2022ANNUAL REPORT
unaudited

Strategic
Report

Overview
Strategic review
Review by formats

Focus on customer
Digital businesses
Retail infrastructure

Financial review
Information on alternative performance measures
Sustainable development

Overview

About this report

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

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

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
70.4 RUB
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,

9.0 % CAGR 2018–2022

Selling space,

10.3 % CAGR 2018–2022

Number of stores

Number of orders in online businesses,

Financial highlights (pre-IFRS 16)

14.2 % CAGR 2018–2022

Revenue,

14.1 % CAGR 2018–2022

Gross profit,

14.8 % CAGR 2018–2022

EBITDA,

16.2 % CAGR 2018–2022

Net profit,

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

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

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.

Selected macroeconomic data

Russian macroeconomic indicators, year-on-year comparison, %	Q1	Q2	Q3	Q4	FY 2022	Q1	Q2	Q3	Q4	FY 2022
Real GDP	(0.3)	10.5	4.0	5.0	5.6	3.5	(4.1)	(3.7)	(3.4)	(2.1)
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,

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

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

19,164

Stores in operation

+6.6%, 2021/22
7,497ths
sqm

Selling space

+6.4%, 2021/22
11.7%

LFL sales growth

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

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

Share of private labels in sales (year-end)

Operational efficiency

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

Social responsibility

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

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

971

Stores in operation

–1.9%, 2021/22
1,085ths
sqm

Selling space

—1.2%, 2021/22
7.1%

LFL sales growth

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

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

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

Ready-to-eat products

Private label share in sales (year average), %

Ready-to-eat share in sales, %

Café and open kitchen

Personnel

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

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

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.

Plans for 2023

700ths

Active subscribers

by 2023-end

1 Launch sales of Paket subscription as an SKU at the checkouts in stores
2 Explore new partnerships to jointly promote subscriptions
3 Build 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

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

Regions

3,672 Pyaterochka stores
808 Perekrestok supermarkets

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:

Mnogo Lososya

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.

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

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

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

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

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

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

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

Gross profit

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))

RUB mln	2022	2021	2020	2019	2018	2017	2016	2015
LTI 2015–2017	−	−	(541)	327	1,552	2,875	3,053	3,607
LTI 2018–2020	68	1,055	830	2,444	619	−	−	−
LTI 2021–2023	2,122	1,350	−	−	−	−	−	−
New businesses	314	515	−	−	−	−	−	−
Total LTI	2,504	2,920	289	2,771	2,171	2,875	3,053	3,607

EBITDA and adjusted EBITDA

		IFRS 16			pre-IFRS 16
RUB mln	2022	2021	% change, y-o-y	2022	2021	% change, y-o-y
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 (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.
Net impairment losses on financial assets	(346)	(154)	124.7	(346)	(154)	124.7
% of revenue	0.01	0.01	1 b.p.	0.01	0.01	1 b.p.
Lease/sublease and other income	23,025	23,877	(3.6)	20,710	21,193	(2.3)
% of revenue	0.9	1.1	(20) b.p.	0.8	1.0	(17) 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.
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

EBITDA
analysis

EBITDA analysis
by segment

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

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.

	IFRS 16		pre-IFRS 16
RUB mln	2022	2021	2022	2021
Operating profit	138,118	117,572	97,632	84,359
Depreciation, amortisation and impairment	164,731	150,278	89,156	76,665
EBITDA	302,849	267,850	186,788	161,024

	IFRS 16		pre-IFRS 16
RUB mln	2022	2021	2022	2021
Revenue	2,605,232	2,204,819	2,605,232	2,204,819
EBITDA	302,849	267,850	186,788	161,024
EBITDA margin, %	11.6	12.1	7.2	7.3

Adjusted EBITDA (including adjusted EBITDA margin)

Adjusted EBITDA is a measure of the Company’s operating performance. It is a way to evaluate the Company’s performance exclusive of financing, accounting and taxation factors, and also excluding the effects of the 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. Running the Adventure Zones class at Pyaterochka, Centre to Search for Missing People and LizaAlert under the Safety Zones programme.
		Develop community care programmes		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.

Running the Adventure Zones class at Pyaterochka, Centre to Search for Missing People and LizaAlert under the Safety Zones programme.

Develop community care programmes

Goals through 2030

Initiatives throughout 2022

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&nb

2022ANNUAL REPORT unaudited

Strategic Report

Overview

About this report

Our approach, values and goals

Approach

Values

Sustainability goals

2022 key highlights

2022 financial and operating highlights

2022 operating and financial performance overview

Operational highlights

Financial highlights (pre-IFRS 16)

Russia’s food retail market

Russian food retail market development

X5’s position in a changing market

Food market trends in 2022

X5 vs Russian food retail in top-line growth

Top 10 Russian food retailers, % market share

Top 10 Russian online food retailers, % market share

Russian grocery retail market dynamics, %

E-grocery market development, %

Trends in the economy and consumer behaviour

Selected macroeconomic data

Legislative changes

CEO and President’s statement

Our strategy

Strategic vision for X5’s presence in the customer journey

Geography of operations

Rapid rollout of digital businesses

X5 today

Multi-format presence in 8 federal districts

Pyaterochka

Key operating results

Net sales by region, %

CVP transformation

Share of private labels in sales (year-end)

Operational efficiency

Introducing a partnership model for store management

Social responsibility

Perekrestok

Key operating results

Perekrestok net retail sales by region, %

Updating the value proposition of Perekrestok supermarkets

Adaptation of updated CVP

Assortment

Private labels

Ready-to-eat products

Private label share in sales (year average), %

Ready-to-eat share in sales, %

Café and open kitchen

Personnel

Chizhik

Operational efficiency

Plans for 2023

Karusel

Krasny Yar and Slata

Slata retail chain

Krasny Yar retail chain

Krasny Yar supermarket format

Baton discount store format

X5 Club

Paket

X5 Digital

Express delivery

The express delivery service was available from:

Plans for 2023

Express delivery

Business model

Mnogo Lososya

5Post

Business model

Plans for 2023

We plan to continue to actively grow 5Post on the back of X5’s existing infrastructure.

Food.ru

Logistics and transport

Pyaterochka

Expanding digitalisation

Process maturity

Operational efficiency

2022ANNUAL REPORT
unaudited

Strategic
Report

Multi-format presence
in 8 federal districts

Updating the value proposition
of Perekrestok supermarkets

Adaptation
of updated CVP

The express delivery
service was available from:

Business
model

Business
model

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

Achieving
sustainability goals

Total share of direct imports,
% of cost of sales

X5 Tech: Digital solutions
for people and business

Fostering intrapreneurship
and working with students

EBITDA
analysis

EBITDA analysis
by segment

Other segments: Chizhik, Karusel, Vprok.ru, 5Post, Mnogo Lososya, and Krasny Yar
and Slata (pre-IFRS 16)

Analysis of non-operating
gains and losses

Information on alternative
performance measures