1H2006 Results

Company overview and 1H2006 management accounts

1

Important informationThis presentation is strictly confidential to the recipient, may not be distributed to the press or any other person, and may not be reproduced in any form. Failure to comply with thisrestriction may constitute a violation of applicable securities laws.This presentation does not constitute or form part of and should not be construed as, an offer to sell or issue or the solicitation of an offer to buy or acquire securities of OJSC “Magnit” (the“Company”) or any of its subsidiaries in any jurisdiction or an inducement to enter into investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of,or be relied on in connection with, any contract or commitment or investment decision whatsoever.The information contained in this presentation has not been independently verified. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should beplaced on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of the Company, nor any shareholder of the Company, nor any ofits or their affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or itscontents or otherwise arising in connection with the presentation.This presentation is intended only for persons having professional experience in matters relating to investments being Relevant Persons (as defined below). Solicitations resulting from thispresentation will only be responded to if the person concerned is a Relevant Person.Neither the presentation nor any copy of it may be taken or transmitted into the United States of America, its territories or possessions, or distributed, directly or indirectly, in the UnitedStates of America, its territories or possessions. Any failure to comply with this restriction may constitute a violation of United States securities laws. The presentation is not an offer ofsecurities for sale in the United States. The Company’s securities have not been and will not be registered under the Securities Act and may not be offered and sold in the United Statesexcept in reliance on an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act.Neither this presentation nor any copy of it may be taken or transmitted into Australia, Canada or Japan or to Canadian persons or to any person in any of those jurisdictions. Any failure tocomply with this restriction may constitute a violation of Australian, Canadian or Japanese securities law. The distribution of this presentation in other jurisdictions may be restricted by lawand persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. The Company has not registered and does not intend toregister any portion the Offering under the applicable securities laws of Canada, Australia or Japan and, subject to certain exceptions, the shares may not be offered or sold within Canada,Australia or Japan or to any national, resident or citizen of Canada, Australia or Japan.This presentation is made to and directed only at persons in the United Kingdom having professional experience in matters relating to investments who fall within the definition of“investment professionals” in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the “Order”), and to those persons to whom it can otherwiselawfully be distributed (such persons being referred to as “Relevant Persons”).Matters discussed in this presentation may constitute forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, futureevents or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The words “believe,” “expect,” “anticipate,” “intends,” “targets,”“estimate,” “forecast,” “project,” “will,” “may,” “should” and similar expressions identify forward-looking statements. Forward-looking statements include statements regarding: strategies,outlook and growth prospects; future plans and potential for future growth; liquidity, capital resources and capital expenditures; growth in demand for products; economic outlook andindustry trends; developments of markets; the impact of regulatory initiatives; and the strength of competitors.The forward-looking statements in this presentation are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation,management's examination of historical operating trends, data contained in our records and other data available from third parties. Although the Company believes that these assumptionswere reasonable when made, these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its controland it may not achieve or accomplish these expectations, beliefs or projections. In addition, important factors that, in the view of the Company, could cause actual results to differ materiallyfrom those discussed in the forward-looking statements include the achievement of the anticipated levels of profitability, growth, cost and synergy of its recent acquisitions, the timelydevelopment and acceptance of new products, the impact of competitive pricing, the ability to obtain necessary regulatory approvals, the condition of the economy and political stability inRussia and the other markets of operations and the impact of general business and global economic conditions.Some of the information in the presentation is still in draft form and has not been legally verified and will only be finalised at the time of the Offering.Neither the Company, nor any of its agents, employees or advisors intend or have any duty or obligation to supplement, amend, update or revise any of the forward-looking statementscontained in this presentation or to update or to keep current any other information contained in this presentation.The information and opinions contained in this document are provided as at the date of this presentation and are subject to change without notice.By attending this presentation and/or accepting a copy of this document, you agree to be bound by the foregoing limitations and conditions.

2

Today Magnit is:� The leading Russian food retailer by number of stores and customers

� 1,682 stores in discounter format as of June 30, 2006

� More than 531 cities and towns in European Russia as of June 30, 2006

� Over 447,5 thousand sq. m of selling space as of June 30, 2006

� In-house logistics including 6 distribution centres with total warehousing space of 66 thousand sq. m

and over 500 vehicles

� Approximately 36 thousand employees as at June 30, 2006

� Strong centralised management

� 294.6 mn customers in 1H2006

� Net sales, 1H2006 - 1074,3 mln. USD

Note: * management accounts

3

Strong regional coverage 1H2006

Volga Federal district:

443 stores

2 Distribution centres

North-Western Federaldistrict:

76storesCentral Federal district:

419 stores

3 Distribution centres

Southern Federal district:

726 stores

1 Distribution centre

Urals Federal district:

18 stores

Demographical breakdown of store locations

Store portfolio by Federal district

Source: Company data


Volga;26,3%

North-Western;

4,5%

Central;24,9%

Southern ;43,2%

Urals; 1,1%

1 million +residents;

8,74%

500-1000thousandresidents;23,13%

100-500thousandresidents;26,52%

up to 100thousandresidents;41,62%

4

Assortment selection

98,9%

67,6%

50,9%

97,0%

14,9%

13,3%

12,5%

18,5%

0% 20% 40% 60% 80% 100%

Fresh categories

Salads

Chilled chicken

Fish

Grilled chicken and meat

Chilled meat

Bakery

Ready made meals

Assortment structure, 1H2006Share of stores offering fresh andvalue-added products



Assortment correlates with customers’purchasing power


Dry and frozenproducts,

vegetables, fruit

Shorter life products,salads, grill, bakery

Shorter life products,salads, grill, bakery

Shorter life products,salads, grill, bakery Ready meals, fresh

meatSemi-finished

products, cakes

Semi-finishedproducts, cakes

up to 4000 roubles

4000 - 4500 roubles

4500 - 5000 roubles

5000 + roubles

Mon

thly

hous

ehol

dsp

endi

ngon

food

and

beve

rage

s


vegetables, fruit


vegetables, fruit


vegetables, fruit

24,14%

15,41%

15,27%

9,52%

6,86%

6,90%

5,72%

3,72%

3,70%

2,89%

2,28%

1,44%

1,23%

0,92%

0% 5% 10% 15% 20% 25% 30%

Alcohol, soft-drinks and beverages

Meat and meat products

Dairy products

Confectionary

Cosmetics

Fruit and vegetables

Bread and flour

Household chemistry

Fish and fish products

Fat products

Baby food and instant meals

Other household goods

Eggs

Non-core products

5

Suppliers, purchasing and Private Label productsMagnit is the largest customer for many domesticand international FMCG producers.

� Weekly Assortment Committee consisting of seniormanagement, purchasing director and category managersapproves changes to assortment and suppliers

� Direct purchasing and delivery contracts

� Large national suppliers account for approximately 64% ofcost of goods sold

� Leveraging scale and wide geographical presence toobtain the best prices and favourable contract term– Volume discounts– Compensation of external and internal logistics costs– Average credit term in 2005 – 34 days and can be as high as 60

days– for national suppliers– Contract term is typically 1 year– Often can be unilaterally terminated by Magnit with no penalties

� Supplier bonuses– For meeting sales targets– For store promotions– For loyalty

Private Label products are designed to substitute thecheapest SKUs to maximise returns on each metre ofshelving space:

� 520 Private Label SKUs as of 30 June 2006� Private Label products accounted for an 10.47% share of retail

revenue in 1H2006 and 14.57% of total SKUs� Management’s target is to double the share of Private Label sales

in retail revenue by 2015� Approximately 88.9% of Private Label products are food stuffs� The gross margin of Private Label products is 8 and more

percentage points higher than for similar product categories

Share of Private Label products in revenue


520508

265162

46

2,2%

10,47%

8,2%

6,3%5,1%

0

100

200

300

400

500

600

700

2002 2003 2004 2005 1H20060,00%

2,00%

4,00%

6,00%

8,00%

10,00%

12,00%

Number of items Share in retail sales

6

Well trained dedicated personnel� As of June 30, 2006, the Group employed approximately

36,000 staff, including:– 27,972 in-store personnel,– 4, 502 people engaged in distribution,– 2,774 people in regional branches and– 752 people employed by head office

� The average age of Magnit employees is approximately 28years

� The gross average monthly salary in 2005 was 8,505roubles, of which approximately 75% was basic salary

� All levels of employees are highly motivated by performance-linked bonuses and incentives

� Key members of the management team own stock� Performance evaluation on a regular basis� Training system provides:� Career development programmes for all levels to ensure

– Lower staff turnover– Increased motivation– Higher productivity

� Personnel training– 60 classrooms for entry level staff training– Managerial training for middle management– Regular meetings and seminars between mid-level managers

to exchange best practices– Coaching for top-management

� Strong corporate culture aimed at increasing loyalty ofemployees– The Company publishes a corporate newspaper every two

months– Team building events to ensure integrity of the team

Average personnel headcount vs averagesalary, 2004-2005

13,33124,870

8,5057,378

05,000

10,00015,00020,00025,00030,000

2004 200501,5003,0004,5006,0007,5009,000

in R

UB

Average headcount Average monthly salary

Source: audited IFRS Financial Statements, Management estimates

7

ow ned11,95%

leased88,05%

Summary Magnit store statistics

48664550

1,5008613683796842005

6034177220ClosingsNet openings

New openingsTotalUralsNorth-WesternVolgaCentralSouthern

1

11998

19

1920

2

181999

8

1028

1

272000

125

127153

119

1332001

215

222368

553402702002

242

259610

91141003872003

404

4381,014

262142245502004

182

2421,682

1877454438755

30 June 06

owned11,60%

leased88,40%

Store portfolio as at June 30 2006

Store openings


Owned and leased storesbreakdown

Number of stores andSelling space, sq. m

2005 1H2006

1 682

1 500

382 609

447 523

1 400

1 450

1 500

1 550

1 600

1 650

1 700

2 005 1Q2006365 000375 000385 000395 000405 000415 000425 000435 000445 000

Number of stores Selling space

8

Store information

153368

610

1014

15001682

0

500

1000

1500

2000

2001 2002 2003 2004 2005 1H2006

387 374 368 365 376 392

050

100150200250300350400450

2001 2002 2003 2004 2005 1H2006

sq. m

Average selling space per store, 2001-1H2006

Total number of stores, 2001-1H2006 Average total space per store, 2001-1H2006




266 258 257 252 255 266

050

100150200250300350400450

2001 2002 2003 2004 2005 1H2006

sq. m

9

Operating KPIs

158,8

273,2

469,3

294,6

0,0

100,0

200,0

300,0

400,0

500,0

2003 2004 2005 1H2006

in m

illion

s

Average ticket, 2003-1H2006Number of tickets, 2003-1H2006

Source: Company data Source: Company data

2,53,0

3,33,6

0,00,51,01,52,02,53,03,54,0

2 003 2004 2005 1H2006

US

$

10

Regional store performance

484

628

871

757

1,159

737

773

1,053

1,358

1,781

476

813

970

1,031

1,270

1,621

2,195

0 500 1,000 1,500 2,000 2,500

Urals

North-Western***

Central**

Volga

Southern

St. Petersburg

Moscow

US$ thousand per annum

2003 2004 2005

1,969

2,605

3,305

2,901

4,046

3,026

3,310

4,089

4,527

6,097

2,052

3,122

3,877

4,326

4,938

5,415

7,705

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000

Urals

North-Western***

Central**

Volga

Southern

St. Petersburg

Moscow

$ / per annum

2003 2004 2005

Sales per store*, 2003-2005 Sales per sq. m*, 2003-2005


Note: * calculated as retail revenue in a year divided by weighted average number of stores andselling space in the same year

** excluding Moscow and Moscow region

*** excluding St. Petersburg and Leningrad region


11

Improved operating efficiency

1. Increase in number of stores

2. Sales per square metre growth thanks to:

� Traffic growth:– Macroeconomic factors– Increased market share due to outflow of customers from open

markets to discounters– More attractive assortment and pricing– Improved quality of service– Increased attractiveness of stores to consumers

� Ticket growth:– Macroeconomic factors: inflation in consumer basket staples– More expensive SKUs in the assortment

3. Cost efficiencies

� Better terms from suppliers due to growing purchasing power

� Less costly expansion into existing markets with already highrecognition

� Increased efficiency of in-house logistics

� Increased share of Private Label products

� Optimisation of assortment by replacing slow-moving SKUs

� Labour productivity growth

� Streamlined business processes26%232%Effective tax rate

2.3%-0.2%Net margin, %

36.8(1.7)Net income

(13.2)(3.0)Taxes

50.01.3Profit before tax

(12.9)(5.3)Net finance costs

854%62.96.6EBIT

(15.1)(6.1)Depreciation

4.9%1.5%EBITDA margin, %

513%78.012.7EBITDA

(1.3)(3.1)Other income/(expense)

100%(185.5)(92.9)SG&A

16.8%12.8%Gross margin, %

144%264.8108.7Gross profit

77%(1,312.9)(739.8)Cost of goods sold

86%1,577.7848.5Net sales

YoY, %FY 2005FY 2004In US$m

Source: audited IFRS Financial Statements

12

LFL sales analysis

Source: Companies’ data

+11.1%

+13.9%

Tickets perstore, LFL

growth

Averageticket, LFL

growth

LFL revenuegrowth

+26%

Note: for stores opened before July 2003 and not closed down permanently, expanded or downsized by the end of 2005, i.e. 399 stores

Sales dynamics, 2004-2005

813,5

1 552,6

1 014

1 500

0200400600800

1 0001 2001 4001 6001 800

2004 2005

US

$m

02004006008001000120014001600

Num

ber o

f sto

res,

eop

Retail sales Number of stores

Source: Management estimates

LFL 2004 to 2005, roubles

13

LFL sales analysis

Source: Companies’ data

+11.11%

+3.91%

Tickets per store,LFL growth

Average ticket,LFL growth

LFL revenue growth

+15.45%

LFL 1Q2006 to 1Q2005, roubles

+6.98%

+1.99%

Tickets per store,LFL growth

Average ticket,LFL growth

LFL revenue growth

+9.10%

LFL 2Q2006 to 2Q2005 , roubles

14

Gross margin improvement factors


15

Profitability analysis

92.9

185.5

11.8%

10.9%

0

50

100

150

200

2004 2005

SG

&A

exp

ense

s, U

S$

m

0%

3%

6%

9%

12%

15%

as %

of S

ales

12.7

78.0

4.9%

1.5%

0102030405060708090

2004 2005

EB

ITD

A, U

S$

m

0%

1%

2%

3%

4%

5%

6%

EB

ITD

A m

argi

n, %

4.8% 5.7%

2.3%2.6%

1.4%

0.4%1.1%0.9%

1.6%

0.7%0.6%0.5%

0%

2%

4%

6%

8%

10%

12%

2004 2005

as %

of s

ales

Other

Package materials

Repair & maintenance

Pension contributions

Rent & utilities

Payroll and relatedtaxes

Net profit dynamics, 2004-2005

EBITDA dynamics, 2004-2005

Changes in SG&A expense structure

SG&A expense dynamics, 2004-2005


-1.7

36.8

2.3%

-0.2%

-10

0

10

20

30

40

2004 2005

Net

inco

me,

US

$ m

-1%

0%

1%

1%

2%

2%

3%

Net

mar

gin,

%




16

Summary consolidated balance sheet, 2004-2005


In US$m 31-Dec-04 31-Dec-05P,P&E 93.9 160.1Intangible assets 0.2 0.4Other non-current assets 0.0 -Total non-current assets 94.1 160.5

Merchandise 77.9 151.3Trade accounts receivable 4.5 1.0Taxes receivable 14.5 19.2Advances paid 6.1 23.6Other receivables 2.8 6.3Short-term investments 0.3 -Cash 19.7 45.8Total current assets 125.8 247.1Total assets 219.9 407.6

Charter capital 0.0 0.0Reserves 1.7 0.1Retained earnings 13.4 49.0Shareholder's equity 15.1 49.2

Long-term loans and borrowings 3.2 79.4Long-term capital leases 0.9 3.5Other long-term liabilities 8.3 11.0Total long-term liabilities 12.4 93.8

Trade accounts payable 108.3 132.2Other accounts payable 10.6 52.5Short-term capital leases 0.6 5.0Short-term loans and borrowings 72.9 74.8Total short-term liabilities 192.5 264.6Total Equity and Liabilities 219.9 407.6

17

Summary consolidated cash flow statement, 2004-2005


in US$m 2004 2005OPERATING ACTIVITIES:Profit before income tax 1.3 50.0Adjustments for:

Depreciation 6.1 15.1(Loss)/gain on disposal of property, plant and equipment (0.0) 0.1Change in provisions for doubtful receivables 0.5 0.5Other adjustments (0.7) (0.4)Finance costs, net 5.3 12.9

Operating cash flow before movements in working capital 12.4 78.3(Increase)/decrease in working capital 10.3 (30.2)

Cash provided by operations 22.7 48.0Income tax paid (0.3) (3.2)Interest paid (5.3) (11.4)

Net cash provided by operating activities 17.0 33.4

INVESTING ACTIVITIES:Purchase of property, plant and equipment (59.0) (78.3)Purchase of intangible assets (0.2) (0.2)Proceeds on disposal of property, plant and equipment 0.9 1.2Purchase of investments (25.0) (5.6)Proceeds from sale of investments 27.5 5.9Cash cost of shares acquired during the Group reorganization - (1.5)Net cash provided by investing activities (55.8) (78.5)

FINANCING ACTIVITIES:Proceeds from borrowings 384.0 679.3Repayment of borrowings (334.6) (597.9)Payment of bond issue costs - (0.5)Repayment of obligations under financial lease (1.0) (8.6)Net cash from financing activities 48.4 72.4

EFFECT OF FOREIGN EXCHANGE RATES ON CASH AND CASH EQUIVALENTS 0.9 (1.2)

NET INCREASE IN CASH AND CASH EQUIVALENTS 10.5 26.0

CASH AND CASH EQUIVALENTS, beginning of year 9.2 19.7

CASH AND CASH EQUIVALENTS, end of year 19.7 45.8

Date post:	27-Jul-2015
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