X5 Group’s 2022 Annual Report complies with UK and Russian Federation listing requirements, as well as the Dutch Corporate Governance Code. This report looks at our performance on a number of different aspects. It provides an analysis of our financial and operating performance, states our strategic goals and gives an overview of our ESG performance and priorities, which are discussed in greaterdetail in the 2022 Sustainability Report.
Report boundary and scope
This report covers the period from 1 January 2022 to 31 December 2022 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 and Chizhik hard discounter stores, as well as Krasny Yar and Slata, two chains in which X5 acquired a 70% stake in 2022. Our key digital businesses include express delivery and Vprok.ru, which operate under the X5 Digital business unit, as well as 5Post, Mnogo Lososya and Food.ru media platform. 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 our business performance. A glossary with explanations of how each APM is calculated, why we use it and how it can be reconciled to a statutory measure is provided Information on alternative performance measures.
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 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 matters 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, as well as feedback received directly from key stakeholders. X5’s sustainability strategy, which was developed in line with the United Nations Sustainable Development Goals (UN SDGs) and was approved in 2019, was also used to select 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 supplier relationships.
Supervisory Board approval
The Supervisory Board of X5 Group has confirmed 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 Supervisory Board approved the 2022 Annual Report for publication on 31 May 2023.
Our approach, values and goals
Approach
We are confident that X5 Group can create value for a wide range of stakeholders by continuing to grow 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, and in offering high-quality modern food retail services both online and offline.
We are the market leader by size, and we aim to use this to drive positive change, strengthening and adapting our offline food retail formats, introducing innovative technologies to power digital services, and promoting good practices such as implementing сompany-wide programmes to support local communities, creating sustainable packaging standards and increasing the use of renewable energy.
Our sustainability strategy is aligned with the UN SDGs that we have identified 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 this means 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.
What this means in practice
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-centric 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.
What this means in practice
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
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 this means in practice
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.
What this means in practice
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.
What this means in practice
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
The four core UN SDGs for X5 Group are Zero Hunger, Good Health and Well-being, Decent Work and Economic Growth, and Responsible Consumption and Production. On top of this, we have identified a number of 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
The larger boxes indicate our primary goals; the smaller boxes — our secondary goals
With these focus areas in mind, the Supervisory Board has approved a detailed set of targets for 2023, as well as a set of ambitious “30×30” goals that we aim to reach by 2030.
Planet
30 %
Reduction in GHG emissions (Scope1+Scope2) intensity per sqm of selling space compared with 2019
30 %
Share of renewable energy used in X5’s operations
30 %
Reduction in ratio of waste generated to retail sales compared with 2019
Communities
30 %
Increase in the number of families receiving Basket of Kindness support per year
Health
Promotion of responsible programmes and principles across the supply chain
Expansion of healthy lifestyle assortment
Employees
#1
Employer in ranking of Russian food retailers
Organisation of a healthy and safe workplace for all employees
2022 key highlights
+18.2% y-o-y
2,605 rub BLN
Revenue
We successfully weathered a turbulent market environment in 2022 thanks to our outstanding performance doubling down on the strengths of X5’s core business. X5 Group continues to succeed — even as competition increases from online and some niche players as well as new formats like hard discounters.
2022 financial and operating highlights
+2,202
Net new stores
+10.8%
Like-for-like sales
y-o-y
7.2%
EBITDA margin
pre-IFRS 16
70.4RUB BLN
Digital business sales
+46.6% y-o-y
1.02x
Net debt/EBITDA
pre-IFRS 16 as at 31 December 2022
35.9mln
Orders delivered by online businesses
+45.6%
2022 operating and financial performance overview
Operational highlights
14.2 %
CAGR 2018–2022
Net retail sales,RUB bln
9.0 %
CAGR 2018–2022
Selling space, ths sqm
10.3 %
CAGR 2018–2022
Number of stores
Number of orders in online businesses, ths
Financial highlights (pre-IFRS 16)
14.2 %
CAGR 2018–2022
Revenue,RUB bln
14.1 %
CAGR 2018–2022
Gross profit,RUB bln
14.8 %
CAGR 2018–2022
EBITDA,RUB bln
16.2 %
CAGR 2018–2022
Net profit,RUB bln
Business model
Our business model is built to unlock value for all stakeholders, from suppliers to the Corporate Centre, to our offline operations and digital businesses. In today’s highly volatile and challenging market, it is vital to secure an efficient and effective business model at all stages, and to maintain a constant focus on delivering the very best for consumers.
The management and operations of our offline and online businesses are decentralised to enable the greatest possible degree of agility in responding to customer needs, while also leveraging the advantages of scale in terms of purchasing power, IT and digitalisation, as well as some synergies in logistics.
In terms of logistics, we run our own operations, with centralised supply to stores from Сompany-operated distribution centres standing at 95.5% in 2022.
Corporate Centre
Suppliers
Offline Businesses
Supply chainin frastructure
Digital businesses
Corporate Centre
X5 Group’s Corporate Centre manages shared business infrastructure like Business Support, X5 Technologies and Security functions. Overall strategic guidance and sharing best practices are also handled by the Corporate Centre.
Suppliers
All throughout 2022, we continued to develop our approach to planning and collaboration with our suppliers, maintaining our product range and stock levels, and boosting supply chain management performance.
5,184
Suppliers
31 %
Share of top 30 suppliers in revenue
Offline businesses
X5’s retail chains are set up to tap our unique CVP in each of the market segments where we operate. Pyaterochka proximity stores target customers who look for value, quality and convenience. Perekrestok supermarkets offer a compelling shopping experience with a greater product range, high level of customer service and ready-to-eat meals. Chizhik, as a hard discounter, is growing aggressively and is winning over customers who are especially price sensitive.
19,164
Pyaterochka proximity stores in 67 regions
971
Perekrestok supermarkets in 46 regions
517
Chizhik hard discounter stores in 13 regions
12
Karusel hypermarkets
Supply chain infrastructure
Efficient and reliable logistics operations, including optimal inventory levels throughout the supply chain, are critical to delivering the quality products and assortment that our customers expect across our operations, both in offline and online. 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
4,386
Company-owned trucks
53
Distribution centres to support offline stores
47
Dark stores to support digital businesses
Digital businesses
Express delivery
29 mln total orders
64 regions
44 dark stores
We continued to be one of the leading players in the market in 2022 thanks to our broad and loyal customer base and X5’s ability to quickly roll out our tailored technology solutions. The express delivery service was available from 4,480 stores (3,672 Pyaterochka stores and 808 Perekrestok supermarkets) as well as 44 dark stores covering 64 regions in 2022.
Vprok.ru
5.3 mln total orders
55 regions
3 dark stores
Vprok.ru is our online hypermarket that offers customers looking to stock up on groceries and FMCG products delivery straight to their doorstep, 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.
Mnogo Lososya
1.5 mln total orders
56 dark kitchens
235 cafe points
Mnogo Lososya is a digital service encompassing a network of dark kitchens and cafe points serving ready-to-eat food.
5Post
>300 commercial partners
35 sorting facilities
Almost 24,000 pickup points, including ~5,700 parcel lockers
5Post is X5’s last-mile delivery service for Russian and international e-commerce platforms. The business delivers goods to parcel lockers and pickup points operated either by 5Post or by X5 retail staff directly at the checkout in Perekrestok and Pyaterochka stores. Thanks to our extensive nationwide retail infrastructure, 5Post has been able to scale up a low-cost, high-quality service that augments our core businesses by attracting more traffic to stores while also generating additional revenue.
Food.ru media platform
11 mln MAUs
Food.ru inspires and informs customers as they discover and plan their food shopping. With recipes and advice, as well as integration with X5 services like Vprok.ru and express delivery, Food.ru provides a seamless entry point to X5’s omnichannel shopping experience.
Our formats
X5’s retail chains are set up to tap our unique CVP in each of the market segments where we operate. Our core proximity format — Pyaterochka — targets customers looking for value, convenience and quality at affordable prices. The stores under the Perekrestok banner offer a more vibrant and exciting shopping experience via a wider and unique assortment, superior service proposition, and ready-to-eat food, something that enjoys a strong level of demand in large metropolitan areas.
Our newly developed hard discounter, Chizhik, focuses on a rapidly expanding market segment, growing aggressively and winning over the most value-conscious of our customers.
We continue to expand our presence in the e-grocery space: our digital businesses leverage the extensive scale of our operations to further ensure we can be at every stage of the customer journey.
Pyaterochka
Pyaterochka operates conveniently-located proximity stores and is Russia’s largest food retailer on a stand-alone basis, with 19,164 stores as at 31 December 2022 and net retail sales of RUB2.1trillion for FY 2022. The first Pyaterochka was opened in 1999, and today it has stores spanning 67 regions of Russia. The format’s main focus is on being Russia’s trusted source for affordable and high-quality food. Pyaterochka served on average 15.1 million customers every day in 2022 and was named the most loved brand among grocery stores by consumers in Russia.
19,164
Number of stores
+6.6% y-o-y
7,497
THS SQM
Selling space
+6.4% y-o-y
2,123
RUB BLN
Net retail sales
+18.3% y-o-y
81.8
%
Share of X5 Group’s net retail sales
Perekrestok
Perekrestok is the largest supermarket business in Russia, with 971 stores as at 31 December 2022 and net retail sales of RUB 385 billion for FY 2022. Perekrestok was also Russia’s first supermarket chain, established in 1995. Perekrestok offers customers a unique assortment and service and served on average 1.8 million customers every day in 2022.
971
Number of stores
−1.9% y-o-y
1,085
THS SQM
Selling space
–1.2% y-o-y
385
RUB BLN
Net retail sales
+10.5% y-o-y
14.8
%
Share of X5 Group’s net retail sales
Chizhik
Chizhik is X5 Group’s new hard discounter format and operated 517 stores as at 31 December 2022, with net retail sales of RUB 35.9 billion for FY 2022. The new "every day low price" (EDLP) concept focuses on a limited assortment of essential goods. This customer engagement has helped foster trust in the new low-price brands. Chizhik served on average 178 thousand customers every day in 2022.
517
Number of stores
7x growth y-o-y
152
THS SQM
Selling space
7x growth y-o-y
35.9
RUB BLN
Net retail sales
12x growth y-o-y
1.4
%
Share of X5 Group’s net retail sales
Digital businesses
Our digital businesses continue to grow at a rapid pace, making a vital contribution to overall revenue, as well as customer acquisition and retention.
Express delivery
Express delivery operations were launched in late 2019. The service offers delivery from local Perekrestok and Pyaterochka stores or dark stores within 40–60 minutes. Starting in 2022, the service has also been available on express delivery service aggregators, and has been available from 4,480 Perekrestok and Pyaterochka stores as well as 44 dark stores in 64 regions across Russia. The service handled a total of 29.1 million orders during FY 2022, with peak days seeing up to 152 thousand orders, 1.3х growth year-on-year.
Vprok.ru
Vprok.ru is an online hypermarket that aims to tap into demand from customers looking to stock up on groceries and FMCG from the comfort of their own home. With three large dark stores as at 31 December 2022, Vprok.ru handled 5.4 million orders in FY 2022, 14.4% growth year-on-year.
5Post
5Post is a last-mile delivery service launched in 2019 that enables e-commerce providers and other X5 digital businesses to deliver goods to parcel lockers, tobacco sales desks and/or pickup points located at X5 stores. As at 31 December 2022, 5Post encompassed 23.9 thousand pickup points in 18.4 thousand locations across 58 regions of Russia, delivering a total of 26 thousand orders during FY 2022.
Mnogo Lososya
Mnogo Lososya operates a network of dark kitchens and sushi points at Perekrestok stores. It joined X5 Group in 2021. With 56 dark kitchens (including four franchisees) Mnogo Lososya handled 1.5 million orders in FY 2022 and its total GMV (including sushi points at Perekrestok stores) reached RUB 4.1 billion, 2.8x growth year-on-year.
Russia’s food retail market
The Russian food market reached RUB 21.0 trillion in 2022. Over the past two years, the fastest growth was seen in the hard discounter, specialists and e-grocery segments, where we are aggressively growing our business.
Russian food retail market development
Proximity stores
Supermarkets
Hard discounters
E-grocery
Specialists
Other (e.g., hypermarkets, traditional trade)
X5’s position in a changing market
We are the #1 player in the proximity and supermarket segments — 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. In the hard discounter segment, we are rapidly scaling up the operations of Chizhik, which has shown promising results.
#1
Player with a 13.2% market share in FY 2022
12 x
Hard discounter format revenue growth
69.3 mln
Active loyalty card users
46.6 %
Digital business revenue growth
Food market trends in 2022
Consumer behaviour continued to evolve in 2022 as a decrease in households’ real disposable income paved the way for more rational food shopping and trading down. Price sensitivity rose noticeably and triggered an influx of new customers into the hard discounter segment.
At the same time, the ongoing digital transformation of the economy is driving further rapid growth of online services and the e-grocery business in particular. The share of online food sales continues to grow apace across the retail industry and its major players.
Russian consumers are noticeably switching to private labels as several global FMCG brands have cut or paused operations in Russia. The share of ready-to-eat food is also growing, partially replacing customer spending at HoReCa.
Decreasing real incomes
Consumers increasingly seek value
Share of online purchases continues to grow
Growing popularity of hard discounters
Customers actively switch to private labels as FMCG brands leave the market
Increasing demand for ready-to-eat products
X5 vs Russian food retail in top-line growth
Source: INFOLine, X5 data
In total, X5’s formats are present in what accounts for over 50% of the market today.
Top 10 Russian food retailers, % market share
2021
2022
1.X5 Group
12.6%
13.2%
2.Magnit
9.4%
10.6%
3.Mercury Retail Group
5.7%
5.6%
4.Lenta
2.3%
2.2%
5.Svetofor
1.5%
1.9%
6.Auchan
1.3%
1.2%
7.Vkusvill
1.0%
1.1%
8.O’KEY
1.0%
1.0%
9.METRO
1.1%
1.0%
10.Monetka
0.8%
0.8%
TOTAL TOP 10
36.7%
38.5%
Top 10 Russian online food retailers, % market share
2021
2022
1.SberMarket
13.7%
14.1%
2.Vkusvill
11.6%
12.8%
3.Samokat
10.5%
12.4%
4.X5 Group
12.7%
10.7%
5.Ozon
7.9%
9.3%
6.Wildberries
7.7%
9.2%
7.Yandex.Lavka
6.7%
6.1%
8.Lenta
2.4%
4.8%
9.Delivery Club
3.3%
4.7%
10.Azbuka Vkusa
0.8%
0.8%
TOTAL TOP 10
77.3%
84.6%
Source: INFOLine
Russian grocery retail market dynamics, %
Traditional trade
Regional modern trade
Federal chains
E-grocery market development, %
Express delivery
Delivery services
Online marketplaces
Online hypermarkets
Other channels
Source: INFOLine
Trends in the economy and consumer behaviour
According to preliminary estimates, GDP fell 2.1% in 2022. Average annual inflation rose from 6.7% to 13.8% over the year, with food inflation up from 8.4% to 14.9%. Growth in nominal wages remained unchanged from 2021 at about 12%. Consumer activity slowed on the back of a decline in real disposable income due to rising prices and weaker consumer sentiment. Consumer lending decreased from 25% to 9.5%. The average annual RUB/USD exchange rate was 68.5 in 2022, compared with 73.7 a year earlier.
The labour market remained strong throughout the year. Unemployment steadily declined to 3.7% in 2022, driven by decrease in workforce and growth in demand for labour in most professions.
The industries with the strongest demand for workers have not changed compared to 2021: construction, trade and transport. The financial sector also saw a labour shortage due to decreased labour force supply on the market.
The fall in real disposable income had an impact on the food retail market in 2022. Food retail trade turnover decreased by 2.5% in real terms, following a 1.4% drop in real disposable income. Nominal market volumes increased by 13.4%. Rising prices and falling real disposable incomes have strengthened the trend towards rational consumption. The trend towards cutting back has led to a shift in the format mix of food chains.
Consumer focus has switched from supermarkets and hypermarkets to more affordable shopping at convenience stores and hard discounters, with growth in the latter segment up more than 50%.
The sharp rise in prices in the first half of the year was a key driver behind the fall in household income. The subsequent strengthening of the exchange rate, the recovery of fruit and vegetable production and a bumper grain harvest led to a steady slowdown in food inflation.
RUB/USD exchange rate, weighted average for the period
74.3
74.2
73.5
72.6
73.6
84.7
66.0
59.4
62.3
68.1
CPI
5.6
6.0
6.8
8.3
6.7
11.5
16.9
14.4
12.2
13.8
Food inflation
7.4
7.3
8.1
10.8
8.4
13.5
19.5
15.6
11.2
14.9
Real wage growth
1.6
5.5
2.0
2.8
4.5
3.1
(5.4)
(1.9)
(1.1)
(1.2)
Real income growth
(3.3)
8.4
8.1
1.4
3.8
(1.6)
(2.2)
(2.5)
0.4
(1.4)
Unemployment rate
5.6
4.9
4.4
4.3
4.8
4.2
4.0
3.8
3.7
3.9
Nominal retail trade turnover
6.0
33.3
14.7
14.8
16.5
17.2
7.9
5.2
2.3
7.7
Nominal food retail trade turnover
4.9
16.6
12.1
13.8
11.8
16.6
17.1
13.2
8.0
13.4
Source: Rosstat, Ministry of Economic Development
Legislative changes
Regulations
Relevant changes in legislation
Effective data
Labelling rules for alcoholic and tobacco products
Administrative liability was increased for the following:
The production of alcoholic products; the production and sale of tobacco products that partially do not comply with labelling and other information requirements
The sale of alcoholic and tobacco products without mandatory labelling or other information
For more details, see Federal Law No. 2-FZ dated 28 January 2022
8 February 2022
Labelling rules for bottled water
The requirement for sellers, manufacturers and importers to submit information on retail sales of bottled water to the labelling system was postponed until 1 March 2023.
For more details, see Resolution of the Russian Government No. 477 dated 26 March 2022
30 March 2022
Lifting COVID-19 restrictions
Russia lifted its previously introduced COVID-19 restrictions, such as the following:
Mandatory face coverings in public places
Mandatory social distancing
Movement restrictions, including lockdown measures
A ban on mass gatherings
Sick notes for people self-isolating
A mandatory 14-day quarantine for foreign nationals and stateless persons arriving in Russia for work
For more details, see Resolution of the Russian Chief Sanitary Doctor No. 18 dated 20 June 2022
2 July 2022
Requirements for submitting advertising data to the Federal Service for Supervision of Communications, Information Technology and Mass Media (Roskomnadzor)
The data should be submitted to Roskomnadzor via an advertising data operator.
The adopted provisions expanded the requirements for advertising market participants to submit information to the single internet advertising information system introduced on 1 September 2022 (Article 18.1 of the Law On Advertising).
For more details, see Federal Law No. 286-FZ dated 14 July 2022
14 July 2022
The EAEU technical regulations on alcoholic products
The expiry date for the transitional provisions of the EAEU technical regulations on alcoholic products was postponed.
The conformity assessment documents on alcoholic products adopted before the technical regulations come into force (1 January 2024) are effective until the end of their expiry period but no later than 1 January 2027. Should such documents be adopted, alcoholic products may be manufactured and sold until that date.
During this period, the CIS countries may also manufacture and sell products that are not subject to mandatory conformity assessment before the technical regulations come in effect, without such documents and national conformity marks.
For more details, see Resolution of the Board of the Eurasian Economic Commission No. 99 dated 13 July 2022
19 August 2022
Changes in the Law On Personal Data
Data consent requirements were expanded.
Requirements for providing biometric data were changed.
Service may no longer be denied if a data subject refuses to provide biometric personal data and/or give consent to data processing, unless, in line with the Federal Law, the data controller must obtain consent to personal data processing.
Data controllers and processors now bear joint liability for personal data processing by foreign individuals and legal entities.
Data controllers must now immediately report incidents involving their own databases containing personal data to the authorities and ensure data is continuously exchanged with GosSOPKA.
For more details, see Federal Law No. 266-FZ dated 14 July 2022
1 September 2022
Amendments to the Labour Code of the Russian Federation regarding electronic document management
The Russian Public Services Portal can now be used to exchange documents between employers and employees.
On the Portal, job seekers and employees will be able to fill in, electronically sign and send personnel record forms.
All electronic personnel records can be found both in the employee’s personal account on the Portal and in the organisation’s information system.
For more details, see Resolution of the Russian Government No. 1192 dated 1 July 2022
1 September 2022
Labelling alcoholic products imported into Russia
From 1 June 2021 to 31 May 2024, the city of Moscow, as well as the Bryansk and Vladimir Regions are trialling the labelling procedure for alcoholic products imported into Russia and stored in bonded warehouses.
For more details, see Resolution of the Russian Government No. 1567 dated 6 September 2022
14 September 2022
Requirements for the storage of alcoholic and alcohol-containing products in warehouses were softened
Alcoholic products may now be stored together with any other goods (except for perishables), subject to zoning requirements.
These requirements include keeping aisles between zones and having warehouse plans that reflect the zones approved by the head of the organisation.
For more details, see Order of the Russian Ministry of Finance No. 133n dated 1 September 2022
11 October 2022
Amendments to dairy labelling rules
Until 31 May 2025 (inclusive), dairy supply chain participants must report the delivery (acceptance) of products subject to labelling by preparing a UTD, signed with advanced electronic signatures by both supplier and customer; within three business days of the acceptance date, a relevant notification will appear in the system.
From 1 June 2025, dairy supply chain participants must report products subject to labelling by preparing a UTD, signed with advanced electronic signatures from both supplier and customer; within three business days of the acceptance date but no later than the transfer of products to third parties, a relevant notification will appear in the system.
For more details, see Resolution of the Russian Government No. 1733 dated 30 September 2022
31 October 2022
Alcoholic products from certain brands were added to the list of goods allowed for parallel import into Russia
The Russian Ministry of Industry and Trade expanded the list of goods allowed for parallel import into Russia to include alcoholic products from certain brands.
Imports of such products into Russia are now legal, subject to the following conditions being met:
The trademark holder is the same in Russia and the country where the product was first marketed
The product was first marketed by or with the consent of the trademark holder and is original (not counterfeit)
The supply contract provides for a penalty (fine) and indemnification of losses in the event the supplier’s guarantees about the legal first marketing of the product by the trademark holder — or with their consent — or the originality of the product imported to Russia are found to be invalid
For more details, see Order of the Russian Ministry of Industry and Trade No. 4456 dated 20 October 2022
3 November 2022
Labelling requirements for e-cigarettes and e-liquids
E-cigarettes and e-liquids are subject to mandatory labelling. The rules apply to disposable e-cigarettes and e-liquids contained in capsules or cartridges.
On 15 December 2022, the mandatory registration of manufacturers and importers in the Chestny ZNAK track and trace system began.
From 25 December 2022, labelling became mandatory for manufacturers and importers.
On 1 March 2023, the registration of wholesalers and retailers in the Chestny ZNAK system will commence.
From 1 April 2023, retailers and wholesalers will be required to submit labelled e-cigarettes sales data to Chestny ZNAK.
From 1 December 2023, sales of unlabelled goods will be prohibited.
For more details, see Directive of the Russian Government No. 3680-r dated 30 November 2022
15 December 2022
Cancelling certain display requirements for retail sale of wine, cognac and brandy
Retailers no longer have to separately display wines produced or registered in the EGAIS (the state track and trace system for alcoholic products) before or after 26 June 2020. The same applies to cognac and brandy produced before or after 2 July 2021.
For more details, see Federal Law No. 633-FZ dated 29 December 2022
1 January 2023
Clarification of the procedure for licensing alcoholic products
The law stipulates that in the event of any breaches, the licensing authority will send the licence applicant a notice requiring them to correct the breaches within 30 days. Such breaches include the following:
Tax arrears over RUB 3,000 as at the first day of the month of application that were still outstanding by the date the information from the tax authority was received
Fines related to alcohol sales discrepancies according to SIS SMP that were still outstanding as at the first day of the month of application
An incomplete set of documents or misleading information
No information about the applicant in the Unified State Register of Legal Entities
The licence applicant may request another inspection by the licensing authority after correcting any breaches within a specified period.
For more details, see Federal Law No. 329-FZ dated 14 July 2022
1 March 2023
Mandatory beer labelling
From 1 April 2023, labelling will be mandatory for products in kegs; this will extend to drinks in glass or plastic consumer packaging from 1 October 2023 and to goods in other types of consumer packaging from 15 January 2024.
Manufacturers and importers may submit information, in particular about marking goods, from 1 March 2023, and must do it starting from the date mandatory registration is launched.
Retailers may submit data on sold drinks to the system from 1 March 2023 and must do it starting from the following dates:
15 January 2024 — for data on the partial sale of products in kegs when sold by the measure
1 June 2024 — for data on drinks sold in consumer packaging
For more details, see Resolution of the Russian Government No. 2173 dated 30 November 2022
1 March 2023
New rules for filling in a vehicle trip ticket
In line with the new rules, the format of a vehicle trip ticket may now be electronic. The paper format remains acceptable.
The new vehicle trip ticket will contain information about its validity period, the person who issued it, vehicle, driver(s), mode of transport, and destination type.
All notes in electronic trip tickets require a qualified or non-qualified advanced electronic signature. If an electronic trip ticket is used when accepting cargo, the carrier (driver) must send the shipper confirmation that the vehicle trip ticket is electronic, as well as its details, through the operator of the electronic shipping document system.
For more details, see Order of the Russian Ministry of Transport No. 390 dated 28 September 2022
1 March 2023
New excise tax on sugar-containing drinks
A new excise tax was set at RUB 7 per litre of sugar-containing drinks.
Sugar-containing drinks in consumer packaging that contain sugar (glucose, fructose, etc.), sugar syrup and honey became liable for excise. The carbohydrate content in the nutritional value of such drinks must exceed 5 g per 100 ml, but the volume percent of ethanol must be 1.2% or lower.
The following drinks are not categorised as sugar-containing drinks:
Alcoholic products containing over 0.5% alcohol by volume; grape-, fruit-, honey-, grain-, and other must- and wort-based drinks; and fermented fruit juices and kvass containing less than 1.2% of alcohol
Food products state-certified to Eurasian Economic Union standards, except for tonic drinks and carbonated beverages
Juice, mors, syrup, milk and milk products, kissel, or other plant-based drinks made from cereals, grains, pulses, oil plants, coconuts, nuts, or products thereof, except for tonic drinks and carbonated beverages
For more details, see Federal Law No. 443-FZ dated 21 November 2022
1 July 2023
Labelling of organic products
Importers may only use the word "organic" or derivatives thereof on a product label if they have a relevant certificate of conformity— a document confirming that production was compliant with national and international organic standards. The certificate is issued after verification by dedicated certification bodies accredited by the Federal Service for Accreditation (RusAccreditation), such as the Russian System of Quality (RusQuality), among others. Organic producers must mark their products with the standard organic label logo approved by the Russian Ministry of Agriculture.
For more details, see Federal Law No. 630-FZ dated 29 December 2022
1 September 2023
Requirements for telemedicine examinations of drivers
Drivers can now undergo pre-shift and post-shift medical examinations using telemedicine equipment connected to a tonometer, thermometer, breathalyser, and other devices necessary for checking basic physical measurements.
Such a medical examination must include:
Mandatory personal identification of the employee to prevent another person being examined in their stead
Mandatory in-person chemical and toxicology testing of drivers for narcotics and psychotropic substances or their metabolites at least twice a year
For more details, see Federal Law No. 629-FZ dated 29 December 2022
1 September 2023
CEO and President’s statement
Dear stakeholders,
We are pleased to present our 2022 Annual Report and highlight the strong results that X5 achieved amid a year marked by a challenging macro environment.
Despite the market headwinds, our development strategy has not fundamentally changed: our primary focus remains on driving leadership through active growth. Our main goal is to maintain our leading market position, both in terms of growth rates and revenue in the offline and online segments.
In 2022, consumers increasingly turned towards more rational shopping strategies, opting for affordability while keeping an eye out for quality and the availability of products on the shelf.
That is why the importance of our commitment to communities cannot be underestimated. X5 provides a reliable supply of food to the regions where we operate — in 2022, we undertook tremendous efforts to ensure that all products remained available for our customers despite a number of external challenges. In the reporting year, we also launched a pilot food-sharing project, working with Foodsharing and Foodbank Rus to donate food to people in need. We plan to roll out this initiative across the Russian regions and expand the range of food products donated. In everything we do, we strive to meet the highest standards of corporate citizenship and continue to integrate ESG targets into our business processes while committing to regular, GRI-compliant reporting.
Turning to our business, we delivered excellent operating and financial results in 2022. Notably, we achieved 18.2% revenue growth, 10.8% like-for-like sales growth and maintained a 7.2% EBITDA margin. X5 continues to focus on the largest and fastest-growing market segments — convenience stores and hard discounters — while making further improvements to our customer value proposition, as well as unlocking operational and capex efficiencies to adapt to changes in the market environment and stay ahead of consumer trends. We pay close attention to boosting our sales density, growing our LFL sales above inflation and exploring opportunities for both organic and non-organic market share growth.
Our recently launched hard discounter network, Chizhik, made remarkable progress in expanding its footprint and has performed well above our initial targets. The network’s net sales grew 12x year-on-year in 2022 on the back of a 7x increase in the number of stores. The hard discounter format has proven attractive among customers looking for the best price offer, and we plan to accelerate store openings for Chizhik in 2023.
X5 completed a series of notable M&A deals in the reporting period. In St Petersburg, we integrated 15 PRISMA supermarkets previously owned by a Finnish retail group, welcoming those stores under our Perekrestok banner. The Group also acquired a 70% share in Slata and Krasny Yar, two major food retail chains in Eastern Siberia. The deal has paved the way for our expansion into Russia’s Far East in 2023, a move that will significantly grow X5’s footprint and create new opportunities for customers and suppliers in the region.
Our digital businesses remained a core component of the customer journey in 2022. As we enter the new year, we are well-positioned to lead the industry through our express delivery services from Pyaterochka and Perekrestok stores and the online hypermarket Vprok.ru, which have been consolidated into a newly created entity called X5 Digital. We also secured partnerships with the three major grocery and ready-to-eat meal delivery aggregators, in a bid to unlock the greater convenience that the omnichannel shopping experience has to offer.
At the same time, we are focused on achieving strong unit economics by improving express delivery from stores and dark stores, which accounts for the largest and fastest-growing segment in e-grocery.
We additionally completed a full-scale overhaul of our loyalty programme, X5 Club, which numbered nearly 70 million active loyal customers at year-end.
In 2022, X5 continued to bolster its management team with new high-level appointments. We have appointed Vladislav Kurbatov, who previously headed the Perekrestok supermarket network, to the position of General Director of Pyaterochka and appointed Andrey Kalmykov, ex-CEO of Pobeda Airlines, as General Director of Perekrestok. As part of this team-building effort, the Supervisory Board has decided to reshuffle the management structure and create the position of X5 Group President, who acts as the head of the Russian holding company.
On behalf of the entire management team, we would like to thank our employees, business partners and customers for their loyalty and commitment to X5 Group during 2022. We will do all our best to continue to earn this support moving forward.
Igor Shekhterman
X5 Group Chief Executive Officer
Ekaterina Lobacheva
X5 Group President
Our strategy
Strategic priorities
X5 aims to strengthen its presence across three segments: the proximity store, supermarket and hard discounter
On the back of a massive expansion drive, X5’s hard discounter format is growing aggressively, targeting consumers’ needs for low prices and great quality
Pyaterochka continues to expand its presence, including the launch of operations in its eighth federal district (FD) of Russia, the Far Eastern FD, and demonstrate strong LFL performance, thanks to adaptation of its CVP
Perekrestok seeks to consolidate the audience of supermarket shoppers and strengthens its presence in large metropolitan areas
Online business growth is mainly driven by express delivery from stores and dark stores, leveraging the Group’s existing in-house platform and partnerships with aggregators
X5 continues to expand its presence at each step of the customer journey and both retains and attracts traffic to its various businesses by building a joint loyalty programme
#
1
by growth of market share in food retail
by revenue in the e-grocery segment
by ESG perception among Russian food retail customers
Strategic vision for X5’s presence in the customer journey
We focus our efforts on building X5’s presence at each and every step of the customer journey which brings long-term competitive advantages.
Our unique value proposition is designed to meet consumers’ needs across all our formats and online businesses, creating a tailored and seamless shopping experience underpinned by a superior service offering.
Geography of operations
Our extensive geographical footprint plays a crucial role in enabling X5 Group’s leadership in the Russian food market, delivering profitable and efficient growth both offline and online, while constantly improving existing operations. At the end of 2022, X5 was operating 21,323 retail stores, three large dark stores, 44 express delivery dark stores, and 53 distribution centres in 70 Russian regions.
Rapid rollout of digital businesses
We continue to expand our digital businesses, leveraging a robust IT infrastructure and widespread retail operations to deliver agile services — without losing our focus on the bottom line. In 2022, X5 partnered with three major grocery and ready-to-eat meal delivery aggregators to expand its online delivery offering.
As at 31 December 2022, our express delivery service was available from 4,480 stores and 44 dark stores across 64 Russian regions, as compared to 1,611 stores and 50 regions last year. Our last-milee-commerce delivery service — 5Post — had nearly 24 thousand pickup points in operation, including over 5 thousand multi-parcel lockers at 2022-end, as well as 56 Mnogo Lososya dark kitchens.
Number of stores by federal district
as at 31 December
2018
2019
2020
2021
2022
Central FD
5,822
6,301
6,703
7,181
7,703
North-Western FD
1,668
1,836
1,910
1,998
2,081
Central and North-Western FD
7,490
8,137
8,613
9,179
9,784
Volga FD
3,820
4,306
4,621
4,895
5,256
Ural FD
1,168
1,358
1,535
1,672
1,885
Southern FD
1,222
1,501
1,718
1,951
2,211
North Caucasus FD
252
293
334
388
433
Siberian FD
479
702
886
1,036
1,696
Far Eastern FD
58
Total
14,431
16,297
17,707
19,121
21,323
Net retail sales by federal district in 2022, %
Federal district
Share of net retail sales, %
% of Russian population
RUB mln per 1,000 people
Central FD
47.1%
27.4%
30.3
Volga FD
18.6%
19.6%
16.7
North-Western FD
13.4%
9.5%
25.0
Ural FD
7.5%
8.4%
15.9
Southern FD
7.7%
11.4%
12.0
North Caucasus FD
1.3%
6.9%
3.2
Siberian FD
4.4%
11.4%
6.9
Far Eastern FD
0.04%
5.4%
0.1
21,323
Retail stores
as at 31 December 2022
53
Distribution centres
as at 31 December 2022
44
Express delivery dark stores
as at 31 December 2022
3
Large dark stores
as at 31 December 2022
X5 today
Multi-format presence in 8 federal districts
21,323
Total stores as at 31 December 2022
19,164
Pyaterochka stores
971
Perekrestok supermarkets
517
Chizhik hard discounters
12
Karusel hypermarkets
595
Krasny Yar and Slata stores
44
Express delivery dark stores
56
Mnogo Lososya dark kitchens
3
Large Vprok.ru dark stores
Express delivery services available from 4,480 stores and 44 dark stores spanning 64 regions
Almost 24 thousand 5Post pickup points, including 5,688 parcel lockers, available from 18,387 stores across 58 regions
Number of stores and distribution centres (DCs)
Format
North Caucasus FD
Southern FD
Central FD
Volga FD
North- Western FD
Ural FD
Siberian FD
Far Eastern FD
Pyaterochka
424
2,149
6,797
4,993
1,913
1,729
1,159
−
Perekrestok
9
61
538
135
161
67
−
−
Chizhik
−
1
302
127
−
88
−
−
Karusel
−
−
9
−
2
−
−
−
Krasny Yar and Slata
−
−
−
−
−
−
537
58
Number of DCs
1
3
20
15
6
6
2
−
Number of dark stores
−
−
2
−
1
−
−
−
Number of dark kitchens
−
2
51
−
3
−
−
−
Number of pickup points/parcel lockers
494
2,618
9,467
6,255
2,704
2,363
25
−
Leadership team
Our C-level team consists of best-in-class professionals who are in charge of carrying out routine operations as well as executing the long-term Company strategy. The management team reports to the Supervisory Board, which oversees the management’s accountability for delivering on the Company’s strategic, financial and operating targets.
Igor Shekhterman
Chief Executive Officer, Chairman and Member of the Management Board, Chairman and Member of the Executive Board
Ekaterina Lobacheva
President, Member of the Management Board, Member of the Executive Board
Vsevolod Starukhin
Chief Financial Officer, Member of the Executive Board
Vladislav Kurbatov
General Director of Pyaterochka, Member of the Executive Board
Andrey Kalmykov
General Director of Perekrestok
Ilya Yakubson
Director of Chizhik
Vladimir Salakhutdinov
Director for Strategy and Business Development, Member of the Executive Board
Anton Mironenkov
Managing Director of X5 Technologies, Member of the Executive Board
Tatiana Krasnoperova
Director for Human Resources and Organisational Development, Member of the Executive Board
Elena Konnova
Director for Corporate Communications and Sustainable Development
Dmitry Agureev
Head of Corporate Security
Svetlana Volikova
Director for Business Support, Member of the Executive Board
Larisa Romanovskaya
General Director of X5 Digital
Pyaterochka
Pyaterochka is Russia’s largest food retailer by revenue and number of stores. Today, the proximity store format operates 19,164 stores in 67 regions of the Russian Federation. A typical Pyaterochka store has 380-420 square metres of selling space and offers around 4,000 SKUs. Express delivery is available from over 3,600 stores through both X5’s in-house delivery service and aggregators.
AS AT 31 December 2022
19,164
Pyaterochka stores in 67 regions
380–420 sqm
Average selling space
Key 2022 highlights
Customer metrics
5.5bln
Customer visits
+9.9%, 2021/22
78%
Loyalty card penetration in sales
40.1mln
Active loyalty card users
−0.2%, 2021/22
441rub
Average ticket
+7.9%, 2021/22
17.8nps
+3.7, 2021/22
Operational metrics
19,164
Stores in operation
+6.6%, 2021/22
7,497ths sqm
Selling space
+6.4%, 2021/22
11.7%
LFL sales growth
Financial metrics
2,125rub bln
Revenue
+18.4%, 2021/22
8.0%
EBITDA margin
pre-IFRS 16
Key operating results
2018
2019
2020
2021
2022
CAGR
Number of stores, eop
13,522
15,354
16,709
17,972
19,164
9.1%
Selling space, ths sqm, eop
5,291
5,975
6,542
7,048
7,497
9.1%
Net retail sales, RUB bln
1,198
1,367
1,597
1,794
2,123
15.4%
Customer visits, mln
3,913
4,460
4,662
5,029
5,524
9.0%
Net sales by region, %
Central FD
Volga FD
North-Western FD
Southern FD
Ural FD
Siberian FD
North Caucasus FD
Strategic priorities
Focus on growth in retail sales and market share by increasing sales density across existing stores and boosting the rate of new openings
Further implementation of the new CVP
Optimisation of operational expenses, including improving process efficiency
Further development of express delivery service to enhance omnichannel experience
Fostering a partnership culture and strengthening store teams
CVP transformation
Pyaterochka has aligned its CVP with customer demands and transformed its operational model to accelerate decision-making on the ground in support of its long-term sustainable business development.
Share of private labels in sales (year-end)
Operational efficiency
The current macro environment has once again focused our attention on efficiency, and we continue to work in several key areas:
Logistics
Continued development of multilayer logistics infrastructure
Focus on improving transportation efficiency
Labour productivity
Improved operational efficiency and reduced manual labour in stores
Scaling the Store Director — Partner programme
Rent
Further optimisation of rent costs with a focus on revenue-linked rent
Range efficiency
Smart assortment optimisation
Reduced inventory and losses through an end-to-end supply planning process
Shrinkage
Introducing a partnership model for store management
Pyaterochka’s key step in further developing its business in 2022 was the Company’s shift towards a partnership culture. The flagship initiative in this focus area is the Store Director — Partner project.
This new approach sees store directors as partners; the Company is placing more confidence in key people in the field and giving them more decision-making power and responsibilities.
In autumn 2021, we piloted the Store Director — Partner project across 16 stores in Moscow, the Moscow Region, Kirov and Voronezh. At the end of 2022, the programme covered 1,091 stores (6% of our store network).
The main difference between partner store directors and conventional store directors is that the former have a wider range of tools at their disposal: they can introduce a sales incentive plan with their cluster director, manage the headcount and influence the product mix to increase the share of individual product groups, etc.
By the end of 2022, the Store Director — Partner project had brought the Company solid results. The transformation of the store director’s role generated over RUB 200 million in incremental EBITDAR.
The Company plans to turn as many as 25% of store directors across Russia into partners by 2024. Pyaterochka has seen a positive response, as more high-quality candidates are joining the programme with each new wave of enrolments, and the Company is working to roll out best practices for partner managers across the entire chain, boosting the programme’s performance.
Social responsibility
Since 2015, X5 has been promoting the Basket of Kindness project, a food drive that helped almost 200 thousand people in 40 regions of Russia, including large families, pensioners, people in need, doctors, and refugees in 2022. The Company has now initiated another food aid project that will see even more people receive food donations. In 2022, X5 partnered with Foodsharing and Foodbank Rus to launch a pilot food sharing project that donates food to individuals in need.
The project collects food from stores that is nearing its expiration date, trains employees in the necessary procedures and establishes efficient logistics to deliver the food to those who need it most. The products are collected by volunteers and distributed within several hours to individuals supported by Foodbank Rus, a food aid charity, and Foodsharing, a non-profit organisation.
In its first stage, the project was introduced to several Pyaterochka stores in Moscow and Chelyabinsk and later expanded to several other Russian cities.
Perekrestok
With 971 stores as at 31 December 2022, Perekrestok is Russia’s largest supermarket chain, with a focus on the country’s metropolitan cities. The majority of Perekrestok supermarkets have an assortment ranging from 15,000 to 18,000 SKUs depending on store size and format, and the average selling space is 1,117 square metres. Express delivery is available from over 800 stores through both X5’s in-house delivery service and aggregators.
AS AT 31 December 2022
971
Perekrestok stores in 46 regions
1,117 sqm
Average selling space
Key 2022 highlights
Customer metrics
658mln
Customer visits
+3.3%, 2021/22
671rub
Average ticket
+7.1%, 2021/22
9.5mln
Active loyalty card users
−2.8%, 2021/22
84%
Loyalty card penetration in sales
Operational metrics
971
Stores in operation
–1.9%, 2021/22
1,085ths sqm
Selling space
—1.2%, 2021/22
7.1%
LFL sales growth
Financial metrics
386.2rub bln
Revenue
+10.0%, 2021/22
7.3%
EBITDA margin
pre-IFRS 16
Key operating results
2018
2019
2020
2021
2022
CAGR
Number of stores, eop
760
852
933
990
971
6.3%
Selling space, ths sqm, eop
782
879
1,014
1,099
1,085
8.5%
Net retail sales, RUB bln
231
273
320
349
385
13.7%
Customer visits, mln
505
589
562
636
658
6.8%
Perekrestok net retail sales by region, %
Central FD
North-Western FD
Volga FD
Ural FD
Southern FD
North Caucasus FD
Strategic priorities
Updating our CVP to focus on our unique assortment and presence in large cities
Focus on LFL growth rather than new openings
Focus on a unique and streamlined assortment, including private labels and ready-to-eat products
Driving sustainable and profitable growth in online services
Updating the value proposition of Perekrestok supermarkets
With real household incomes on the decline and frugality on the rise, food is becoming the most affordable form of entertainment.
The supermarket format best meets the demand for entertainment and meals:
High level of service
A broad and unique assortment
Ambience and service that are better than at convenience stores and hypermarkets
Adaptation of updated CVP
Focus on quality and freshness in differentiating categories (Ultra-Fresh, Fresh, and Fruit and Vegetables)
Covers all the needs and shopping missions of the target audience, with private labels and branded products as well as affordable to-go and dine-in ready-to-eat meals
Focus on expansion of sales via express delivery
Basic range of products at prices available from soft discounters
Assortment
Private labels
Consolidating our portfolio of private labels by reducing the number of brands and focusing on key private labels
Unique assortment centred around private labels and expanding our offering in the premium price segment
Ready-to-eat products
Focusing on stronger performance and higher inventory turnover
Redesigning the packaging and communication initiatives to improve the perception of Perekrestok’s ready-to-eat products
Focusing on boosting the share of online sales in ready-to-eat meals
Private label share in sales (year average), %
Ready-to-eat share in sales, %
Café and open kitchen
Expanding the open kitchen footprint by teaming up with Mnogo Lososya as a partner and the operator of 235 café points at the end of 2022
Expanding the footprint of café/coffee points in Perekrestok stores
Personnel
Our employees are one of the keys to our success in providing reliable high levels of service to our customers. We continue to roll out industry best practices for our store staff, from improving staff lounges and developing the Perekrestok employee mobile app to expanding training opportunities and maintaining ways for staff to be more engaged and share in our success.
We are updating our team sourcing strategy to boost inventory turnover through active sales, including via new product recommendations, deals of the day and cross sales. We are also rolling out the Work Force Planning system for more flexible workforce planning, including for part-time employees, as well as a transparent incentive system.
In 2023, we are planning to roll out the Store Director — Partner project to all stores. The main difference between partner store directors and conventional store directors is that the partner store directors have a wider range of tools at their disposal: they can manage headcount, work schedules, and train and motivate their staff.
Express delivery
Perekrestok is continuously working to improve its mobile app and expand its presence in key online food shopping missions, including by making smart use of partner sales channels. Over 95% of orders are delivered on time.
In 2022, Perekrestok’s express delivery online business handled 12.2 million orders placed via our in-house delivery service or aggregators.
Perekrestok will ramp up its online sales, including through aggregator websites and new fast delivery options.
Chizhik
In 2022, the hard discounter format proved its relevance as the rational model of consumption continues to gain traction. Chizhik has successfully positioned itself as a provider of high-quality products at reasonable prices, which has resonated well with customers.
Today, the hard discounter format operates 517 stores in 13 regions of the Russian Federation. A typical Chizhik store has 250–300 square metres of selling space and a limited SKU range.
AS AT 31 December 2022
517
Chizhik stores in 13 regions
250–300 sqm
Average selling space
Key 2022 highlights
Customer metrics
35.9rub bln
Revenue
12х, 2021/2022
517
Stores in operation
7х, 2021/2022
64.8mln
Customer visits
11x, 2021/2022
630rub
Average ticket
+11.0%, 2021/2022
Started the process of scaling the format, launched six new regional divisions with over 500 standardised stores in 13 Russian regions
Launched own logistics operations with six distribution centres at the year-end
Strategic Priorities
Accelerated expansion with a plan to enter all key regions of X5 chains’ presence
Continuous focus on operational efficiency while maintaining uncompromised quality of our private labels at reasonable prices
Creation and development of points of differentiation from the market and strengthening a unique perception of Chizhik
Target CVP of the hard discounter format
Our core CVP: Products that meet our quality standards at such low prices are available only at Chizhik
Elements
Many stores are better than us
We are like any other store
We are better than many stores
We are the leader
Differentiators
I find it attractive
Price
Price leadership at the given quality level
I find it convenient
time
Saving time: quick to find and buy
Stable prices and assortment
I can find everything I need
Assortment
Covering 50% to 60% of customer needs
Private label quality that matches that of well-known brands
I find it nice
Ambiance
Young and friendly staff
A welcoming, streamlined store
I do care
Social responsibility
Caring for the family through quality and price
Caring for the family by saving time
Operational efficiency
Operational efficiency and standardisation are the key elements of the format’s model; we intend to become the cost leader. One of Chizhik’s key principles is "more of what you need, less of what you don’t"; it is embedded across the retail chain’s corporate culture. Chizhik strives to cut costs as much as possible, where they have no direct impact on the business or do not contribute to sales growth.
Chizhik is a standard format store with a total area of about 400 square metres, with the sales floor occupying 250–300 square metres. With an optimised assortment matrix and smart pricing, we have achieved higher sales densities compared to convenience stores. The format calls for a target of seven FTEs on average, low shrinkage and high operational efficiency across in-store processes.
Plans for 2023
Open 1,000 new stores
Launch new regional business divisions and new DCs
Launch new private-label brands
Pilot a mobile app with a home delivery option
Karusel
In 2022, Karusel continued its transformation following the earlier management decision to downsize the format’s operations. As at 31 December 2022, twelve Karusel hypermarkets remained in operation.
A total of 21 hypermarkets were closed in 2022, and all lease agreements were successfully terminated, while the remaining stores may be either transferred to Perekrestok, leased or sold in the foreseeable future.
Karusel’s team primarily focused on minimising the risks associated with the closures and securing efficiencies and low stock levels in hypermarkets slated for closure. The chain also shut down its loyalty programme in 2022 as we expect many customers to opt for our online shopping tools like Vprok.ru or express delivery.
About 30% of the staff across the closed hypermarkets will continue to work in other X5 Group businesses.
AS AT 31 December 2022
12
Karusel hypermarkets remained in operation as at 31 December 2022
21
Hypermarkets were closed in 2022
30 %
Staff across the closed hypermarkets will continue to work in other X5 Group businesses
Krasny Yar and Slata
In November 2022, X5 finalised a strategic partnership with Krasny Yar and Slata, two of the leading retail groups in Eastern Siberia. As part of the agreement, X5 acquired a 70% stake in both Krasny Yar and Slata.
Krasny Yar Group operates Krasny Yar and Baton stores in the Krasnoyarsk Territory, Tyva and Khakassia, while Slata Group operates Slata and KhlebSol stores in the Irkutsk Region, Buryatia and the Transbaikal Territory. In addition, both groups are tenants of a total of four distribution centres with a total area of 62.3 thousand square metres: one in Krasnoyarsk, two in the Irkutsk Region and one in the Transbaikal Territory.
In 2023, key drivers will include synergies from the strategic partnership with X5 Group and the partial integration of both retailers’ operational processes with those of X5, including in procurement and logistics:
Combined bargaining power with both federal and regional suppliers unlocking better terms of purchase and the best price for the market leader
Optimised transport support and the use of best practices across business processes
Streamlined relationships with banks
Slata retail chain
Slata supermarket format
With 79 stores at the end of 2022, Slata is the leading supermarket chain in the Irkutsk Region and one of the leaders in Transbaikal Territory. Its stores measure 650 square metres on average, with an average assortment of about 8,000 SKUs.
Slata’s positioning is centred around major trends in food retail in the proximity supermarket format — a fast-paced life, changing food shopping habits, stronger demand for premium products, and increasing price sensitivity on the part of consumers:
A great location and a balanced, although limited, product mix make shopping at Slata fast and easy
A wide assortment of fresh produce, ready-to-eat and ready-to-cook meals, fewer premium products than in big-box stores and good availability of organic products
Prices for staples are slightly higher than at discount stores, but no higher than in other supermarkets, remaining generally affordable and attractive for the bulk of shoppers
Slata continued focusing on its key category, its own production, in many cases with unique recipes and guaranteed quality. Each store offers a wide range of its own baked goods along with confectionery and deli products. The chain offers a vast selection of ready-to-eat meals at considerably lower prices than at restaurants, without compromising on quality.
As a result, consumers view Slata as a store that has everything they need, as well as things that cannot usually be found locally. Particular attention is paid to offering an assortment of extra-fresh and affordable fruits, vegetables and greens as one of the format’s key mainstay categories. Slata offers its customers convenient services with self-checkouts developed in-house and a loyalty programme.
The chain is expanding its offer from local farmers in its stores, with an emphasis on freshness and local origin. Since 2020, the retailer has been successfully implementing the Local Producers project to support small and medium-sized enterprises through partnerships with regional authorities and, by stocking local suppliers’ products on its shelves, the retail chain provides a wide range of consumers with access to local products.
In 2023, Slata will continue to focus on the Fresh category and its own production, as they serve as the key drivers behind the format’s customer perception. Slata is planning to develop a new mainstay category — Fish Market — which, coupled with the already strongly performing Meat Market, will sharpen the format’s competitive edge. In parallel, the retailer is working to improve its operational efficiency, minimise losses and identify other areas to boost financial performance.
KhlebSol discount store format
The discount store format has successfully complemented the supermarket segment and, following the overall retail development trend, has become central to the Company’s future growth plans. The KhlebSol format is a leading soft discount store in the Transbaikal Territory, with 283 outlets operating in this format as at the end of 2022, offering an average selling space of 280 square metres per store and an average assortment of 1,500 SKUs.
The format focuses on fresh produce, which is currently the focus of its key value proposition, with an emphasis on private labels. Regarding price positioning, the business will maintain its focus on its EDLP strategy, while retaining an emphasis on advertising campaigns and price communications.
The format’s strengths include its price-driven image as perceived by its customers, its convenient store locations and the high proportion of fruit and vegetables in its product turnover.
Krasny Yar retail chain
Krasny Yar supermarket format
Krasny Yar is among the revenue leaders in the supermarket format in the Krasnoyarsk Territory. As at the end of 2022, the retailer was operating 64 stores. Its stores measure 566 square metres on average, with an assortment averaging from 8,000 to 12,000 SKUs. The retailer has continued improving its key category – its own production – with every Krasny Yar store offering its own hot and fresh baked goods along with confectionery and deli products as at the end of 2022.
In 2022, the chain was focused on enhancing its operational efficiency and becoming more attractive for shoppers. The retailer rapidly responded to fast-paced macroeconomic changes and will continue to do so in future. Its key objective revolves around offering a sufficiently broad assortment at attractive prices at any point in time. The chain will also maintain its focus on the Fresh and Ultra-Fresh categories, including its own production, as the key strategic drivers behind its main competitive advantages. Promotional activities and price positioning remain an area of focus for the format, as it aims for leadership in terms of price perception in the supermarket format across its footprint.
In 2022, the chain made good progress in improving its operational efficiency through workforce time planning and process optimisation, unlocking productivity gains. In 2023, the retailer is planning to increase labour automation to reduce reliance on manual interventions. In 2022, half of the chain’s supermarkets were equipped with self-checkouts.
Baton discount store format
The Baton format is a soft discount convenience store with an average selling space of 370 square metres and an assortment of about 1,500 SKUs in the Krasnoyarsk Territory, Republic of Khakassia and Republic of Tyva. The format’s strengths include fruit and vegetables as well as bakeries, which operate at half of its stores. The format does not pursue promotional activities, as it is guided by an EDLP strategy. In 2022, the retailer maintained its fast-paced growth and expanded its footprint to a new region, the Republic of Tyva, as well as new communities within the existing footprint in the Krasnoyarsk Territory and the Republic of Khakassia, to reach a total of 169 active stores.
The Baton discount store format uses a robust and effective business model, with its first discount stores launched back in 2015 and annually posting above-market LFL sales growth. The format sets itself apart with its simplified service, limited assortment, as well as pallet and cardboard display. The format is betting on fresh products by ramping up its offering in fresh bakery, fruit and vegetables, meat and dairy products. The chain targets low- to medium-income customers who want to save on everyday shopping without wasting time seeking out the best deals. A high sales density per square metre of selling space combined with operational efficiency are important components of the format’s business model. This approach allows for investments in a daily value proposition that is extremely attractive amid declining real household incomes.
The format’s value proposition:
A price leader image across its footprint
A proposition across the first-price, low-price and medium-price segments
A strong presence and affordability of fresh and ultra-fresh products
Covering more customer needs with one or two SKUs per need
Proximity to consumers
Developing a joint loyalty programme with supermarkets, improving the understanding of customers through big data
Operational efficiency is pivotal for the discount store format. Every year, the chain makes efforts to simplify its processes and optimise its headcount, with a standard store counting no more than seven employees. The retailer has revised its staffing approach and upgraded store equipment, which is expected to boost its labour productivity in 2023. In 2023, Baton will install self-checkout machines in its discount stores — following the lead of the supermarket format — to reduce the load on checkouts and redirect its workforce to the sales floor. The retailer will continue improving the balance between its costs and customer experience, offering the best price to value at its stores.
X5 Club
In July 2022, X5 combined the separate loyalty programmes at Pyaterochka and Perekrestok under a new processing platform and the new "X5 Club" brand.
This joint loyalty programme with shared bonus points now allows customers to earn and spend points at both chains simultaneously. This offer is one of a kind on the Russian market and has unlocked a mechanism for growing the cross-audience of our businesses.
By 2022-end, over 19,500 stores were connected to X5 Club, with the number of active loyalty programme members hitting 69.3 million people and the programme’s sales penetration reaching 78.3%. The average ticket of an active customer using a loyalty card increased twofold versus an active customer not using a loyalty card.
Consumers can now rack up bonus points more quickly by selecting their favourite product categories or reaching a higher membership level. Around 24% of active monthly customers qualify for a higher membership level.
We plan to connect other X5’s businesses, including e-grocery to the programme in 2023, and we are considering attracting new partners from the market. In addition, X5 Club is looking to significantly expand its functionality, delivering even greater value for our customers.
Key 2022 highlights
19,500
Stores were connected to X5 Club
69.3mln
Number of active loyalty programme members
78.3%
Programme’s sales penetration
Paket
Paket subscription service is a part of the X5 ecosystem that gives access to all the perks and benefits available at the Group’s various businesses — both offline and online. The service was piloted in 2021 and then successfully rolled out to all our operations in summer 2022.
Paket supports X5 Club loyalty programme, which allows customers to receive increased cashback in Pyaterochka and Perekrestok stores, free deliveries, category cashback,as well as bonuses from partners. Once subscribed, customers can collect 10x more bonus points versus X5’s regular loyalty programme.
Plans for 2023
700ths
Active subscribers
by 2023-end
1Launch sales of Paket subscription as an SKU at the checkouts in stores
2Explore new partnerships to jointly promote subscriptions
3Build partner APIs into the backbone of the service
Key 2022 highlights
357ths
Number of subscribers at the end of 2022
We implemented a partner integration with Yandex Plus, a subscription platform
We partnered with the Perekrestok ready-to-eat service both offline and online
We partnered with Yandex Plus to launch a nationwide promotion across Pyaterochka stores, with attractive offers and prizes
X5 Digital
Express delivery
The rapid expansion of express delivery services from Pyaterochka proximity stores and Perekrestok supermarkets was well underway in 2022 despite sluggish consumer sentiment and overall uncertainty in the Russian economy. The GMV of our express delivery business grew 1.6x to RUB 50.6 billion, and we delivered significant gains in unit economics while maintaining our strong sales momentum. The express delivery service supports customer loyalty and expands our share of customers’ wallets.
In 2022, X5 partnered with the leading food aggregator platforms to expand our online delivery offering from X5 stores, which allows us to capture untapped audience segments.
We continue to be one of the leading players in the market thanks to our broad and loyal customer base and X5’s ability to quickly roll out tailored technology solutions while maintaining a cost-conscious approach to expanding express delivery services.
Key 2022 highlights
50.6 rub bln
GMV
+64.2% y-o-y
1,694 rub
Average ticket
+10.5% y-o-y
29 mln
Total orders
+51.4% y-o-y
112.8 ths
Average number of daily orders
in Q4 2022
The express delivery service was available from:
4,480
Stores and supermarkets
in
64
Regions
3,672 Pyaterochka stores
808 Perekrestok supermarkets
44
Dark stores
as at 31 December 2022
Plans for 2023
We expect the express delivery segment of the e-grocery market to keep growing. Looking to the year ahead, we aim to remain among the top players in the Russian e-grocery market. We will continue expanding specialised dark store infrastructure, which is foundational for boostingthe service’s quality in terms of delivery times and order fulfilment accuracy. We also plan on optimising the service’s economics by driving customer adoption and improving process efficiency. One of our key priorities will be further developing the underlying technology and the quality of the customer journey.
Having our own express delivery remains X5’s strategic edge. At the same time, we continue working closely with aggregators, which serve as an additional channel for generating traffic and sales.
Express delivery order dynamics, mln
Pyaterochka
Perekrestok
Express delivery
Vprok.ru is our online hypermarket, geared towards customers looking to stock up on groceries or FMCG products with delivery to the doorstep, or in some cases to a nearby 5Post pickup point. The hypermarket offers same-day or next-day delivery to customers from its core markets, with service further afield supported by 5Post.
Key competitive advantages
Vprok.ru is a well-known brandin the e-grocery market
Wide assortment of 52,300 SKUs
Own logistics infrastructure and in-house last-mile delivery augmented by 5Post for additional regional reach
A vast addressable market in cities of presence
Proprietary customer interface: mobile app and website
Leverages X5’s purchasing power and supplier terms
Total control over assortment, pricing, promotions, and supply chain boosts Net Promoter Score (NPS)
Key 2022 highlights
26.2 rub bln
GMV
+18.8% y-o-y
4,793 rub
Average ticket
+5.7% y-o-y
5.4 mln
Total orders delivered
+14.4% y-o-y
3
Dark stores
3.4 mln
MAUs
+2.7% y-o-y
55
Regions
Business model
Same-day / next day delivery
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
Net sales, RUB mln
Number of orders and average ticket
Number of orders, ths
Average ticket, RUB
In 2022 we launched the transformation of the Vprok.ru business model, looking to drive maximum service efficiency:
We consolidated Vprok.ru and express delivery services under X5 Digital to maximise synergies between the two e-commerce businesses, including in back office operations, IT and development
We conducted a comprehensive review of the product range in order to eliminate slow moving stock while expanding our fresh and ultra-fresh assortment, primarily in fruits and vegetables
We fine-tuned our marketing strategy to double down on existing customers, increasing the frequency of their purchases, retention and repeat visits
PLANS FOR 2023
Our focus in 2023 will be on securing further gains in operational efficiency by:
refining internal processes to accelerate order picking and fulfilment
strengthening our interaction with the existing customer base while maintaining the inflow of new customers
reviewing pricing approaches to increase margins while retaining the customer’s perception of Vprok.ru as a hypermarket with low prices
Mnogo Lososya
Mnogo Lososya is a digital service encompassing a nationwide network of dark kitchens and café points serving ready-to-eat food. Mnogo Lososya joined the X5 family in early 2021.
As at 31 December 2022, Mnogo Lososya operated 56 kitchens (including four franchisees) and 235 café points in Perekrestok stores. Most of the dark kitchens (49) are located in Moscow and produce more than 200 ready-to-eat SKUs which can be ordered via the service’s own Mnogo Lososya app or through delivery aggregators. Café points in Perekrestok stores can be found in 11 cities and offer sushi, pizza, doner, and much more.
Mnogo Lososya grew its business organically in 2022, launching operations in nine new cities (in addition to existing facilities in Moscow and St Petersburg). The service opened over 160 café points in 2022.
We also focused on improving the efficiency of operations by refining our supply chain, exploring opportunities with third-party logistics (3PL) providers for cooking and delivery, cutting down on shrinkage, and boosting labour productivity.
Mnogo Lososya fine-tuned its marketing strategy in 2022 to increase brand awareness in the market.
Key 2022 highlights
4.1 rub bln
GMV
+153% y-o-y
1.5 mln
Delivery orders
+99% y-o-y
56
Dark kitchens in operation
incl. four franchisees
1,915 rub
Average ticket for delivery
+17% y-o-y
Plans for 2023
Continue to expand with café points across X5’s retail chains
Grow operations in Moscow to encompass 55–60 dark kitchens covering major delivery destinations
Continue to drive brand awareness
Focus on developing own sales channel and positive brand recognition in Moscow
5Post
5Post is X5’s last-mile delivery service for Russian and international e-commerce platforms, delivering goods across a network of parcel lockers and pickup points operated either by 5Post or by X5 retail staff at the checkout area in Perekrestok and Pyaterochka stores. Leveraging our vast nationwide retail infrastructure, 5Post has successfully scaled up a low-cost, high-quality service that augments our core businesses by driving store traffic while also unlocking additional revenue.
In 2022, 5Post secured positive EBITDA and maintained business volumes despite a downturn in parcels from international vendors. Shipping volumes by vendors that suspended their operations in Russia were successfully replaced through cooperation with some new (e.g. Lamoda, Avon, Gold Apple, etc.) and existing clients.
Key competitive advantages
Nationwide network of conveniently located pickup points
Leverages X5’s existing logistics operations (distribution, logistics and stores)
Broad and loyal customer base
Multi-channel pickup options: directly from stores, lockers or pickup points
High quality last-mile delivery
Key 2022 highlights
2.7 rub bln
Revenue
~26mln
Parcels delivered
>300
Commercial partners
35
Sorting facilities
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
23,926
including 5,688 parcel lockers
Key partners in 2022
Keys to success: X5’s logistics platform for e-commerce
E-commerce is a growing force in the overall retail market, and 5Post offers a way for X5’s core businesses to tap into that growth. Our last-mile delivery service partners with top e-commerce platforms to deliver parcels directly to our stores, meaning we are able to better serve our customers while also strengthening X5’s position as an active player in the digital market.
We run a nationwide network with a presence in 58 regions. This scale of operations is comparable only to the Russian postal service; but in larger cities, the number of X5 distribution centres (DCs) and stores offering 5Post parcel pickup actually exceeds the density of the postal network.
We have been able to grow the 5Post business with relatively low investment, as we can build directly on X5’s existing infrastructure while rapidly scaling up our nationwide logistics network to support our e-commerce platforms.
5Post’s competitive advantages
Efficiency
X5 is one of the most efficient logistics operators in Russia by cost per order thanks to efficient business processes and our ability to leverage X5’s existing logistics infrastructure
Coverage
A nationwide network of convenient pickup points
Accessibility
5Post pickup points are located within just 1 km (10-minute walking distance) of over 70% of the Russian population
Convenience
Рarcels can be collected in stores from lockers, pickup points or checkouts
Plans for 2023
We plan to continue to actively grow 5Post on the back of X5’s existing infrastructure.
Our key goals and initiatives include:
Accelerate integrations with new partners and increase 5Post’s share of deliveries with existing clients
Develop new services and expand our footprint to new regions
Focus on business efficiency and achieve profitability targets
Enter the C2C delivery market
Further scale return and drop-off services
Launch 5Post services in Siberia on the back of the Tolmachevo DC (Novosibirsk) and start deliveries to Perekrestok supermarkets in the Republic of Adygea (Adygea DC) and Samara (SLK DC)
Continue optimising 5Post’s warehouse and transport infrastructure processes
Food.ru
Food.ru is a media platform to engage customers at the early stages of their shopping journey by offering online recipes, cooking workshops and advice on topics like healthy eating. Food.ru offers information to customers in the consideration and choice stages, and by integrating with X5 services like express delivery and Vprok.ru, it helps us guide customers towards continuing their shopping journey with X5.
Food.ru is the cornerstone of our strategic goal to build a food market business present across the entire customer journey. By offering consumers a dynamic, engaging media platform that is regularly updated with a wide variety of food-related content, we are able to deliver a seamless customer experience throughout the journey.
Food.ru unlocks a direct communication channel with the target audience, generating traffic and converting clicks to sales at X5’s core businesses.
key 2022 highlights
Content
>72ths
recipes, including recipes with step-by-step photos and/or videos
>39ths
user-submitted recipes including 34,500 submitted in 2022
>8ths
editorials and advice columns including 2,500 added in 2022
>1.3ths
marketing integrations successfully launched with Pyaterochka, Perekrestok, Mnogo Lososya, Vprok.ru, and X5 Club
>900
product placements built into our recipes
Audience
11 mln
MAUs
1.5 mln
users downloaded the Food.ru mobile app
FOOD.RU: a 360° platform
Content for users (recipes, articles and master classes) with integrations and product placement for X5’s retail chains
E-grocery functionality for users (order products from a recipe, meal plans, a calorie calculator, etc.)
An e-commerce asset with full functionality for ordering products from X5’s (and partners’) e-grocery businesses; a single entry point to all X5’s businesses
Opportunities to use different marketing channels to advertise X5’s and partners’ businesses on the Food.ru advertising platform
Plans for 2023
We aim to keep growing the platform’s content while further integrating Food.ru into our core businesses in the year ahead.
Media
15 mln
MAUs
+36% y-o-y
+60%
Average time spent on the site
Launch of a platform with food bloggers for X5’s businesses and suppliers
E-commerce
>90ths
Cumulative total of orders from X5’s retail businesses
>50ths
New ordering customers
Integration of Pyaterochka into the Food.ru store and direct orders from recipes
Logistics and transport
Pyaterochka
As at 31 December 2022, Pyaterochka’s logistics operations encompassed 39 distribution centres (DCs) serving 19,164 stores in 67 Russian regions.
2022 stretched Pyaterochka’s suppliers, as a number of foreign brands exited the Russian market and supply chains were disrupted. The company worked closely with partners to develop a joint planning process and expand its assortment. Product availability was at 93.7% in 2022, peaking at 95% in the December high season.
In 2022, specialised surveys revealed that suppliers highly valued the reliability and customer-centricity of the company’s supply chain management. In particular, Pyaterochka ranked first in a survey of alcohol sector suppliers (SCM Alco Survey) and fourth in a survey of fresh product suppliers.
Pyaterochka also took first place in the Advantage survey, with its collaborative planning, forecasting and replenishment (CPFR) project rated the best solution in the industry.
In 2022, Pyaterochka launched two new DCs in the Moscow Region and Bryansk, as well as four 3PL sites in Moscow, Izhevsk, Yekaterinburg, and Orenburg.
Expanding digitalisation
Continued to connect suppliers to the CPFR tool, adding 10 new vendors in each category
Deployed a rolling order forecasting programme for more than 2,000 PLUs
Increased direct imports from RVI (X5’s importing legal entity), with turnover growth in potatoes (+49%), drupes (+21%), pineapples (+61%), and alcohol (+9%). Continued to scale the end-to-end stock model and sales and operations planning process in conjunction with RVI, helping to make imported goods more affordable while managing inventory across the supply chain. As a result, X5 became the number one alcohol importer in Russia. Also, RVI closed two underperforming 3PL facilities to improve operational efficiency. Kicked off a major cross-format integrated business planning (IBP) project together with RVI in the fruit and vegetables category
Machine learning—based regular sales forecasting was run before the start of the high season. The solution had been rolled out across all regions of operations
The roll-out of the JDA Distribution Centre and Store Restocking project continued, supporting the end-to-end movement of goods from DCs to stores and the automation of restocking processes
Process maturity
Pyaterochka was selected as the winner in the Best Mentor Team category at the Izotov Cup, a national mentoring competition
The Supply Chain Management Division won the top prize for three of its projects in the Idea Challenge, X5’s corporate innovation competition
Pyaterochka continued to serve as a special partner for the Strong Link: Student League interuniversity competition, with the aim of strengthening the company’s talent pipeline
The Supply Chain Management Division once again participated in the annual Top 100 Dialog supplier conference, where it shared its experience and expertise at around a dozen specialised discussion forums and conferences
Operational efficiency
In 2022, efficiency gains completely offset earlier capex in warehouse and transport personnel. Pyaterochka was also able to get back on track with reducing logistics costs.
KPIs for warehouse efficiency in terms of DC throughput and overall warehouse performance remained at a consistently high level.
Storage and transport costs (excl. pickup, incl. recyclable materials), % of sales
OWR, boxes/hour
Company average
3 best DCs
Achieving sustainability goals
Issued Labour Conditions Standards, which describe further improvements to workplace safety, recreational opportunities, working shifts, communication with personnel, upskilling, training, and professional development at Pyaterochka’s DCs. At the end of 2022, 90% of staff gave a positive rating to their working conditions, versus 80% in 2021
Developed and introduced new guidelines on the collection of recyclables, including daily monitoring and a motivation system. As a result, 549 million tonnes of recyclables were collected in 2022, a 4% increase versus 2021
DC throughput, boxes/sqm
Company average
3 best DCs
Plans for 2023
Expand the IBP project into beverages and groceries
Further roll out the replenishment solution to facilitate ordering stock from DC suppliers, and use sales forecasts to develop a rolling order forecasting project with vendors
Launch six new DCs in Volgograd, Krasnodar, Samara, Orenburg, Omsk, Yekaterinburg, as well as one 2PL DC in Khabarovsk
Perekrestok
Perekrestok’s logistics operations support the chain’s own supermarkets and Karusel hypermarkets. Throughout 2022, the company implemented changes to drive further gains in efficiency, quality and the digitisation of operations. As at 31 December 2022, Perekrestok’s logistics encompassed eight DCs, which helped support the operations of 971 supermarkets and 12 Karusel hypermarkets across 47 regions of Russia.
Key 2022 highlights
Launched qualification upgrade centres for warehouse and transport personnel
Launched a Business Intelligence programme for the supply chain, automated smart reporting, a mobile workplace for DCs, and a number of other innovative solutions
Kicked off the Talent Development Centre programme for middle management and paid special attention to improving working conditions at DCs
Planning
Carried out a collaborative initiative with key suppliers, allowing for the majority of the programme’s participants to improve their service level and reduce shrinkage
Inventories decreased by 1.1 days year-on-year, a result of rolling out the inventory replenishment digital solution
Improved forecast quality by 1.5%—2%, which secured product availability amid high volatility in demand throughout 2022
The Customer Service initiative was launched to improve dialogue with suppliers and transport companies, as well as between retail team functions
Physical logistics
A new, high-performance DC with a total warehousing area of 14,000 square metres opened in Voronezh, supporting the operations of 55 supermarkets in the area
Developed and implemented the route to market (RTM) service model to improve efficiency in logistics, increase product availability and reduce shrinkage
Procurement quality for all DCs rose to 99.8%
Worked with vendors to develop and implement a set of logistics solutions that reduce the supply chain costs
The Working in a Safe Environment (WISE) programme was launched, which resulted in a 2.4x reduction in the injury rate across the supply chain in 2022
Launched the Keep Me Cool programme at DCs and in the transport division, aimed at strict monitoring of temperatures for all types of products
Launched a programme to improve sanitation and pest control at DCs
Launched Freshmania, a programme to boost the freshness of fresh and ultra-fresh products
Plans for 2023
Launch a new DC in Nizhny Novgorod
Deploy new fruit and vegetable packaging technology at DCs
Implement neural network algorithms in forecasting processes to unlock agile responses to shifting demand and secure a 2x reduction of out-of-stock rates
Fully automate the AutoOrder tool
Launch X5’s proprietary warehouse management system (WMS) at two pilot DCs
Implement the Lean DC programme
Launch the Supply Chain Academy for network management
Develop initiatives to improve labour safety and reduce injury rates at DCs
Chizhik
In 2022, Chizhik’s logistics encompassed six DCs operating in Nizhny Novgorod, Voronezh, Ufa, Yekaterinburg, and the Moscow Region (Litvinovo and Noginsk), providing deliveries to eight regional sales divisions.
In the reporting period, the Centre of Competence and operations teams were created, which enabled the efficient and rapid launch of six distribution centres ready to support network expansion and to ensure the supply of products to 517 stores in 13 Russian regions.
Key 2022 highlights
Launched six new DCs
Construction of new DCs started to support network expansion in 2023–2024
Procured 500+ vehicles for supplies to Chizhik stores in 2022–2023
Drafted procedures and instructions to ensure project scaling
Geared up for the launch of X5’s WMS, which looks to streamline and automate DCs’ operations
Plans for 2023
Maintain Chizhik’s network growth in existing and new regions and increase DC and transport productivity in the company’s current regions of operations
Hire operational teams and launch new DCs to supply goods for Chizhik stores
Make preparations for DCs slated for launch in 2024
Improve the efficiency of DCs launched in 2022–2023
X5 Transport
Efficient and reliable transport operations are key to multiple aspects of the Company strategy, strengthening existing operations by reducing costs and supporting the development of new businesses which leverage existing transport capacity to offer services such as last-mile delivery.
As at 31 December 2022, X5 Transport’s fleet comprised 4,386 trucks, which handled about 80% of the Company deliveries during the year.
Key 2022 highlights
459 new trucks were procured to expand and refresh X5’s own fleet
While many suppliers faced a shortage of vehicles for deliveries, X5 actively developed a pickup and commercial delivery service for suppliers. This service expanded by about 60% versus 2021
The Company improved working conditions for drivers and other employees:
X5 launched a road safety portal. Portal data indicates that preventive measures are taken in a timely manner, including additional driver training
The Company equipped more than 60% of its fleet with the Antison (anti-sleep) system, which brought down the accident rate by an average of 30% for own trucks. Antison monitors the physical condition of drivers behind the wheel as well as the road conditions
As part of ongoing efforts to optimise fuel consumption and reduce emissions:
about 20% of X5’s own fleet has been converted to gas—diesel engines
specific greenhouse gas emissions per square metre of selling space decreased by around 6%
the share of empty runs, taking into account the return of recyclable materials and returnable packaging, decreased by more than 10%
The Company continued to develop X5.Transport, a single digital platform that encompasses AI- and big data—enabled solutions
The Company significantly increased the use of electronic document management in its transport division. Electronic consignment documents for internal shipments undertaken by the Company’s own vehicles were used for more than 90% of the total number of trips
Plans for 2023
Further develop X5.Transport by speeding up processes through automation, expanding channels for fulfilling orders with own and hired vehicles, and deploying convenient services for drivers
Increase efficiency and build expertise in vehicle maintenance and repair, while expanding the network of own repair stations. Build automated accounting and repair analysis systems for repair costs
Further develop electronic document management, digitalise the remaining documentation, and create an electronic waybill and electronic service applications
Continue testing and adopting alternative fuel vehicles and launch a pilot project for the use of electric trucks
Expand the Company’s delivery footprint, including in the Far East of Russia
Expand strategic partnerships with major transport companies
Focus on ESG: reducing empty runs and responsibly consuming resources (water, energy and waste)
Direct imports
Key achievements for direct imports in 2022
We continued to develop our own infrastructure throughout 2022 by signing contracts with 3PL warehouses to support growing volumes in beverages, groceries and non-food supplies
The overall increase in direct imports in 2022 stood at 25% in rouble terms, mainly driven by growth in spirits and beverages, fresh and ultra-fresh products, as well as related goods and general merchandise
As at the end of 2022, RVI was Russia’s number one importer of spirits and canned pineapples by volume
We systematically identified alternative supplies to replace the brands that exited the Russian market in 2022, and X5 managed to optimise most of its line-haul supply routes despite geopolitical headwinds. We became the first and only direct import operator in Russia to deliver a pallet ship full of citrus products from Turkey to St Petersburg
Plans for 2023
Further increase the volume of direct imports by 25% year-on-year driven by growth in general merchandise, fruit and vegetables, spirits/beverages, and dry groceries
Improve the efficiency of operations by boosting investment into own and 3PL infrastructure
Explore markets open to trading with Russia amid the changing supplier base
Develop sales and operations planning (S&OP) process
As at 2022-end, our Direct Imports business unit operated four hubs:
Pulkovo
Bogorodsk
Novorossiysk
Yekaterinburg
and 3PL facilities
Total share of direct imports, % of cost of sales
X5 Technologies
X5 Technologies (X5 Tech) is the key digital partner of X5 Group’s retail chains and businesses. X5 Tech offers solutions that help millions of people purchase their favourite food items — fresh and at the best price — every day. IT X5 Technologies LLC is an accredited IT company.
At present, its team is focused on generating proprietary, vendor-agnostic solutions and products. The company’s core expertise is in developing software, databases, data assets, and products driven by big data while also enhancing our own IT team.
X5 Tech: Digital solutions for people and business
X5 Tech’s key objective is to ensure business continuity by engineering digital solutions for X5 Group businesses and partners. X5 Tech works to help the Group’s businesses offer the best product assortment, quality, prices, and service to customers. To achieve this, X5 designs and enhances integrated digital solutions informed by extensive user experience research. IT solutions for managing the Group’s internal processes lead to stronger performance, including in its engagements with partners. X5 Tech also has in place a standalone team that generates IT solutions to support basic processes, accounting and regulatory compliance.
X5 Tech offers a full development cycle for business, from running requirements analysis and building architecture, to commissioning a finished solution and providing support post-delivery.
key 2022 highlights
>26MLN
Users have registered in X5 ID identification system
+4ths
Members
The number of users of X5 Group’s analytical reporting tools has tripled
+35%
X5 Tech’s attractiveness growth
in the Top 50 IT Brands to Work For ranking compiled by Habr and ECOPSY Consulting
3
New platforms enabled by our proprietary solutions and partner technologies have been introduced
a loyalty programme, store and checkout management and SAP BW analytical reporting
<1day
Average time for capacity allocation
With the rollout of the X5 Cloud platform, the average time for capacity allocation was cut from 21 days to less than a day
Significant improvements in data quality were achieved across key areas of focus
Products
from
6
to
58
Customers
from
59
to
78
One of our key objectives for 2022 was to ensure business continuity by maintaining the stable operation of existing technologies and launching import substitution and proprietary technology projects. The Company has created software solutions and services to ensure the continuity of its critical processes around reporting, customer analytics, employee activities, and much more.
In May 2022, X5 Group launched a proprietary cloud platform. The private-cloud platform, known as Salt, was enabled by open source and proprietary solutions. This cloud platform reduces the total cost of ownership for our IT infrastructure while cutting time-to-market for digital projects and reducing their carbon footprint by leveraging green energy-efficient technologies at state-of-the-art data centres operated by X5 and Selectel.
Salt is much more than a collection of infrastructure and platform management services: it also offers a set of automated processes that allow digital projects to quickly launch in the cloud with all the necessary security settings. Salt relies on a new approach to data security, which ensures a high level of data protection without sacrificing convenience and efficiency for the user. Certain components of the platform are provided to X5’s internal customers as a service, including data centre as a service for data storage and processing, offering up to 99.9% availability.
By launching Salt and hosting its cloud at our partners’ high-tech data centres, X5 is building a new approach to infrastructure operation.
We have launched an integration platform and developed high-load services that are used in more than 60 products/projects.
In June 2022, X5 Group launched a new processing system for its loyalty programme based on home-grown technologies. By late 2022, over 19,500 stores had migrated to the new processing system while the number of active loyalty programme members hit 70 million.
The new loyalty programme processing system was launched by X5’s technology team on a platform developed by a Russian company. The platform offers new opportunities to enhance the customer experience, including by introducing uniform customer authorisation standards that remove data overlaps and a proprietary crisis-monitoring system with instant alerts. The new processing system relies on X5’s infrastructure, which ensures the loyalty programme operates seamlessly and protects customer data effectively.
In late 2022, we developed a personal analytics service based on X5 ID for loyalty programme members, enabling customers to analyse their spending at Pyaterochka and Perekrestok retail chains for the whole year.
The product is X5’s proprietary solution, with unprecedented analytics depth for the Russian grocery market. For the first time, X5’s retail chain customers have access to an individual breakdown of their annual spending, as well as statistics on specific items: for example, items that were purchased most often or how many kilos of bananas the customer bought during a certain period. The product’s page also offers information on bonus points earned during the year and how they can be used. The service also helps customers track their spending, savings on promotions and the value they got from bonus points.
In 2023, X5 Technologies will continue overseeing the smooth operation of X5 Group’s businesses by rolling out and enhancing digital solutions and innovations.
Innovations
Despite all the challenges of 2022, X5 Group has maintained its focus on consistently embedding new innovations to enhance its business performance. We have continued strengthening our innovation-driven culture, rolling out advances — whether off-the-shelf products available in the market or proprietary ideas and solutions generated by X5 businesses and teams.
Between 2019 and 2022, the introduction and scaling of innovations delivered RUB 8.6 billion in incremental EBITDA for the Company.
In 2022, we paid particular attention to protecting intellectual property rights to X5’s proprietary solutions. As a result, in 2022, the Company obtained over 20 patents for inventions and utility models, both in Russia and abroad, maintaining its competitive edge.
Import substitution and support for Russia-made solutions were a key priority in 2022. For innovations, this involved us exploring new approaches to replacing process equipment to maintain our business process continuity. Over 1,800 technological equipment units were analysed between March and August 2022. For the majority of our equipment, we also found alternative technologies by Russian and Asian manufacturers, testing and incorporating them into our standards. Our existing innovation policy and fast-track process enabled us to resolve these issues in the shortest possible time.
Innovation scouting
External innovations remain an important source in X5’s drive for new ideas and technology. Scouting areas are selected in partnership with X5’s retail chains, business units and their various functions. Over 2022, technological innovations were scouted out across nine areas: HR, logistics, transport, sustainability, food waste recycling, fruit and vegetable quality, store operations, loyalty programme, and CVM.
Our scouting function also set up a system to engage with Russia’s leading research institutes, universities and technology transfer centres. As a result, over 40 projects for extending the storage life of fruit and vegetables were proposed by research institutes and higher education institutions, with 23 projects selected for future pilot.
In 2022, X5 worked with Internet Initiatives Development Fund (IIDF) to launch Russia’s first and largest sustainability scouting programme. The programme scouted out innovations in carbon reduction, food waste minimisation, sustainable packaging, and social programmes. A total of 156 startups entered the programme funnel. Following a granular analysis, 10 sustainability startups were shortlisted for piloting.
As far as international scouting is concerned, we have built relationships with major accelerators such as Asian LeanSpark and Latin American Liquid Ventures.
Joint innovations
The Retail Innovation Tech Alliance (X5 Group, Beeline, M.Video-Eldorado Group, Hoff, and Magnum Cash & Carry) has also seen considerable changes in waysof working. In early 2022, ROLF, Russia’s leading car dealer, joined the Alliance’s ecosystem as a partner. The Alliance has grown significantly through new partnerships in technology (VK and Yandex Cloud) and venture capital (Syndicate Venture Club and United Investors) as well as with the Moscow Innovation Cluster and research communities across the country’s research institutes and universities (Technovery). The Alliance’s expansion was focused on creating a supportive environment for retail tech startups to emerge and develop. The New Horizons programme was developed in the summer of 2022 to scout out technologies for the Alliance in new markets. Instead of wider scouting initiatives, the programme offers tech-watching and trend-watching across the greatest focus areas for the Alliance’s functional teams.
For tech-watching, the Alliance has selected Russia’s leading scouting partners: GoTech Innovation, IIDF, LOGA Group, Startech.vc, Dsight, and SOLYANKA,with 23 scouting areas assigned among them. In this way, the Alliance is supporting and enhancing Russia’s innovation ecosystem.
Today, the Retail Innovation Tech Alliance is a major source of external solu-tions for X5.
Fostering intrapreneurship and working with students
Our internal innovation engine, the X5 Idea Challenge programme, has become a key tool for boosting our business performance. In 2022, the Company began to reap the results of pilots launched in 2021. A third of the Innovation Department’s impact on X5’s EBITDA was generated by this programme.
Despite last year’s challenges, in September, we launched a third wave of internal innovations, X5 Idea Challenge 3.0, gathering 309 ideas. The total audience of the programme’s three waves exceeded 1,000 people. Over 450 employees from various units of X5 Group took part in the acceleration programme. Different Russian regions are strongly involved in the project, with most participants coming from Moscow, St Petersburg, Nizhny Novgorod, Voronezh, Yekaterinburg, Chelyabinsk, and Omsk.
A total 897 ideas were generated from the programme’s three waves. Sixteen projects were piloted after the first two waves. Eight pilots have already been successfully completed, confirming they make a positive impact and are ready to be rolled out across our retail chains. Successful teams each received a bonus of RUB 1 million.
X5 Idea Challenge is also a career enhancement programme, identifying, upskilling and training internal candidates — proactive, promising talents with an entrepreneurial mindset. On completion of the programme, almost 40% of participants are promoted, with many of them expanding their competencies and achieving horizontal growth within the Company as experts. We have built a community of internal innovators who now act as change agents across the Company.
Financial review
The financial and operational information contained in this financial review comprises information about X5 Group N.V. and its consolidated subsidiaries (hereinafter jointly referred to as "we", "X5" or the "Company"). The following is a review of our financial condition and results of operations as at 31 December 2022 and for the years ended 31 December 2022 and 31 December 2021.
The consolidated financial statements and related notes thereto are available in "Financial Statements" of this document and were prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union.
Key 2022 highlights
Gross profit margin
24.4 %
IFRS 16
−108 b.p., 2021/22
24.1 %
pre-IFRS 16
−104 b.p., 2021/22
Revenue
2,605 RUB bln
+18.2%, 2021/22
Capital expenditure
82.0 RUB bln
−16.2%, 2021/22
Adjusted EBITDA margin
11.7 %
IFRS 16
−56 b.p., 2021/22
7.3 %
pre-IFRS 16
−17 b.p., 2021/22
Net debt/EBITDA
2.58 х
IFRS 16
1.02 х
pre-IFRS 16
Capital expenditure structure, %
New store openings
IT
Maintenance
Logistics
Refurbishments
Other, including new businesses
Results of operations for the year ended 31 December 2022 compared with the year ended 31 December 2021
The following table and discussion provide a summary of our consolidated results of operations for the years ended 31 December 2022 and 31 December 2021.
Profit and loss statement: highlights
IFRS 16
pre-IFRS 16
Russian roubles (RUB), millions
2022
2021
% change, y-o-y
2022
2021
% change, y-o-y
Revenue
2,605,232
2,204,819
18.2
2,605,232
2,204,819
18.2
incl. net retail sales
2,596,086
2,194,477
18.3
2,596,086
2,194,477
18.3
Pyaterochka
2,122,793
1,793,676
18.3
2,122,793
1,793,676
18.3
Perekrestok
385,495
348,941
10.5
385,495
348,941
10.5
Karusel
15,693
31,742
(50.6)
15,693
31,742
(50.6)
Chizhik
35,892
2,940
12x
35,892
2,940
12x
Gross profit
635,196
561,317
13.2
626,744
553,363
13.3
Gross profit margin, %
24.4
25.5
(108) b.p.
24.1
25.1
(104) b.p.
Adj. SG&A
(352,346)
(314,017)
12.2
(457,640)
(410,205)
11.6
Adj. SG&A, % of revenue
13.5
14.2
(72) b.p.
17.6
18.6
(104) b.p.
Adj. EBITDA
305,529
271,023
12.7
189,468
164,197
15.4
Adj. EBITDA margin, %
11.7
12.3
(56) b.p.
7.3
7.4
(17) b.p.
EBITDA
302,849
267,850
13.1
186,788
161,024
16.0
EBITDA margin, %
11.6
12.1
(52) b.p.
7.2
7.3
(13) b.p.
Operating profit
138,118
117,572
17.5
97,632
84,359
15.7
Operating profit margin, %
5.3
5.3
(3) b.p.
3.7
3.8
(8) b.p.
Adj. net profit
47,210
44,613
5.8
54,270
50,323
7.8
Adj. net profit margin, %
1.8
2.0
(21) b.p.
2.1
2.3
(20) b.p.
Net profit
45,188
42,738
5.7
52,248
48,513
7.7
Net profit margin, %
1.7
1.9
(20) b.p.
2.0
2.2
(19) b.p.
Revenue and net retail sales
In 2022, X5’s revenue increased by 18.2% year-on-year to RUB 2,605 billion. Net retail sales for 2022 grew by 18.3% year-on-year, driven by a 10.8% increase in like-for-like (LFL) sales and a 7.5% sales growth contribution from an 8.3% rise in selling space.
The Company’s proximity store format, Pyaterochka, was the main growth driver in 2022: Pyaterochka’s net retail sales rose by 18.3% year-on-year, driven by a 11.7% increase in LFL sales and a 6.6% contribution to sales growth from a 6.4% expansion in selling space. LFL traffic increased by 3.5% year-on-year, while the LFL basket grew by 7.9% year-on-year.
Perekrestok’s net sales increased by 10.5% in 2022, driven by a 7.1% increase in LFL sales on the back of 7.1% LFL basket growth.
Karusel experienced a 50.6% decline in net retail sales, driven by downsizing as part of the format’s transformation programme.
In 2022, Chizhik’s net sales rose 12x year-on-year. The number of stores reached 517 as at 31 December 2022.
Gross profit
The Company’s gross profit margin under IFRS 16 in 2022 decreased by 108 b.p. year-on-year to 24.4% (decreased by 104 b.p. to 24.1% pre-IFRS 16). The decline was mainly driven by a reduction in commercial margin due to price investments and the aggressive expansion of Chizhik. This is in line with the strategy of hard discounters, which typically operate with lower commercial margins, thus contributing to the overall reduction.
Summary of operating results
2022 net retail sales and sales drivers
% change, y-o-y
Average ticket
Number of customers
Net retail sales
Pyaterochka
7.9
9.9
18.3
Perekrestok
7.1
3.3
10.5
Karusel
5.3
(53.1)
(50.6)
Chizhik
11.0
11x
12x
X5 Group
7.2
10.4
18.3
Selling space (end of period)
square metres
31-Dec-22
31-Dec-21
% change, y-o-y
Pyaterochka
7,497,056
7,048,488
6.4
Perekrestok
1,085,496
1,098,905
(1.2)
Karusel
49,225
128,063
(61.6)
Chizhik
152,370
20,327
7x
X5 Group
9,107,479
8,409,757
8.3
2022 LFLresults
% growth, y-o-y
Sales
Traffic
Basket
Pyaterochka
11.7
3.5
7.9
Perekrestok
7.1
0.0
7.1
Karusel
(14.3)
(16.0)
2.1
X5 Group
10.8
3.1
7.5
Sales of offline and digital businesses
RUB mln
2022
2021
% change, y-o-y
Pyaterochka
2,100,019
1,779,567
18.0
Perekrestok
365,283
337,391
8.3
Karusel
15,693
31,723
(50.5)
Chizhik
35,893
2,940
12x
Offline net sales
2,531,369
2,151,621
17.7
Digital businesses’ net sales
70,354
47,943
46.6
Total net sales
2,601,723
2,199,564
18.3
Adjusted selling, general and administrative (SG&A) expenses
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
% change, y-o-y
2022
2021
% change, y-o-y
Staff costs
(209,940)
(185,572)
13.1
(209,940)
(185,572)
13.1
% of revenue
8.1
8.4
(36) b.p.
8.1
8.4
(36) b.p.
incl. LTI and share-based payments
(2,517)
(3,011)
(16.4)
(2,517)
(3,011)
(16.4)
staff costs excl. LTI, % of revenue
8.0
8.3
(32) b.p.
8.0
8.3
(32) b.p.
Lease expenses
(19,624)
(14,452)
35.8
(117,825)
(105,451)
11.7
% of revenue
0.8
0.7
10 b.p.
4.5
4.8
(26) b.p.
Utilities
(51,309)
(45,539)
12.7
(51,309)
(45,539)
12.7
% of revenue
2.0
2.1
(10) b.p.
2.0
2.1
(10) b.p.
Other store costs
(23,685)
(22,568)
4.9
(24,573)
(23,418)
4.9
% of revenue
0.9
1.0
(11) b.p.
0.9
1.1
(12) b.p.
Third-party services
(20,187)
(22,016)
(8.3)
(19,796)
(21,718)
(8.8)
% of revenue
0.8
1.0
(22) b.p.
0.8
1.0
(23) b.p.
Other expenses
(30,118)
(26,881)
12.0
(36,714)
(31,518)
16.5
% of revenue
1.2
1.2
(6) b.p.
1.4
1.4
(2) b.p.
SG&A (excl. D&A&I and impact from Karusel transformation)
(354,863)
(317,028)
11.9
(460,157)
(413,216)
11.4
% of revenue
13.6
14.4
(76) b.p.
17.7
18.7
(108) b.p.
Adj. SG&A (excl. D&A&I, LTI, share-based payments and impact from Karusel transformation)
(352,346)
(314,017)
12.2
(457,640)
(410,205)
11.6
% of revenue
13.5
14.2
(72) b.p.
17.6
18.6
(104) b.p.
Analysis of selling, general and administrative (SG&A) expenses
In 2022, adjusted SG&A expenses under IFRS 16 as a percentage of revenue decreased year-on-year by 72 b.p. to 13.5% (decreased by 104 b.p. to 17.6% pre-IFRS 16) mainly due to lower staff costs, utilities, other store costs, and third-party services.
Staff costs (excluding LTI and share-based payments) in 2022, as a percentage of revenue, decreased year-on-year by 32 b.p. to 8.0% due to the operating leverage effect as well as a balanced approach to targeted salary increases.
Lease expenses under IFRS 16 as a percentage of revenue in 2022 increased year-on-year by 10 b.p. to 0.8% (decreased by 26 b.p. to 4.5% pre-IFRS 16) mainly due to a higher number of revenue-linked leases and reverse franchising agency fees. The decrease in pre-IFRS 16 lease expenses by 26 b.p. to 4.5% was caused by a positive operating leverage effect and measures taken to reduce lease expenses, partially compensated by a higher number of revenue-linked leases.
Utility costs, as a percentage of revenue in 2022, decreased year-on-year by 10 b.p. to 2.0% driven by operating leverage effect as well as improved control of climate equipment settings and optimisation initiatives.
In 2022, other store costs under IFRS 16 as a percentage of revenue decreased year-on-year by 11 b.p. to 0.9% (decreased by 12 b.p. to 0.9% pre-IFRS 16) mainly due to positive operating leverage effect.
In 2022, third-party services under IFRS 16 as a percentage of revenue decreased year-on-year by 22 b.p. to 0.8% (decreased by 23 b.p. to 0.8% pre-IFRS 16) mainly due to lower marketing expenses.
Other expenses under IFRS 16 as a percentage of revenue decreased year-on-year by 6 b.p., totalling 1.2% (decreased by 2 b.p., totalling 1.4% pre-IFRS 16) mainly due to positive operating leverage effect and measures taken to reduce expenses.
Long-term incentive (LTI) programme
The consolidated financial statements for the year ended 31 December 2022 included accruals for liabilities related to deferred conditional payouts for the LTI programme covering 2018–2020, the new LTI programme for 2021–2023, as well as the new LTI programme for new businesses (Mnogo Lososya, Chizhik and 5Post). In total, RUB 2,517 million was accrued in 2022 for the LTI programme and share-based payments.
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.
The LTI programme’s targets are designed to align the long-term interests of shareholders and management. They focus on maintaining leadership in terms of revenue and enterprise value multiple relative to peers (for 2021), as well as free cash flow relative to revenue (for 2022 and 2023). Additionally, the programme aims to achieve specific ESG targets.
In 2022, the Company re-assessed its strategic priorities and corresponding long-term performance measures and targets. Starting from 2022, the enterprise value multiple is no longer considered a meaningful leadership indicator for X5. Instead, Free Cash Flow is used as a key indicator of the Company’s financial health and effective financial management. Additionally, the LTI programme includes triggers relating to the EBITDA margin pre-IFRS 16 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))
LTI, share-based payments and other one-off remuneration payments expense and SSC
(2,517)
(3,011)
(16.4)
(2,517)
(3,011)
(16.4)
% of revenue
0.1
0.1
(4) b.p.
0.1
0.1
(4) b.p.
Effect of Karusel transformation
(163)
(162)
0.6
(163)
(162)
0.6
% of revenue
(0.01)
(0.01)
(0) b.p.
(0.01)
(0.01)
(0) b.p.
EBITDA
302,849
267,850
13.1
186,788
161,024
16.0
EBITDA margin, %
11.6
12.1
(52) b.p.
7.2
7.3
(13) 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 decreased by 20 b.p. year-on-year, totalling 0.9% (decreased by 17 b.p. year-on-year, totalling 0.8% pre-IFRS 16), driven by lower income from sales of recyclables, lower fixed sublease fees as percentage of revenue and absence of depositary service fee income under the GDR programme.
EBITDA analysis
EBITDA under IFRS 16 in 2022 grew year-on-year by 13.1% and totalled RUB 302,849 million (grew by 16.0% and totalled RUB 186,788 million pre-IFRS 16), while EBITDA margin under IFRS 16 decreased by 52 b.p. year-on-year to 11.6% (decreased by 13 b.p. to 7.2% 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
2022
2021
% change, y-o-y
Revenue
2,124,617
1,795,018
18.4
EBITDA
170,538
145,495
17.2
EBITDA margin, %
8.0
8.1
(8) b.p.
Pyaterochka’s EBITDA margin decreased by 8 b.p. to 8.0% due to lower commercial margin on the back of price investments partially compensated by positive operating leverage effect in logistics and staff costs as well as optimisation of marketing expenses.
Perekrestok (pre-IFRS 16)
RUB mln
2022
2021
% change, y-o-y
Revenue
386,199
351,100
10.0
EBITDA
28,251
24,241
16.5
EBITDA margin, %
7.3
6.9
41 b.p.
Perekrestok’s EBITDA margin increased by 41 b.p. year-on-year in FY 2022 to 7.3% mainly due to increased profitability of own production.
Other segments: Chizhik, Karusel, Vprok.ru, 5Post, Mnogo Lososya, and Krasny Yar and Slata (pre-IFRS 16)
RUB mln
2022
2021
% change, y-o-y
Revenue
94,416
58,701
60.8
EBITDA
(5,963)
(4,369)
36.5
EBITDA margin, %
(6.3)
(7.4)
113 b.p.
Negative EBITDA of Other segments improved by 113 b.p. year-on-year in FY 2022 to —6.3% driven by increasing efficiency of 5Post, Vprok.ru and Mnogo Lososya and consolidation of positive EBITDA of Krasny Yar and Slata.
Corporate Centre (pre-IFRS 16)
RUB mln
2022
2021
% change, y-o-y
EBITDA
(6,038)
(4,343)
39.0
Corporate expenses increased by 39.0% year-on-year in 2022 due to the absence of depositary service fee income under GDR programme and investments into information security.
Depreciation, amortisation and impairment costs
Depreciation, amortisation and impairment costs under IFRS 16 in 2022 totalled RUB 164,731 million (RUB 89,156 million pre-IFRS 16), decreasing as a percentage of revenue by 49 b.p. year-on-year to 6.3% (decreasing by 5 b.p. to 3.4% pre-IFRS 16). The change was primarily driven by a decrease in the depreciation of right-of-use assets, which resulted from an increased discount rate, as well as a positive operating leverage effect.
Non-operating gains and losses
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
% change, y-o-y
2022
2021
% change, y-o-y
Operating profit
138,118
117,572
17.5
97,632
84,359
15.7
Operating profit margin, %
5.3
5.3
(3) b.p.
3.7
3.8
(8) b.p.
Net finance costs
(68,417)
(57,229)
19.5
(18,439)
(16,569)
11.3
Net FX result
(2,032)
399
n/a
(2,699)
175
n/a
Profit before tax
67,669
60,742
11.4
76,494
67,965
12.5
Income tax expense
(22,481)
(18,004)
24.9
(24,246)
(19,452)
24.6
Net profit
45,188
42,738
5.7
52,248
48,513
7.7
Net profit margin, %
1.7
1.9
(20) b.p.
2.0
2.2
(19) b.p.
Effect of Karusel transformation and tax accrual relatedto X5’s reorganisation in previous periods
2,022
1,875
7.9
2,022
1,810
11.7
% of revenue
0.1
0.1
(1) b.p.
0.1
0.1
(0) b.p.
Adj. net profit
47,210
44,613
5.8
54,270
50,323
7.8
Adj. net profit margin, %
1.8
2.0
(21) b.p.
2.1
2.3
(20) b.p.
Analysis of non-operating gains and losses
Net finance costs under IFRS 16 in 2022 amounted to RUB 68,417 million, a 19.5% increase from 2022 (RUB 18,439 million, a 11.3% increase from 2020 pre-IFRS 16) driven by increasing interest rates in Russian capital markets and increasing interest on lease liabilities partially compensated by interest income on short-term financial investments. Under pre-IFRS 16, the increase is driven by increasing interest rates partially compensated by interest income on short-term investments.
The net FX result reflects the volatility of the rouble exchange rate.
Income tax expenses under IFRS 16 increased by 24.9% in 2022. In 2022, X5’s effective tax rate under IFRS 16 increased to 33.2% from 29.6% in 2021 (increased to 31.7% from 28.6% in 2021 pre-IFRS 16), due to one-off effects.
Net profit in 2022 under IFRS 16 included one-off adjustments totalling RUB 2,022 million (RUB 2,022 million pre-IFRS 16) related to the Karusel transformation and a tax accrual related to X5’s reorganisation in prior periods.
Consolidated cash flow
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
% change, y-o-y
2022
2021
% change, y-o-y
Net cash from operating activities before changes in working capital
300,768
265,528
13.3
187,026
161,387
15.9
Change in working capital
5,924
32,415
(81.7)
4,088
32,244
(87.3)
Net interest and income tax paid
(85,768)
(70,481)
21.7
(35,887)
(29,919)
19.9
Net cash flows generated from operating activities
220,924
227,462
(2.9)
155,227
163,712
(5.2)
Adj. net cash used in investment activities
(75,978)
(89,435)
(15.0)
(76,295)
(90,295)
(15.5)
Short-term financial investments
−
(50,000)
n/a
−
(50,000)
n/a
Net cash used in financing activities
(127,655)
(81,890)
55.9
(61,641)
(17,280)
256.7
Effect of exchange rate changes on cash and cash equivalents
(98)
(83)
18.1
(98)
(83)
18.1
Net increase/(decrease) in cash and cash equivalents
17,193
6,054
184.0
17,193
6,054
184.0
Сash flow analysis
In 2022, the Company’s net cash from operating activities before changes in working capital under IFRS 16 increased by RUB 35,240 million, or 13.3%, year-on-year, totalling RUB 300,768 million (increased by RUB 25,639 million, or 15.9%, totalling RUB 187,026 million pre-IFRS 16) and reflecting the overall business growth. Changes in working capital under IFRS 16 totalled RUB 5,924 million in 2022 compared with RUB 32,415 million in 2021. Under pre-IFRS 16, changes in working capital in 2022 totalled RUB 4,088 million compared with RUB 32,244 million in 2021. The decrease in the positive change in working capital was mainly caused by a higher increase in inventories resulting from business growth. Additionally, the lower increase in accounts payable was due to earlier stockpiling and payments before the New Year season. This was partially offset by a higher increase in other accounts payable.
Net interest and income tax paid under IFRS 16 in 2021 increased year-on-year by RUB 15,287 million, or 21.7%, totalling RUB 85,768 million (increased by RUB 5,968 million, or 19.9%, totalling RUB 35,887 million pre-IFRS 16), driven by a higher profit before tax, lower available prepayments made in previous periods and higher interest paid due to increasing interest rates in the Russian capital markets. This was partially offset by interest income from short-term financial investments. As a result, in 2022 net cash flows generated from operating activities increased to RUB 220,924 million under IFRS 16 (RUB 155,227 million pre-IFRS 16), compared with RUB 227,462 million under IFRS 16 (RUB 163,712 million pre-IFRS 16) for the same period in 2021.
Net cash used in investing activities under IFRS 16, which generally consists of payments for property, plant and equipment, totalled RUB 75,978 million in 2022, compared with RUB 89,435 million (RUB 76,295 in 2022 compared with RUB 90,295 million in 2021 pre-IFRS 16) in 2021.
Net cash used in financing activities under IFRS 16 totalled RUB 127,655 million (RUB 61,641 million pre-IFRS 16) in 2022, compared with RUB 81,890 million under IFRS 16 (RUB 17,280 million pre-IFRS 16) in 2021.
Liquidity analysis
As at 31 December 2022, the Company’s total debt pre-IFRS 16 amounted to RUB 234,532 million, 37.2% of which was short-term debt and 62.8% was long-term debt. The Company’s debt is 100% denominated in Russian roubles. As at 31 December 2022, the majority of X5’s debt had fixed interest rates.
As at 31 December 2022, the Company had access to RUB 475,020 million in available credit limits with major banks.
Liquidity update
RUB mln
31-Dec-22
% of total
31-Dec-21
% of total
31-Dec-20
% of total
Total financial debt
234,532
294,338
261,947
Short-term borrowings
87,146
37.2
87,767
29.8
77,026
29.4
Long-term borrowings
147,386
62.8
206,571
70.2
184,921
70.6
Net debt (pre-IFRS 16)
191,277
268,276
241,939
Net debt/EBITDA (pre-IFRS 16)
1.02x
1.67x
1.67x
Lease liabilities (IFRS 16)
591,160
577,363
548,501
Net debt/EBITDA (IFRS 16)
2.58x
3.16x
3.24x
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 and Markets Authority (ESMA) 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.
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 long-term incentive (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.
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
2022
2021
EBITDA
302,849
267,850
186,788
161,024
Adjustments:
LTI, share-based payments and other one-off remuneration payments expense and SSC
2,517
3,011
2,517
3,011
Effect of Karusel transformation
163
162
163
162
Adj. EBITDA
305,529
271,023
189,468
164,197
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
2022
2021
Revenue
2,605,232
2,204,819
2,605,232
2,204,819
Adj. EBITDA
305,529
271,023
189,468
164,197
Adj. EBITDA margin, %
11.7
12.3
7.3
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.
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
2022
2021
Net profit
45,188
42,738
52,248
48,513
Adjustments:
Effect of Karusel transformation and tax accrual related to X5’s reorganisation in previous periods
2,022
1,875
2,022
1,810
Adj. net profit
47,210
44,613
54,270
50,323
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
2022
2021
Revenue
2,605,232
2,204,819
2,605,232
2,204,819
Adj. net profit
47,210
44,613
54,270
50,323
Adj. net profit margin, %
1.8
2.0
2.1
2.3
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.
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
2022
2021
SG&A
519,757
467,468
549,476
490,043
Adjustments:
LTI, share-based payments and other one-off remuneration payments expense and SSC
(2,517)
(3,011)
(2,517)
(3,011)
Effect of Karusel transformation
(163)
(162)
(163)
(162)
Depreciation, amortisation and impairment
(164,731)
(150,278)
(89,156)
(76,665)
Adjusted SG&A
352,346
314,017
457,640
410,205
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
2022
2021
Revenue
2,605,232
2,204,819
2,605,232
2,204,819
Adjusted SG&A
352,346
314,017
457,640
410,205
Adjusted SG&A expenses as % of revenue
13.5
14.2
17.6
18.6
Adjusted net cash used in investing activities
Adjusted net cash used in investing activities is a measure of the Company’s cash generation or spending from various investment-related activities in a specific period. It is a way to evaluate the change in a company’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 Company’s performance.
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
2022
2021
Net cash used in investing activities
75,978
139,435
76,295
140,295
Adjustments:
Short-term financial investments
−
(50,000)
−
(50,000)
Adjusted net cash used in investing activities
75,978
89,435
76,295
90,295
Adjusted FCF
Adjusted free cash flow is a measure of the Company’s cash generation. It is a way to evaluate the Company’s cash generation after taking into consideration cash outflows that support its operations and maintain its capital assets. X5 believes that showing adjusted free cash flow provides a more accurate reflection of the Company’s performance.
IFRS 16
pre-IFRS 16
RUB mln
2022
2021
2022
2021
FCF
144,946
88,027
78,932
23,417
Adjustments:
Payments for financial assets
−
50,000
−
50,000
Adjusted FCF
144,946
138,027
78,932
73,417
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 company is using its capital to generate profits.
IFRS 16
pre-IFRS 16
2022
2021
2022
2021
NOPAT
92,232
82,724
66,686
60,215
Invested capital (average equity + net debt)
874,378
884,229
360,029
384,793
ROIC
10.5%
9.4%
18.5%
15.6%
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.
IFRS 16
pre-IFRS 16
2022
2021
2022
2021
NOPAT
92,232
82,724
66,686
60,215
Adjustments:
Effect of Karusel transformation, tax on investments and tax accrual related to X5’s reorganisation in previous periods
3,721
7,739
2,502
5,439
Adjusted NOPAT
95,953
90,462
69,188
65,654
Invested capital (average equity + net debt)
874,378
884,229
360,029
384,793
Adjusted ROIC
11.0%
10.2%
19.2%
17.1%
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.
IFRS 16
pre-IFRS 16
31-Dec-22
31-Dec-21
31-Dec-22
31-Dec-21
Total debt, incl.:
234,532
294,338
234,532
294,338
Short-term borrowings
87,146
87,767
87,146
87,767
Long-term borrowings
147,386
206,571
147,386
206,571
Lease liabilities
591,160
577,363
−
−
Cash and cash equivalents
43,255
26,062
43,255
26,062
Net debt
782,437
845,639
191,277
268,276
EBITDA
302,849
267,850
186,788
161,024
Net debt/EBITDA
2.58x
3.16x
1.02x
1.67x
Net retail sales
Net retail sales show 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
2022
2021
Revenue
2,605,232
2,204,819
Adjustments:
Revenue from wholesale operations and other services
(9.136)
(10.335)
Revenue from franchise services
(10)
(7)
Net retail sales
2,596,086
2,194,477
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.
%
2022
2021
Net retail sales growth
18.3
11.2
Less contribution from an increase in selling space
7.5
6.1
LFL
10.8
5.1
Sustainability strategy
Our approach
We aim to develop X5 Group as a profitable, sustainable enterprise that is able to satisfy the needs and demands of Russian shoppers by bringing them the top products on the market and best-in-class service in user-friendly online and offline food retail formats.
Throughout 2022, we embedded a sustainability-led approach into our business strategy by focusing on objectives linked to the United Nations Sustainable Development Goals (UN SDGs) that we consider most relevant to our operations: these include Zero Hunger, Good Health and Well-being, Decent Work and Economic Growth, as well as Responsible Consumption and Production. Our sustainability goals also align with the national development goals of the Russian Federation: Goal 12 correlates with the national goal of developing a comfortable and safe living environment; Goals 2 and 3 correlate with the national goal of preservation of the population, health and welfare of people; and Goal 8 correlates with the national goal of decent, efficient labor and successful entrepreneurship. We are also mindful of the UN SDGs indirectly related to the Company’s activities, and we pursue targeted actions to achieve them.
Long-term sustainability is the prime factor in shaping our ESG framework, and we have taken into consideration the interests of stakeholders and our potential risks first and foremost.
X5 aspires to make its food products available to everyone. We analyse our food supply chain to explore how we can make it more cost-efficient and less harmful in terms of food and solid waste generation, greenhouse gas emissions and air pollution. We pay particular attention to supplier accountability and recognise our vital role in promoting responsible practices among SMEs.
This vision is reflected in the agendas for our Supervisory Board meetings and the Company’s decisions, including those made regarding annual investments in achieving sustainability goals and other related activities.
X5 Group has already published two GRI-compliant Sustainability Reports — which are available online — and intends to release its third report in the first half of 2023.
At X5’s regular Supervisory Board meetings, the Supervisory Board and the Executive Board discuss strategy execution, progress on sustainability goals and the main associated risks.
To hit our sustainability objectives more rapidly and effectively, we keep a close eye on emerging technologies and business models. Before tapping into innovations, we check if they are worthwhile and launch pilot projects. Notably, we analyse the trends in AI and technologies designed to reduce waste, carbon footprint, and product losses on the way to customers. Improvements in our digital platforms and online retail, coupled with our new hard discounter chain Chizhik, clearly evidence the Company’s ongoing strategic efforts to achieve its sustainability goals.
Our approach to sustainability management leans upon the recommendations of the Corporate Sustainability Reporting Directive (CSRD). Going forward, key Company disclosures will be based on this Directive, and all disclosures will be fully CSRD-compliant by 2025.
This Directive should allow for more thorough and standardised ESG disclosures, independent verification and auditing.
This year, the Company kicked off work to prepare for disclosures under the EU Taxonomy for Sustainable Activities (Regulation (EU) 2020/852 of 18 June 2020).
To be classified as a sustainable economic activity according to the EU Taxonomy Regulation, a company must evaluate its business activities and prove that it:
contributes to one of the six environmental objectives;
does ‘no significant harm’ (DNSH) to any of the six environmental objectives;
meets ‘minimum safeguards’, such as the UN Guiding Principles on Business and Human Rights, to not exert a negative social impact, and
complies with the technical screening criteria developed by the EU Technical Expert Group
X5 Group disclosed activities that contribute to one of the six environmental objectives in its — 2021 Sustainability Report.
The Company found the following activities eligible:
Freight rail transport
Freight transport services by road
Renovation of existing buildings
The Company is also working on disclosures on the other Taxonomy objectives.
Changes in our strategic goals through 2022
The Supervisory Board meeting held in September 2022 took a decision to revise the sustainability goals in light of the changes in business practices:
It was decided to alter our 2023 food waste goal (to send wasted merchandise for disposal or recycling) and to revise the 40% target down to 20% due to the low availability of food waste recycling technology
The quantitative goal for supply chain responsibility was replaced with a qualitative one, as most international certification has been suspended in Russia
Sustainability strategy and UN SDGs
Throughout 2022, X5 Group expanded its efforts to contribute to the 17 UN SDGs in line with its Sustainability Strategy. We remain committed to our sustainable development framework and consider it critical for achieving our short- and long-term business goals.
The Company’s ambitious 30×30 agenda aims at lowering greenhouse gas emissions per square metre of retail space, as well as the ratio of waste generated to retail sales by 30%, respectively, while increasing renewable energy use in X5 operations to 30%. This is our straightforward goal by 2030.
The following section provides an overview of our key goals and achievements over the course of 2022. Further information, including an ESG Databook, is available at https://esg.x5.ru.
Priority
Relevant UN SDGs primary and secondary goals
Goals for 2023
Goals through 2030
Initiatives throughout 2022
health
Focus
Increase the share of fresh produce, fruits and vegetables in our assortment to 44% at Pyaterochka and to 50% at Perekrestok
Develop principles and practices for monitoring suppliers’ responsible sourcing of goods
Expanding the Green Line product mix by 148 SKUs at Perekrestok, including healthy products like gluten-free bread, milk alternatives, healthy sweets, and more.
Continue to develop the product quality control system
Develop principles and practices for monitoring suppliers’ responsible sourcing of goods
Auditing Pyaterochka’s private label manufacturers (PLMs) and fruit and vegetable suppliers.
Establishing independent third-party quality control in Chizhik stores.
Adopting the Corrective Action Plan at Chizhik stores based on the audit recommendations for production compliance with X5 checklist requirements.
Increase the share of customers who believe that X5’s retail chains help them lead a healthy lifestyle
Expand our range of products for a healthy lifestyle
Our eco-activities:
Three health and wellness festivals with healthy food offerings at Perekrestok stores: over 100,000 people visited the festivals, where they could buy healthy products and win prizes.
Perekrestok, Bite, and Epica’s nationwide Champion Marathon: people all over Russia had the opportunity to take up running or working out under special fitness programmes developed by professional trainers.
Pyaterochka’s healthy lifestyle awareness-raising campaign (in collaboration with Rospotrebnadzor and the Federal Research Centre of Nutrition, Biotechnology and Food Safety) promoted healthy eating habits on our social media.
Launching and supporting Food.ru, an edutainment media platform dedicated to healthy eating and lifestyle.
Expand the range of products for a healthy lifestyle
Expand our range of products for a healthy lifestyle
Launching a pilot category — Farm — at Perekrestok stores. Eight Perekrestok stores in Moscow filled sections of an aisle with farm products such as cottage cheese, dairy products, and meat.
Installing special aisles with healthy offerings in Perekrestok stores.
planet
Focus
Indirect
Reduce GHG emissions (Scope 1 and Scope 2) intensity per sqm of selling space by 10% compared with 2019
Reduce GHG emissions (Scope 1 and Scope 2) intensity per sqm of selling space by 30% compared with 2019
Converting 20% of the vehicle fleet to gas and diesel hybrid engines.
Using light-duty trucks and optimising mileage per journey.
Deploying a standard for opening and refurbishing distribution centres and retail chains with climate-neutral equipment.
Reduce the ratio of waste generated to retail sales by up to 10% compared with 2019
Reduce the ratio of waste generated to retail sales by 30% compared with 2019
Returning some pallets to the supplier and repairing pallets in DCs for reuse by Pyaterochka, Perekrestok and Chizhik.
Launching the centralised collection of recyclables from Perekrestok stores back to DCs.
Deploying projects for donating wasted products to farms and expiring-but-still-fit products to charities.
Collecting recyclable items from consumers (batteries, aerosol cans, PET bottles, aluminium cans, and plastic caps).
Introducing paperless receipts at Perekrestok and Pyaterochka.
Increase the share of recyclable solid waste generated by our retail chains that is sent for recycling to up to 95%
Evaluating the Waste Minimisation Policy against new laws.
Getting on the innovation track to seek various waste recycling solutions.
Changing workflows to accept and collect recyclables at Pyaterochka and Perekrestok; automated accounting.
Increase the share of non-expired food waste sent for reprocessing to up to 20%
Launched Foodsharing, a new aid programme integrated into Pyaterochka and Perekrestok retail chain stores and covering several cities, such as Moscow, Saint Petersburg, Chelyabinsk, Ryazan, Yekaterinburg, and Tomsk.
Deploying Regional Food Aid Centres to streamline the infrastructure for allocating the necessary food volumes and develop an effective system for delivering food to people in need in collaboration with regional authorities, NGOs and charities.
Developing a project for transferring non-expired products that is no longer saleable to farms.
Developing new projects and identifying potential food waste recycling contractors (sending waste for composting, worm composting, fertilisation, etc.)
Increase the share of private label goods in environmentally friendly packaging to 50% or more
Shifting Green Line products (Perekrestok’s private label) to sustainable packaging; for example, lemonades were repackaged from Tetra Pak and PET into glass containers (similar to Tetra Pak milk).
Using sustainable packaging for Chizhik private label goods. The share of such packaging amounted to about 70% in 2022, almost flat on 2021 despite an increase in packaging types.
Increase the use of renewable energy in our operations
Increase share of renewable energy used in our operations to 30%
Connecting 13 facilities to Pyaterochka’s renewable energy programme in the Republic of Karelia. A total 39 out of 115 facilities (about 34%) in the Karelia Division are powered by renewable energy sources.
Operating 11 Company DCs using low-carbon energy sources.
Develop principles and practices for tracing suppliers’ responsible sourcing of goods
Co-developing a voluntary sustainable packaging standard.
Sharing sustainability ideas with suppliers through an ever-improving tool — the supplier platform — as well as communicating with them at events, seminars and webinars.
community
Focus
Double the number of families receiving food aid through the Basket of Kindness project compared with 2019
Increase the annual growth rate in the number of families receiving assistance through the Basket of Kindness programme up to 30% per year
Collecting and distributing food to people in need across the country under the Basket of Kindness project. We distributed over 518 tonnes of products in 2022, almost 1.5x more than in 2021.
Engage all stores in Help for Lost People programme
Helping around 1,200 lost or disoriented people get back home thanks to the actions of Pyaterochka and Perekrestok store employees and volunteers from the LizaAlert search and rescue team.
Growing Chizhik to help more people buy high-quality and affordable food.
Elevating Pyaterochka’s Local Community Centres project. Our stores held workshops, lectures, creative competitions, and charity events for locals. Throughout 2022, Local Community Centres averaged over 2,500 events per month, totalling about 60,000 participants.
Supporting a Pyaterochka social impact project to prevent obesity among 6–9 year-olds in the Sverdlovsk Region under the Care for the Community programme. The project was backed by the regional government, VEB.RF and the Ministry of Health of the Sverdlovsk Region.
Develop partnership programmes with small and medium-sized businesses, farmers and local producers
Launching the Farmer Zones project in collaboration with RSMB Corporation. Several regions feature more than 20 zones with over 200 farmers supplying their products.
employees
Focus
Indirect
Achieve an employee engagement rate above 75%
In 2022, engagement was not measured, but in 2021 the indicator was higher than the stated goal and totalled 82.5%. In 2023, the Company plans to measure the indicator again.
In 2022, the Company conducted an eNPS measurement: the indicator reached 40.9%, which is 11 p.p. higher compared to the previous period.
Become the leading food retailer in rankings of Russian employers
Maintain our #1 position among food retailers in rankings of Russian employers
Running programmes to make the Company more attractive to young people.
Received Platinum status in Forbes rating of the best employers in Russia in 2022.
Increasing the Company’s average salary by 11%.
Create a safe, healthy workspace for all employees
Ensure the introduction of an appropriate standard for a safe, healthy workspace for all employees
The Company redeveloped and launched a health and safety induction course (mandatory for office workers) following changes in Russian laws and regulations.
Training, holding external and internal occupational safety events, and auditing relevant courses.
Rethinking the way goods are moved from the warehouse to the ramp at Vprok.ru, reducing the total weight loaded on the trolley so that two people can move it.
Implementing the WISE programme (a series of interactive events and videos on health and safety in common areas) at Perekrestok DCs to raise the occupational safety culture.
Piloting a project at Pyaterochka to introduce electric warehouse trolleys in stores, significantly reducing the effort needed to unload vehicles and meeting female labour regulations.
Relevant UN SDGs primary and secondary goals
Focus
Goals for 2023
Increase the share of fresh produce, fruits and vegetables in our assortment to 44% at Pyaterochka and to 50% at Perekrestok
Goals through 2030
Develop principles and practices for monitoring suppliers’ responsible sourcing of goods
Initiatives throughout 2022
Expanding the Green Line product mix by 148 SKUs at Perekrestok, including healthy products like gluten-free bread, milk alternatives, healthy sweets, and more.
Continue to develop the product quality control system
Goals through 2030
Develop principles and practices for monitoring suppliers’ responsible sourcing of goods
Initiatives throughout 2022
Auditing Pyaterochka’s private label manufacturers (PLMs) and fruit and vegetable suppliers.
Establishing independent third-party quality control in Chizhik stores.
Adopting the Corrective Action Plan at Chizhik stores based on the audit recommendations for production compliance with X5 checklist requirements.
Increase the share of customers who believe that X5’s retail chains help them lead a healthy lifestyle
Goals through 2030
Expand our range of products for a healthy lifestyle
Initiatives throughout 2022
Our eco-activities:
Three health and wellness festivals with healthy food offerings at Perekrestok stores: over 100,000 people visited the festivals, where they could buy healthy products and win prizes.
Perekrestok, Bite, and Epica’s nationwide Champion Marathon: people all over Russia had the opportunity to take up running or working out under special fitness programmes developed by professional trainers.
Pyaterochka’s healthy lifestyle awareness-raising campaign (in collaboration with Rospotrebnadzor and the Federal Research Centre of Nutrition, Biotechnology and Food Safety) promoted healthy eating habits on our social media.
Launching and supporting Food.ru, an edutainment media platform dedicated to healthy eating and lifestyle.
Expand the range of products for a healthy lifestyle
Goals through 2030
Expand our range of products for a healthy lifestyle
Initiatives throughout 2022
Launching a pilot category — Farm — at Perekrestok stores. Eight Perekrestok stores in Moscow filled sections of an aisle with farm products such as cottage cheese, dairy products, and meat.
Installing special aisles with healthy offerings in Perekrestok stores.
Relevant UN SDGs primary and secondary goals
Focus
Indirect
Goals for 2023
Reduce GHG emissions (Scope 1 and Scope 2) intensity per sqm of selling space by 10% compared with 2019
Goals through 2030
Reduce GHG emissions (Scope 1 and Scope 2) intensity per sqm of selling space by 30% compared with 2019
Initiatives throughout 2022
Converting 20% of the vehicle fleet to gas and diesel hybrid engines.
Using light-duty trucks and optimising mileage per journey.
Deploying a standard for opening and refurbishing distribution centres and retail chains with climate-neutral equipment.
Reduce the ratio of waste generated to retail sales by up to 10% compared with 2019
Goals through 2030
Reduce the ratio of waste generated to retail sales by 30% compared with 2019
Initiatives throughout 2022
Returning some pallets to the supplier and repairing pallets in DCs for reuse by Pyaterochka, Perekrestok and Chizhik.
Launching the centralised collection of recyclables from Perekrestok stores back to DCs.
Deploying projects for donating wasted products to farms and expiring-but-still-fit products to charities.
Collecting recyclable items from consumers (batteries, aerosol cans, PET bottles, aluminium cans, and plastic caps).
Introducing paperless receipts at Perekrestok and Pyaterochka.
Increase the share of recyclable solid waste generated by our retail chains that is sent for recycling to up to 95%
Goals through 2030
Initiatives throughout 2022
Evaluating the Waste Minimisation Policy against new laws.
Getting on the innovation track to seek various waste recycling solutions.
Changing workflows to accept and collect recyclables at Pyaterochka and Perekrestok; automated accounting.
Increase the share of non-expired food waste sent for reprocessing to up to 20%
Goals through 2030
Initiatives throughout 2022
Launched Foodsharing, a new aid programme integrated into Pyaterochka and Perekrestok retail chain stores and covering several cities, such as Moscow, Saint Petersburg, Chelyabinsk, Ryazan, Yekaterinburg, and Tomsk.
Deploying Regional Food Aid Centres to streamline the infrastructure for allocating the necessary food volumes and develop an effective system for delivering food to people in need in collaboration with regional authorities, NGOs and charities.
Developing a project for transferring non-expired products that is no longer saleable to farms.
Developing new projects and identifying potential food waste recycling contractors (sending waste for composting, worm composting, fertilisation, etc.)
Increase the share of private label goods in environmentally friendly packaging to 50% or more
Goals through 2030
Initiatives throughout 2022
Shifting Green Line products (Perekrestok’s private label) to sustainable packaging; for example, lemonades were repackaged from Tetra Pak and PET into glass containers (similar to Tetra Pak milk).
Using sustainable packaging for Chizhik private label goods. The share of such packaging amounted to about 70% in 2022, almost flat on 2021 despite an increase in packaging types.
Increase the use of renewable energy in our operations
Goals through 2030
Increase share of renewable energy used in our operations to 30%
Initiatives throughout 2022
Connecting 13 facilities to Pyaterochka’s renewable energy programme in the Republic of Karelia. A total 39 out of 115 facilities (about 34%) in the Karelia Division are powered by renewable energy sources.
Operating 11 Company DCs using low-carbon energy sources.
Develop principles and practices for tracing suppliers’ responsible sourcing of goods
Goals through 2030
Initiatives throughout 2022
Co-developing a voluntary sustainable packaging standard.
Sharing sustainability ideas with suppliers through an ever-improving tool — the supplier platform — as well as communicating with them at events, seminars and webinars.
Relevant UN SDGs primary and secondary goals
Focus
Goals for 2023
Double the number of families receiving food aid through the Basket of Kindness project compared with 2019
Goals through 2030
Increase the annual growth rate in the number of families receiving assistance through the Basket of Kindness programme up to 30% per year
Initiatives throughout 2022
Collecting and distributing food to people in need across the country under the Basket of Kindness project. We distributed over 518 tonnes of products in 2022, almost 1.5x more than in 2021.
Engage all stores in Help for Lost People programme
Goals through 2030
Initiatives throughout 2022
Helping around 1,200 lost or disoriented people get back home thanks to the actions of Pyaterochka and Perekrestok store employees and volunteers from the LizaAlert search and rescue team.
Growing Chizhik to help more people buy high-quality and affordable food.
Elevating Pyaterochka’s Local Community Centres project. Our stores held workshops, lectures, creative competitions, and charity events for locals. Throughout 2022, Local Community Centres averaged over 2,500 events per month, totalling about 60,000 participants.
Supporting a Pyaterochka social impact project to prevent obesity among 6–9 year-olds in the Sverdlovsk Region under the Care for the Community programme. The project was backed by the regional government, VEB.RF and the Ministry of Health of the Sverdlovsk Region.
Develop partnership programmes with small and medium-sized businesses, farmers and local producers
Goals through 2030
Initiatives throughout 2022
Launching the Farmer Zones project in collaboration with RSMB Corporation. Several regions feature more than 20 zones with over 200 farmers supplying their products.
Relevant UN SDGs primary and secondary goals
Focus
Indirect
Goals for 2023
Achieve an employee engagement rate above 75%
Goals through 2030
Initiatives throughout 2022
In 2022, engagement was not measured, but in 2021 the indicator was higher than the stated goal and totalled 82.5%. In 2023, the Company plans to measure the indicator again.
In 2022, the Company conducted an eNPS measurement: the indicator reached 40.9%, which is 11 p.p. higher compared to the previous period.
Become the leading food retailer in rankings of Russian employers
Goals through 2030
Maintain our #1 position among food retailers in rankings of Russian employers
Initiatives throughout 2022
Running programmes to make the Company more attractive to young people.
Received Platinum status in Forbes rating of the best employers in Russia in 2022.
Increasing the Company’s average salary by 11%.
Create a safe, healthy workspace for all employees
Goals through 2030
Ensure the introduction of an appropriate standard for a safe, healthy workspace for all employees
Initiatives throughout 2022
The Company redeveloped and launched a health and safety induction course (mandatory for office workers) following changes in Russian laws and regulations.
Training, holding external and internal occupational safety events, and auditing relevant courses.
Rethinking the way goods are moved from the warehouse to the ramp at Vprok.ru, reducing the total weight loaded on the trolley so that two people can move it.
Implementing the WISE programme (a series of interactive events and videos on health and safety in common areas) at Perekrestok DCs to raise the occupational safety culture.
Piloting a project at Pyaterochka to introduce electric warehouse trolleys in stores, significantly reducing the effort needed to unload vehicles and meeting female labour regulations.
Learn more on progress towards our strategic targets over the reporting year in the 2022 Sustainability Report.
The Company’s verified and audited Sustainability Report details the Company’s approach to its sustainability strategy and provides quantitative data for the reporting period.
Sustainability management
Our approach
Sustainability remains our strategic priority year after year. We assessed new constraints and opportunities, as well as how we delivered on our goals for 2023 to set targets for 2025 in line with our updated strategy.
A long-term value creation model
This model helps articulate our business metrics, providing risk awareness through sustainability and enabling business continuity and agile reprioritising.
Value creation stage
Procurement
Delivery to distribution centres and stores
Sales
Consumption
Our impact
Engaging with suppliers in:
product quality control;
using eco-friendly packaging;
respect for human rights in production through supplier training initiatives and introducing sustainability guidelines.
Optimising supply chain legs to minimise losses
Reducing food waste
Providing quality products to all demographics
At all value creation stages
Respect for human rights
Minimising our waste
Lower energy and water consumption
Reducing our carbon footprint
Caring for our people and preventing injuries
Engaging in dialogue with stakeholders using feedback tools
A long-term value creation model
This model helps articulate our business metrics, providing risk awareness through sustainability and enabling business continuity and agile reprioritising.
Value creation stage
Our impact
Procurement
Engaging with suppliers in:
product quality control;
using eco-friendly packaging;
respect for human rights in production through supplier training initiatives and introducing sustainability guidelines.
Delivery to distribution centres and stores
Optimising supply chain legs to minimise losses
Sales
Reducing food waste
Consumption
Providing quality products to all demographics
At all value creation stages
Respect for human rights
Minimising our waste
Lower energy and water consumption
Reducing our carbon footprint
Caring for our people and preventing injuries
Engaging in dialogue with stakeholders using feedback tools
Sustainable investing
In 2022, we expanded our investment strategy with a separate category of projects poised to achieve our strategic goals. This category of non-commercial procurement projects, each with their own payback periods and terms, is used to invest in sustainability projects.
X5 Group assesses key risks that may serve as obstacles to it meeting strategic and operational goals and compliance regulations, along with sustainability risks related to climate change, responsible supply chains, respect for human rights, and business ethics. We have an assessment framework in place, with each ESG risk reviewable at the Management, Executive Board and Supervisory Board levels.
The year of 2022 highlighted our focus on climate change and human rights, and we are now assessing potential human rights risks using OECD methods.
This covers key stakeholders, whose rights could potentially be affected by the Company’s operations, namely our customers, employees, logistics and delivery services, and suppliers.
Every year we assess risks and opportunities to make our business strategy more tolerant of climate change risk and disclose information in our annual Sustainability Report in line with TCFD guidelines.
In 2022, the Company faced the following sustainability challenges:
Declining living standards and a surge in demand for affordable products and charity programmes
Climate change
The need to reduce waste by increasing the share of recyclable packaging
The need to work with suppliers on sustainability issues, including SMEs
For major risk assessment procedures and outcomes, see the Risk Management section of this Annual Report. Our TCFD report is available in our Sustainability Report.
Governance
The Supervisory Board reviews issues related to sustainable development two times per year — this includes approval of the strategy, setting targets, monitoring the implementation of goals by responsible persons, and amending goals as needed. At this the Supervisory Board also discusses climate issues and risks associated with sustainable development. The Executive Board reviews and develops sustainability goals and monitors their achievement across the Group. More detailed information on ESG governance structure will be available in 2022 Sustainability report.
The Supervisory Board oversees the Executive Board’s activities, both in terms of strategy development and the implementation of ESG projects, including climate action initiatives.
The Company also has a cross-format sustainable development committee, which was created to make key decisions on achieving the targets of X5 Group’s sustainable development strategy. This includes monitoring progress towards each goal, prioritising tasks for the structural divisions of X5 Group business units, as well as coordinating the overall work to achieve set targets.
The cross-format Sustainability Committee also has an ESG Innovation Subcommittee and a GR ESG Committee. There are teams in each business unit and retail chain who implement sustainability programmes and represent their subdivisions in the drive for X5’s corporate goals. They gauge progress towards targets, while our Corporate Centre works with the Executive Board to review the broader implementation of the Group’s strategy.
We have centralised strategic sustainability decision making along with a platform for business units and retail chains with specific competence to propose and implement strategy-driven initiatives.
Learn more on our governance structure in the Corporate Governance section of this Annual Report.
Performance benchmarking of governance
Our long-term ESG KPIs designed for Company management have a positive impact on our investment decisions and sustainability goals. These KPIs include recognition by customers, employees and shareholders. We are on the verge of integrating them into each of our new investment projects.
X5 Group has introduced climate change KPIs for managers to drive progress on its 30×30 agenda. For example, our long-term incentive programme targets a 10% cut in carbon emissions by 2023 versus a 2019 baseline. There are also other sustainability metrics, including more recyclable packaging and waste management projects crucial to reducing Scope 3 emissions. Overall, 5% of all management KPIs are related to climate change.
Key regulation-related policies
The Company seeks to build a culture driven by shared values, ethics, mutual respect, and rigorous compliance.
The Code of Business Conduct and Ethics, along with relevant policies, constitute X5’s across-the-board values and standards of conduct.
These documents are designed to help our people comply with laws and act ethically. They are available on our website and our corporate digital hub for all X5 employees. We constantly scrutinise and update the Code and related policies to adapt to changing laws or internal processes.
Key documents
Highlights
Code of Business Conduct and Ethics
The Code regulates employees’ interactions with customers, suppliers and other staff, and sets out the Company’s basic business principles.
It encompasses fair competition, anti-corruption and anti-bribery, conservation, personal data and asset protection, conflicts of interest, equal opportunities, and a safe working environment, plus interactions with customers, suppliers and competitors.
The Code applies to all employees, regardless of their position or role. We regularly assess its performance at our training sessions based on examples and real cases.
We have a hotline for ethics matters staffed by our managers.
Declaration on Human Rights Protection
The Declaration specifies the principles and rules for complying with and promoting international human rights protection practices at all levels:
Zero tolerance of discrimination and forced labour
Zero tolerance of harassment
Respect for diverse cultures and their values
Respect for the rights to freedom of assembly and association
Occupational health and safety
The year of 2022 saw updates to the Declaration and a full transformation of the Human Rights Policy. The Policy will be approved in 2023.
Inside Information and Dealing Code
The Code is designed to prevent the unauthorised use of insider information by employees, as well as the suspicion of such use, and to ensure that employees operate following regulations on insider information and securities transactions.
Code of Interaction with Business Partners
The Code covers compliance with trade, anti-trust, and anti-corruption legislation, as well as goods and service quality control, conservation, occupational health and safety, communication standards, data protection, conflicts of interest, etc.
Violations of the Code are reviewed by the Conciliation Commission.
Policy on Countering Misconduct Including Fraud and Corruption
The Policy is focused on building a culture of integrity as well as preventing employees acting illegally and minimising the Company’s exposure to corruption. The anti-corruption framework encompasses mechanisms, procedures and tools for preventing, identifying, investigating, and dealing with potential abuses. It also assigns anti-corruption roles and responsibilities to units and management bodies.
As we only partner with those who share our zero-tolerance approach to corruption and fraud, we added relevant clauses on this to our supplier contracts and other partnership agreements.
Personal Data Processing Policy
Aligned with Russian data protection laws and other relevant legislative acts, the Policy applies to all employees and data-handling procedures, including the collection, recording, systematisation, accumulation, storage, clarification, extraction, use, transfer, anonymisation, blocking, deletion, and destruction.
Compliance Policy
To comply with regulatory and stakeholder requirements, internal standards, and our Code of Code of Business Conduct and Ethics, we have adopted the Compliance Policy in line with ISO-based GRC standards and management systems.
Equal Opportunities Policy
We understand that equality, diversity and inclusion — both internally and when we interact with stakeholders — influence business availability and performance. Thus, the Policy encompasses the following four principles:
Decent work environment
Equal opportunities for growth
Promoting diversity
Mutual respect
To implement these principles, we drafted a set of rules to follow: it is mandatory to read the Policy and receive sustainability training, continuously monitor and enforce the Policy, and use a dedicated hotline to report violations. The Policy appoints people to roles and responsibilities and spans all Company employees.
Charity Policy
The Policy outlines basic principles and rules, as well as our priorities in this area, along with the roles and responsibilities of employees involved in corporate philanthropy.
These are the basic principles for charitable activities we adhere to:
focus and scale;
responsibility and agility; and
transparency and accountability.
Stakeholder engagement
We maintain regular communication with stakeholders to create value and ensure sustainable and profitable growth in the years ahead.
X5 Group’s key stakeholders are its customers, employees, shareholders, investors, suppliers, local communities, regulatory bodies, and state authorities. As 2022 witnessed regulatory changes and a green lending surge, the Company began interacting with banks in various areas to drive up the sustainability agenda.
This and the following pages review measures, forms and objectives of the Company’s stakeholder engagement.
X5 Group keeps dialogue between several stakeholder groups on specific sustainability aspects top-of-mind:
Informing suppliers of sustainable packaging trends among customers
Collaborating with state authorities to analyse local community needs; engaging suppliers and business partners to meet them
Learn more on stakeholder engagement methods and outcomes in our 2022 Sustainability Report.
How we engage
Customers
Using big data analytics on customer transactions to unlock better decision-making when it comes to customer demand
Maintaining various consumer interaction channels, from messenger chatbots to a hotline. Using Food.ru (an edutainment media platform) and sending its subscribers sustainability digests
Monitoring consumer feedback and evaluations to collect and analyse their preferences
Measuring customer satisfaction on the federal level using NPS
Employees
Enabling a meaningful career journey along with an attractive, fair, and transparent compensation and motivation system. Leveraging enhanced feedback mechanisms to improve labour practices, remuneration, governance, and corporate culture across the Company
Developing our corporate university, called Polka ("Shelf"), which combines training activities offered within the Company with external training opportunities in a single educational marketplace
Championing our corporate human rights policy and making sure our employees have all the freedoms they are entitled to
Introducing rigorous occupational health and safety regulations and communicating relevant requirements to employees
Supporting employees through hardship; e.g., due to a long-term illness, an accident or the loss of a family member or property
Incentivising employees to boost the Company’s success
Encouraging employees to participate in corporate social responsibility programmes and help those in need
Shareholders and investors
Disclosing updates and changes to our strategic priorities on a timely basis. Constantly enhancing our ESG disclosure methods to align with global best practice
Communicating how we view the food market and competitive landscape as well as their trends. Improving our corporate governance system to follow the world’s leading research
Regularly updating the investor website with timely, accurate and relevant information on the Company’s performance, including annual and sustainability reports, financial statements, press releases, and presentations
Ensuring direct stakeholder and investor engagement through virtual and face-to-face roadshows, investor conferences, conference calls, and group meetings with analysts and investors
Suppliers
and counterparties
Tapping into big data to offer our suppliers comprehensive analytics on market demand and trends. Delivering high, trustworthy and respect-based standards of supplier engagement to properly tackle consumer feedback and complaints. Reaching out to regional producers to raise the share of local goods across X5’s retail chains
Ensuring both large federal and small local suppliers can access and leverage our transport and logistics infrastructure
Conducting regular surveys and other activities to obtain supplier feedback, as well as elevating the Company’s own X5 Dialog platform to raise awareness of sustainability and other topics
Engaging with suppliers on sustainable development issues has become even more relevant in 2022. In particular, this includes issues related to sustainable packaging due to the reduction of import solutions and the need for localisation. We closely interacted with our suppliers on this and other topics in 2022, including organising webinars for suppliers with an overview of current challenges and localised packaging solutions.
Society
and local communities
Extending initiatives to better the well-being of local communities, including cooperation with the Basket of Kindness food bank and LizaAlert search and rescue team
Collaborating with municipal, regional and federal authorities to forward projects for the vulnerable, usually pensioners and families with children in hardship
Spotlighting programmes for X5 customers to donate
Hosting events to make life better for local communities: tree planting, clean-up days and Victory Day celebrations. Aligning the Company’s operations with environmental laws. Assessing and disclosing X5’s sustainability achievements and informing local communities about our efforts to reduce consumption, emissions and waste
Government / regulators
Cooperating with governing bodies industry associations representing the retail business on state regulation and legislation (e.g. the National ESG Alliance)
Interacting with government officials at important Company events (e.g. DC openings) to showcase X5’s efforts to create jobs and back up local producers
Participating in federal and regional task forces
Testing new technology; for example, labelling for various goods, electronic document flow and signatures
Promoting an open dialogue with the Retail Companies Association (RCA) and communicating X5’s position on relevant industry issues (environmental protection, sanitary regulations, etc.)
Community
Our approach
X5 Group provides local communities with charitable and social projects and partners with local producers.
Rolling out the Farm category is a key programme at X5. Various regions feature this category in retail chain stores, with over 200 farmers supplying their products.
X5 Group’s Charity Policy covers all business units, outlines the charity framework and describes its priority areas. It also sets out the roles and duties of responsible employees.
The Company’s charitable activities are focused on providing food aid, a comfortable and safe environment, wellness, and healthy lifestyle. Conscious of these priority areas, the Company implements community-oriented projects to carefully protect health and well-being.
We do our best to promote and encourage corporate volunteering, engaging our employees in charitable and volunteer projects.
We identified key target groups of beneficiaries that include children, the elderly, people experiencing hardship, local communities, and refugees.
We work with non-profit organisations (NPOs) that release feedback after each project.
The National Development Goals, NPO experts and global best practice also guide us on the way.
Plans for 2023
Achieving the targets for our charitable projects:
Increase the number of families covered by Basket of Kindness support by 30%
Maintain the Safety Zones programme across all Pyaterochka and Perekrestok stores to help lost people
Scale up the food sharing project
Providing people in need with food aid under the new Regional Food Aid Centres (RFAC) programme among other things
Fast-tracking inclusion initiatives
Boosting current programmes for local communities
X5 Group’s 2022 Sustainability Report contains more details on our charitable and volunteering efforts.
Strategic Goalsfor 2023
Strategic Goalsthrough 2030
Double the number of families receiving food aid through the Basket of Kindness project compared with 2019
Develop partnership programmes with small and medium-sized businesses, farmers and local producers
Develop community care programmes
Engage all stores in Help for Lost People programme
Strategic Goalsthrough 2030
up to
30%
Annual increase in the number of families receiving support through the Basket
of Kindness project
Planet
Our approach
In December 2019, X5 approved the Sustainability Strategy that enables us to embed proper principles and thus achieve the Company’s priority UN SDG 12 (Responsible Consumption and Production). For steady performance growth in this area, we are also testing and adopting novel and innovative ways of optimising resource consumption across the Company, and promoting prudent use, reuse and recycling among our customers.
In late 2021, X5 reaffirmed its sustainability commitment, adopting a decarbonisation plan and aspiring to become carbon-neutral by 2050. In 2022, we expanded efforts to reduce greenhouse gas emissions per square metre of retail space by 30% by 2030.
Governance
The Company’s environmental management is based on clear role allocation among responsible employees and departments. The Company has guiding policies and procedures in place. However, each division or business unit is mature enough to take its own management approach.
The Company is implementing a project to automate non-financial reporting and monitor data. Automated data recording systems have replaced manual ones. They rely on our proprietary product — WRS (Web Request System) — web forms or checklists for engineers to better monitor the use of various resources.
In 2022, we launched an ESG innovation track to work with partners and source new solutions in the market that could help overcome technological constraints as part of our food waste, climate and sustainable packaging targets for 2023.
Strategic Goalsfor 2023
Strategic Goalsthrough 2030
10%
Reduction in GHG emissions (Scope 1 and Scope 2) intensity per sqm of selling space compared with 2019
up to
10%
Reduce the ratio of waste generated to retail sales compared with 2019
up to
95%
Increase the share of recyclable solid waste generated by our retail chains that is sent for recycling
up to
20%
Increase the share of non-expired food that is no longer saleable sent for reprocessing
up to
50%
Share of private
label goods in environmentally friendly packaging
Increase the use of renewable energy in our operations
Develop principles and practices for tracing suppliers’ responsible sourcing of goods
Strategic Goalsthrough 2030
30%
Reduce GHG emissions (Scope 1 and Scope 2) intensity per sqm of selling space compared with 2019
30%
Reduction in ratio of waste generated to retail sales
up to
30%
Increase share of renewable energy used in our operations
Reducing energy consumption
Strategic Goalsfor 2023
10%
Reduce GHG emissions (Scope 1 and Scope 2) intensity per sqm of selling space compared with 2019
Increase the use of renewable energy in our operations
Strategic Goalsthrough 2030
30%
Reduce GHG emissions (Scope 1 and Scope 2) intensity per sqm of selling space compared with 2019
up to
30%
Increase share of renewable energy used in our operations
In 2019, a GHG emission assessment programme was launched across the Company under the Corporate Greenhouse Gas Emissions Protocol’s Accounting and Reporting Standard. In 2020, we introduced the
Energy Efficiency and Climate Change Prevention Policy
, contributing to our ongoing decarbonisation efforts and energy efficiency. We put in place a set of practices to improve our GHG emission reduction and energy performance by cutting energy consumption and switching to renewable energy.
To achieve our goals, we launched multiple initiatives, such as green distribution centres and stores. In the reporting year, we connected 11 DCs to low-carbon power. Our Smart Store system is rolled out to all new stores and those slated for renovation. With sensors, monitoring devices and software, the system seamlessly integrates into ongoing operations, helping to save energy and manage electricity consumption.
For more initiatives under our strategic energy-saving goals, go to our 2022 Sustainability Report.
Reducing waste and developing sustainable packaging
Strategic Goalsuntil 2023
up to
10%
Reduce the ratio of waste generated to retail sales compared with 2019
up to
20%
Increase the share of non-expired food that is no longer saleable sent for reprocessing
up to
95%
Increase the share of recyclable solid waste generated by our retail chains that is sent for recycling
up to
50%
Share of private label goods in environmentally friendly packaging
Strategic Goalsthrough 2030
30%
Reduce the ratio of waste generated to retail sales compared with 2019
Waste prevention
One of our overriding priorities is optimising waste management.
In the year under review, X5 revised its Waste Minimisation Policy in light of legislation changes. Our Waste Management Procedure, featuring training for dedicated staff, is also now in place.
Improving the accuracy of stock management is an important tool to reduce waste generation, but X5 Group is taking further steps to minimise waste. These include big data-enabled demand modelling, increasing product supplies, tailoring products to meet customer needs, lowering minimum order quantities, and temperature control during transportation.
Waste management is part of our innovation track aimed at finding various recycling solutions. In 2022, X5 Group started working on an accessible map of recycling solutions in the regions. We will post the map on our official website as soon as it is finished. On top of all this, we are piloting new solutions to prevent waste generation.
We introduced an intuitive feature to submit a request for pallet return on our supplier platform, promoting the reuse of materials in logistics operations. Pyaterochka stores already return a portion of pallets to the supplier and make repairs in DCs for further reuse. Perekrestok launched a project in 2022 to centralise the transportation of recyclables from stores to DCs: two centres joined the project in all areas, while a further two joined it partially.
The Company’s retail chains remain busy assessing and improving their waste management, all while training dedicated employees. In this regard, Pyaterochka and Perekrestok have sales-linked recycling standards tailored to each store. We also advanced the system to control the volume of store-to-DC recyclables and equipped DCs with scales and incoming control to leverage actual measurements.
For more initiatives under our strategic waste reduction goals, refer to X5 Group’s 2022 Sustainability Report.
Guidelines for suppliers
Strategic Goalsfor 2023
Develop principles and practices for monitoring suppliers’ responsible sourcing of goods
Other key goals
Develop a responsible supply chain
Promote the principles of responsible sourcing of raw materials across the supply chain
up to
50%
Share of private label goods in environmentally friendly packaging
In June 2020, X5 Group drafted and published sustainability guidelines for its suppliers, based on Company analysis of publicly available research, data from authorities or public environmental NPOs, and the findings of the supplier survey and public expert hearings.
These guidelines:
outline voluntary environmental and social certifications for diverse product categories, highlighting responsible production practices;
formalise X5’s vision for sustainable packaging: reusable packaging materials that are recyclable in Russia, the use of mono-materials and reusable containers and design streamlining; and
comprise particular examples of the most and least suitable raw materials for packaging.
In 2021, X5 disclosed thorough sustainable packaging guidelines for 13 product categories, developed in conjunction with manufacturers, suppliers, industry associations, and the expert community. We obtained feedback from 23 partners and 16 experts on the recommendations. X5 also held a public project discussion that brought together 100 stakeholders. The document enlists specific examples of most preferred and least preferred raw materials for packaging. We are constantly brushing up our guidelines and are open to dialogue with each of our partners to share our insights for the benefit of the whole market.
X5 has updated its internal procurement regulations to adjust to new supplier instructions. In August, we designed a sustainability training course for our suppliers. It is publicly available on the Company’s website.
X5 Group continued screening sustainable suppliers through a dedicated survey on its supplier portal (the Company’s official supplier interface) by expanding it with mandatory fields dedicated to sustainability. These fields give us insights into packaging and voluntary certification.
Our efforts in supplier awareness and feedback include our sustainability guidelines and supplier co-marketing programmes.
The reporting year saw our selective ESG verification for private label suppliers come into force, and we plan to carry this practice into the future covering more suppliers.
To read about all supplier engagement initiatives, please refer to X5 Group’s 2022 Sustainability Report.
TCFD disclosure
Throughout 2022, X5 Group has upheld its focus on incorporating climate-related risks into its business operations as well as expanding the scope and improving the transparency of the Company’s climate reporting. The following TCFD disclosure is a thorough review of the Group’s performance amid the political, legal and economic environment of the prior year. The information in this section is correct as at 31 December 2022, unless stated otherwise.
Governance
As the Company is committed to proactively managing its climate footprint and mitigating the risks associated with it, X5 has developed a decarbonisation strategy that emphasises conscious consumption of resources while building resilience to external challenges. Our corporate governance framework is set up to ensure that the highest levels of management reinforce our long-term strategy for addressing climate change. Supervisory Board members are in charge of developing and monitoring our sustainable development strategy, ensuring that executive management implements sustainability- and climate-related measures quickly and efficiently. In 2022, we also introduced the President position to further strengthen our operational decision-making in line with the Group’s strategic priorities in a fast-changing external environment.
Corporate governance structure
Supervisory Board
The Company’s overall course of affairs, strategy, and operational performance, including on climate action and climate risk response, are overseen by the Supervisory Board. The Supervisory Board sits above the Executive Board — the Company’s senior management — and delegates essential responsibilities to the standing committees in accordance with their areas of responsibility. See more in "Report of the Supervisory Board".
Our sustainable development strategy was approved by the Supervisory Board and has become an integral part of our long-term business strategy. At least once per quarter, the Supervisory Board meets to review and approve the process for assessing corporate risks, including climate risk assessments within it. Regular detailed reports from the relevant committees allow the Supervisory Board to monitor performance across all key projects and activities, including advances in climate risk mitigation measures, progress against the sustainable development strategy, and the impact of environmental projects. Each year, the Supervisory Board approves the budget for the Company and its projects in line with the Group’s strategic priorities, including ESG- and climate-related initiatives.
Executive Board
The Executive Board is in charge of handling day-to-day strategic and operational decisions that drive progress against the Company’s overall strategy as well as its sustainable development strategy. As part of its activities, the Executive Board is involved in identifying and appropriately addressing risks that threaten the achievement of the Company’s business objectives and the continuity of its operations, which includes regularly monitoring climate-related risks and opportunities. The Executive Board holds monthly meetings and provides regular progress updates regarding ongoing projects and climate-related findings to the Supervisory Board. To keep close track of environmental performance and the risks and opportunities associated with climate change, the Executive Board receives regular reports from representatives of the Company’s business units.
Sustainable Development and Innovation Committee
On 16 March 2022, the authority and duties formerly held by the Sustainable Development and Innovation Committee were returned to the broader Supervisory Board amid recent events.
Strategy
Our sustainable development strategy is driven by cost-effective decarbonisation measures that are set to increase the long-term value of the Group. The strategy is directly updated with the results of our ever-evolving risk assessment processes and by measuring our climate impact against the Group’s targets. By analysing how climate risks affect us, we gain a more comprehensive understanding of how the Group’s strategy should be designed as well as of how we should mitigate the consequences of potential issues in the future. We continuously assess the possible financial implications of climate-related issues and changes in climate scenarios on our strategy to ensure we deliver on our sustainability goals and business objectives despite any external challenges.
The sustainable development strategy is integrated into the Group’s broader strategy and is aligned with Russia’s decarbonisation goals. As part of this vision, X5 has introduced the 30×30 agenda, which aims to reach the following medium-term targets by 2030:
30%
Reduction in GHG emissions intensity (Scope 1 and Scope 2) per square meter of selling space against a 2019 baseline
30%
Share of renewable energy in X5 operations against a 2019 baseline
30%
Reduction in the ratio of waste generated to retail sales against a 2019 baseline
ESG and climate considerations are not only an integral part of the Group’s long-term strategic vision, they are also being incorporated into its short-term corporate strategy until 2025, which is currently under development. The update will include a sustainable development section as one of the Company’s strategic priorities.
Climate-related issues are taken into account at various levels in the Group’s decision-making processes as X5 Group continues to expand its awareness of, and commitment to, environmental and climate responsibility in its strategy:
Investment decisions
When making decisions on investment initiatives, X5 considers the financial impact that transitional and physical risks may have as well as the potential impact on the Group’s GHG emissions. Furthermore, in 2022, some changes were made to the investment policy to integrate special conditions into ESG projects, including climate-related projects designed to soften the climate impact of the Company’s operations. According to the new investment policy, ESG- and climate-related projects have lower approval requirements than the regular standards set for the Group
Operational planning
Decarbonisation and energy efficiency opportunities have been incorporated into the decision-making process concerning the launch of new business units. From 2022 onwards, new Pyaterochka and Chizhik distribution centres have had a particular set of building requirements to ensure more climate-conscious operations, such as the installation of energy-saving equipment and making other efficiency gains, where possible
Budget considerations
Climate risks are also taken into account when making budgeting decisions. The regularly updated climate risk register and an assessment of financial impact (e.g. an analysis of changes in refrigerant prices and the cost of replacing equipment) are incorporated into capital expenditure decision-making
Climate-related risks
In order to efficiently identify and manage climate-related issues and develop effective decarbonisation measures, the Group analyses and monitors its climate risks. Our risk assessment process is informed by the following climate scenarios from the IPCC’s Sixth Assessment Report (AR6) and IEA’s annual outlooks, including its most recent edition.
1.5 °С scenario(scenario SSP1-2.6)
The most challenging scenario, involving considerable adjustments to the Company’s activities; yet one that would help to greatly lessen the impact of physical climate risks for the Company and, on a larger scale, for society. This scenario ensures that the goals of the Paris Agreement are met. The world moves towards a low-carbon development path and a greener economic model, and away from its current resource- and energy-intensive practices. Both developed and developing countries strive to achieve net zero as soon as is practically possible and adopt relevant policies. On top of lowering GHG emissions in hard-to-abate sectors, carbon capture technologies are developed. The share of fossil fuels in the global energy mix declines in the mid-2020s and flattens out in the 2030s as a result of the worldwide contribution to a rapid reduction in the use of such energy sources.
2.0 °С scenario(scenario SSP2-4.5)
Though less drastic than the 1.5 °C scenario, this scenario would nonetheless require significant adjustments in the way the Company operates. The impact of physical climate risks on the Company and the global economy as a whole would be partially reduced. Compared to the 1.5 °C scenario, this path leads to worsening climate change and more dangerous consequences. However, it does see the world’s energy mix shift in favour of more sustainable sources. It also assumes that, despite the challenges posed by climate change and declining use of energy sources like oil and gas, economic growth will continue. The overall energy consumption is also reduced, although in a less efficient and environmentally friendly way than in the first scenario. The share of fossil fuels in the global energy mix declines around 2030 and flattens out around the 2040s, as both developed and developing economies strive for net zero. The decarbonisation initiatives undertaken by developed nations and subsequent similar actions introduced by emerging economies several decades later result in a reduction in the resource and energy intensity of the global economy.
4.0 °С scenario(scenario SSP5-8.5)
Under this scenario, the Company’s activities do not need to change significantly, and operations would proceed as usual. Physical climate risks would have a greater effect on the Company as well as the world economy. Both developed and emerging nations experience fast economic growth. Oil and gas remain the key energy sources, and there is still a tremendous demand for natural resources and materials. While some economies seek to implement decarbonisation initiatives, these efforts are not enough to materially impact the global economy, development, or energy intensity. As the share of fossil fuels in the global energy consumption remains unchanged or potentially increases, GHG emissions continue to grow until the end of the century.
X5 Group considers the SSP2-4.5 scenario to be the primary one for our industry. Therefore, we pay particular attention to materiality scores within the SSP2-4.5 scenario (the 2.0 °С scenario), as we believe it to have a long-term effect on the Group’s strategic resilience and estimated financial impacts.
Physical and transition risks
The Company’s approach to climate risk assessment considers both physical and transition risks in line with global best practice. Physical climate-related risks are associated with the physical impacts of climate change, such as storms, droughts and forest fires. The Group identified extreme weather events and changes in precipitation amounts and patterns as the most significant risks in this category as they pose the biggest threat to the supply chain and, therefore, to X5’s retail activities. As per
the IPCC’s Sixth Assessment Report (AR6),
extreme weather events are expected to increase in frequency by 2050, which corresponds to the long-term horizon within the Company’s risk assessment framework and strategy. Therefore, the impact of physical risks will be more significant in the long term.
X5 Group is closely monitoring environmental changes that may affect the severity of risks associated with the transition to a low-carbon economy, also known as transition risks, as the Company’s financial performance is more likely to be significantly impacted by such risks due to an increase in expenditures arising from subsequent operational transformations. Hence, X5 pays special attention to this category of climate risks, as they are more volatile and present a more immediate threat to its operations.
2022
In 2022, the Company continued its efforts in operating an efficient and up-to-date risk identification and assessment system, while continuously enhancing it. As such, a thorough review and revaluation of the entire climate risk register was conducted to incorporate the most recent developments in both national and international regulations, stock exchange requirements, methodological frameworks as well as other relevant events. The key changes in risk scores and materiality compared to their 2021 values, as well as the reasons for the adjustments made, are summarised below. While the results of the qualitative analysis and expert assessment reflect the average materiality results for the Group in the reporting year, X5 analyses each business unit separately in order to have a comprehensive understanding of the risk exposure across business activities and geographies.
In 2021, X5 conducted a comprehensive quantitative assessment of climate-related risks and opportunities, the results of which were presented in the form of a detailed risk register, reflecting both physical and transitional risks. A full and complete disclosure of the risks analysed, their materiality estimates and potential consequences, as well as the corresponding mitigation activities, can be found in our
2021 Sustainability Report
in "Financial review".
A comprehensive revaluation and recalculation was carried out in 2022, with the materiality scores of each risk within a specific climate scenario and time horizon colour-coded in the table below and arrows showing the direction of change for each score (compared to their values in 2021).
Lowest impact
Medium impact
Highest impact
Score increase
Score decrease
No score change
Risk component
Consequences
Scenario SSP1-2.6(~1.5 °С)
Scenario SSP2-4.5(~2.0 °С)
Scenario SSP5-8.5(≥ 4.0 °С)
Commentary
Risk management initiatives
Changes in regulation
Regulatory risks arise from governmental requirements for compliance with national climate goals and international commitments to combatting climate change
Payments for GHG emissions
Payments for GHG emissions would increase logistics costs
2025
2030
2050
2025
2030
2050
2025
2030
2050
A score increase in the short-term across all three scenarios is due to the recent developments in national legislation.
While there is currently no fee for GHG emissions in Russia, on 2 July 2021, Federal Law No. 296-FZ On Limiting Greenhouse Gas Emissions came into force, laying down the regulatory framework for mandatory carbon reporting. Although retail trade is not listed among the regulated industries, fuel combustion in Company transport falls under the new regulations.
Further amendments and additions to the law are to be expected. As such, there is a planned introduction of administrative penalties for failure to submit mandatory carbon reporting. A respective bill has already been submitted to the State Duma.
Furthermore, on 1 September 2022, a GHG quota trading system was piloted in the Sakhalin Region. The experiment is likely to be scaled to other regions in the future, and then rolled out across the whole country.
Monitoring the volume of emissions (Scope 1, Scope 2 and Scope 3)
Regular reporting on GHG emissions and other climate-related and ESG issues in compliance with the current national legislation and international standards
Continuously monitoring relevant regulatory and legislative developments and disclosure trends
Conducting a climate-related risk assessment in line with TCFD and other relevant frameworks
Reducing overall GHG emissions across the value chain
Completing a comprehensive cost analysis of the shift to low-carbon operations, including the shift to more environmentally friendly equipment
Developing GHG emission-reduction initiatives, including the transition to refrigerants with a lower GWP
Increasing the share of on-site renewable energy generation
Using an internal carbon price at the project discussion
Changes in climate disclosure requirements of stock exchanges for public companies
Stock exchanges may suspend the Group’s listings for failure to disclose climate-related aspects of its operations
2025
2030
2050
2025
2030
2050
2025
2030
2050
A downgrade in the short-term score across all three scenarios is driven by the suspension of Russian companies’ (including X5) listings by the London Stock Exchange in 2022.
Medium- and long-term estimates remain unchanged, as trading activities are likely to resume in the future; therefore, the risk of non-compliance with the mandatory climate-related disclosure requirements in the medium and long term remains. Furthermore, on top of the UK, a number of other jurisdictions have either adopted or announced their intentions to introduce requirements or recommendations for the disclosure of climate-related information by 2025 at the latest.
Monitoring the volume of emissions (Scope 1, Scope 2 and Scope 3)
Regular reporting on GHG emissions and other climate-related and ESG issues in compliance with the current national legislation and international standards
Continuously monitoring relevant regulatory and legislative developments and disclosure trends
Conducting a climate-related risk assessment in line with TCFD and other relevant frameworks
Reducing overall GHG emissions across the value chain
Completing a comprehensive cost analysis of the shift to low-carbon operations, including the shift to more environmentally friendly equipment
Developing GHG emission-reduction initiatives, including the transition to refrigerants with a lower GWP
Increasing the share of on-site renewable energy generation
Using an internal carbon price at the project discussion
Changes in investor behaviour
Investors may have more exacting requirements regarding a company’s climate strategy and actions, particularly in terms of the scope of climate disclosures. Since ESG scores may influence investors’ decision-making, a low ESG score alerts investors to increased climate risks and poor quality of management
A potential loss of investor interest, should insufficient information be disclosed about:
the Company’s activities in response to climate change
the impact of climate change on the Company’s financial performance
GHG emissions, carbon intensity of production and other climate-related metrics and targets
An increase in the cost of borrowing and required rate of return on equity as well as the implementation of strict financial and non-financial covenants
2025
2030
2050
2025
2030
2050
2025
2030
2050
In the mid-term, the risk score increases, as in the 1.5 °C scenario, investors and financial regulators are expected to have the most stringent requirements, while exchanges actively impose tighter restrictions on climate disclosures.
The short-term risk estimate under the 2.0 °С scenario has been slightly lowered, since investor expectations towards climate-related disclosures are likely to be less exacting than in the 1.5 °С scenario, although not as liberal as in the 4.0 °С scenario.
Finally, in the 4.0 °С scenario, the short-term risk score is adjusted upwards because this scenario does not exclude a negative assessment by potential investors, especially considering that the time horizon has been revised to 2025.
Monitoring developments in the reporting requirements of international stock exchanges and best practice for climate-related disclosures
Implementing best practices in responsible business and decarbonisation methods
Articulating the Company’s decarbonisation strategy and explaining what challenges the Company may face during the transition
Providing a third-party assurance of climate-related data
Improving climate-related disclosures for key ESG ratings
Regulatory risks arise from governmental requirements for compliance with national climate goals and international commitments to combatting climate change
Risk component
Payments for GHG emissions
Consequences
Payments for GHG emissions would increase logistics costs
Scenario SSP1-2.6(~1.5 °С)
2025
2030
2050
Scenario SSP2-4.5(~2.0 °С)
2025
2030
2050
Scenario SSP5-8.5(≥ 4.0 °С)
2025
2030
2050
Lowest impact
Medium impact
Highest impact
Score increase
Score decrease
No score change
Commentary
A score increase in the short-term across all three scenarios is due to the recent developments in national legislation.
While there is currently no fee for GHG emissions in Russia, on 2 July 2021, Federal Law No. 296-FZ On Limiting Greenhouse Gas Emissions came into force, laying down the regulatory framework for mandatory carbon reporting. Although retail trade is not listed among the regulated industries, fuel combustion in Company transport falls under the new regulations.
Further amendments and additions to the law are to be expected. As such, there is a planned introduction of administrative penalties for failure to submit mandatory carbon reporting. A respective bill has already been submitted to the State Duma.
Furthermore, on 1 September 2022, a GHG quota trading system was piloted in the Sakhalin Region. The experiment is likely to be scaled to other regions in the future, and then rolled out across the whole country.
Risk management initiatives
Monitoring the volume of emissions (Scope 1, Scope 2 and Scope 3)
Regular reporting on GHG emissions and other climate-related and ESG issues in compliance with the current national legislation and international standards
Continuously monitoring relevant regulatory and legislative developments and disclosure trends
Conducting a climate-related risk assessment in line with TCFD and other relevant frameworks
Reducing overall GHG emissions across the value chain
Completing a comprehensive cost analysis of the shift to low-carbon operations, including the shift to more environmentally friendly equipment
Developing GHG emission-reduction initiatives, including the transition to refrigerants with a lower GWP
Increasing the share of on-site renewable energy generation
Using an internal carbon price at the project discussion
Changes in climate disclosure requirements of stock exchanges for public companies
Consequences
Stock exchanges may suspend the Group’s listings for failure to disclose climate-related aspects of its operations
Scenario SSP1-2.6(~1.5 °С)
2025
2030
2050
Scenario SSP2-4.5(~2.0 °С)
2025
2030
2050
Scenario SSP5-8.5(≥ 4.0 °С)
2025
2030
2050
Lowest impact
Medium impact
Highest impact
Score increase
Score decrease
No score change
Commentary
A downgrade in the short-term score across all three scenarios is driven by the suspension of Russian companies’ (including X5) listings by the London Stock Exchange in 2022.
Medium- and long-term estimates remain unchanged, as trading activities are likely to resume in the future; therefore, the risk of non-compliance with the mandatory climate-related disclosure requirements in the medium and long term remains. Furthermore, on top of the UK, a number of other jurisdictions have either adopted or announced their intentions to introduce requirements or recommendations for the disclosure of climate-related information by 2025 at the latest.
Risk management initiatives
Monitoring the volume of emissions (Scope 1, Scope 2 and Scope 3)
Regular reporting on GHG emissions and other climate-related and ESG issues in compliance with the current national legislation and international standards
Continuously monitoring relevant regulatory and legislative developments and disclosure trends
Conducting a climate-related risk assessment in line with TCFD and other relevant frameworks
Reducing overall GHG emissions across the value chain
Completing a comprehensive cost analysis of the shift to low-carbon operations, including the shift to more environmentally friendly equipment
Developing GHG emission-reduction initiatives, including the transition to refrigerants with a lower GWP
Increasing the share of on-site renewable energy generation
Using an internal carbon price at the project discussion
Investors may have more exacting requirements regarding a company’s climate strategy and actions, particularly in terms of the scope of climate disclosures. Since ESG scores may influence investors’ decision-making, a low ESG score alerts investors to increased climate risks and poor quality of management
Risk component
A potential loss of investor interest, should insufficient information be disclosed about:
the Company’s activities in response to climate change
the impact of climate change on the Company’s financial performance
GHG emissions, carbon intensity of production and other climate-related metrics and targets
Consequences
An increase in the cost of borrowing and required rate of return on equity as well as the implementation of strict financial and non-financial covenants
Scenario SSP1-2.6(~1.5 °С)
2025
2030
2050
Scenario SSP2-4.5(~2.0 °С)
2025
2030
2050
Scenario SSP5-8.5(≥ 4.0 °С)
2025
2030
2050
Lowest impact
Medium impact
Highest impact
Score increase
Score decrease
No score change
Commentary
In the mid-term, the risk score increases, as in the 1.5 °C scenario, investors and financial regulators are expected to have the most stringent requirements, while exchanges actively impose tighter restrictions on climate disclosures.
The short-term risk estimate under the 2.0 °С scenario has been slightly lowered, since investor expectations towards climate-related disclosures are likely to be less exacting than in the 1.5 °С scenario, although not as liberal as in the 4.0 °С scenario.
Finally, in the 4.0 °С scenario, the short-term risk score is adjusted upwards because this scenario does not exclude a negative assessment by potential investors, especially considering that the time horizon has been revised to 2025.
Risk management initiatives
Monitoring developments in the reporting requirements of international stock exchanges and best practice for climate-related disclosures
Implementing best practices in responsible business and decarbonisation methods
Articulating the Company’s decarbonisation strategy and explaining what challenges the Company may face during the transition
Providing a third-party assurance of climate-related data
Improving climate-related disclosures for key ESG ratings
Risk assessment
Our climate risk assessment process aligns with the Group’s general risk assessment and is closely reviewed on a regular basis during the Supervisory Board’s strategy sessions. Additional information on the Group’s risk management can be found in "How we manage risk".
The results of climate risk and opportunity assessments help the Group develop a more comprehensive understanding of the changes necessary to transition to a low-carbon economy business model. Our decarbonisation initiatives closely align with the results of climate risk assessments, especially with the proposed measures to mitigate such risks, to ensure the effectiveness and resilience of the Group’s sustainability strategy.
Both physical and transition climate risks are incorporated into the general risk register and are subject to annual review.
The climate risk assessment complies with the Group’s risk assessment procedures and includes the following steps:
Risk identification
Risk assessment
Risk response (avoidance, mitigation, transfer, or acceptance)
Development and implementation of measures to reduce risks
Control and monitoring
Risk management reporting
The Group’s strategy and climate risk assessment is structured across three time horizons:
Up to 2025, the short-term horizon
2025–2030, the medium-term horizon
2030–2050, the long-term horizon
The Group uses uniform approaches to assessing climate risks, utilising a scale to gauge risk impact, which classifies risks from the lowest to the highest possible impact to estimate the materiality of climate threats. Risks are identified and scored for each business unit separately. This assessment includes the impact of risks on the market share, financial performance, investor relations, interactions with regulators, operational processes, and employees. If a new risk becomes apparent and material at a business unit level, it will be escalated for further analysis as per the Group’s corporate risk assessment process.
The Group assesses the impacts of climate-related risks and opportunities on X5’s financial performance through 2030. The financial consequences of physical and transition risks have been assessed, taking into account the potential effects on the Group’s key financial performance indicators. Financial estimates are subject to periodic review and reassessment to ensure accurate and climate-informed decision-making. The results of the financial assessment conducted in 2020 were reviewed in 2022, and no changes identified were significant enough to require a full reassessment.
The process of evaluating climate risks evolves on a yearly basis: in 2022, X5 expanded its climate risk analysis by proceeding with geographically mapping climate risks in order to determine the degree of the Company’s exposure and vulnerability to climate change in its areas of presence.
Risk mapping tool
In 2022, X5 introduced a new climate risk analysis tool, which builds on the previous quantitative and qualitative climate risk assessments and augments them with a geographical dimension. The new climate risk mapping tool takes the form of a dashboard that visualises climate change data in combination with related socio-economic factors to help identify and analyse the Group’s climate-related risks and opportunities.
The tool includes the climate scenarios used in the previous quantitative and qualitative climate risk assessments (1.5 °С, 2.0 °С and 4.0 °С) and their effects on the Company’s stores, distribution centres and transportation hubs as well as the pathways plotted for the 2022–2050 time horizon. The dashboard allows us to select a climate scenario for physical and transition risks and estimate its financial impact on specific assets within the selected timeframe, based on a range of physical, social and economic indicators (e.g. the cost of refrigerants, changes in diesel prices, changes in per capita disposable income, and precipitation patterns, among other factors).
Thus, the previously completed quantitative assessment, combined with a qualitative scenario analysis within the risk register and geographical considerations of the climate risk mapping tool constitute a comprehensive system designed for rapid and effective risk identification, assessment and mitigation, while also informing the Company’s budgeting and investment decisions as well as its strategic and operational planning.
Metrics
The Group has been measuring GHG emissions in accordance with the Corporate Accounting and Reporting Standard of the GHG Protocol since 2019. The 2022 GHG emissions calculation results and a full description of the calculation methodology will be published in our 2022 Sustainability Report.
When developing the decarbonisation pathway, X5 established a feasible internal carbon price to support its strategic decision-making. The internal methodology and quantitative estimates are still contingent on continuous regulatory changes, therefore the instrument is still under review.
X5 Group has also established climate-related KPIs for management to motivate the implementation of the 30×30 agenda. KPIs include the LTI programme, which has a 10% decarbonisation target by 2023 vs a 2019 baseline. Other sustainability metrics rank among the KPIs, such as an increase in the share of recycled packaging and waste management initiatives that are crucial for decreasing Scope 3 emissions. Overall, climate-related KPIs hold a 5% weighting among management’s KPIs.
In December 2020, X5 Group announced its commitment to the Science Based Targets initiative (SBTi). While we have significantly advanced our understanding of the specific measures needed to reach the objectives set, the Group’s efforts in submitting its GHG emission reduction targets was limited due to unforeseen circumstances, with formal recognition by the SBTi coalition remaining as the last step. X5’s GHG reduction targets are based on the methodology and requirements of the initiative and include considerations of achieving net zero by 2050.
Despite the challenges of 2022, our efforts to follow the trajectory of the Company’s 30×30 agenda continued:
In 2022, an innovative track was launched as a tool for discovering new cutting-edge projects, including those in alternative refrigerant solutions, amid a better recognition of the importance of harnessing greener and climate-friendly refrigeration options. Hence, the Group started researching alternative non-ozone-depleting refrigerant solutions, which culminated in a piloting air conditioners that use water as a cooling agent at a Pyaterochka distribution centre. Furthermore, building on the success of last year’s project to install a transcritical CO₂ refrigeration system at a Company distribution centre, in 2022, X5 started exploring the potential and strategy for scaling this technology. Most notably, X5 conducted a comprehensive financial assessment of the cost of transitioning to alternative refrigeration equipment, covering the majority of distribution centres, which aids in planning and budgeting;
Decarbonisation and energy efficiency considerations have been incorporated into the technical building requirements for new Chizhik distribution centres. From 2022 onwards, project plans will require consideration of a number of climate-related issues, including optimising the operation of energy-intensive equipment and exploring more environmentally friendly technologies (e.g. CO₂ refrigerants). Furthermore, X5 has developed a WRS accounting form for monthly monitoring of freon levels and plans to launch it in 2023. These ambitions translated to updates in standard agreements with contractors who service refrigeration equipment — under the new conditions, contractors must send us data on the amount of freon refilled each month. This initiative will allow us to track and manage the environmental impact of our business units and curb their future GHG emissions, where possible.
Additional information on X5’s other environmental initiatives will be provided in our 2022 Sustainability Report.
Plans for 2023
In 2023, Pyaterochka and Perekrestok will continue deploying the Smart Store system while upgrading existing stores and increasing control over heat and electricity consumption.
We plan to install a pilot supply ventilation system at Perekrestok stores, with air coolers that use water as the refrigerant instead of Freon.
Pyaterochka keeps scaling up its solar panel project and is now preparing for a pilot: one of the stores will have solar panels installed on its windows to help reduce electricity consumption.
Turning to waste management, Pyaterochka and Perekrestok will expand their projects to send products that needed to be wasted early to farms.
Perekrestok will participate in recycling projects (composting and fertilisation) and government-sponsored recycling programmes, as well as nationwide online bidding with eco-industrial parks.
Pyaterochka is going to set up composters for food waste disposal.
In 2023, Pyaterochka and Perekrestok aim to establish a food sharing scheme, encompassing four Perekrestok distribution centres.
To promote responsible consumption, Perekrestok is going to further roll out its brush and battery drop-off points in partnership with GP, as well as to raise the number of recycling kiosks for PET bottles and aluminium cans in its stores.
The Company will further ramp up renewable energy use across its operations and work with partners to reduce indirect non-energy GHG emissions (Scope 3).
For more information on our environmental activities, achievements and plans for 2023, see our 2022 Sustainability Report.
Health
The quality of our products
To ensure all the products offered by its retail chains are of the highest quality, X5 Group works with its suppliers to closely monitor compliance with product safety and quality criteria.
All X5 stores have a clear set of rules and regulations in place regarding product quality and safety. Our quality control framework pivots around both supplier audits and monitoring, along with checking products on shelves.
To ensure that all products are safe for people’s health and the environment and meet retail standards and customer requirements, we use a hazard analysis and critical control points (HACCP)-based approach.
Products for health-conscious customers
The recent turn to a healthy lifestyle
is a major market-wide trend. More and more consumers are increasingly paying much more attention to tailored nutrition, founded on natural, superior-quality products with clear ingredients and origins, as well as organic and functional food and gluten-free and sugar-free products.
X5 is doing its best to satisfy this customer need by constantly widening its range of fresh, organic and farm-to-table products. We are promoting our Green Line brand and healthy aisles in Perekrestok stores, which have several hundred healthy food SKUs for sale.
Strategic Goalsfor 2023
Strategic Goalsthrough 2030
Increase the share of fresh produce, fruits and vegetables in our assortment to 44% at Pyaterochka and to 50% at Perekrestok
Continue to develop the product quality control system
Increase the share of customers who believe that X5’s retail chains help them lead a healthy lifestyle
Expand the range of products for a healthy lifestyle
Strategic Goalsthrough 2030
Develop principles and practices for monitoring suppliers’ responsible sourcing of goods
Expand our range of products for a healthy lifestyle
Our sustainability strategy promotes a healthy lifestyle as part of our value propositions by increasing the share of healthy products and highlighting healthy products at stores.
Key projects
Products for a balanced diet
Perekrestok expanded its Green Line product range by 148 items. These encompassed healthy products like gluten-free bread, milk alternatives, healthy sweets, and more.
Over ten Green Line SKUs are certified organic.
Farm
In late 2022, we piloted the Farm category. Eight Perekrestok stores in Moscow opened farm aisles with products such as cottage cheese, dairy products and meat.
Health and wellness festivals
Perekrestok, in partnership with its health product suppliers, held three wellness festivals in 2022, where shoppers could buy healthy products and win prizes. Over 100,000 people took part in the festivals, which had a total reach of over 20 million people.
Champion Marathon
Perekrestok, Bite and Epica held the nationwide Champion Marathon: people all over Russia had the opportunity to take up running or working out under special fitness programmes developed by professional trainers. The grand finale was a marathon for 500 people held in Moscow on 28 August. This project won Perekrestok an award for Best PR Campaign for Corporate Sports and Healthy Lifestyle.
Healthy lifestyle awareness campaign
Pyaterochka’s healthy lifestyle awareness-raising campaign (in collaboration with Rospotrebnadzor and the Federal Research Centre of Nutrition, Biotechnology and Food Safety) promoted healthy lifestyles and eating habits on our social media.
Plans for 2023
In 2023, Perekrestok plans to scale up Farm.
Pyaterochka will develop and launch a comprehensive healthy eating programme and continue introducing healthy food labelling and health signs on price tags.
Among other plans is an on-site lab to test goods and detect quality defects on the spot. This project will automate the laboratory testing process, cut costs and expand the study area to meet the chain’s growing needs.
To encourage healthy eating habits among children, Pyaterochka will run two pilot healthy cooking lessons at schools.
Chizhik will expand its supplier engagement efforts and implement the Corrective Action Plan based on the recommendations of a previous audit for production compliance with X5 checklist requirements.
Employees
2022 performance highlights
In 2022, we focused our efforts on securing business stability and strong growth. By gearing up for internal and external change, supporting the team and introducing management innovations, X5’s HR team helped the Company to cope successfully with challenges, remain sustainable and be a reliable partner for customers, suppliers and employees throughout the whole year.
Our first half of the year was dedicated to maintaining business stability and we concentrated on bolstering our market position in the second half. Cost efficiency, team performance and cross-functional cooperation cut through all our efforts to transform the overall management model at X5 Group, in particular at Pyaterochka and Perekrestok.
Thanks to systematic work to improve working conditions, evolve career opportunities, create new jobs, and respect people and their needs, X5 has upheld its reputation as a stable and dependable employer in the Russian market. Employee turnover stands at 33.4%, which is 3 p.p. below the 2021 level.
Strategic Goalsfor 2023
Strategic Goalsthrough 2030
>75%
An employee engagement rate
Become the leading food retailer in rankings of Russian employers
Create a safe, healthy workspace for all employees
Strategic Goalsthrough 2030
Maintain our #1 position among food retailers in rankings of Russian employers
Ensure the introduction of an appropriate standard for a safe, healthy workspace for all employees
Key highlights
One of our priorities for 2022 was to maintain the ability of the team and the Company to operate amid a turbulent external environment.
We continued our efforts to transform X5’s governance model, which emphasises collegial bodies, the role of each business in the Group, and improving centralised functions and services.
Partnership is becoming a core pillar for interacting within X5 and supporting synergies. It is why we are striving to transform our governance model Group-wide, including at X5’s retail chains; boost interaction between X5’s offices, stores and assets; and make our organisational structure flatter; etc.
We launched transformation of the organisational structure of the Pyaterochka retail chain, to base it, among other things, on a partnership culture. Our system is built around store operations, with everyone around helping stores deliver results.
For more information on the Company’s performance and activities, see the Employees section of our 2022 Sustainability Report.
HR management
The HR management model across our retail chains and business units mirrors our approach to managing the organisation as a portfolio of independent businesses composing, and contributing to, the whole Group.
Single centres of excellence in key HR areas develop common approaches and cross-format programmes, methodologies, and implementation rules at the unit level. Each retail chain and major business unit of the Group, including X5 Technologies, X5 Digital, X5 Business Support, and others, has a dedicated HR function to recruit and onboard talent while managing and organising operations.
Support for new or smaller business units is based on the HR Business Partner model. Strategic HR management takes place at chain head offices, where key HR agendas also take shape. Regional units are responsible for the full spectrum of HR operations required in their jurisdictions and comply with international and local norms and standards.
This unlocks a tailored approach to each category of employees within the broader team, all while fostering an environment that facilitates people’s growth and better performance.
For more information on changes in the management system, see the Employees section of our 2022 Sustainability Report.
Code of Business Conduct and Ethics
People of different ages, professions and ethnic backgrounds come to X5 and work well together. To deliver on its commitment to equal opportunities, the Company strives to comply with all requirements and standards around disability employment. As we advance on our continuous improvement journey, we engage employees in creating a comfortable environment for all people in society, which is reflected in our Code of Business Conduct and Ethics.
The Code of Business Conduct and Ethics defines standards of conduct that employees should observe in interactions with customers, suppliers and colleagues, and also lays out basic principles that guide our business practices.
The Code applies to all employees regardless of their position or role, and they are informed of its content through regular interactive training.
X5’s corporate values
Our values guide our work and decision making, help us understand each other better and communicate more effectively.
X5’s four values were developed in 2018. Each value is defined through behavioural indicators.
Our values are reflected in the Company’s HR-related business processes.
Values
Behavioural indicators
Honesty and integrity
We abide by our agreements
We give our co-workers reliable information in full
We have zero tolerance for corruption
Respect
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
Desire for achievement
We set ambitious, stretching goals
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
Customer-centric approach
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
Corporate culture
X5 Group is a modern, multicultural Company that sets industry standards and shapes best practice in business conduct, teamwork and community care. The Company’s assets are united by a common strategy and purpose, mission, values, and leadership and engagement practices. Partnership is a core pillar. Together we are building a long-term successful business that is adaptable to change — a permanent market leader with an open partner environment where every asset and employee knows their value and can showcase their contribution to the Company.
The year of 2022 saw the launch of our X5 Support programme for business continuity. It combines communication tools, workshops with psychologists, Q&A for employees, regular executive statements as well as support measures, such as a mental health hotline, additional insurance programmes for X5 staff in border regions, etc.
HR Galaxy Awards 2022
X5 Group placed second in the Corporate Social Responsibility category.
Feedback
X5 Group has developed an effective system for gathering feedback, both from subordinates to managers and from employees to the Company, whether anonymously or not.
The Company promotes and encourages honest feedback from employees on any matters relating to their employment or work at the Company, including corporate culture, values and ethics. We foster an open information space with a single intranet portal where users can post news and leave comments. As part of this initiative, we organise regular town halls with senior executives and fireside chats, enabling employees to ask questions and get answers.
There is also an ethics hotline available to all employees.
The Company works to ensure that employees can feel comfortable giving feedback: reports can be made anonymously, information received via the hotline is kept confidential, and whistleblowers are protected from retaliation, discrimination and other potential consequences.
In 2022, we launched a regular Company-wide eNPS measurement that will take place every six months as part of the Your Voice engagement survey. All units communicate survey results to employees for the whole unit and for each function/area/department, write up action plans for underperforming areas and work on improving performance.
HR Tech Award’s Digital Pyramid 2022
X5 Group’s intranet portal won the second prize in the HR Tech Product of the Year category.
HR Galaxy Awards 2022:X5 Group (Perekrestok retail chain) came second in the Digital Leader category
We created an internal service that combines the functions of a messaging app, a social network,a knowledge portal, an employee’s personal account, a benefits system, and a gift store.
For more information on feedback initiatives, see the Employees section of our 2022 Sustainability Report.
Motivation and fair compensation
X5 Group operates a remuneration and incentive system with common corporate rules that takes into consideration the specifics of each of our retail formats, digital businesses and rapidly developing assets. As part of our policy on equal opportunities, we strive to always treat our employees equally, offering fair remuneration for their labour in accordance with their qualifications and skills, the time and effort spent at work, the difficulty of their role, and the quantity and quality of their work. Company-wide principles and approaches towards personnel rewards are outlined in X5’s Policy on Remuneration.
All X5 business units constantly monitor the wage market for line personnel to ensure that X5 remains competitive. In 2022, the average wage across the Company increased by 11%.
In 2022, the Company set two rounds of semi-annual targets. For the first half of the year, two Company-wide KPIs were set for all employees: ensuring business continuity and OPEX/CAPEX optimisation. For the second half of the year, five Company-wide KPIs were set, each with an equal weight of 20%: X5’s market share, Pyaterochka’s LFL performance (gap vs peer), X5’s EBITDA margin, X5’s CAPEX as a percentage of revenue, and X5’s NPS.
As part of our social measures to support employees, we offer financial assistance and discounts in the Company’s stores and on partners’ goods, flexible work schedules, including hybrid work arrangements, COVID-19 vaccinations and annual flu vaccinations for targeted employees, reimbursement of mobile internet costs, gym memberships, life and health insurance, and other benefits.
Training and development
A major benefit that X5 Group employees enjoy is a wide range of opportunities for professional development and career growth. Our employees can develop within their units as well as at other Company assets. We welcome internal mobility and strive to create an environment where everyone can develop their skills and competencies, and gain knowledge and experience.
As part of annual performance appraisals, each X5 employee undergoes a comprehensive evaluation of their performance, including against KPIs and X5’s capabilities and values. We build a funnel of talent and high-potential employees and draw up employee development plans based on the appraisals.
A system of HR committees enables us to identify succession pool candidates for key positions and determine areas for growth for incumbent managers on an annual basis. This uniform approach ensures a talent pool at all levels of management and supports the sustainable management of the Company in the long term.
Our training system is constantly evolving to become more technology-driven and better adapted to the needs of specific groups of employees. The system is also adapted to the pace of change in the Company and in employee demands.
In 2022, X5 consolidated all its existing training programmes into its X5 Shelf online corporate university / development portal, which we are developing as an education marketplace. The portal currently features more than 900 pieces of content, with over 30,000 employees registered and over 5,500 unique users visiting the portal every month. In 2023, we will continue shifting existing training and development processes to the Shelf portal. Our plans include launching cross-format training programmes, namely Management Culture at X5, Partnership Culture at X5 and Developing Leadership Potential.
For details on the Company’s motivation and compensation measures and initiatives, see the Employees section of our 2022 Sustainability Report.
HR Galaxy Awards
The Nature of Code or IT Camp for Developers project won first place in the DevRel of the Year category. The X5 Tech School of Team Leaders project won second place in the Best Training Programme category.
bema!
X5’s Speak Up School placed second in the Best B2B Training/Education Project category. The Nature of Code or IT Camp for Developers project placed second in the Best Employer Brand Project category.
Silver Mercury
Third place in the Education category for X5’s Speak Up School; a special prize for the Most Original Initiative to Promote and Build the Employer Brand for X5’s Speak Up School.
Employer brand, recruitment and onboarding
One of the key objectives of X5’s HR function is to support the Company’s growth and development by promptly and fully meeting its needs for new talent across all regions of operation. To do this, all X5 units make consistent efforts to enhance their attractiveness as employers. In 2022, the Company hired 145,099 new employees.
Also in 2022, X5 updated its employee value proposition. Each unit can build on X5’s Group-wide benefits to attract candidates in line with the unit’s needs and taking into account specific target audiences.
In 2023, we will focus on developing programmes aimed at enhancing the Company’s appeal to young people. Each unit within the Company undertakes its own efforts in this area, selecting educational institutions that match its profile and fit with business needs. Several units offer internships and vacancies for young specialists, while university students are involved in solving business cases and are welcome to bring to X5 their ideas and projects for the retail industry.
For more information on recruitment and onboarding activities and initiatives, see the Employee section of our 2022 Sustainability Report.
X5 Group’s Creating a Shared Services Centre for HR Operations
project won an ABPMP Russia Community Award. The
BPM Project of the Year
is an annual contest of projects to enhance performance through business process management methods and technologies, run by the ABPMP Russian Chapter and supported by the IT cluster of the Skolkovo Foundation and the Analytical Centre of the Russian Government.
X5’s Personal Account project to automate HR processes won a Crystal Pyramid at the national Best HR Departments contest in the Digital Leader category.
Occupational health and safety
At-work health and safety is one of the most controversial and hot-button matters for a healthy workforce, as the average employee spends eight hours a day at work.
Our approach
In occupational health and safety (OHS), we aim to identify and build a sustainable safety culture. The Company has adopted an Occupational Health and Safety Policy. Being a responsible employer, X5 guarantees every employee is entitled to a comfortable working environment in line with state regulations. In this regard, we adhere to the following principles:
Being a safety leader: all employees are involved in maintaining and improving the Company’s OHS, while all-level managers lead by example.
Identifying threats and managing risks: we take action on threats, assess OHS risks and analyse incident causes to prevent them.
Ensuring safe working conditions: the Company’s equipment and workplaces comply with applicable national OHS standards.
Upskilling: the Company aligns employee qualifications with their duties and verifies knowledge according to up-to-date OHS requirements.
Investing in people: we reward employees for OHS compliance and encourage them to voice their ideas and suggestions for OHS management system improvements.
Promoting a safe working environment for suppliers and contractors: we establish uniform OHS requirements for our staff and contractor employees working on the Company’s premises and/or for the Company’s benefit.
The Company’s Occupational Health and Safety Management System (OHSMS) is OHSAS 18001-compliant and can be applied at all management levels. It helps to rapidly identify potential dangers, take remedial actions to bring working conditions up to the required standards and make prudent management decisions.
In X5’s business unit, which numbers over 50 full-time employees, an OHS specialist is a must (as per the Russian Labour Code).
In 2022, we updated a number of documents regulating occupational safety.
The OHSMS applies to all X5 employees. In line with X5’s Occupational Health and Safety Policy, we urge employees to develop the OHSMS and consult them on it if requested.
Plans for 2023
The year of 2023 will usher in a further revamp of the Company’s management models and corporate culture, including updating our operating principles, to contribute to a partnership culture and fruitful cooperation between businesses, all while achieving our ambitious goals.
X5’s HR function will continue to support change and growth ambitions under the new development strategy for each priority as a valued partner. The focus will remain on delivering better operations, cost efficiency, and internal processes by digitising and automating key services, development and training with an emphasis on leadership skills and competencies.
HR plans for 2023:
Launching the Shelf corporate university and onboarding retail staff
Create a single recruitment system, elevate the succession and talent pool programme, and scale up the Partner Director programme
Update the onboarding programme for all X5 employees
Launch new projects for young people
Proceed with the centralisation of HR services under X5 Business Support and move to a service model
Continue the transformation of governance and culture models, including by updating values and work practices to foster a culture of partnership and high-quality interaction between businesses and to support X5’s ambitious plans
Key 2023 OHS goals:
Launch electronic checklists for internal audits (WRS2 system) — aligning and analysing violations for prompt decisions on better working conditions
Transition in-house health and safety training from text-based courses to a live, engaging format (using actual photos and videos showing the specific equipment use)
Move some retail chains / business units to a service OHS model, which will formalise occupational safety processes and reduce labour costs, ensuring quality of service
Automate personal protective equipment (PPE) distribution
Automate health and safety training, use EDS in training protocols
Automate the review of OHSMS results
Learn more on how we are developing human capital and safeguarding employee rights and safety in X5 Group’s 2022 Sustainability Report.
Customers are not just patrons at our stores but also our co-workers.
Including express delivery, Vprok.ru and Mnogo Lososya.
As of 31 December 2021
Including 7 joint dark stores.
As at 31 December.
GosSOPKA is the state system of detecting, preventing and responding to cyberattacks.
Universal Transfer Document.
The State Information System of Government and Municipal Payments.
Krasny Yar and Slata.
At least one purchase made in December 2022.
At least one purchase made in December 2022.
Net of VAT and revenue from wholesale operations and revenue from franchise services and other services.
Adjusted SG&A is SG&A before depreciation, amortisation and impairment costs as well as costs related to the LTI programme, share-based payments and other one-off remuneration payments and the one-off impact of the Karusel transformation. For more information on alternative performance measures, see pages 93-97.
Adjusted net profit is net profit before the effect of the Karusel transformation and tax accruals related to previous periods, including X5’s reorganisation.
Excluding Vprok.ru Perekrestok
LFL comparisons of retail sales between two periods are comparisons of retail sales in the local currency (including VAT) generated by relevant stores. The stores that are included in LFL comparisons are those that have operated for at least 12 full months. Their sales are included in the LFL calculations starting from the day of the store’s opening. We include all stores that fit our LFL criteria in each reporting period.
EBITDA shall be adjusted (decreased) by the amount that would have been recognised as operating lease, other store costs, third-party services and other expenses payable during the period, but which is not recognised as such under IFRS 16, as well as the amount of the net effect from the decrease in the scope of the lease and terminations of lease agreements and adjustment of gain/loss from sale of asset under sale and leaseback operations for the proportion of the rights retained recognised under IFRS 16.
X5 announced its commitment to the Science Based Target initiative (SBTi) in December 2020.
X5 disclosed its direct (Scope 1) and indirect (Scope 2) GHG emissions in 2020.
X5 uses the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) for the assessment of climate-related risks.
In line with X5 Retail Group recommendations for suppliers.
Please note that in this and other tables and text, immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding.
Net of VAT and revenue from wholesale operations and revenue from franchise services and other services.
Adjusted SG&A is SG&A before depreciation, amortisation and impairment costs as well as costs related to the LTI programme, share-based payments and other one-off remuneration payments and the one-off impact of the Karusel transformation. For more information on alternative performance measures, see pages 93-97.
Adjusted net profit is net profit before the effect of the Karusel transformation and tax accruals related to previous periods, including X5’s reorganisation.
Excluding Vprok.ru Perekrestok
LFL comparisons of retail sales between two periods are comparisons of retail sales in the local currency (including VAT) generated by relevant stores. The stores that are included in LFL comparisons are those that have operated for at least 12 full months. Their sales are included in the LFL calculations starting from the day of the store’s opening. We include all stores that fit our LFL criteria in each reporting period.
Strategy 2025 is currently under development.
Figures may not add up due to rounding.
X5 conducts its GHG emission calculations using both market- and location-based methods.
Our healthy product range includes gluten-free, sugar-free, organic, farm-grown, naturally sourced, high-protein, low-calorie, and vegan products.
Please note that in this and other tables and text, immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding.
Net of VAT and revenue from wholesale operations and revenue from franchise services and other services. Including Mnogo Lososya, Krasny Yar and Slata.
Adjusted SG&A is SG&A before depreciation, amortisation and impairment costs as well as costs related to the LTI programme, share-based payments and other one-off remuneration payments and the one-off impact of the Karusel transformation. For more information on alternative performance measures, see "Information on alternative performance measures"
Adjusted net profit is net profit before the effect of the Karusel transformation and tax accruals related to previous periods, including X5’s reorganisation.
Excluding Vprok.ru.
Including Vprok.ru, Mnogo Lososya, Krasny Yar and Slata, and joint dark stores.
LFL comparisons of retail sales between two periods are comparisons of retail sales in the local currency (including VAT) generated by relevant stores. The stores that are included in LFL comparisons are those that have operated for at least 12 full months. Their sales are included in the LFL calculations starting from the day of the store’s opening. We include all stores that fit our LFL criteria in each reporting period.
Including Krasny Yar and Slata.
Vsevolod Starukhin resigned as CFO at the end of April 2023. The Company is looking for a new candidate.
