Annual Report Sustainability Report
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As One –
for the Customer

Chairman's Statement
President and CEO’s
Statement

Chairman's
Statement

Dear shareholders,
Magnit remains one of the country’s largest retail and food production businesses. Over the past year, we strengthened our market leadership by building on our competitive advantages, anticipating market trends and transforming our business accordingly.

2020 presented us with extraordinary challenges in terms of both economic trends and the global pandemic, which exposed every industry, including retail, to new risks. In addition to protecting the health and safety of our people, our primary goal was to ensure products remained available and were safely accessible to all our customers. To achieve this, we implemented heightened safety measures, created special programmes to monitor on-shelf stock levels and helped those who were hit the hardest. In April 2020, to support vulnerable citizens, the Company announced the launch of its #MagnitZabota (#MagnitCare) social programme. Since then, we have provided over 350 thousand food parcels in 24 regions of Russia.

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President and CEO's
Statement

2020 was an extraordinary year for all of us, presenting both challenges and opportunities. The COVID-19 pandemic required swift action in response to the rapidly changing economic environment, consumer behaviour and regulation. I am delighted to report that Magnit successfully navigated this turbulent period to deliver robust results, demonstrating our ability to seize opportunities and create value.

During 2020, we focused on ensuring a continuous supply of products to meet increased demand, delivering a full range of products at affordable prices. Despite the pandemic, we launched a record number of new projects, in line with our strategic goals. Firstly, we improved our retail operations and processes, increasing both our efficiency and customer experience. We saw a continuous inflow of new customers, and significant progress in both customer satisfaction rates and NPS scores. Our organisational design continued to be enhanced and we commenced our digital transformation programme. We also made significant progress towards the commitments made as part of our sustainability strategy.

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Highlights
of the Year

2020 was a challenging yet rewarding year for Magnit. We remained focused on what we do the best, providing the best possible service to our customers and protecting their health and safety. We improved the efficiency of existing business operations, tested new formats and moved into online, accelerated our digital transformation and adopted our Sustainability Strategy. Our financial performance improved substantially on the back of industry leading LFL sales growth, improved margin and a strong financial position.

85%
of Russian households make purchases in Magnit stores1
1 Consensus GFK and Romir panel analysis.
2020 Strategic Priorities –
We deliver what we promise
Achievement
in 2020 vs 2019
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Improvement of LFL sales growth/sales densities
LFL sales growth of 7.4% in 2020 vs 0.4% in 2019
Margin Regain
97bps year-on-year EBITDA margin (IAS 17) improvement on the back of growth margin gains and strict cost control
Improvements of the working capital cycle
RUB 30.5 bln of cash release from the working capital
Strong deleveraging and strengthening of financial position (Net Debt/EBITDA)
Net Debt/EBITDA of 1.1X as of the end of 2020 vs 2.1x as of the end of 2019 with FCF of RUB 85 bln vs RUB (2.2) bln in 2019 based on IAS17
ROIC improvement
from 14.1 % in 2020 vs 7,9% in 2019.
~1.8x year-on-year ROIC improvement for the business

Strategy

Our Strategic Goal

Cement current leading federal retail positions growing market share significantly and profitably

Our Strategic Ambition

Become #1 for consumers, employees and investors

Strategic priorities for Magnit
for 2021–2025

We decided to concentrate on a number of areas to overcome the challenging macro environment, and it is against this backdrop that Magnit defined its strategic priorities for 2021-2025.


Enhancing CVP as a key driver for material improvements in sales density and profitability.

Extracting efficiency to get higher profitability and cash generation.

Smart expansion implying high profitability targets for new store openings.

Selectively strengthen our overall positioning (based on strategic and value accretive approach) with M&A deals.

Extend consumer offering complementary to our core business to better satisfy consumer needs.
Our strategy is driven by the desire to create value for our three major stakeholders – our consumers, our employees and our investors.
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Digital
Transformation

Satisfying our customers’ changing needs is the heart of everything we do.

Big Data analytics and innovative solutions we use allow us to continuously improve customer experience. We aim to build an ecosystem of complementary services around the Magnit brand and a strong omni-channel core.

We took our first steps in largescale digital transformation earlier by rolling out our unique cross-format loyalty programme which proved extremely successful. In 2020 Magnit launched an unmatched 5-year ERP Transformation Programme based on SAP solutions which will be the largest project of its kind in the Russian retail sector. We will leverage not only our partners’ expertise, but also develop relevant internal expertise.

In the reporting year Magnit initiated development of its super app, which will use the existing loyalty programme to bring together online ordering, payment and credit solutions, lifestyle and other non-financial customer services, as well as privileges from its partners. The first step of implementing these solutions was the launch of Magnit Pay payment service which enables customers to pay for their purchases in any store, including online.

We also began testing e-commerce services in the second half of 2020. Magnit currently runs six online delivery projects, both independently and in cooperation with partners. During the first three months, the pilots’ growth dynamics exceeded original expectations and showcased the high potential of this market.

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Retail with Purpose

The scale of our operations across the country presents us with great responsibility in how we conduct our business. During 2020, we launched Magnit’s Sustainability Strategic Framework and set ourselves an ambitious goal of embedding sustainability into every aspect of the business and its processes.

By motivating our employees, inspiring our customers and helping to develop the communities in which we operate, we intend to set an example for the industry as a whole. We look forward to building a comprehensive network of partners, drawing on the wide range of our stakeholders, in a belief that effective partnering is key to achieving the ambitious goals we have set for ourselves.

Magnit focuses its efforts in on five key areas: reducing environmental impact, creating a responsible supply chain, taking care of employees, supporting local communities, and promoting healthy lifestyles.

Sustainability Strategic Framework
#1 Retailer with purpose in Russia
Our ambitions:
Leader
in environmental impact reduction in the industry
#1
Employer in the industry
Best
in class corporate governance
100%
responsible supply
chain
Positive
impact on the quality of life of all people in Russia
Our focus areas:
Environment
Sustainable Sourcing
Employees
Communities
Health & Wellness

Environment

Strategic goals for reducing environmental impact by 2025

50%

private labels and own production packaging are recyclable, reusable or compostable

100%

recyclable plastics in own operations are recovered and recycled

50%

food waste reduction

30%

reduction in greenhouse gas emissions

25%

reduction in water and energy consumption

Sustainable Sourcing

Strategic goals for a responsible supply chain by 2025

100%

responsible sourcing for socially important categories

100%

responsible own production and agriculture

+
increase in green packaging

Responsibility

responsible sourcing for commercial and noncommercial purchases

Partnership

development of partnership programmes with local suppliers and farmers

Employees

Strategic goals for working with employees by 2025

70%

rate of employee satisfaction

50%

lost time incidents rate reduction and zero fatalities

40%

maximum turnover rate

Communities

Strategic goals to support local communities by 2025

10%

employee volunteers

Community

programmes across Magnit’s geographic footprint

Health & Wellness

Strategic goals to support health and healthy lifestyle by 2025

Healthy lifestyle

information about healthy lifestyle and nutrition is available to all our consumers

Healthy food

Health related products are available to all our consumers

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