2021 the Company partly repaid the loan, interest rate was increased from 6% to 6.5%.

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

257

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Share-based

payments

X5 Retail Group N.V. operates equity settled share-based

compensation plan in the form of its Restricted Stock

Unit Plan.

Members of the Supervisory Board receive an annual

award of Restricted Stock Units (RSUs). For the annual

award of RSU’s for members of the Supervisory Board,

please refer to Note 28 in the consolidated ﬁnancial

statements, which are deemed incorporated and

repeated herein by reference.

The receivable or expense is accounted for at the fair

value determined in accordance with the policy on

share-based payments as included in the consolidated

ﬁnancial statements, including the related liability for

cash settled plans or as equity increase for equity

settled plans (Note 29).

The following is included in the Company’s accounts for

the Restricted Stock Unit Plan:

2021 2020

Share-based payment reserve

as at 31December

118 104

Expenses for the year ended

31December

89 60

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

258

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

General and

administrative

expenses

2021 2020

Other expenses 702 659

Audit expenses 26 26

RSU 89 60

TOTAL

817 745

Total fees as referred to in section 2:382a Dutch Civil

Code, paid to audit ﬁrm Ernst & Young Accountants LLP

amounted to RUB 26 (2020: RUB26).

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

259

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Income tax

expense

2021 2020

Current tax on dividends

distributed by the Company’s

subsidiaries

3,784 1,272

Deferred income tax beneﬁt (1,654) (4,205)

Income tax charge / (beneﬁt)

forthe year

2,130 (2,933)

* During 2021 the Company received dividends of RUB 105,493

from Russian subsidiary (gross amount including current

tax on dividends distributed by the Group’s subsidiaries of

RUB5,305 (Note 30)). During 2020 the Company received

dividends of RUB101,728 from Russian subsidiary (gross

amount including current tax on dividends distributed by the

Group’s subsidiaries of RUB5,087 (Note 30)).

Theoretical and effective tax rates are reconciled as follows:

2021 2020

Gain / (loss) before taxation 593 (3,261)

Theoretical tax at the effective statutory rate

148 (815)

Tax effect of items which are not deductible or assessable for taxation purposes

Change in deferred tax liability associated with investments in subsidiaries (1,844) (3,636)

Deferred tax beneﬁt arising from the recovery of the deferred tax assets

unrecognised in previous periods

− (648)

Current tax on dividends distributed by the Group’s subsidiaries 3,784 1,272

Unrecognised tax loss carry forwards for the year − 759

Other non-deductible expense 54 135

Effect of change in tax rate on deferred taxes

(12) −

Income tax charge / (beneﬁt) for the year 2,130 (2,933)

** Proﬁt before taxation on operations in Netherlands is assessed based on the statutory rate of 25%. Starting from 2022 proﬁt before

taxation on operations in Netherlands is to be assessed based on the statutory rate of 25.8%.

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

260

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Income tax

expense

Deferred tax assets and liabilities and the deferred tax charge/(beneﬁt) in the company

statement of proﬁt or loss were attributable to the following items for the year ended

31December 2021:

1 JANUARY

2021

BALANCE

ACQUIRED IN THE

COURSE OF MERGE

WITH SUBSIDIARY

CREDITED /

(DEBITED) TO

PROFIT

AND LOSS

31

DECEMBER

2021

Tax effects of deductible temporary differences and tax loss carry forwards

Tax losses available for carry

forward

569 − (190) 379

Gross deferred tax assets 569 − (190) 379

Recognised deferred tax assets 569 − (190) 379

Tax effects of taxable temporary differences

Investments into subsidiary (395) (1,449) 1,844  —

Gross deferred tax liabilities (395) (1,449) 1,844  —

Recognised deferred tax

liabilities

(395) (1,449) 1,844 —

Deferred income tax

The Company estimated the temporary differences

related to unrecognised potential deferred tax assets in

respect of unused tax loss carry forwards of RUB2,604

(2020: RUB2,282) and unused tax credits of RUB4,996

(2020: RUB5,051).

At 31December 2021 temporary differences related to

unrecognised potential deferred tax assets and unused

tax credits had no time restrictions for carry forward.

Deferred tax assets, deferred tax liabilities and the deferred tax beneﬁt in the Company

statement of proﬁt or loss were attributable to the following items for the year ended

31December 2020:

1 JANUARY

2020

CREDITED /

(DEBITED) TO

PROFIT

AND LOSS

31

DECEMBER

2020

Tax effects of deductible temporary differences and tax loss carry forwards

Tax losses available for carry

forward

− 569 569

Gross deferred tax assets − 569 569

Recognised deferred tax assets − 569 569

Tax effects of taxable temporary differences

Investments into subsidiary (4,031) 3,636 (395)

Gross deferred tax liabilities (4,031) 3,636 (395)

Recognised deferred tax

liabilities

(4,031) 3,636 (395)

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

261

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Staff numbers

and employee

expenses

At 31December the number of persons (excluding

members of the Management board and the

Supervisory board) having an employment contract with

the Company is nine. For the remuneration of members

of the Management Board and the Supervisory Board,

please refer to Note 28 in the consolidated ﬁnancial

statements, which are deemed incorporated and

repeated herein by reference. Incurred wages, salaries

and related social security charges in relation to the

other employees comprise RUB46 (included former

employee) (2020: RUB33, included former employee).

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

262

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Contingent rights

and liabilities

31DECEMBER 2021 31DECEMBER 2020

Irrevocable offer to holders of X5 FINANSE LLC bonds 79,534 74,848

TOTAL

79,534 74,848

The guarantees issued mature as follows:

31DECEMBER 2021 31DECEMBER 2020

Not later than 1 year 59,129 8,967

Later than 1 year and no later than 5 years 20,405 65,881

TOTAL

79,534 74,848

Guarantees are irrevocable assurances that the Company will make payments in the event that another party cannot

meet its obligations. The Company had the following guarantees issued under obligations of its group companies:

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

263

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Related party

transactions

Please refer to Note 8 of the consolidated ﬁnancial

statements; all group companies are also considered

related parties. During 2020 and 2021 there were no

transactions with related parties outside the normal

course of business.

STATUTORY DIRECTOR’S COMPENSATION

The Company has a Management Board and a

Supervisory Board. The total remuneration of all Board

members as well as other key management personnel is

disclosed in Note 28 and Note 29 of the Consolidated

Financial Statements.

LOANS TO GROUP COMPANIES

For loans issued to and interest income from group

companies please refer to Note 38.

LOANS FROM GROUP COMPANIES

For loans received from and interest expenses to group

companies please refer to Note 40.

FINANCIAL STATEMENTS NOTES TO THE COMPANY FINANCIAL STATEMENTS

264

NOTES TO THE COMPANY

FINANCIAL STATEMENTS

for the year ended 31December 2021

(expressed in millions of Russian Roubles,

unless otherwise stated)

Subsequent events

for the company

Since late February 2022 a number of countries

(including the US, UK and EU) imposed new sanctions

against certain entities and individuals in Russia as a

result of the ofﬁcial recognition of the Donetsk People

Republic and Lugansk People Republic by the Russian

Federation. Announcements of potential additional

sanctions have been made following military operations

initiated on 24 February 2022. Such sanctions can

Amsterdam, 19 May 2022

Management Board:

Frank Lhoёst

Igor Shekhterman

Quinten Peer

directly impact the sanctioned entities and individuals,

and entities under their control. The Company and

its subsidiaries are not subject to any sanctions or

restrictions at the moment, but is likely to encounter

challenges due to sanctions on ﬁnancial system and

certain imports into Russia. For the management

considerations of the potential risks arisen from recent

geopolitical changes please refer to the section “How

we manage risk” of the Annual report.

Supervisory Board:

Peter Demchenkov

Marat Atnashev

Nadia Shouraboura

Alexander Tynkovan