Strategic report
|

ANNUAL
REPORT
2021

UNAUDITED.
ESEF reporting should not be considered as the financial statements

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.

Overview

About this report

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.

Our approach, values and goals

Approach

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.

Values

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.

What does this
mean in practice?

  • Respect

    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.

    • 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
  • Customer-oriented
    approach

    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.

    • 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
  • Honesty and
    integrity

    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.

    • We abide by our agreements
    • We give our co-workers information in full
    • We have zero tolerance for corruption
  • Desire for
    achievement

    When we see new opportunities and new growth points in everything we do. When we derive satisfaction from bold, ambitious goals.

    • 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

Sustainability goals

X5 Group’s four key UN SDGs are Zero Hunger, Good Health and Well-being, Decent Work and Economic Growth, and Responsible Consumption and Production. In addition, we have determined secondary goals that our business contributes to: Gender Equality, Affordable and Clean Energy, Reduced Inequalities, Sustainable Cities and Communities, Climate Action, Life Below Water and Life on Land.

The larger boxes indicate
our primary goals;
the smaller boxes —
our secondary goals

With these key areas in mind, the Supervisory Board has approved a detailed set of targets for 2023 and the business processes needed to achieve them, as well as a set of ambitious «30×30» goals that we aim to reach by 2030.

  • Planet

    • 30 %

      Reduction in GHG emissions (Scope 1 + Scope 2)

    • 30 %

      Share of renewable energy used in X5 operations

    • 30 %

      Reduction in ratio of waste generated to retail sales

  • Communities

    • 30 %

      Increase in the number of families receiving Basket of Kindness support every year

  • Health

    • Promote responsible programmes and principles across the supply chainamong suppliers

    • Expansion of healthy lifestyle assortment

  • Employees

    • # 1

      Employer in ranking of Russian food retailers

    • Organisation of a healthy and safe workplace for all employees

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.

2021 financial and operating highlights

  • 7.3 %

    EBITDA margin

    pre-IFRS 16

  • 47.9 RUB
    BLN

    Digital business sales

    +140% y‑o‑y

  • +5.1 %

    Like-for-like sales

    y‑o‑y

  • 26.8 MLN

    Digital services MAUs

    +78% y‑o‑y

  • 1.67×

    Net debt/EBITDA

    pre-IFRS 16 as of
    31 December 2021

  • 27.0 MLN

    Parcels delivered by 5Post

    4× growth y‑o‑y

+11.5% y‑o‑y

2,205 RUB
BLN

Revenue

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 12.7% (12.6% in 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.

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

Operational
and Financial highlights

2021 operational and financial performance overview

Operational highlights

14.3% CAGR 2017–2021

Net retail sales, RUB bln

11.3% CAGR 2017–2021

Selling space, ths sqm

12.1% CAGR 2017–2021

Number of stores
Number of orders in online businesses

Financial highlights (pre-IFRS 16)

14.2% CAGR 2017–2021

Revenue, RUB bln

15.7% CAGR 2017–2021

  • Gross profit
  • Gross profit margin
Gross profit, RUB bln

13.7% CAGR 2017–2021

  • EBITDA
  • EBITDA margin
EBITDA, RUB bln

11.5% CAGR 2017–2021

  • Net profit
  • Net profit margin
Net profit, RUB bln

Chairman’s statement

Dear stakeholders,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.

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 to 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 of everything we do, and our ability to adapt quickly helped X5 to continue to perform in line with its strategic targets in 2021.

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.

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

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.

96%

Share of centralised deliveries to stores from Company-operated distribution centres in 2021

Suppliers

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.

  • 7,083

    Suppliers

  • 30%

    Share of top 30 suppliers in revenue

Corporate Centre

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.

Media platform

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.

Supply chain infrastructure

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.

  • 4 direct
    import hubs
  • 406.8 stores
    per DC
  • 4,654 Company-owned trucks
  • 6.36 sqm selling space per 1 sqm of DC space
  • 47 distribution centres to support offline stores
  • 0.23 Company-owned trucks per store
  • 36 dark stores to support digital businesses

Offline businesses

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.

  • 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

Digital businesses

  • Express delivery

    • 50

      Regions

    • 30

      Darkstores

  • Vprok.ru
    Perekrestok

    • 74

      Regions

    • 6

      Darkstores

    • 835

      Light trucks

    • 3.3 MLN

      MAU

  • 5Post

    • 66

      Regions

    • 5.7 THS

      Parcel lockers

    • 16.9 THS

      Pickup points

    • 27 MLN

      Orders fulfilled

  • Mnogo
    Lososya

    • 50

      Dark kitchens
      (including two franchisees)

Digital businesses

  • Express delivery

    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.

    4×

    Revenue increase in 2021 y‑o‑y
  • Vprok.ru Perekrestok

    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.

    41.5 %

    Revenue increase in 2021 y‑o‑y
  • 5Post delivery service

    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%.

    4×

    Revenue increase in 2021 y‑o‑y
  • Mnogo Lososya

    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.

    +31.9 %

    Net sales increase in Q4 2021 q-o-q

Our formats

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.

  • Pyaterochka

    • 17,972

      Number of stores +7.6% y‑o‑y

    • 7,048 THS
      SQM

      Selling space +7.7% y‑o‑y

    • 1,794 RUB
      BLN

      Net retail sales +12.3% y‑o‑y

    • 81.7 %

      Share of X5 Group’s net retail sales

    Pyaterochka 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.

  • Perekrestok

    • 990

      Number of stores +6.1% y‑o‑y

    • 1,099 THS
      SQM

      Selling space +8.4% y‑o‑y

    • 349 RUB
      BLN

      Net retail sales +13.4% y‑o‑y

    • 15.9 %

      Share of X5 Group’s net retail sales

    Perekrestok 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.

  • Chizhik

    • 72

      Number of stores 18× growth y‑o‑y

    • 20 THS
      SQM

      Selling space 21× growth y‑o‑y

    • 2.9 RUB
      BLN

      Net retail sales 59× growth y‑o‑y

    • 0.1 %

      Share of X5 Group’s net retail sales

    Chizhik 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.

  • Karusel

    • 33

      Number of stores -41.1%

    • 128 THS
      SQM

      Selling space -42.3%

    • 31.7 RUB
      BLN

      Net retail sales -43.0%

    • 1.4 %

      Share of X5 Group’s net retail sales

    Karusel, 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.

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.

  • 5Post

    • 22.6 THS

      Pickup points and parcel lockers

    • 2.6 RUB
      BLN

      Revenue 4× growth y‑o‑y

    • 66

      Regions of Russia

    • 27.0 THS

      Orders delivered in 2021

    5Post 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.

  • Express delivery

    • 1,611

      Number of stores

    • 25.7 RUB
      BLN

      Revenue 4× growth y‑o‑y

    • 19.2 MLN

      Orders delivered in 2021

    • UP TO 114 THS

      Number of orders on peak days

    Express delivery 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 31 December 2021, express delivery services were available from 1,611 Perekrestok, Pyaterochka and Karusel stores in 50 regions across Russia. The service handled a total of 19.2 million orders during FY 2021, with up to 114 thousand orders on peak days.

  • Vprok.ru Perekrestok

    • 5

      Large dark stores

    • 18.7 RUB
      BLN

      Revenue +41.5% y‑o‑y

    • 4.7 MLN

      Orders delivered in 2021

    • > 22 THS

      Number of orders on peak days

    Vprok.ru Perekrestok 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 five large dark stores and operations in three cities as of 31 December 2021, Vprok.ru Perekrestok handled 4.7 million orders in FY 2021, with more than 22 thousand orders being delivered on peak days.

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.

X5’s position in a changing market

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.

  • #1 player with 12.7% market share in FY 2021
  • Digital business revenue grew by 140% year-on-year
  • 62.6 million active loyalty card users

Russian food retail market development

  • Proximity stores
  • Supermarkets
  • Hard discounters
  • E-grocery
  • Specialists
  • Other (e.g., hypermarkets, traditional trade)

Food market trends in 2021

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.

Top 10 Russian 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% 2.4%
5. Svetofor 1.8% 1.3%
6. Auchan 1.4% 1.4%
7. METRO 1.1% 1.2%
8. O’Key 1.1% 1.1%
9. Vkusvill 1.0% 0.8%
10. Monetka 0.8% 0.8%
TOTAL TOP 10 37.5% 36.5%

Top 10 Russian online food retailers,
% market share

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 17.9% 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: Infoline

X5 vs Russian food retail in top-line growth

  • X5 y‑o‑y revenue growth
  • Top 10
  • Market
  • Food CPI

Source: Rosstat, Infoline, X5 analysis

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

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.

Share of top 5 grocery retailers globally in 2021, %

The main driver of growth for Russian food retail businesses has shifted from rapid expansion to consolidation.

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.

Source: Euromonitor, Infoline (for Russia only)

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.

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.

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

Market segments

  • Modern retail
  • Traditional retail

Source: Euromonitor, Infoline for Russia

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.

Overall, X5’s current portfolio of is present in what accounts for over 60% of the market today.

Russian grocery retail market dynamics, %

  • Traditional trade
  • Regional modern trade
  • Federal chains

Source: Infoline

E-grocery market development, %

  • Express delivery
  • Delivery services
  • Online marketplaces
  • Online hypermarkets
  • Other channels

Source: Infoline

Online grocery sales penetration globally, %

Source: Euromonitor, Infoline for Russia

Legislative changes

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
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
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
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
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
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

CEO statement

Dear stakeholders, 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.

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.

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.

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.

Delivering on strategic targets

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.

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.

Market environment

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.

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.

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.

Igor Shekhterman X5 Chief Executive Officer, Chairman
and Member of the Management Board

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.

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.

Vladimir Salakhutdinov Director of Strategy and Business Development

Strategic goals to 2023

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.

TODAY 2021

2023 TARGETS

Leadership in the food market

  • 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

  • 272 RUB
    THS/SQM

    Sales density LTM
    +3.5% y‑o‑y

Leader in grocery 15% market share

Leadership in digitalisation

  • 18 RUB
    BLN

    EBITDA impact from digitalisation projects

  • 26.8 MLN

    MAUs
    +78% y‑o‑y

Industry leader in digitalisation

Commitment to shareholders

  • 17.1 %

    Adjusted ROIC (pre-IFRS 16)

  • 7.3 %

    EBITDA margin (pre-IFRS 16)

  • 31.8 %

    3Y TSR in RUB

Strong return on equity to shareholders

Care for the community

  • Published first sustainability report under GRI Standards
  • Established Sustainable Development and Innovation Committee at Supervisory
    Board level

ESG agenda is a natural part of X5’s DNA

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:

  • 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.
  • Growing competition in offline segment triggered by a decline in disposable household incomes

    • CVP rationalisation across our formats

    • Rollout of a hard discounter

  • Increasing cost of resources

    • 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

  • Growing ecosystem footprint in food

    • Developing digital infrastructure around customer journey to support core business

    • Food.ru media platform
    • X5 Bank financial service
    • Dark kitchen service
    • Single ID and subscription service
    • Online delivery platform

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.

  • Planning

  • Search / selection

  • Realisation

  • Related services

Media platform
Food.ru

Online hypermarket
Vprok.ru Perekrestok

Pyaterochka

X5 Bank

Express delivery from
X5 retail chains

Perekrestok

Subscription
service

Chizhik

Mnogo Lososya dark kitchens

Last-mile e-commerce platform

  • X5 core bisinesses retail chains and ready-to-eat food
  • Enablers
  • Digital bisinesses

X5 digital services impact

X5 business

Customer acquisition

Increasing customer retention

Revenue

X5 express delivery

Vprok.ru Perekrestok

5Post

Mnogo Lososya

X5 Media

X5 Bank

Strategic progress

We made good progress towards our 2023 goals during 2021.

Core principles and 2023 goals 2021 results Next steps
Leadership in food market
>15

%

Share of grocery market

  • 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
Leadership in digitalisation
>38

MLN

MAUs in X5 digital channels and mobile apps

>5

%

Share of digital businesses in revenue in 2023

  • 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
  • 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
Commitment to shareholdersGrowing shareholder value
  • 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
  • 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

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.

Number of stores

as of 31 December

Central1 North-
Western2
Central and
North-Western
Volga3 Ural4 Southern5 North
Caucasus6
Siberian7 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 40 9,187

Net retail sales by federal district in 2021, %

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

Rapid rollout of digital businesses

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.

X5 today

Multi-format presence in 7 federal districts

17,972

Pyaterochka stores

30

Pyaterochka dark stores

990

Perekrestok supermarkets

72

Chizhik hard discounters

33

Karusel hypermarkets
transformation is ongoing

5

Large Vprok.ru Perekrestok dark stores
+ 1 small dark store

50

Mnogo Lososya dark kitchens
(incl. 2 franchisees)

19,121

Total stores in 2021

  • 5 Vprok.ru Perekrestok large dark stores covering 8 regions

  • 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

Number of stores and DCs

Format North
Caucasus FD
Southern
FD
Central FD Volga FD North-
Western FD
Ural FD Siberian FD
Pyaterochka 378 1,890 6,489 4,745 1,838 1,596 1,036
Perekrestok 9 60 552 142 151 76
Karusel 1 1 21 7 3
Chizhik 72
Number of DCs 5 16 9 6 9 2
Number of dark stores 4 1 1
Number of dark kitchens 43 5
Number of pickup points / parcel lockers 353 1,801 6,703 4,677 1,899 1,575 330

Leadership team

Top management team gender breakdown

  • women
  • men

Personnel development

  • IMD

    Top management
    Middle management

    37

    Participants

  • Skolkovo

    Middle management

    56

    Participants

  • X5 Digital
    Academy

    Top management
    Middle management

    1,693

    Participants

Issues addressed

  • Increased multi-format interaction

  • Retention of competent staff

  • Improvement of management and professional skills

  • Providing the knowledge and skills needed for the digital transformation

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.

13

Members on the leadership team

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).

Vsevolod Starukhin

Chief Financial Officer,
Member of the Executive Board

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.

  • Vladislav Kurbatov

    General Director of Pyaterochka,
    Member of the Executive Board

    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.

  • Vladimir Sadovin

    Acting General Director
    of Perekrestok

    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.

  • Ilya Yakubson

    Director of Chizhik

    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.

  • Vladimir Salakhutdinov

    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.

  • Anton Mironenkov

    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.

  • Tatiana Krasnoperova

    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.

  • Elena Konnova

    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.

  • Ekaterina Lobacheva

    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.

  • Dmitry Agureev

    Head of Corporate Security

    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 Volikova

    Director of Business Support,
    Member of the Executive Board

    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.

  • Tatiana Rakhmanova

    Managing Director of X5 Ready Food

    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.

Pyaterochka

Pyaterochka is Russia’s largest food retailer by revenue and number of stores. Today the proximity store format operates 17,972 stores in 67 regions of the Russian Federation. A typical Pyaterochka store has 392 square metres of selling space and an assortment of over 4,000 SKUs.

In addition to ongoing refurbishments to update our offline stores to a new concept (25% of the store base as of 31 December 2021), Pyaterochka’s express delivery online business handled 10.7 million orders in 2021, with GMV of RUB 16.1 billion for the year.

as of 31 December 2021

17,972

Pyaterochka stores

in

67

Regions of the Russian Federation

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

2021 performance highlights

  • Customer metrics

    • 5.0 BLN

      Customer visits
      +7.9% 2020/21

    • 409 RUB

      Average ticket
      +4.0% 2020/21

    • 47.1 MLN

      Active loyalty card users
      +5.5% 2020/21

    • 69 %

      Loyalty card penetration in traffic

    11 NPS

    +6.3 2020/21

  • Operational metrics

    • 17,972

      Stores in operation
      +7.6% 2020/21

    • 7,048 THS
      SQM

      Selling space
      +7.7% 2020/21

    • 992

      Stores refurbished

    • 4,501

      Stores operating under new concept
      25% of store portfolio

    5.6 %

    LFL sales growth

  • Financial metrics

    • 1,795 RUB
      BLN

      Revenue
      +12.3% 2020/21

    • 8.1 %

      EBITDA margin
      (pre-IFRS 16)

2021 strategic highlights

  • Increase customer trust and loyalty

    NPS level improved by 6.3 points in 2021

    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.

  • 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
  • Roll out new concept and adapt CVP

    • 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
  • Further improve operational efficiency and shrinkage

    • 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
  • Leverage big data tools and omnichannel capabilities

    • 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

Key operating results

CAGR 2021 2020 2019 2018 2017
Number of stores, eop 12.5% 17,972 16,709 15,354 13,522 11,225
Selling space ’000 sqm, eop 12.3% 7,048 6,542 5,975 5,291 4,427
Net retail sales, RUB bln 15.7% 1,794 1,597 1,367 1,198 1,001
Customer visits, mln 11.4% 5,029 4,662 4,460 3,913 3,267

Net sales by region, %

  • Central FD
  • Volga FD
  • North-Western FD
  • Ural FD
  • Southern FD
  • Siberian FD
  • North Caucasus 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

Adaptation and rollout of new CVP

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

+ 6.3

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

Private label share in sales, %

Ready-to-eat share in sales, %

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:

Shrinkage

  • Shrinkage

    • 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
  • Logistics

    • Continued development of multilayer logistics infrastructure
    • Focus on improving efficiency of transportation between our own DCs
  • Lean Store

    • 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
  • Rent

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

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.

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 under 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.

as of 31 December 2021

990

Perekrestok stores

1,110 SQM

Average selling space

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

2021 performance highlights

  • Customer metrics

    • 636.5 MLN

      Customer visits
      +13.2% 2020/21

    • 626 RUB

      Average ticket
      +0.2% 2020/21

    • 14.4 MLN

      Active loyalty card users
      +4.7% 2020/21

    • 76 %

      Loyalty card penetration in traffic

    31 NPS

    +3.6 2020/21

  • Operational metrics

    • 990

      Stores in operation
      +6.1% 2020/21

    • 1,099 THS
      SQM

      Selling space
      +8.4% 2020/21

    • 45

      Stores refurbished

    • 223

      Stores operating under new concept
      23% of store portfolio

    3.8 %

    LFL sales growth

  • Financial metrics

    • 351.1 RUB
      BLN

      Revenue
      +13.5% 2020/21

    • 6.9 %

      EBITDA margin
      (pre-IFRS 16)

2021 strategic highlights

  • Continuous adaptation of the CVP

    New supermarket format rollout continues

    • 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
  • Customer-centric business: NPS growth and feedback

    • 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
  • Private label development

    • 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
  • Further improve operational efficiency and shrinkage

    • 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
  • Leverage big data tools and omnichannel capabilities

    Online businesses: 655 Perekrestok supermarkets offer express delivery, with Perekrestok app MAUs reaching 3.3 million

Key operating results

CAGR 2021 2020 2019 2018 2017
Number of stores, eop 11.6% 990 933 852 760 638
Selling space ’000 sqm, eop 14.6% 1 099 1 014 879 782 637
Net retail sales, RUB bln 16.9% 349 320 273 231 187
Customer visits, mln 11.8% 636 562 589 505 407

Perekrestok net retail sales by region, %

  • Central FD
  • Volga FD
  • North-Western FD
  • Southern FD
  • Ural FD
  • North Caucasus 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

Updating the value proposition and concept of supermarkets

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.

NPS 31

+ 3.6

points y‑o‑y

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.

Ready-to-eat share in sales, %

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.

Private label share in sales, %

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.

Operational efficiency

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.

  • Regional
    model

    • Develop and test clustered pricing policies
    • Rollout of a regional pilot store
  • Logistics

    • Further development of regional logistics
    • Synergies with Pyaterochka for remote regions
    • Further improve staff productivity
  • Personnel

    • 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
  • Inventory

    • 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

Labour productivity

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.

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.

32 RUB
BLN

Net retail sales

36 MLN

Customer visits

as of 31 December 2021

33

Stores in operation

as of 31 December 2021

128 THS
SQM

Selling space

Key operating results

2021 2020 2019 2018 2017
Number of stores, eop 33 56 91 94 93
Selling space ’000 sqm, eop 128 222 364 382 385
Net retail sales, RUB bln 32 56 87 91 89
Customer visits, mln 36 68 121 132 135

Karusel net retail sales by region, %

  • Central FD
  • Volga FD
  • North-Western FD
  • Southern FD
  • North Caucasus FD
  • Ural FD

2021 highlights

  • 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.

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.

UP TO

25 %

Cost savings for customers in Chizhik stores

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

  • 2021 performance highlights

    • 2.9 RUB
      BLN

      Net retail sales

    • 20 THS
      SQM

      Selling space

    • 5.9 MLN

      Customer visits

    • 568 RUB

      Average ticket

    72

    Stores in operation

  • 2021 strategic highlights

    • 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
  • Key operating results

    2021 2020
    Number of stores, eop 72 4
    Selling space ’000 sqm, eop 20 1
    Net retail sales, RUB bln 2.9 0.05
    Customer visits, mln 5.9 0.01

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.
  • Price

    • EDLP positioning
    • Savings of up to 20%-25% compared with peers
  • Convenience

    • Close proximity to households
    • Narrow assortment — saving time on product choice
  • Assortment

    • Basic assortment covering 50%-60% of customer needs
    • High-quality of private labels in line with top brands
  • Atmosphere

    • Young, friendly in-store personnel
    • Modern, simple stores
  • Social
    responsibility

    • Affordable prices
    • Taking care of families by saving time and money (food budget)

Operational efficiency

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.

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.

Our aim is to make private labels
market leaders

  • Product

    • Market-leader quality
    • Customer tests
    • Proper ingredients
  • Packaging

    • Development of packaging
    • Development of SRP boxes
    • Working with mix boxes
  • Price

    • EDLP strategy
    • 20%-30% gap to brand names
    • 10%-15% gap to private labels

Private label

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.

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

Express delivery

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.

2021 highlights

  • 25.7 rub
    bln

    Net sales

  • 1,533 rub

    Average ticket

  • 19.2 mln

    Total orders

  • 69.8 ths

    Average number of daily orders

    in Q4 2021

Express delivery service was available from :

1,611

Stores
in

50

Regions
  • 923 Pyaterochka stores
  • 30 Pyaterochka dark stores
  • 655 Perekrestok stores
  • 3 Karusel stores

Express delivery order dynamics, ths

Total

Pyaterochka

Perekrestok

Okolo

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.

Plans for 2022

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.

Vprok.ru Perekrestok

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.

2021 highlights

  • 18.7 rub
    bln

    Revenue

    +41.5% y‑o‑y

  • 5

    Large dark stores

    and 1 mini-dark store

  • 74

    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

  • < 8 rub
    bln

    Total capex

    since 2017

Business model

  • Order made by customer via X5 proprietary app or website

  • Order received at the nearest X5 dark store

  • Order assembled at X5 dark store

  • Order picked up by X5 courier for delivery

  • Order
    delivered

Same-day / next day delivery

Net sales, RUB mln

Number of orders and average ticket

Number of orders, ths

Average ticket, RUB

  • Online brand Vprok.ru has become well known in market
  • Proprietary customer interface: mobile app or website
  • Assortment expanded to c. 75,000 SKUs and continues to grow
  • X5.ID integration for all stages of customer journey, from Food.ru media platform to ordering, loyalty points and payment
  • Own logistics infrastructure and in-house last-mile delivery enhanced by 5Post platform for additional regional reach
  • Leverages X5’s purchasing power and supplier terms
  • Wide addressable market in cities of presence
  • Control over assortment, pricing, promotions and supply chain supports high NPS

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.

74

Regions of work

  • 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.

  • 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.

Plan for 2022

Review of development strategy in light of potential partnership to support further rapid expansion of the business

2022

5Post

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.

Keys to success

  • 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

2021 highlights

  • 2.6 rub
    bln

    Revenue

  • TOP 5

    Ranked in top five delivery service in Russia

  • ~27 mln

    Parcels delivered

  • 181

    Commercial partners

  • 31

    Sorting facilities

  • Positive
    EBITDA
    reached in  2021

22,635

Pickup points,
including 5, 692 parcel lockers

Business model

  • Parcel
    acceptance
    for delivery from marketplaces—domestic/cross-border

  • 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

Keys to success: X5’s logistics platform for e-commerce

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.

Key partners in 2021

5POST competitive advantages

  • 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

Strategy

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.

Our goal

To become one of the leaders in the e-commerce delivery market

Strategic initiatives and plans for 2022—2023

  • Bulk integrations with partners (over 100 new partners per month) to achieve economies of scale

  • Expand beyond X5 properties to maximise network utilisation

  • Maximise operating efficiency by achieving best-in-industry efficiency by CPO (cost per order)

  • Increase marketplace-independent traffic

  • Leverage best-in-class efficiency to gain market share from competitors like Russian Post, SDEK, DPD, PickPoint, Boxberry

  • Add new services, e.g. return or exchange of goods, deferred payment, fitting rooms, etc.

  • Continue to open new sorting centres, with the goal of achieving 90% coverage of the store network by year-end 2022

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.

21.9 mln

MAUs

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.

Content

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

Product (functionality):

  • 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

Plans for 2022

We aim to continue to expand the content while further integrating Food.ru into our core businesses in the year ahead.

E-grocery

Launch of order delivery from X5 Retail chains

Product
(functionality)

  • Ability to order any product from X5 catalogue, including recipes
  • Personalisation of content
  • Integration of the shopping list, meal plan and calorie calculator

Content

  • 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

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.

Formats

  • Dark kitchen

  • Mnogo Lososya franchises

    in checkout areas at Pyaterochka and Perekrestok stores

  • Cafe points

    in Perekrestok stores

2021 highlights

  • 999 rub
    mln

    Revenue

    excl. intra-Group sales

  • 50

    Dark kitchens in operation

    incl. two franchisees

  • 744 ths

    Orders

  • 1,640 rub

    Average ticket

A dark kitchen produces:

200+

Ready-to-eat SKUs under the following brands:

  1. 1

    Mnogo Lososya

  2. 2

    Ten Ideal Pizzas

  3. 3

    Rolls No. 1

Key highlights of 2021

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.

Plans for 2022 and beyond

  • Expand operations to increase the number of dark kitchens from 50 to 60–65 in 2022

  • Launch offering in Murmansk; other large cities being considered

  • Focus on development of own sales channel and positive brand recognition

  • Identify and test additional brands that can leverage X5’s purchasing power

  • Be on track to reach positive EBITDA within three years

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 today

  • 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

Perekrestok card

Pyaterochka card

Financial review

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.

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.

Vsevolod Starukhin

Chief Financial Officer

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.

Key highlights

  • Revenue

    2,205 rub
    bln

    11.5% year-on-year increase

  • Gross profit margin

    25.5 %

    45 b.p. year-on-year increase

    IFRS 16

    25.1 %

    47 b.p. year-on-year increase

    pre-IFRS 16

  • Adjusted EBITDA margin

    12.3 %

    7 b.p. year-on-year decrease

    IFRS 16

    7.4 %

    7 b.p. year-on-year increase

    pre-IFRS 16

  • Capital expenditure

    97.9 rub
    bln

    8.9% year-on-year increase

  • Net debt/EBITDA

    3.16

    IFRS 16

    1.67

    pre-IFRS 16

  • Dividends

    20 rub
    bln

    46.8% of consolidated IFRS 16 net profit

    73.65 rub
    per  GDR

Capital expenditure structure (pre-IFRS 16), %

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.

Profit and loss statement: highlights

Russian roubles (RUB), millions 2021

IFRS 16

2020 % change,

y‑o‑y

2021 2020 % change,

y‑o‑y

pre-IFRS 16

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 50 59× 2,940 50 59×
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 7.4 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 7.3 (3) b.p.
Operating profit 117,572 105,717 11.2 84,359 76,785 9.9
Operating profit margin,

%

5.3 5.3 (1) b.p. 3.8 3.9 (6) 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.
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.

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.

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 48× 59×
X5 Group 2.9 7.9 11.2
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
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 21×
Mnogo Lososya 4,992 n/a
X5 Group 8,409,757 7,840,055 7.3

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 50 59×
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

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

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.

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

RUB mln 2021

IFRS 16

2020 % change,

y‑o‑y

2021 2020 % change,

y‑o‑y

pre-IFRS 16

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 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.

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.

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

RUB mln 2021 2020 2019 2018 2017 2016 2015
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

EBITDA and adjusted EBITDA

RUB mln 2021

IFRS 16

2020 % change,

y‑o‑y

2021 2020 % change,

y‑o‑y

pre-IFRS 16

Gross profit 561,317 494,620 13.5 553,363 487,223 13.6
Gross profit margin, % 25.5 25.0 45 б. п. 25.1 24.6 47 б. п.
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 б. п. 18.6 18.0 56 б. п.
Net impairment losses on financial assets (154) (251) (38.6) (154) (251) (38.6)
% of revenue 0.0 0.0 (1) b.p. 0.0 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 7.4 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) (0.0) 2 b.p. (0.0) (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 7.3 (3) b.p.

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 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.

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

IFRS 16

2020 % change,

y‑o‑y

2021 2020 % change,

y‑o‑y

pre-IFRS 16

Operating profit 117,572 105,717 11.2 84,359 76,785 9.9
Operating profit margin, % 5.3 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.

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.

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 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.

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).

Consolidated cash flow

RUB mln 2021

IFRS 16

2020 % change,

y‑o‑y

2021 2020 % change,

y‑o‑y

pre-IFRS 16

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
Short-term financial investments (50,000) n/m (50,000) n/m
Net cash used in financing activities (81,890) (73,805) 11.0 (17,280) (16,248) 6.4
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

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× 1.67× 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×

Information on alternative
performance measures

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.

EBITDA (including EBITDA margin)

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.

RUB mln 2021

IFRS 16

2020 2021 2020

pre-IFRS 16

Operating profit 117,572 105,717 84,359 76,785
Depreciation, amortisation and impairment 150,278 137,905 76,665 68,352
EBITDA 267,850 243,622 161,024 145,137
RUB mln 2021

IFRS 16

2020 2021 2020

pre-IFRS 16

Revenue 2,204,819 1,978,026 2,204,819 1,978,026
EBITDA 267,850 243,622 161,024 145,137
EBITDA margin, % 12.1 12.3 7.3 7.3

Adjusted EBITDA (including adjusted EBITDA margin)

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

IFRS 16

2020 2021 2020

pre-IFRS 16

EBITDA 267,850 243,622 161,024 145,137
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
Adj. EBITDA 271,023 244,501 164,197 146,016
RUB mln 2021

IFRS 16

2020 2021 2020

pre-IFRS 16

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 7.4

Adjusted net profit (including adjusted net profit margin)

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.

RUB mln 2021

IFRS 16

2020 2021 2020

pre-IFRS 16

Net profit 42,738 28,344 48,513 39,180
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
RUB mln 2021

IFRS 16

2020 2021 2020

pre-IFRS 16

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

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

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

IFRS 16

2020 2021 2020

pre-IFRS 16

SG&A 467,468 406,389 490,043 426,069
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
RUB mln 2021

IFRS 16

2020 2021 2020

pre-IFRS 16

Revenue 2,204,819 1,978,026 2,204,819 1,978,026
Adjusted SG&A 314,017 267,605 410,205 356,838
Adjusted SG&A expenses as % of revenue 14.2 13.5 18.6 18.0

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

IFRS 16

2020 2021 2020

pre-IFRS 16

Net cash used in investing activities 139,435 84,314 140,295 84,314
Adjustments:
Short-term financial investments (50,000) (50,000)
Adjusted net cash used in investing activities 89,435 84,314 90,295 84,314

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

IFRS 16

2020 2021 2020

pre-IFRS 16

FCF 88,027 75,246 23,417 17,689
Adjustments:
Investments in short-term financial instruments 50,000 50,000
Adjusted FCF 138,027 75,246 73,417 17,689

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.

2021

IFRS 16

2020 2021 2020

pre-IFRS 16

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%

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

IFRS 16

2020 2021 2020

pre-IFRS 16

NOPAT 82,724 65,611 60,215 50,797
Adjustments:
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%

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, 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

IFRS 16

31-Dec-20 31-Dec-21 31-Dec-20

pre-IFRS 16

Total debt, incl.: 294,338 261,947 294,338 261,947
Short-term borrowings 87,767 77,026 87,767 77,026
Long-term borrowings 206,571 184,921 206,571 184,921
Lease liabilities 577,363 548,501
Cash and cash equivalents 26,062 20,008 26,062 20,008
Net debt 845,639 790,440 268,276 241,939
EBITDA 267,850 243,622 161,024 145,137
Net debt/EBITDA 3.16× 3.24× 1.67× 1.67×

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

IFRS 16

31-Dec-20 31-Dec-21 31-Dec-20

pre-IFRS 16

Net debt 845,639 790,440 268,276 241,939
Adjustments:
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×

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
Revenue 2,204,819 1,978,026
Adjustments:
Revenue from wholesale operations and other services (10,335) (4,675)
Revenue from franchise services (7) (5)
Net retail sales 2,194,477 1,973,346

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
Less contribution from an increase in selling space 6.1 8.7
LFL 5.1 5.5

Pyaterochka Logistics

Logistics

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.

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

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

Operational efficiency gains

  • 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.

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

OWR, boxes/hour

  • Company average
  • 3 best DCs
  • +99%

    3 best DCs

    2015-2021

  • +113%

    company average

    2015-2021

DC throughput, boxes/m²

  • Company average
  • 3 best DCs
  • +49%

    3 best DCs

    2015-2021

  • +42%

    company average

    2015-2021

Process maturity

  • 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 Distribution Centre and Store Restocking project
  • Continue rollout of the Machine learning-based Regular Sales Forecasting

Achieving sustainability goals

  • 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

  • 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

  • Ran an awareness-raising session to reduce the risks of COVID-19 infection and offered on-site vaccination clinics at DCs

  • Donated 8,2