ANNUAL REPORT OF the OJSC «Company «M.video» for the year … Report_ENG... · 2014. 6. 20. ·...

NON-BINDING TRANSLATION

PRELIMINARY APPROVED BY

the Board of Directors of

the OJSC «Company «M.video»

(Minutes № 87/2014 dated May 12, 2014)

APPROVED BY

the Annual General Shareholders’ Meeting of


(Minutes №18 dated June 20,2014)

[signature]/Peter Gyoerffy/

Chairman of the AGSM

ANNUAL REPORT OF


for the year 2013

Моscow, 2014

Annual Report of the OJSC «Company «M.video» for the year 2013

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Content

1. Description of the main Company’s activity 3-12

1.1. General information on the Company 3-4

1.2. Main concepts of the Company’s activity 4-5

1.3. Historical background 5

1.4. Priority areas of the Company’s activities 5-11

1.4.1. Market share increase 5-11

1.4.2. Achievement of key performance indicators (KPIs) 11

1.5. Company’s position in the industry 11-12

1.6. Development perspectives of the Company 12

2.

Description of the key risk factors related to the Company's activity

12-15

2.1. Industry risks 12-13

2.2. Country and regional risks 13

2.3. Finance risks 13-14

2.4. Operational risks 14

2.5. Risks related to the Company’s activity 15

3.

Board of directors’ report on the results of the Company’s activities in priority areas

15-22

3.1. Main achievements in 2013 15-17

3.2. Economic indicators by operating results in 2013 according to the Russian accounting standards 17-18

3.3. Non-consolidated financial results and financial performance by operating results in 2013

according to the Russian accounting standards

18

3.4. Review of the key events of the year (incl. list of transactions made in 2013 by the Company and

recognized under Russian Federal Law «On Joint stock companies» as major or interested party

transactions)

19-22

3.5. Review of the key events after the reporting date 22

4.

Governing and controlling bodies of the Company

22-32

4.1. General shareholders’ meeting 23-24

4.2. Board of directors 24-27

4.3. General Director 27-28

4.4. Criteria of determining and amount of the remuneration and compensation paid to the members

of the steering bodies of the Company

28

4.5. Report on payment of the dividends 28

4.6. Corporate governance and report on compliance with the Corporate Code of conduct 28-31

4.7. Social responsibility 31-32

5.

Appendixes to the Annual report

5.1. Appendix 1 – Auditor’s opinion CJSC «Deloitte and Touche CIS» and Financial accounts for

2013

33-39

5.2. Appendix 2 – Revision commission opinion 40-42


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1. Description of the main Company’s activity

1.1. General information on the Company

The full & abbreviated name of the Company:

Open joint-stock company «Company «M.video» /OJSC «Company «M.video»

Information about the State Registration of the Company

The date of the State Registration of the Company: 25.09.2006.

The number of the Certificate of the State Registration (or other document confirming the State

Registration of the Company): Series 77 № 008748648

The Primary State Registration Number (OGRN) - 5067746789248

The authority in charge of the State Registration: Inter-Regional Inspectorate of the Federal Tax

Service No. 46 for the city of Moscow (hereafter referred to as MIFNS)

Information about the Charter Capital of the Company

Full amount of the Charter Capital of the Company paid up under Russian law requirements is

1 797 682 270 (one billion seven hundred ninety seven million six hundred eighty two thousand

two hundred and seventy) rubles. The charter capital is comprised of distributed securities

among the shareholders of the Company in the amount of 179 768 227 (one hundred seventy

nine million seven hundred sixty eight thousand two hundred twenty seven) ordinary non-

documentary shares with the par value of 10 (ten) rubles.

The Charter of the Company was approved by the EGSM (Minutes No.17 of 13th

of December,

2013), and registered with the tax authorities of Russia No.46 for the city of Moscow on 24th

of

December, 2013 under number GRN 6137748368576.

Information about the shares of the Company:

The category of the shares: ordinary

Form of securities: registered non-documentary

Nominal value of each share: 10 rubles

Number of the outstanding shares: 179 768 227 pieces

Number of the additional outstanding shares in the course of placement: 0

Number of the authorized but not issued shares: 30 000 000

The State Registration Number: Issue No. 1: 1-02-11700-А

The date of the State Registration: Issue No. 1: 23 August, 2007

The State Registration Number: Issue No.2: 1-02-11700-А -001D

The date of the State Registration: Issue No.2: 25 October, 2007

The Company trades its securities on the stock markets having the following stock marks:

MVID – classical market of the Stock exchange RTS (www.rts.ru) and

MVID – Stock exchange Micex (www.micex.ru).

In November 2007 shares of the OJSC «Company «M.video» were admitted to trading on the

major Russian stock exchanges RTS and MICEX in quotation list “I”. In April 2008 shares of

the OJSC “Company «M.video» were transferred to quotation list “B” on both stock exchanges,

and in July 2008 the Company’s shares were included in the calculation of the capitalization

“Index of MICEX – basic capitalization” (MICEX SC) of MICEX stock exchange.

On 29th

of October according to the Listing rules and decision of CJSC “MICEX” Company’s

shares were transferred from «Quotation list B» to the «Quotation list A».

http://www.rts.ru/

http://www.micex.ru/


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Trading Statistics

In the reporting year «M.video» shares were traded on the stock exchange and showed more than

20% growth whereas other leading stock exchange indexes showed negative or even null

dynamic The growth was supported by positive financial results of the Company in 2013 and

compliance with the Dividend policy of the Company.

The Company does not hold any licenses. Main types of the Company’s activity provided by the

Company’s Charter are:

activity on management of the financial and industrial groups

activity on management of the subsidiary and other companies comprising the Company’s

group

consultancy on issues related to commercial activity and management

market research and public opinion determination

rendering of other services

other activity which meets Company’s goals and not contradicting applicable Russian law

requirements.

Location, mailing address and contact details

Legal address: Moscow, Nizhnyaya Krasnoselskaya Str. 40/12 bul.20

Postal address: 105066, Nizhnyaya Krasnoselskaya Str. 40/12 bul.20

Telephone: ++7 (495) 644 28 48/ Fax: +7 (495) 644 28 49

Unified call-center: +7 (495) 777-777-5 (Moscow)/ 8-800-200-777-5 (Regions)

Internet store: + 7 (495) 777-777-5

Е-mail: [email protected]/Internet web-site: www.mvideo.ru

Structure of the Company:

OJSC «Company «M.video» functions as the holding company for its subsidiaries organizing

and maintaining the performance of the trading retail chain of «M.video». In addition, OJSC

«Company «M.video» is the sole owner of the main trade mark «M.video». The Annual report

contains information and data primarily related to the results of the Company’s activities for

2013 and therefore all figures are given as at December 31, 2013.

As at December 31, 2013 the Group consisted of:

LLC «M.video Management» is the retail operating company performing purchase of the

products on the territory of Russia and retail sales of the products in «M.video» stores. It is the

main owner of the products and retailer. As at the reporting date of 2013 LLC «M.video

Management» is the owner of 1 504 990 shares of the Company. The Company also owns 28

(twenty eight) properties which are used in the business (retail store locations).

The Present Annual report contains analysis and results of the Company’s business performance

in 2013, plans and perspectives for future development of the Company in Russian retail sector

of consumer electronics and estimates of potential risks related to the Company’s activity.

1.2. Main concepts of the Company’s activity

Mission:

To be the best place to shop for consumer electronics

Values:

Honesty - To keep our promises and always act fairly

Respect - Appreciate ones’ opinion and appraise achievements

Open mind for changes - Regard renovation as a chance for future success

Concern – We do care!

mailto:[email protected]

http://www.mvideo.ru/


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Strategy:

To increase shareholder value of the Company by growth of the revenue & profitability, to

expand the market share of the Company in Russia; to take leading positions in retail sector of

consumer electronics in the regions of the Company’s operating activity owning to the main

competitive advantages of «M.video» brand. For implementing this strategy, the Company sets

two key goals:

Market share increase by means of

revenue growth and

client service quality improvement

Achievement of key performance indicators

«M.video» brand is one of the major assets of the Company along with its team and employees.

That’s exactly why the Company does not use franchising scheme but operates all stores itself.

Therefore implementation of unified standards of «M.video» brand in all stores of the chain

irrespectively of its location is guaranteed. «M.video» brand is supported by the corporate values

of the Company in order to comply with the mission and be the best place to shop for consumer

electronics. Slogan of the Company remains «We do care!». The Company encourages all the

employees to recognize the Company’s values and follow the customers’ needs.

1.3. Historical background Retail M.video network (hereinafter referred to as «M.video», «Group» & «Retail chain») is the

leading consumer electronics and home appliance retailer in the Russian Federation. The first

retail store was opened in the center of Moscow in 1993. As of the end of 2012 «M.video»

operated 296 stores in 127 cities of Russia and ran 17 internet stores in 17 Russian cities,

whereas at the end of 2013 the total number of «M.video» retail stores increased to 333 in 143

cities of Russia and on-line business expanded to 52 cities of Russia.

In November 2007 the OJSC «Company M.video» (hereinafter referred to as the «Company»,

«M.video», «Chain») became the first publicly traded company in the consumer electronic retail

sector on the domestic market whose shares were admitted to trading on the main Russian stock

exchange (OJSC «MICEX-RTS»).

«M.video» offers its customers approximately 20,000 SKUs of audio/video, digital, small and

large home appliances, media and entertainment products as well as accessories. «M.video»

stores operate under uniform format and have a specially designed store concept. Easy to

navigate shopping area with information on the products and new trends (1 800 square meters in

average).

In addition to the efficient retail store format and customer-friendly store concept aligned with

the brand perception, «M.video» attracts customers’ attention by the quality goods, wide

assortment, new trends and excellent service thanks to product knowledge of the sales personnel,

additional services and 24-hour support by Customer service Centre.

1.4. Priority areas of the Company’s activities

For implementation of the strategy development, the Company in the reporting period focused its

attention on achieving the following goals and targets:

1.4.1. Market share increase

Retail chain expansion

In 2013 the Company opened 40 stores and entered 18 new cities (Adler, Angarsk, Apatity,

Derbent, Zhukovskiy, Ivanteevka, Kaliningrad, Kamyshin, Krasnoturinsk, Kropotkin,

Murmansk, Novocherkassk, Revda, Sarov, Smolensk, Chekhov, Shakhty, Sherbinka) or 12.5%


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more than in 2012. The Company closed 3 stores due to low efficiency. Starting in 2011 for the

period of 2012-2013 all new stores and all renovated stores are launched in the new design

concept. The number of which reached 108 stores or 32% of total stores’ number at the end of

2013.

The Company opens its stores both in small and big cities of Russia concentrating on cities with

more than 100 thousand population. A smaller store format has been introduced for the cities

with a lower population. Total shopping space of «M.video» retail chain reached 585 500 square

meters as of the end of 2013 up 8.5% from 2012.

At the end of the reporting period - 296 out of 333 stores are located in the shopping malls while

37 stores are located in stand-alone buildings. The Company leases around 90% of its stores and

owns 10%.

During the reporting year «M.video» continued to implement its strategy on increasing the

density of operations in the cities where the Company already has stores to get economies of

scale on advertising, delivery and supply expenses and to increase the market share in those

cities. As of the end of 2013 the number of cities with more than 3 stores in it is 17, including

Moscow and Saint Petersburg.

«M.video» presence in the cities of Russia Number of Stores

Moscow 46

Saint-Petersburg 15

N.Novgorod, Rostov-on-Don 7

Volgograd, Yekaterinburg, Krasnodar, Novosibirsk 6

Kazan, Samara, Tumen, Ufa, Chelyabinsk 5

Omsk, Orenburg, Perm, Yaroslavl’ 4

Astrakhan, Barnaul, Vologda, Voronezh, Irkutsk, Krasnoyarsk, Lipetsk,

Makhachkala, Nizhnevartovsk, Penza, Saratov, Sochi, Stavropol, Surgut,

Taganrog, Tolyatti, Ulyanovsk

3

Arkhangelsk, Balakovo, Bryansk, Vladimir, Vladikavkaz, Zelenograd, Ivanovo,

Yoshkar-Ola, Kaluga, Kemerovo, Kirov, Kursk, Nalchik, Novokuznetsk,

Novorossyisk, Orel, Orsk, Pyatigorsk, Ryazan, Saransk, Stary Oskol, Syktyvkar,

Tomsk, Tula, Ulan-Ude, Cheboksary, Cherepovets, Cherkessk, Yakutsk

2

Adler, Almetyevsk, Anapa, Angarsk, Apatity, Arzamas, Armavir, Belgorod,

Berezniki, Biysk, Bratsk, Vladikavkaz, Volgodonsk, Volzhsky, Gubkin, Derbent,

Dmitrovgrad, Dmitrov, Domodedovo, Dubna, Essentuki, Zheleznogorsk,

Zhukovskiy, Ivanteevka, Kaliningrad, Kamyshin, Kislovodsk, Kolomna, Kolpino,

Kostroma, Krasnogorsk, Krasnoturinsk, Kropotkin, Kurgan, Lazarevskoe,

Lyantor, Magnitogorsk, Maykop, Mezhdurechensk, Mineralnye vody, Murmansk,

Naberezhnye Chelny, Nevinnomyssk, Neftekamsk, Nefteyugansk, Nizhekamsk,

Nizzhniy Tagil, Novotroitsk, Novocherkassk, Novy Urengoi, Noginsk, Noyabrsk,

Nyagan, Obninsk, Odintsovo, Oktyabrsky, Orekhovo-Zuevo, Pervouralsk,

Petrozavodsk, Pskov, Revda, Salavat, Sarov, Severodvinsk, Seversk, Sergiev

Posad, Serpukhov, Smolensk, Sterlitamak, Syzran, Tver, Tabolsk, Tuapse, Ukhta,

Khanty-Mansiysk, Chekhov, Shakhty, Shelkovo, Sherbinka, Electrostal, Engels

1

Total number of cities: 145

Total number of

the stores: 333

Following Company’s mission – to be the best place to shop for consumer electronics meet – the

Group expanded the «M.video» presence to take market share of the competitors in those cities

where the «M.video» brand was not introduced.


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Omni - Channel Development

In 2013 the Company continued to develop the on-line business and followed Omni-channel

program by integrating of the retail and online sales processes. Within this program «M.video»

launched 35 new online stores (15 stores more than initially planned) and the total number of

online stores at the end of the reporting period reached 52. The Company continued to promote

“Sales per sample (PPO)” and “Pick-up in store” programs. In February 2013 within Omni-

channel approach the Company launched 2 projects: (i) online credit (online order and purchase

of goods in credit) with 16 cities’ coverage and 2 minutes on getting the loan and (ii) new format

of online orders’ processing – so called “Dark store” representing an ordinary hypermarket of

«M.video» chain with standard product display which at the same time serves as a distribution

center of on-line orders (launched in Saint-Petersburg).

First week of internet store activity in Saint-Petersburg brought «M.video» 3 500 orders with the

amount exceeding 30 mln. rubles. Among online purchases the greatest demand was in audio-

video electronics (30% of sales in cash value), notebooks and tablets (26%), LHA (15%) and

smartphones (12%). The average basket in the internet store in Saint-Petersburg valued about

13 300 rubles while in Moscow it was around 12 780 rubles.

For reference: average basket in offline store of «M.video» in 2013 was 5 250 rubles while in

online stores it was 13 100 rubles. During 2013 40% of all online based sales were collected in

offline stores under the «pick up in store program»; 57% in Saint-Petersburg, 34% in Moscow.

All programs and projects carried by the Company in 2013 gave «M.video» certain advantages

in competition with other consumer electronic players on the market both in retail and online

sales. Despite significant growth of total online sales in 2013 (more than by 100%), online based

sales still compose a minor part of the Company’s overall business activity (7% of the total

revenue 2x more than in 2012).

All this became possible thanks to:

optimization of the registration procedure and purchase on the website of the Company:

implementation of filters simplifying the choice of the product by the customers;

introduction of one-click order mechanism (purchase without registration on the website)

resulted in increase of the orders (30% of the total number of orders)

improvement of the web-site design and its mobile version;

maintenance of all possible applications for the smartphones and tablets (IOS, Android);

first offer in Russia of application for Google Chrome;

launch of «my favorite store» function to support loyal customers;

channels’ expansion for canvassing of customers:

automatic daily distribution to subscribers;

automatic digital version of «M.video» newspaper with an option to switch to the fly-

page – first in Russia;

duplication of on-line promos in all 52 regions;

Supply Chain development

«M.video» assortment includes around of 20 000 items comprising 6 000 - core products, 6 000 -

accessories and 8 000 media and entertainment goods. The Company’s goal is to ensure products

availability on the store shelves with consideration for local customers’ demands in the region

and to provide the clients with different additional services like order and delivery for customers’

comfort and convenience.

Supply chain of the Company is represented by one-level distribution model - all purchases are

done through 3 Central Distribution Center (CDC), afterwards all products are allocated to


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«M.video» stores and to 52 regional delivery platforms. The Company supports maximal

assortment line on CDC to secure on-lines sales and prepaid orders of any store, if the product is

not available on the shelve.

Supply chain strategy of «M.video» is based on a balanced management of the stock level (costs

on its storage and delivery) and customers’ service:

goods are concentrated in 3 CDCs (2- in Moscow, 1- in N.Novgorod) in close location to the

«gravity center» of sales volume;

number of warehouses remains the same but its size is growing - additional space allows to

reduce logistics’ costs and meet the needs of the business

transportation of goods is made by different ways (trucks, railway, air and currier express

delivery) aimed to minimize time of the goods’ delivery to the client;

purchase can be made either in the store or on-line while the delivery can be done anywhere

upon request (it can be goods’ distribution point in a store, office or home even in the cities

where «M.video» is not presented yet)

In 2013 the Company concentrated on improvement of customers’ service: streamlined clients’

delivery time scheduling and enhanced the process of informing the customer on delivery status

via sms. In 2013 online purchases became available in 52 cities of Russia, due to increase of

demand on «Pick up in store» service Company made it possible to receive products pre-

ordered online in each off-line store of «M.video».

The Company continued to improve cost controlling procedures and started implementation of

SAP TMS solutions aimed to automatize the process of transport route scheduling and to

optimize process of choosing the transport operating companies under price and quality

parameters.

New innovative products

Last year turned to be very rich in new consumer electronic trends. Due to the evident lack of

new ideas in design, customers started to pay more attention to colorful products: it became

noticeable both in LHA and digitals with the highest demand on colored solutions. The most

remarkable trend relates to B, C brands in smartphone and tablet categories.

2013 discovered a new category for many customers - so called «wearable electronics» which

became a real trend in mobile devices’ industry. This category includes lots of previously not

known to the market gadgets: smart-bracelets, smart-watches, fitness-trackers, sport-watches

and etc.

2013 was marked by new trends in accessories: transfer from «ordinary» headphones to

headphone sets and Bluetooth headphones, growth in popularity of supra-aural headphones

with a higher quality of sound and stylish design. For example, headphones’ share of Beats in

Pre-New Year period increased to 16% in «M.video» sales

Wireless acoustics adapted to the active life style also became an outspoken trend of 2013 and

from the category of «Not For Everyone» migrated to the category of «Must Have!». Here

again «M.video» was the 1st among federal retailers who started promoting of DJ-equipment

offering a ready solution with corresponding software

High demand on information storage devices observed in 2013 – even smartphones are being

produced now with photo-cameras having 12-15 M pixel resolutions 3-4 Mb of memory;

consequently this leads to the demand of more storage capacity. In 2013 only in Russia were

sold more than 55% of external hard drives with capacity of 1 Tb and more (in December

«M.video» sales share of such drives reached 70%)

Use of mobile devices (tablets and smartphones) requires permanent access to the photo-

archives and with the availability of «cloud services» the appearance of the «home cloud»


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was one of the main achievements of 2013. Today it is possible to save and keep the pictures

on your home hard drive yet having permanent internet access to them from anywhere in the

world

Popularity of tablets kept growing. The number of tablet producers also increased in 2013:

both well-known players in computers’ industry - HP, Dell, Toshiba and new brands - Haier,

Supra entered into the market. It is worth to mention that niche previously taken by notebooks

is now gradually being taken by tablets costing around 10 000 rubles.

2013 was also marked by the tendency on recapturing the market positions of some Japanese

TV producers: launch of new technological products, growth of sales and market share.

Producers are oriented on the development of smart functionality: increased number of smart TVs with Wi-Fi module installed

installed NFC and Wi-Di modules allowing transfer of pictures from smartphone or tablet on TV

screen by one touch

TVs on ОС Android base extending smart functionalities and unifying all devices in one ecosystem

One more trend of 2013 – demand on large TV screens: sales of TVs with 46” increased by 2

times. At the end of 2013 several OLED TV models with flat and concave screens appeared

on the market, with the advantages of higher responsiveness (1000 times more than in LED

TVs) and wider viewing angle without any color distortion

Sales of portable playing stations are decreasing Y to Y (-40%); gamers’ continued to switch

over other portable devices (tablets, smartphones based on Android and iOS) so that

popularity on App_Store cards (codes for buying new apps in the Apple Store) offered in

«M.video» retail stores is growing. At the same time sales of home play stations showed a

solid growth in 2013 (+20%) which was supported by launch of new PlayStation 4 platforms

and other famous games’ releases such as GTA V (September’13), «One of us» (June ’13)

and others. Growth of on-line sales of game consoles on the market was around 35% whereas

in «M.video» online sales it was 300% proving again that Russian customers prefer to buy

game products on credible web-sites offering certified products with corresponding guaranty

and services

Industry of consumer electronics moves and develops very fast, constantly offering the market

new innovative products. «M.video» monitors all tendencies in the electronics sector and offers

its customers an opportunity to buy latest hi-tech products when they appear in Russia.

Client service quality improvement:

Our Omni - Channel development and implementation of «Pick-up in store» service became

available in all «M.video» stores and even more became the obligatory standard of «M.video»

services. The number of «Pick-up in store» orders in 2013 increased by 97%. Until the middle of

2013 «M.video» customers could order products only in stores where these products were

available and only if payment for these products was made in the store Therefore the «Pick-up in

store» service was significantly improved and resulted in extra-opportunities such as online order

payment on the «M.video» website, order of products to the store, which is more convenient for

the customer, from the closest warehouse located in the city. The Company launched a pilot –

opportunity to order products to the store which is more convenient for the customer from CDC

with further delivery to any other region of the country irrespective of the distance.

Additionally, the Company actively continues implementation of projects focusing on client

service quality improvement, particularly:

launch of the system on «Order on home appliance installation», time for making the order

was shortened by 2x so that 100% of the Service zone personnel became available for

additional service to the customers

carried out optimization of means for ordering «M.video» service coupons


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range of package services for customers expanded from 45 to 52 (new software packages for

PCs and notebooks from Microsoft and Kaspersky Lab products; packages for customers’

service at home and etc)

e-books from LitRes catalogue became available in the internet stores of digital content

launched on «M.video» web platform

sales of services launched in all new 35 internet stores of the Company

set up of internal module «Incidents» for processing the customers’ feedbacks using all means

of communication (call, feedback in writing, web, e-mail). This module is presented by the

computer software with a single format of the customers’ feedback www.mvideo.ru/feedback

feedback containing: Net Promotor Score (NPS) evaluation scale, information on the

customer and feedback’s topic. In 2013 the Company received and acted upon more than

16 000 customers’ questionnaires, resulting in the number of complaints on the receipts

reduced by 64% in comparison to 2012

start up of the motivation program for Service zone personnel allowing to estimate work of all

subcontractors of the Company without any human factor; to decrease the number of returned

goods; to improve key service quality indicators and to key up the customers’ loyalty to

«M.video» brand

after transfer of the 24-hours call-center to professional and highly qualified outsourcing

company in 2012, the following results were achieved:

3.5 mln. calls were received by the Call- center in 2013 (10% more than in 2012) and 500

orders were processed

launch of new services: English speaking line, «personal manager» for orders paid

online, processing of orders according to the «price matching program»

orders’ confirmation from all internet stores transferred to Contact center and resulted in

sufficient reduction in number of refused orders at the confirmation stage

start of active sales in Contact center: more than 200 orders with delivery and pick-up

were processed on incoming calls, growth of orders in comparison to 2012 is 90%,

conversation rate of calls into orders increased from 4% in January 2013 to 9% in

December 2013, more than 20 thousand of accessories were sold (168% growth if

compared to 2012)

In 2013 we launched new services to improve our customers’ shopping experience:

utilization program (99 stores in 32 cities) – pick up and transportation of customers’ old

consumer electronics to disposal locations

provision of temporarily replacing consumer electronics (available in 17 stores of

«M.video») for the repair period – very popular service among the customers

Customers’ loyalty is key to success of «M. Video» brand, therefore within «My customer – My

responsibility» program the Company actively continues implementation of projects focusing on

client service quality improvement, particularly:

further improvement of «М.video - Bonus» program aiming to the clients’ loyalty

support (hereinafter – the «Program») launched in 2009

in 2013 the Program was re-branded and some key changes were introduced: the Program

was transferred to single bonus currency – bonus rubles; CRM-scenarios on

communication with new and existing customers were implemented; attributes of the

Program (customer’s map and web-site of the Program) were also updated

number of active Program participants increased in 2013 by 1 million to reach 8 million

customers

under 2013 year results (i) each second purchase in «M. Video» network was done by

«М.video - Bonus» program participant; (ii) share of checks’ turnover of the Program

participants in the total turnover of the Company constituted 72%; (iii) average check of

the Program participants was 7 900 rubles (1.5 times more than the average check in «M.

http://www.mvideo.ru/feedback

http://www.mvideo.ru/feedback


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Video» chain and 2.7 times more than the average check under purchases made by the

customers not participating in the Program

1st stage of Campaign management project based on SAP CRM platform and oriented on

Program participants was launched. Within this project was established a single customer

database unifying the history of all customers’ purchases both online and offline allowing

communication to these customers personal product offers and different promos by

means of all channels (SMS, E-mail, WEB)

1.4.2. Achievement of key performance indicators (KPIs)

Before its IPO in 2007, «M.video» developed a long term Model of the Company’s development

up to 2015 containing main KPIs. «M.video» follows this Model and corrects it annually subject

to internal and external environment. Basing on the up-dated Model, every year the Company

makes the Budget to follow and control main KPIs. Budgeting system and System of active

budget control implemented in 2012 enable the Company to manage the budget on-line and

follow target KPIs.

1.5. Company’s position in the industry

«M.video» competes with both national and regional consumer electronics retailers throughout

Russia, as well as against niche specialist retailers such as computer, telecom and/or photography

stores. The Company demonstrates high growth rates in sales due to superior sales technologies

and high standards of customer service.

The overall competitive environment in 2013 among federal retail chains remained unchanged

with the 3 companies which altogether consolidated the market. Based on GFK marketing

research results «M.video» (i) became bigger than all other Federal retailers together with the

share of 50,6% (increase from 40% in 2012 to 50.6% in 2013: +2.6% growth in Federal retailers

share), (ii) holds 13.3% share of the Russian consumer electronics’ market (increase from 12.4%

in 2012 to 13.3% in 2013: +0.9% gain in total market share), (iii) and holds 24,7% in CES share

(CE Specialist channel: growth from 23.1% in 2012 to 24.7% in 2013: +1.6% increase in CES

share).

In addition according the marketing researches made for the period from January to December

2013 and for the period from July to August 2013 by «Business Analytics MK» «M.video» takes

the following positions: M.video №1 in customers’ minds: 29%

M.video №1 in unprompted awareness: 78%

M.video №1 on the next purchase:

in off-line – 27% VS №2 in on-line – 13%

M.video №1 in share of preference: 50%

M.video №1 in level of credibility: 32%

In 2013 according to RBC rating, «M.video» was the 1st in sales revenue among other retail

players on the market, was the 2nd

in big cities’ coverage and the 3rd

among consumer electronics

retailers in the number of stores.

According to the marketing research of «Impacto Marketing Services» LLC from January to

December 2013 Net Promoter Score (NPS) per customers demonstrated stable growth and

reached 59% in 2013.

1.6. Development perspectives of the Company

«M.video» will continue integrating innovative approaches in order to meet the customers’ needs

in all stores and online, supporting the customer’s loyalty that «M.video» is the best place for

buying consumer electronics in Russia.


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In 2014 the Company plans to:

open 30 new retail stores;

launch of «credit on-line» program in 20 more internet-shops;

in supply chain management:

maintain effective logistics operations without additional expenses;

assortment expansion on CDC in order to ensure its availability both on real and virtual

shelves;

continue the implementation of Omni-channel program;

continue the implementation of «My customer – My responsibility» program;

In 2014 as a leader and expert in small home appliances «M.video» plans to develop prioritized

product lines in small household segment:

firstly, it is planned to open 8 new Coffee-centers allowing not only to display the products

on the shelves but to test them in real life. In 2013 «M.video» opened 22 centers where

customers could try and test coffee-machines and plans to have 30 centers by the end of

2014

secondly, the Company plans to open 10 Beauty-zones where customers may find

professional equipment and specialties in traditional product categories (such as photo

epilation, sets for face and hand care and etc.), select the desired hairstyle on a special screen

which will show how to reach such a result

Next year the Company will continue to monitor all tendencies in electronics sector in order to

offer its customers an opportunity to buy latest hi-tech products once they appear on the Russian

market:

sales of new game platform - Microsoft X-box One - are announced to start in Q2 of 2014,

this will support customers’ interest to the game industry and will became the main factor of

its growth

2014 will be the year of massive positioning of TVs with arcuated panoramic screens giving

the presence effect even in 2D format. All major TV producers announced presentation of

Full HD and Ultra HD TVs with arcuated screens in their product line of 2014

Additionally, the Company plans to carry out one more social project in 2014 on restoring

historical landscape of broad-lleaf forest in the national park «Ugra» (Kaluga region).

2. Description of the key risk factors related to the Company's activity

Risk management policy of the Group of «M.video» companies is centralized at the level of the

holding company - OJSC «Company «M.video». The Company takes into account both external

and internal factors which relate to the economic and political spheres of life, to the situation on

the capital and employment markets as well as to other risks not impacting the Company’s

business activity directly.

2.1. Industry Risks

«M.video» chain operates on the territory of Russia and does not export or render services

(works, goods) in any other countries. In this connection industry risks related to the trading

activity of «M.video» chain mainly arise from the activities carried on the domestic market.

According to the official data of the Federal agency of statistics (hereinafter – «RAS») turnover

of retail business in Russia in 2013 on 90.5% was formed by trading companies and individual

entrepreneurs carrying its activity outside the market, volume of GDP in 2013 in Russia reached

in current prices 66 trln. 755 bln. rubles or 1.3% more than in 2012.

In 2012 the Russian economy grew by 3.4%. In the GDP structure on major types of economic

activity wholesale, retail business and repair take 18.3%, manufacturing activities 14.8%,


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operations with real estate’s 12%, mineral production 10.8% and transport 8.5%. RAS forecast

on 2014 regarding index of GDP is from flat to +1.3%.

Main activity of «M.video» chain is retail sales of consumer electronics. The chain keeps

maintaining good conditions with the suppliers and is very competitive in this segment of

industry. The Company is oriented on the assortment expansion and offering the additional

services in order to increase its market share and retain the profitability.

Therefore among the most significant changes which may happen in the electronics retail

industry slowdown in growth rates of economics can be mentioned having the following

consequences:

decline in purchasing power and decrease in demand for goods selling in «M.video» network;

reinforcement of government control over internet trading, further development of

transparency requirements and consolidation of E-commerce market;

potential entry of large foreign competitors on the Russian market followed by the price

reduction policy for gaining the market share;

further penetration of the internet into consumers electronics;

Declines in the availability of consumer credit.

Decline in purchasing power of the population may lead on the one hand to the reduction of the

market capacity and on the other hand to the shift on sales of low price consumer electronic

goods. «M.video» feels that it is better positioned to operate with these risks than many of its

competitors due to its strong financial position and its appeal to a broad customer base.

2.2. Country and Regional Risks

While «M.video» network operates on the territory of the Russian Federation the main country

and regional risks which may affect its activity relate to the Russian Federation as a country.

Intensive globalization of the world economy and potential substantial deterioration in the

economic and political situation generally in the world and particularly in Russia (licenses’

revocation of credit institutions, instability in the Ukraine) started already in December 2013

lead to devaluation of the Ruble.).

This could result in further negative dynamics of the currency rates, general industrial production

decline, increase of unemployment - automatically leading to the drop in the living standards and

having negative effect on the Company’s business activity.

The Company’s activity is also exposed to political risks. Political uncertainty in the country and

in the world may negatively affect business environment, may give rise to the decline of

investments in Russia which as a consequence may influence the share price of the Company.

Risks related to possible military conflicts, introduction of emergency situation, strikes or

protests in the country and region(s) where the Company operates and is registered as a taxpayer:

Russia is a multinational country unifying the regions with different level of social and economic

development – therefore no one can exclude possible internal conflicts including those with

military forces.

Social climate on the territory where the Company runs its business may be characterized as

stable but social risks cannot be ruled out.

2.3. Financial Risks

Among the most significant risks influencing financial status of «M.video» and its chain the

following can be mentioned:


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currency risks (related to the changes of the currency exchange rates) which may lead to the

changes of the country’s monetary policy, inflation rates and investments in Russian

economics;

risks related to changes of the interest rates;

risks related to the negative investment climate in the country as consequence of the above

mentioned risks.

2.4. Operational risks In this group the following risks are determined as the most significant and requiring the utmost

attention:

risk of a lack of efficiency/refinement of business processes;

legal and tax risks;

reputational risks.

Business Processes

During 2012 year reconstruction of the holding structure of «M. video» group of companies was

completed. The main subsidiaries of the group were reorganized in the form of consolidation to

LLC «M.video Management», all necessary steps were appraised, permanent monitoring, control

and analysis of quality of business processes were performed with a view to preclude situations

related to a breach of the established procedures and internal corporate guidelines.

Legal and tax risks

The effective Russian legislation is a rather complicated and equivocal in terms of interpretation,

the existing judicial practice is controversial, which facts entail a possibility of court actions

preventing the execution of enforced court decisions. The tax legislation is distinguished by

ambiguity of possible interpretation of its provisions. In addition, there is a lack of

implementation in practice of a part of the norms of the tax legislation of the Russian Federation,

which may lead to increased tax risks which in turn may result in higher expenses on the part of

credit institutions/issuers and holders of the securities. There is also a risk of revision of the

provisions of the tax legislation which affect the positions of different groups of taxpayers.

Since the Company does not have any tax debts to the budget – tax risks are estimated as low.

Legal risks related to the changes of the current currency control regulations are also determined

as low, according to the statements of the Central bank of Russia no changes are planned to be

adopted in the sphere of the currency control rules.

«M.video» chain runs its business in Russia and therefore risks related to any changes in the

customs regulations and customs charges may be estimated as low however in case of any

changed - activity of the Company’s suppliers will be affected (in this case all players on the

market will be in a similar position).

At present and during the reporting year the OJSC «Company «M.video» was not involved in

any significant court proceedings which may have negative effect on its business. Risks related

to any changes in the court practice which may influence the Company’s activity are considered

low.

Reputational risk

The Company regards the risk of loss of the business reputation as a risk of losses as a result of

attrition of clients of «M.video» group of companies due to a negative public perception of the

financial standing of the Company, the quality of its services or the nature of its activity on the

whole. During the entire duration of the 21 years activity of the Company since its foundation in

1993, no situations have emerged which posed a threat to its business reputation and on which

the business reputation of the Company directly hinges.


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2.5. Risks related to Company’ activity

There are no material risks related to current court proceedings, licensing, or liability for third

persons’ debts. There are no forecasts with regard to aggravation of the situation in the sector

which may affect execution by the Company of its obligations. However, in case the situation in

the industry deteriorating, which the Company has not forecast beforehand, the Company plans

to promptly develop and apply all necessary steps to remedy the negative impact of adverse

changes on its activity.

3. Board of directors’ report on the results of the Company’s activities in priority areas

The Internet in combination with the “digitalization” of our world is significantly changing the

way we live today. Consumer behavior nowadays differs very much from how it was just a few

years ago. Nevertheless, this process of change is just at the beginning and will take several more

years, until new possibilities offered by the Internet are sorted out between useful and those,

which are not, for the future consumers.

Consumer Electronic products in general and the corresponding retail-industry in specific, are

affected double. Firstly, products like DVDs high volume traffic drivers in the past and are

nowadays mainly downloaded directly from servers, bypassing traditional retail. Secondly, due

to a few global manufacturer-brands the same product can be bought via the Internet everywhere.

Both developments are in full progress and an end is not foreseeable for the next years. For

bricks & mortar retailers of Consumer Electronics products these changes are serious challenges

for their existing business models and for some even a question of survival.

We at M.Video see these changes in consumer behavior as given and have been investing for

many years a lot of energy and time from the Board and the Management team in continuous

development of our strategy. We strongly believe that a one-brand-OMNI-strategy for our online

and offline-business is offering the most benefits to the consumer. Much more than just being a

pure-player on the Internet or a bricks & mortars pure player.

Global well-known participants from the Internet set the standards and are for us the real

benchmarks we have to match ourselves against.

With our defined Omni-strategy we anticipate and have being developing for several years a

unique and beneficial package for consumers in Russia, offering all channel-options for the

customer journey and at the same time touch & feel in our store-network. This attractive package

is supported by significant investments in state-of-the-art Information Technology.

Continuous efforts in data-mining will help us, to tailor our offer as much as possible to the

individual needs of our current and future customers.

Beside all these concentration on the company’s future, we remain committed to and are

focusing on our traditional business in our store network.

In 2013 we were again able to grow our coverage of the country by adding 40 stores and 13 new

cities to our network. At the end of 2013, 333 «M.Video» stores were available in 145 cities.

Those customers, who want to buy online can do that already from 52 regional online-stores.

With 187 bn Rub our sales with VAT in 2013 achieved an another all-time-high figure, with

record national market shares in many relevant product categories and the clear market leader

position in Russia. Although promotional activities and online-price competition further

increased, we were to further grow our Gross Margin to 25,9 % .

With our professional Supply Chain Management System, we can ensure efficient and just-in-

time product supply to all our stores. A huge competitive edge for the largest country in the

world.


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All these efforts should help M.Video to stay the best place to shop Consumer Electronics

products in Russia!

3.1. Main achievements of 2013 year

In 2013 «M.video» opened 40 new stores in 2013 (17 new stores in Q4 2013), while closing 3

stores. The total number of the Company’s outlets reached 333 stores as of December 31, 2013

located in 145 cities of Russia. The selling space of «M.video» stores amounted to 582,500 sq.

m, while the total space amounted to 785,000 sq. m as of December 31st, 2013, demonstrating

8.5% increase compared to FY 2012 results.

In 2013 «M.video» also launched the internet sales capabilities in 35 new cities enabling Omni

proposition in to be available in the largest 52 cities where «M.video» has presence in Russia.

This allowed the Company to expand Pick-up in Store service offer to customers in various

regions and support a constant growth of the overall online based transactions within the

network.

Alexander Tynkovan, President and CEO of the OJSC «Company «M.video», commented on

2013 sales results which “were impacted by a softer market in the 4th quarter, particularly in the

regions where we saw consumer confidence weakening while Moscow and St. Petersburg

continued to perform strongly. We are confident that our Omni strategy rollout will continue to

provide us with increased market share as we give our customers the best shopping experience.

We’re also looking forward to opening 30 new stores under «M.video» banner in 2014”.

2013 Financial year highlights:

Sales increase of 11%

Like-for-like sales 1%

Online sales (home delivery) increase 36%

40 new stores, selling space of 583k sq. m

In 2013 the Company was able to achieve very good results in our EBITDA and Net Profit while

continuing to maintain a very strong balance sheet and cashflow. Moreover 2013 turned to be

very successful for the Company’s Omni-Channel development: the network expanded the

online shopping capabilities to 52 cities in Russia. While Moscow and St Petersburg are leading

the way for «M.video» Omni approach, the Company feels a very strong demand from regional

customers for shopping via both home delivery and pick up in store. A winning combination of

online and physical stores under one brand lets the customers shop at their convenience knowing

that pricing and services are the same no matter which channel they prefer in a moment of time.

«M.video’s» sales increased by almost 11% to 175 billion Russian rubles (RUB), including VAT

in FY 2013 demonstrating 11% growth as compared to FY 2012. The Company’s L4L sales in

2013 increased by 1% year-on-year.

In the high season of December 2013 «M.video» sales remained flat as compared to December

2012. Revenue growth was mainly driven by opening of 40 new stores and rapid online sales

expansion. The Group’s gross profit increased by 16.4% to 38.4 billion RUB in 2013 (33 billion

RUB in 2012) or as a % of revenue reached 25.9% (24.7% in 2012).

«M.video’s» operating profit (EBIT) reached 6.8 billion RUB in 2013 (5.4 billion RUB in 2012)

and the EBIT margin improved to 4.5% (4.0% in 2012). The Group’s EBITDA increased to 9.4

billion RUB versus 7.5 billion RUB in 2012 while an EBITDA margin improved to 6.3% as


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compared to 5.6% in 2012. «M.video’s» net profit for 2013 increased by 38% to 5.7 billion RUB

as compared to 4.1 billion RUB in 2012.

The Company believes that the combination of stores and internet with the same products and

same pricing, which is competitive with the other internet stores pricing, is the right solution for

Russian customer. The focus is then on convenience for shopping.

3.2. Economic indicators by operating results in 2013 according to the Russian accounting

standards

Number of the personnel: annual average number of the employees for 2013 is 4 people.

Names of the entry

As at December 31,

2013

As at December 31,

2012

As at December 31,

2011

ASSETS

I. Non-current assets

Intangible assets 11,808 8,599 10,331

Long-term investments 5,098,647 5,413,647 5,653,657

Deferred tax assets - 3,284 -

Other non-current assets 3,042 5,254 1,371

Total under section I 5,113,576 5,430,784 5,665,359

II. Current assets

VAT receivable 152 444 5,810

Accounts receivable 5,079,275 1,369,391 1,054,788

Short-term investments

(excluding cash equivalents) 315,00 1,351,000 721,000

Cash and cash equivalents 21,773 7,310 397,120

Other current assets 20 1 16

Total under section II 5,416,220 2,728,146 2,178,734

10,529,796 8,158,930 7,844,093

EQUITY AND LIABILITIES

III. EQUITY AND RESERVES

Charter capital 1,797,682 1,797,682 1,797,682

Additional paid-in capital 4,648,903 4,648,903 4,648,903

Provisions 269,652 269,652 125,474

Retained earnings 3,811,022 1,423,698 1,269,605

Total under section III 8,139,935 7,841,664

V. SHORT-TERM LIABILITIES

Accounts payable 2,357 2,576 2,429

Provisions - 16,419 -

Total under section V 2,537 18,995 2,429

TOTAL EQUITY AND LIABILITIES 10,529,796 8,158,930 7,844,093

Fixed assets In 2013 the Company has acquired computer equipment. There are no real estate property units

or transportation vehicle on the balance of OJSC «Company «M.video».

Intangible assets

In balance sheet as of 2013 in the item “Intangible assets” exclusive rights on the trademarks and

web-site are specified in money terms less accumulated depreciation of intangible assets.

Long-term investments

Share in the charter capital of the subsidiary company in the amount of 5 098 647 thousands

rubles is reflected in the long-term liabilities of the balance sheet. The group was created in 2008


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however its structure was changed in the period from 2010 to 2012. There are no long-term loans

on the balance of the Company as at December 31, 2013.

Accounts receivable as of the end of the reporting period were equal to 5 079 275 thousands

rubles, including dividend income receivable 4 990 719 thousands rubles, advance payments to

suppliers and contractors – 517 thousands rubles and amount of interest expenses accrued – 7

798 thousands rubles, amount recievables for the use of the trade markets and web-site 60 726

thousands rubles, other accounts receivable - 18 094 thousands rubles.

Accounts payable as of the end of the reporting period were equal to 2 537 thousands rubles,

including trade liability of 667 thousands rubles, tax accounts payable - 1 870 thousands rubles.

As at December 31, 2013 there are no overdue accounts payable.

Audit report on financial and accounting statements of 2012 has been submitted by the

Company’s Auditor – CJSC «Deloitte and Touche CIS».

Aсcording to the Auditor’s opinion, the financial statements present fairly in all material respects

the financial position of the OJSC «Company «M. video» as at 31 December 2012, the results of

its operational activity and its cash flows for 2012 in accordance with Russian accounting and

reporting standards.

3.3. Non-consolidated financial results and financial performance by operating results in 2013

according to the Russian accounting standards Report on the financial results for 2013

explanation 31 December

2013

31 December

2012

Revenue 4.1 80 805 63 574

Cost of sales 4.1 (2 183) (1 991)

Gross profit 4.1 78 622 61 583

SG&A 4.2 (52 507) (48 466)

Operating profit 4.3 26 415 13 117

Profit on equity 4.3 4 813 000 6 714 000

Interests received 4.4 134 736 151 055

Other income 3.13 506 4 774

Other expenses (73 446) (118 997)

Earnings before tax 3.13 4 901 211 6 763 949

Current income tax

Incl. permanent tax assets

3.13 (29 802)

(947 156)

(33 259)

(1 322 815)

Changes in deferred tax assets 3.10 (3 284) 3 284

Net income 3.10 4 868 125 6 733 974

Profit from operational activity (fees for exclusive rights on the intellectual property) for 2013

amounts to 80 805 thousands rubles.

Income from participation in other companies received as a result of partial distribution of the

net profit for 2013 by the subsidiaries amounts 4 813 000 thousands rubles.

Other income earned in 2013 comprises 135 242 thousands rubles, incl. interest in the amount

of 134 736 thousands rubles for the loans granted

Operational expenses for 2013 – 54 0390 thousands rubles.


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Profit (loss) of the reporting period

For 2013 results profit in the amount of 4 868 125 thousands rubles was received by the

company.

Information on the Auditor of the Company

Audit of the financial accounts of the Company under IFRS and RAS standards is carried out by the CJSC «Deloitte & Touche CIS».

Full company’s name: Closed joint stock company «Deloitte & Touche CIS»

Short company’s name: CJSC «Deloitte & Touche CIS».

Location: 125047, Moscow, 5 Lesnaya Street

State registration number: 1027700425444

TIN: 7703097990

Tel.: +7(495) 787-0600

Fax: +7(495) 787-0600

Website: www.deloitte.ru

CJSC «Deloitte & Touche CIS» – is a member of the self-governed organization of the auditors

«Non-commercial partnership «Russian Chamber of the Auditors» as the external Auditor of the

Company in accordance with the Russian accounting standards (state registration certificate

№ 018.482). The Company doesn’t have any delayed or deferred payments due for the services

rendered by the Auditor.

3.4. Review of the key events of the year

On April 17, 2013 «M.video» filed a motion to the Federal Anti-Monopoly Service of Russia

(FAS) on acquisition of 100% of «Eldorado». FAS approved the acquisition subject to

significant additional requirements. The negotiations were mutually suspended and in September

2013 in the course of its regular session when considering strategic priorities the Board of

directors approved further Company’s independent organic growth along with internet channel

development.

Decisions taken by the Board of directors in 2013

In the reporting period the Board of directors held 10 (ten) meetings: 4 (four) meetings by joint

presence and 6 (six) meetings by absentee voting. In addition to it in 2013 the Board of directors

convened two separate meetings (Budget session and Strategic session) and called for 2 (two)

general shareholders’ meetings (extraordinary and annual).

On March 5, 2013 the Board of directors approved the list of candidates nominated for the

elections at the Annual shareholder’s meeting to the Board and Revision commission (Minutes

№72/2013 dated 05.03.2013).

Later, on March 13, 2013 the Board held by joint presence appointed Mr. Tynkovan Alexander

as the General director (CEO) of the Company and defined the position of the Company’s

representative when exercising voting rights vested by the ownership of shares in the charter

capital of the company’s subsidiaries – on the appointment of Mr. Breev Pavel as the General

director (CEO) of operational LLC «M.video Management».

IFRS consolidated financial statements of the Company for 2013 FY (Minutes №74/2013 dated

22.03.2013) were approved by the Board on March 22, 2013.

http://www.deloitte.ru/


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In the course of preparations to the Annual shareholder’s meeting (hereinafter – «AGSM») the

Board of directors (Minutes №75/2013 dated 29.04.2013) approved AGSM’s agenda, time and

date of registration of persons entitled to participate in the AGSM, text of the ballot paper for

voting, closing date of the shareholders’ record, list of information and materials to be provided

to the shareholders’ entitled to participate in the AGSM. In Addition to it the Board

recommended the amount of dividends per shares of the Company and preliminary approved the

Company’s Annual report for 2012.

The Annual Shareholder’s meeting was held on June 06, 2013 and took the following

resolutions:

Approval of the Company’s Annual report for 2012, approval of the Company’s annual financial

statements, including profit and losses statement for 2012 FY.

OJSC «Company «M.video» 2011 profits and losses allocation, including payment (declaration) of

dividends on shares of OJSC «Company «M.video».

Election of the Board of Directors of the OJSC «Company «M.video»

Election of the Revision Commission of the OJSC “Company “M.video”.

Approval of the remuneration and compensation amounts payable to the members of the Board of

Directors of the OJSC «Company «M.video» for the period July 2013-June 2014.

Approval of the Auditor of the OJSC «Company «M.video» under RAS.

Approval of the interested party transaction on the insurance of Directors’ and Officers’ of liability of

the Company and its subsidiaries.

Approval of the interested party transaction which can be performed by the Company in the future in

the course of its business.

Approval of the Regulation on the General Shareholders’ Meeting of the Company in a new edition.

Approval of the Regulation on the Revision commission of the Company in a new edition.

Therefore Company’s shareholders elected the Board of directors and Revision commission,

decided not to pay the dividends for the results of 2012 FY results in the light of negotiations

with Eldorado, appointed the CJSC «Deloitte and Touche CIS» as the external auditor of the

Company, approved the remuneration and compensation amounts to the Board for the period

June 2012- June 2013 in the amount not exceeding 33 600 000 rubles and 600 000 rubles

correspondingly, approved the interested party transaction on D&O insurance between the

Company and the CJSC «Insurance company ACE» with the limit of liability of 30 mln. UDS

and insurance premium of 35K USD. Intercompany Loan agreement (interested party

transaction) however failed to obtain the necessary quorum. Internal corporate documents

were approved by the AGSM in a new edition.

At the first meeting of re-elected Board of directors (Minutes №76/2013 dated 05.07.2013) – the

Board appointed Mr. Peter Gyoerffy as the Chairman and elected members to the Audit and

Remuneration and Nomination committees and its Chairs. In addition the Board has appointed

the Head of internal audit group and approved the Company’s budget for 2013 subject to the

introduced changes.

On August 26, 2013 the Board (by absentee voting Minutes №77/2013 dated 26.08.2013)

approved the Interim Condensed Consolidated Financial Information (Unaudited) for the half –

year ended 30 June 2013 of the OJSC «Company «M.video» and its subsidiaries and

combination by the General director of the Company of the positions in the governing bodies in

the other legal entities.

In the course of its regular session in September 2013 Company’s Board of directors approved

the payment amount to the external audit of the Company, Internal Audit Charter and strategic

priorities of the Company and reviewed the strategic priorities of «M.video» development. In the

light of mutually suspended negotiations with regard to the potential acquisition of Eldorado, the


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Board approved further organic growth of the Company along with internet channel

development. Therefore the Board decided to change its approach to the recommended Annual

dividend amount and confirmed that it should be increased to a level which properly reflects the

cash flow generation of the Company. Also, the Board determined the position of the Company’s

representative when exercising voting rights vested by the ownership of shares in the charter

capital of the company’s subsidiaries - LLC «M.video Management» - on the appointment of the

Marketing director.

On September 22, 2013 – the Board determined the position of the Company’s representative

when exercising voting rights vested by the ownership of shares in the charter capital of the

company’s subsidiary (LLC «M.video Management») on distribution of the net profit by the

subsidiary for 2009 FY, 9 months of 2012 FY and 6 months of 2013 FY to its sole participant –

OJSC «Company «M.video».

Shortly thereafter the Board called for the Extraordinary General Shareholders’ meeting of the

Company (hereinafter – «EGSM») and recommended EGSM to distribute the net profit of the

Company for the 2012 FY and 9 (nine) months 2013 FY results.

EGSM was convened on December 11, 2013 and approved (i) payment of the dividends in the

amount of 13 rubles 80 kopeeks per one ordinary share till December 31, 2013; (ii) Company’s

Charter in a new edition. As in the past interested party transaction (intercompany loan) was not

approved duе to the absence of the necessary quorum.

On December 13, 2013 the Board by absentee voting (Minutes №81/2013 dated 13.12.2013)

reviewed the operational reports on the Group’s activity for the 9 months of 2013, approved

«M.video» budget for 2014 and some of the internal documents of the Company in a new

edition: Regulation on the Remuneration and Nomination Committee, Regulation on the internal

control of financial and operating activity of the Company and Dividend policy of the Company.

At the last meeting in the reporting period held on December 25, 2013 the Board of directors

approved the chain of interested party transactions - granting by the Company the deeds of

guaranty in respect of its subsidiary – «M.video Management» LLC - obligations under lease

agreements addresses to «IKEA MOS (Trade and Estate)» LLC on the following conditions:

1) Subject of the guaranty: fulfillment by the Debtor of obligations under commercial lease agreements of

01.06.2006 (herein under–“Agreement”) regarding premises by the №629-648, 652 located in Russia,

Sverdlovskaya oblast’, Ekaterinburg city, 87 Metallurgov Str.

Parties of the guaranty:

Creditor: “IKEA MOS (Trade and Estate)”LLC

Debtor (beneficiary): “M.video Management” LLC

Guarantor: the Company (OJSC “Company “M.video)

Amount of guaranty – 9 133 000 (nine million one hundred thirty tree thousand) rubles VAT inclusive

Term of the guaranty – till December 25, 2014

Other conditions – in case of delayed payment of the amounts due under the Agreement, Guarantor

undertakes to pay the penalty in the amount of 1 rate of refinancing, determined by the Central bank of

Russian for each day of delay.

2) Subject of the guaranty: fulfillment by the Debtor of obligations under commercial lease agreements of

01.06.2006 (herein under–“Agreement”) regarding premises by the №1122 located in Russia,

Leningradskaya oblast’, Vsevolzhskiy region, west of Bugry village, on the cross of the Circle highway

and highway Peterburg-Skotskoe.


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Amount of guaranty – 8 315 000 (eight million three hundred fifteen thousand) rubles VAT inclusive


Other conditions – in case of delayed payment of the amounts due under the Agreement, Guarantor



3) Subject of the guaranty: fulfillment by the Debtor of obligations under short-term rent agreement and

lease agreement of 25.12.2013 (herein under–“Agreements”) regarding premises by the №115 located in

Russia, Nizhegorodskaya oblast’, Kstovskiy region, Fedyakovo village





Amount of guaranty – 9 336 000 (nine million three hundred thirty six thousand) rubles VAT inclusive


Other conditions – in case of delayed payment of the amounts due under the Agreements, Guarantor



Lists of transactions made in 2013 and recognized under Federal law “On Joint stock

companies” as major or interested party transaction

In 2013 the Company executed only one interested party transaction – D&O insurance (directors

& officers’ liability) of the Company and its subsidiary. Major transactions were not executed by

the Company in the reporting period.

3.5. Review of the key events after the reporting date

In March 2014 the Board of directors approved the list of candidates nominated for the elections

at the Annual shareholder’s meeting to the Board and Revision commission of the Company

(Minutes №83/2014 dated 05.03.2014).

At the Board meeting which was held shortly afterwards on March 19, 2014 (Minutes №84/2014

dated 20.03.2014) it was decided to determine the position of the Company’s representative

when exercising voting rights vested by the ownership of shares in the charter capital of the

company’s subsidiaries - LLC «M.video Management» on distribution of the net profit by the

subsidiary for to the sole participant of LLC «M.video Management» – OJSC «Company

«M.video» in the amount of 3 600 mln. rubles. In addition to it the Board reviewed the

operational reports on the Group’s activity for 2013 and Q1 of 2014, approved the interested

party transaction which can be executed by the Company in the future - granting by the

Company the deeds of guaranty in respect of its subsidiary – «M.video Management» LLC -

obligations under lease agreements addresses to «SA Realty & Development» LLC.

On March 26, 2014 the Board approved the consolidated financial statements of the Company

for 2013 under IFSR (Minutes №85/2014 dated 26.03.2014).


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4. Governing and controlling bodies of the Company

СОВЕТ ДИРЕКТОРОВ

ОБЩЕЕ СОБРАНИЕ АКЦИОНЕРОВ

The following steering bodies operate in the structure of the Company:

4.1.The General Meeting of Shareholders of the Company (The General Meeting) is the

Supreme steering body of the Company having the following authorities: (1) introduction of changes and amendments to the Company’s Charter or approval of the Company’s

Charter in a new edition;

(2) reorganization of the Company;

(3) liquidation of the Company, appointment of the liquidation commission and approval of liquidation

balance sheets (interim and final ones);

(4) determination of the number of the Board of Directors’ members, election of its members and early

termination of their authority;

(5) determination of the number, nominal value, category (type) of the authorized shares and rights vested

in such shares;

(6) increase of the charter capital of the Company by increasing the nominal value of shares, by additional

issue of shares by means of the closed subscription;

(7) additional issue of ordinary shares by means of the open subscription constituting more that 25%of the

outstanding ordinary shares or other securities convertible into ordinary shares which can may be

converted into ordinary shares constituting more than 25% of the outstanding ordinary shares;

(8) decrease of the charter capital of the Company by reduction of the nominal value of shares;

(9) decrease of the charter capital of the Company by purchasing part of the shares by the Company for

the purpose of reducing their total number, and by cancelation of shares purchased or bought-back by

the Company;

(10) election of members of the Revision commission of the Company and early termination of their

authority;

(11) approval of the external auditor of the Company;

(12) approval of annual Reports and financial accounts, including profit and losses report statement (profit

and losses accounts) of the Company, distribution of net profit, including payment (announcement) of

the dividends, and losses of the Company on results of a financial year;

(13) determination of the procedure of conducting the general meeting of shareholders;

(14) determination of the number of the Counting commission members, election of its members;

(15) splitting and consolidation of the Company’s shares;

(16) approval of the interested party transactions in cases provided by the current legal acts of the Russian

Federation;

(17) approval of the major transactions related to acquisition or disposal of the property by the Company

in cases provided by the law of the Russian Federation;

(18) purchase of the outstanding shares by the Company in cases, provided by current legal acts of the

Russian Federation;

(19) Company’s participation in financial and industrial groups and associations and other unions of

commercial organizations;

(20) approval of internal documents regulating activity of the Company’s governing and controlling bodies;

GENERAL DIRECTOR

GENERAL SHAREHOLDERS’

MEETING

BOARD OF DIRECTORS


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(21) decision on filling of the application on delisting of the Company’s shares or other securities

convertible onto Company’s shares;

(22) decision on filling of the application on listing of the Company’s shares or other securities convertible

onto Company’s shares;

(23) allocate costs related to the convention of the extraordinary general meetings of shareholders,

unplanned audits and Revision commission examinations initiated by shareholders to the Company’s

account;

(24) other issues which are provided by the current legal acts of the Russian Federation and this Charter.

Total number of shareholders as at 31.12.2013: 1755

Shareholders – owners of 5% and more of the votes: Svece Limited (Cyprus) (Private company limited by shares)

State Street Bank and Trust Company

Cartica Management, LLC

East Capital (Lux)

4.2.The Board of Directors of the Company is in charge of general management of the activity

of the Company, except for resolution of the issues referred by the Charter to the exclusive

competence of the General Meeting. The terms of reference of the Board of Directors of the

Company shall embrace the following aspects: (1) determination of the priority directions of the Company’s activity;

(2) calling of the annual and extraordinary General meetings of shareholders of the Company;

(3) approval of the agenda of the General meeting of shareholders;

(4) determination of the date (closing date) of compiling the list of persons entitled to participate in the

General meeting of shareholders, and other matters related to preparation and convention of the

General meeting of shareholders;

(5) proposal of items provided by article 10.5 hereof for decision by the General meeting of shareholders;

(6) issue by the Company of the additional shares in which outstanding preferred shares of a certain type

of the Company may be converted into the ordinary shares or preferred shares of another type if such

issue is not related to the charter capital increase and issue of bonds or other securities, excluding

ordinary shares (excepting cases provided by this Charter);

(7) determination of the price (estimation of money value) of the property and/or of subscription or way of

its determination and price for buy-back of the shares in cases provided by Law and adoption of share

market price determination methodology;

(8) purchase of the outstanding shares, bonds and other securities of the Company in cases provided by

this Charter and the Law;

(9) election of the General Director and termination of his authority;

(10) creation of the collegial executive body (Management Board) of the Company, and determination of

the remuneration payable to the Management Board;

(11) election of the Management Board members and early termination of their authorities;

(12) determination of the remuneration amount payable to the external auditor, approval of the terms and

conditions of the agreement with the auditor, performing audit of the financial statements of the

Company prepared in accordance with the Russian and International accounting standards;

(13) recommendations on the amount of the dividends, form and way of its payment, approval of the

Dividend policy of the Company;

(14) decision on use of the Reserve and other funds of the Company;

(15) approval of the internal documents of the Company, excepting documents which shall be approved by

the General meeting of shareholders and internal documents which shall be approved by the executive

bodies of the Company;

(16) establishment of branches and launch of representative offices of the Company, approval of its By-

laws, liquidation and closing of branches and representative offices of the Company;

(17) increase of the charter capital of the Company by means of the additional issues of the ordinary shares

through open subscription constituting less than 25%of the outstanding ordinary share of the

Company;


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(18) additional issues through open subscription of the securities convertible into ordinary shares which can

be converted into the ordinary shares and constituting less than 25% of the outstanding ordinary shares

of the Company;

(19) filling an application on listing of the Company’s shares and (or) other securities of the Company

convertible in the ordinary shares of the Company;

(20) approval of the major transactions related to acquisition or disposal of the property by the Company

in cases provided by the current legal acts of the Russian Federation;

(21) approval of the interested party transactions in cases provided by the current legal acts of the Russian

Federation;

(22) approval of the transactions, approval of which is not referred by this Charter to the authority of the

General meeting of shareholders, which are related to acquisition, disposal or the potential disposal by

the subsidiary company, directly or indirectly of the property, with the value of 5% or more of the

balance sheet value of the subsidiary company’s assets as at the last reporting date;

(23) defining of the position of the Company’s representative when exercising voting rights vested by the

ownership of shares and/or stakes in the charter capital of other legal entities;

(24) disposal or encumbrance of the Company’s shares and/or stakes in the charter capital of other legal

entities;

(25) increase of the charter capital by means of additional issue of the shares within number and category

of the authorized shares of the Company;

(26) approval of the Company’s Registrar, terms and conditions of the agreement with the Register

including terms on termination

(27) appointment of the corporate secretary of the Company;

(28) creation of the committees under the Board of directors and approval of By-laws governing its

activities;

(29) approval of the annual business-plans and budgets for the Company and its subsidiaries for the

calendar year;

(30) approval of the long-term plan of strategic development of the Company and its subsidiaries and any

amendments and corrections thereto;

(31) approval of the reports on the performance of the annual business-plans and budgets by the Company

and its subsidiaries set for the calendar year and terms for its provision;

(32) performance control of the decisions taken by the Board of Directors by the executive bodies of the

Company according to the Regulation on the Board of directors;

(33) approval of any proposals, documents, programmers and/or procedures under recommendation of the

Committees under the Board of directors;

(34) approval of the remuneration system according to the provisions of the By-law on salary,

compensation system and other motivation incentives of the Company and its subsidiaries;

(35) approval of the investment programmers and capital expenditures of the Company and its subsidiaries

upon the recommendation of the executive bodies of the Company;

(36) decision on other matters related to the Company’s activity and provided by the Law and this Charter.

The composition of the Board of Directors as at 31 December, 2013:

Chairman:

Gyoerffy Peter Date of birth: 12 May 1959 Education: University of Economics (Austria) 1985

From 2007 until present – independent Board director of the OJSC «Company « M.video»

performing functions of the Board Chairman.

From 1998 until present – CEO and founder of the CONplementation Business Consulting,

GmbH (Vienna).

From 2010 until 2013– Board member of Kika LLC and Leiner Furniture Group LLC.

Shareholding in the Company: 0.0387%

Members of the Board of Directors:

Breev Pavel Yurievich –one of the founders of «M.video» Group.

Date of birth: 22 April 1967


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Education: Moscow Aviation Engine College (1986)

From 2008 until present – Development Director in «M.video Management» LLC and until

April 2013 – CEO of the OJSC «Company « M.video», acting member of the Board of directors.

From April 2013 – CEO of «M.video Management» LLC and Executive Director in the OJSC

«Company «M.video»

Shareholding in the Company: none

Burleton Adrian

Date of birth: 29 August 1969

Education: University of Newcastle upon Tyne, UK, 1990 BSc (Hons); Geophysics; University

of Newcastle upon Tyne, UK, 1991 MSc Computing Science

From 2003 until 2012 - Business Development & Multi-Channel Director in Home Retail Group

plc

From 2013 until 2013 - Chief Operating Officer at Studio Moderna Holdings B.V.

From July 2013 – (i) Chief Executive Officer at Studio Moderna Holdings B.V. and Member of

the Supervisory Board; (ii) MD & Member of the Supervisory Board at Top Shop International

SA

Creusen Utho Constantin Wilhelm

Date of birth: 24 April 1956

Education: University of Cologne (Germany) (1979)

From 2001 to 2008 – Member of the Management Board, Media-Saturn Holding AG.

From 2008 until present – Member of the Board of the OJSC «Company «M.video».

From 2008 to 2009 – Member of the Supervisory Board of Arkandor AG.

From 2010 until present – Member of the Supervisory Board at DSG (Dixons Store Group)

International, plc.

From 2012 till 2013 - Member of the Board at Praktiker AG


Hamid David

Date of birth: 11 December 1951

Education: University of Bradford (UK) (1973)

From 2006 to 2009 – Chairman of the Board of directors in Nationwide Auto Centers Ltd.

From February 2007 till present – Member of the Board of the OJSC «Company «M.video».

From 2011 until present – Chairman of the Supervisory Board at Ideal Shopping Ltd.

From 2012 until present – Chairman of the Supervisory Board at Game Retail Ltd.


Koch Walter

Date of birth: 22 February 1962

Education: University for applied Science in Aalen, Germany (1988)

From September 2007 to March 2010 – Executive Vice President and Chief Operations Officer

of Sanitec Corporation, Helsinki, Finland.

From November 2010 until present – Independent Member of the Board of the OJSC «Company

«M.video»

From 2011 to 2013 - Member of the Supervisory Board of HTL-Strefa, Poland.

At present time owns and operates the firm “Twinsuccess-Walter Koch, Restructuring & Change

From April 2012 until present – Chief Executive Officer in Мaster-tees, GmbH.


Kuchment Michael Lvovich

Date of birth: 28 August 1973


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Education: Moscow Institute of Physics and Technology (MIPT) 1996

From 2004 to 2005 – Marketing director in «M.video Management» LLC.

From 2005 to 2008 – Commercial director in «M.video Management» LLC.

From 2008 until present – Member of the Board of the OJSC «Company «M.video».

From 2008 until present – Vice-President of «Home Interior» LLC.

From November 2013 - Board member of the ICB “Sovkombank” LLC


Prisayzhnuk Alexander Mikhailovich

Date of birth: 23 May 1972

Education: Kuban State University (1995)

From 2003 to 2008 – Finance Director of the OJSC «Magnit» and OJSC «Tander».

From 2005 to 2008 – Chief Executive Officer of the LLC «Magnit Finance»

From July to December 2008 – Strategic Development director of the OJSC «Tander».

From 2011 until present – independent director of the Board of the OJSC «Company «M.video»

At present is not occupied, but takes positions in the Board of directors of DIXI Group.


Tynkovan Alexander Anatolievich

Date of birth: 14 June 1967

Education: Moscow Energy Institute (1992)

From 1993 – founder of «M.video» Group

From 2005 until present – Executive Director of «M.Video Management» LLC.

From 2007 until present – Executive Board Member of the OJSC «Company «M.video».

From 2008 until present – Board member of X5 Retail Group N.V.

From 2010 until present – First Deputy of the General Director of «Avtoritet» LLC (dual

employment).

From April, 2013 until present – General Director of the OJSC «Company «M.video» and

President «M.Video Management» LLC.


Functions of the Company’s Corporate secretary in the reporting period were performed by Yana

Khavasova, who also performed functions of the Secretary of the Board of directors and General

Meeting of shareholders during the reporting period.

4.3.The General Director of the Company is the sole executive body responsible for the

management of the Company’s current activity, performing the following functions: (1) operational management of the Company’s activity;

(2) first signature right of the financial documents;

(3) disposal of the Company’s property to ensure its current activity within the scope established by this

Charter, unless, in cases pursuant to this Charter, the General Director needs the approval of the

General meeting of shareholders and/or the Board of Directors of the Company for execution of such

transactions;

(4) representing interests of the Company both in the Russian Federation and abroad;

(5) approving staff-schedules, executing labor agreements with employees of the Company, applying

incentives measures and imposing disciplinary sanctions;

(6) executing transactions on behalf of the Company, except for the cases provided by the Law and this

Charter;

(7) issuing powers of attorney on behalf of the Company;

(8) opening Company’s accounts at the banks;

(9) arranging accountings’ keeping and reporting in the Company;

(10) ensuring maintenance of the shareholders’ record of the Company;

(11) issuing orders and giving instructions binding on all employees of the Company;


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(12) presenting the annual report and balance sheet of the Company for the Board’s and the General

meeting of shareholders’ approval;

(13) providing candidates to the Management Board for the Board of Directors’ approval;

(14) performing other functions required for achieving the Company’s aims and maintenance of its normal

operational activity pursuant to the current legal acts of the Russian Federation.

As at 31 December, 2013, the position of the General Director was occupied by Tynkovan

Alexander Anatolievich. Biography is available on page 27 of the present Annual Report.

Revision Commission

During the reporting period the following persons acted as members of the Revision

commission:

Name Positions

Reznikova Vera Vladimirovna Head of Legal of LLC «M.video Management»

Bezlik Evgeny Vladimirovich Head of the forensic investigations’ department of LLC

«M.video Management»

Tyshkevich Lyudmila

Alexandrovna

Leading expert of the forensic investigations’ department of

LLC «M.video Management»

The composition of the Revision commission was not changed during the reporting period.

4.4. Criteria of determining and amount of the remuneration and compensation paid to the

members of the steering bodies of the Company.

The compensation package offered by the Company includes salary, medical insurance

programs, additional benefits and bonus plans. The overall amount of the remuneration paid to

the members of the steering bodies of the Company excluding Board of directors for the

reporting period made up 14 870 thousands rubles (VAT including).

Basing on the results achieved and according to the Resolution of Annual General Meeting of

shareholders of the Company remuneration and compensation of the expenses for the performing

functions of the Board members is being paid. The total amount of remuneration including

compensation of the expenses paid by the Company in 2013 to all members of the Board of

directors and the person acting as the sole executive body was 33 990 thousands rubles including

taxes.

4.5. Report on payment of the dividends.

At the Annual General Meeting of shareholders of the Company on June 06, 2013 shareholders

decided not to distribute the net profit of the Company for 2012 FY results.

On December 11, 2013 the Extraordinary General Meeting of shareholders of the Company

approved payment of the dividends for 2012 FY and 9 months of 2013 FY in the amount of

13.80 rubles per one ordinary share of the Company. Total amount of the dividend payment

constituted 2 480 801 rubles. As at the date of approving the financial statement for 2012, the

Company didn’t declare any dividend payments (excepting the dividends for 9 months 2013

mentioned above).

4.6. Corporate governance and report on compliance with the Corporate Code of conduct

In 2013, OJSC «Company «M.video» continued to build a corporate governance system

complying with recommendations of the Corporate Governance Code of the Company and those

of the Regulator.


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The Charter of the Company was amended and adopted in a new edition at the end of 2013 due

to the introduced changes of the Russian legislation. The current Charter is in compliance with

the current Russian law requirements and takes into account recommendations of the Corporate

Governance Code of the Company ensuring provision to the shareholders access to information

and materials of the Company, their participation in general meetings of shareholders,

nomination by the shareholders of candidates to the Company's steering bodies and proposing

items to the agenda of Annual general shareholders’ meetings. The Company has formed the

Board of directors, in which seven members of the Board of directors comply with the

independency requirement according to the provisions of the Russian Corporate Governance

Code and Moscow stock exchange listing rules.

The Board of directors of the Company has two committees - Audit and Remuneration &

Nomination Committees.

The exclusive functions of the Audit Committee are assessment of nominated auditors of the

Company, review and estimation of the auditor's opinion, efficiency evaluation of the Company's

internal control procedures and preparation of proposals to its improvements. Review and

estimation of the auditor's opinion prepared by the Audit Committee shall be provided for

acknowledgement among other materials to the Annual General Meeting of shareholders of the

Company.

Main functions of the Remuneration & Nomination Committee are the following: determining

the criteria for nomination of the General Director, Heads of the principal structural divisions of

the Company and its subsidiaries, development of the criteria for determining salary and

bonuses’ amounts, motivation system of benefits and compensations payable to the top managers

and key employees of the Company.

№ List of corporate code of conduct provisions Observed

(fully/partially)

Not observed

Document with reference to the provision at issue

/Remarks

1 Creation of the Board of directors Fully observed Charter of the Company (art.9.1 art.9, art.11)/Resolution

of the AGSM №16 dated 06.06.2013

2 The Board of directors shall have at least 1 member

complying with the following requirements:

a person shall not be an employee at the moment of

elections and during 1 year preceding the elections or

take any other positions in the Company,

a person shall not be an employee or take any other

positions in any other legal entity in which any of the

Company’s employees takes position in RemNomCom

by the Board of directors,

a person shall not be a spouse, parent, child, sister or

brother of the of the Company’s employees,

a person shall not be affiliated with Company (excluding

membership in the Board),

a person shall not have any contractual obligations with

the Company subject to which he may obtain property

(money) in the amount exceeding 10% or more of his

annual income, excluding remuneration fees for

membership in the Board of directors

a person shall not be representative of the state

(government)

Fully observed Bylaw on the Board of directors of the Company

(art.2 p.2.4)

Names of the independent directors:

№

Last name First name Patronymic

1 Burleton Adrian

2 Gyoerffy Peter

3 Hamid David

4 Koch Walter

5 Prisyazhnuk Alexandr Mikhailovich

6 Creusen Utho

7 Kuchment Mikhail Lvovich

3 The Board of directors shall have the committee whose

exclusive competence will be assessment of the

candidates of the Company’s auditor, review and

evaluation of the Auditor’s opinion, assessment of the

internal audit procedures including proposals on its

improvement (Audit committee) chaired by the person

complying with the above requirements.

The Audit committee shall consist only of the Board

Fully observed Bylaw on the Audit committee of the Company

(art.2.5, art.3.1, 3.2.1)

Names of the Audit committee members:

№ Last name First name Patronymic

1 Hamid David Chairman

2 Prisyazhnuk Alexandr Member

Bylaw on the Audit committee of the Company


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№ List of corporate code of conduct provisions Observed

(fully/partially)

Not observed

Document with reference to the provision at issue

/Remarks

members, not performing functions of the General

director or being a member of the Management Board

Review and evaluation of the of the Auditor’s opinion

shall be presented to the shareholders in the course of

preparations to the GSMs

(art.2.5.5,art.2.6.3)

Presented among the materials for the AGSM

preparations: (Board Minutes №75/2013 of 29.04.2013)

4 Obligation of the Board members, General director to

disclose information on shareholdings in the Company as

well as on any transactions with the Company’s securities.

Fully observed Bylaw on the Board of directors (art.7.5-7.7.)

Bylaw on the sole executive body (art.4.6.-4.8.)

5 Adopted by the Board internal corporate document on the

use of information on the Company’s activity, its securities

and transactions with them

Fully observed Bylaw on insider information (art.5,9, art.5-7)

6 Adopted by the Board internal corporate document

determining the procedures of the internal audit control,

reporting to the Audit committee

Fully observed Regulations on internal control of the Company

(art. 3 point 3.1.1.)

7 The Charter of the Company shall contain provision on

shareholders’ notification on calling of the General

Shareholders’ Meeting 30 days prior the date of the

meeting unless the law provides more extended term.

Fully observed Charter of the Company (art.10 p.10.11)

8 Approved the Board internal corporate document which is

used by the Board for giving recommendations on the

amount of the dividends

Fully observed Dividend Policy

The Company has the Corporate Secretary who is responsible for advising the Company and its

governing bodies on the applicable procedures in the course of preparation and holding of the

General Meeting of shareholders and meetings of the Board of Directors and statutory public

disclosure of corporate information. The Corporate Secretary is appointed by the Board of

directors. According to the Russian law requirements the Board of directors appointed the

compliance officer of the OJSC «Company «M.video» responsible for the control over

compliance with Federal Law No. 224-FZ «On preventing improper use of insider information

and manipulation of market and amending some legislation of the RF». This responsibility is

also covered by the corporate secretary of the Company.

In 2011 the Board of directors of the Company approved Regulation on Insider Information of

OJSC «Company «M.video» regulating the use of information of the Company's business, the

Company's securities and transactions with them, which information is not generally available

and, if disclosed, could affect materially the market price of the Company's securities and the list

of insiders information. Corporate secretary on a regular basis keeps the insiders’ list of the

Company and provides it to Regulators under request.

If the Company carries out any activities which may lead to any material corporate changes, the

Company ensures shareholders' ability to comment on and/or challenge the implementation

thereof through establishment of a transparent and fair procedure. The Charter of the Company

contains the requirement on the approval of any subsidiary’s transactions related to acquisition,

transfer or possible transfer by the Company, directly or indirectly, of the property with a value

being 5 or more per cent of the balance sheet value of the subsidiaries' assets as at the last

reporting date, excepting transactions related to the placement of the Company's shares and

arm's-length transactions.

For efficient control of the Company's financial and business activities, the Annual general

shareholder’s meeting elected members of the Revision commission. None of them is an

employee of the Company. The Revision commission does not include any persons which were

found guilty in any economic crimes or crimes against the governmental authorities.


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The Company endeavors to follow the basic principles of disclosing information of the Company

and the Group as a whole, ensuring regularity and efficiency of provided information,

availability of such information for shareholders and other persons concerned, reliability and

completeness thereof, observation of a reasonable balance between openness and protection of

commercial interests. The Company fully observes the requirements of law and listing rules of

Russian stock exchanges, as regards public disclosure of information. The Company discloses

information in its news, on its web site and publishes information of the Group's business on a

regular basis in the mass media.

The Board of directors is responsible for the Company’s strategy development and therefore the

Board performs controlling functions over executive bodies of the Company and its subsidiaries,

approves the financial statements and is regularly updated by the reports on the results of the

Company’s activities

4.7. Social responsibility

«M.video» chain is one of the largest Russian retailers in the consumer electronics and home

appliances sector and therefore the Company keeps on working on paying attention on quality of

the products offered by the chain to make people’s life more comfortable and at the same time

not harming the environment. Although the corporate color is red, the Company by its essence is

«green» by demonstrating its careful attitude to the surrounding environment.

2013 was a turning year from the perspective of corporate social responsibility: in February 2013

the Company established one more charity fund «Beautiful children in a beautiful world». For 12

months period the Fund succeeded in several serious projects, its activity is streamlined by two

key directions - help to children and help to nature – also reflected by the name of the Fund.

The Fund presented a few dozens of children with a chance of happy future. Starting from April

2013 the Fund sponsored 42 surgeries to 38 kids out of 18 regions of Russia. In parallel the

Fund’s activity was devoted to environmental projects in national parks of Russia. Russian office

of Forest Stewardship Council (FSC) honored the Fund with the letter of commendation for its

strong contribution to assortment expansion of FSC certified products; «Bonum» clinic rewarded

the Fund by its Recognition letter for help in cuing children with maxillofacial pathobiology (the

Fund acquired new equipment for the clinic)

The Fund launched 3 projects under charitable program «Beautiful world» aiming to save nature

and environment of Russian and to support creation of unique models of national parks and

wildlife reserves:

creation of cultural and recreational tour «A dimly remembered world» in the national park

«Smolenskoe poozerie» www.poozerie.ru/ru//fayli

arrangement of high-mountain asylum «Rattling spring» and creation of a visit-center

«Otklinskogo Cliff» in the national park Taganay (www.taganay.org/grant.php), within this

project 2 volunteers expeditions already visited the park

examination, reservation and popularization of white-tailed eagles in Volzhsko-Kamskom

state nature and biosphere reservation (www.vkgz.ru/orlan)

Ecology and environmental projects were supported by three expeditions to wildlife corners

(national reserves) of Russia – Olkhon Island (Baikal Lake), Altai and Kamchatka for its

cleaning and attracting people’s attention to the problem of the national parks and green zones

pollution.

«M.video» was the first nationwide retail chain who stopped sales of the incandescent lamps

which may be replaced with the new high-quality energy-saving lamps as well as old CRT TV

http://www.poozerie.ru/ru/fayli

http://www.taganay.org/grant.php

http://www.vkgz.ru/orlan


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sets; the Company held various campaigns on a regular basis aimed on utilization of the old

home appliances when buying new energy-saving models.

Information on the energy resources used by the Company in the reporting period:

Since the Company has no real estate or transport vehicles on its balance, payment for the energy

consumed was included in the rental payments under the lease agreement.

Information for the shareholders

Denis Davydov - Director on Investors’ Relations

Tel.: +7 (495) 644-2848 ext. 7064

E-mail:[email protected]

Yana Khavasova - Corporate Secretary

Tel.: +7 (495) 644-2848 ext. 7522

E-mail: [email protected]

Company’s Registrar

OJSC “Registrar R.O.S.T.”

Legal address: Moscow, Stromynka str. 18, bld. 13

Postal address: Moscow, Stromynka str. 18, bld. Post box 9

Telephone, fax: +7 (495) 771 7336, +7 (495) 771 7334

Internet address: www.rrost.com

General Director

OJSC “Company M.video” [signature] Tynkovan A.A.

Chief Accountant

OJSC “Company M.video” [signature] Vinogradova O.Y.

mailto:[email protected]

http://www.rrost.com/


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Open Joint Stock Company

“Company M.video”

Auditor’s Report and Financial Statements for 2013


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AUDITOR’S OPINION

To shareholders of the OJSC “Company “M. video”

We have audited the accompanying financial statements of the OJSC Company “M.video” which

consist of:

Balance sheet as of 31 December, 2013;

Income statement for 2013;

Appendixes to the balance sheet and income statement:

Statement of changes in equity for 2013;

Cash flow statement for 2013;

Explanatory Note.

Responsibility of the audited entity for the financial statements

Management of the audited entity is responsible for the preparation and reliability of these

financial statements in accordance with Russian accounting and reporting standards, and for the

system of internal controls necessary for preparation of financial statements free from material

misstatements, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express opinion on the financial statements based on our audit. We

conducted our audit in accordance with Federal Standards of the audit activity. These standards

require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance whether the financial statements are free from material misstatement.

Our audit included audit procedures aimed at the obtaining of the audit evidence with regard to

the amounts and disclosures in the financial statements. We select audit procedures using our

judgment which is based on the assessment of the risk of material misstatements, whether due to

fraud or error. When assessing this risk, we considered the internal controls which ensure

preparation and reliability of financial statements, in order to select appropriate audit procedures,

rather than to express opinion on efficiency of the internal controls.

The audit also included evaluation of the appropriateness of accounting policies used and

reasonableness of the accounting estimates made by management of the audited entity, as well as

evaluation of the overall presentation of the financial statements.

We believe that the audit evidence obtained during our audit provides a reasonable basis for

opinion on reliability of the financial statements.

Opinion

In our opinion, the financial statements present fairly in all material respects the financial

position of the OJSC “Company “M.video” as at 31 December 2013, the results of its operations

and its cash flows for 2013 in accordance with Russian accounting and reporting standards.


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Deloitte & Touche

[signature]

March 25, 2014

Moscow, Russian Federation

Partner A.V. Sedov

Qualification Certificate No. 01-000487 of

13/02/2012

CJSC “Deloitte and Touche CIS”

Audited entity:

OJSC COMPANY «M. VIDEO»

Independent auditor:

CJSC “DELOITTE & TOUCHE CIS”

Location: 105066, Moscow, Bld. 40/12, Constr. 20, St.

Nizhnyay Krasnoselskaya

Tel.: +7 (495) 644 28 48.

State registration certificate: series 77 #008748648

No.008748648, received on 25 September 2006 from

Interregional Inspection of the Federal Tax service #46

in Moscow.

Location: bld. 5, Lesnaya St., Moscow, 125047.

Tel: +7 (495) 787 06 00.

Certificate of membership in the Non-Commercial

Partnership “Audit Chamber of Russia” No.3026 dated 20

May, 2009, ORNZ 10201117407.

Certificate of registration in the Unified State Register of

Legal Entities as a legal entity registered before 1 July,

2002 under No. 1027700425444 issued by Interregional

Inspectorate of the Russian Ministry of

Taxes and Levies No.39 for Moscow, on 13 November,

2002.

State Registration Certificate of CJSC “Deloitte and

Touche CIS” No. 018.482 issued by the Moscow

Registration Chamber on 30 October, 1992.


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Extracts from Financial Statements of the OJSC “Company “M.video”

under Russian accounting standards

Balance sheet

Names of the entry

As at December 31,

2013

As at December 31,

2012

As at December 31,

2011

ASSETS

I. Non-current assets

Intangible assets 11,808 8,599 10,331

Long-term investments 5,098,647 5,413,647 5,653,657

Deferred tax assets - 3,284 -

Other non-current assets 3,042 5,254 1,371

Total under section I 5,113,576 5,430,784 5,665,359

II. Current assets

VAT receivable 152 444 5,810

Accounts receivable 5,079,275 1,369,391 1,054,788

Short-term investments

(excluding cash equivalents) 315,00 1,351,000 721,000

Cash and cash equivalents 21,773 7,310 397,120

Other current assets 20 1 16

Total under section II 5,416,220 2,728,146 2,178,734

10,529,796 8,158,930 7,844,093

EQUITY AND LIABILITIES

III. EQUITY AND RESERVES

Charter capital 1,797,682 1,797,682 1,797,682

Additional paid-in capital 4,648,903 4,648,903 4,648,903

Provisions 269,652 269,652 125,474

Retained earnings 3,811,022 1,423,698 1,269,605

Total under section III 8,139,935 7,841,664

V. SHORT-TERM LIABILITIES

Accounts payable 2,357 2,576 2,429

Provisions - 16,419 -

Total under section V 2,537 18,995 2,429

TOTAL EQUITY AND LIABILITIES 10,529,796 8,158,930 7,844,093

Fixed assets In 2013 the Company has acquired computer equipment. There are no real estate property units

or transportation vehicle on the balance of OJSC «Company «M.video».

Intangible assets

In balance sheet as of 2013 in the item “Intangible assets” exclusive rights on the trademarks and

web-site are specified in money terms less accumulated depreciation of intangible assets.

Long-term investments

Share in the charter capital of the subsidiary company in the amount of 5 098 647 thousands

rubles is reflected in the long-term liabilities of the balance sheet. The group was created in 2008

however its structure was changed in the period from 2010 to 2012. There are no long-term loans

on the balance of the Company as at December 31, 2013.

Accounts receivable as of the end of the reporting period were equal to 5 079 275 thousands

rubles, including dividend income receivable 4 990 719 thousands rubles, advance payments to


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suppliers and contractors – 517 thousands rubles and amount of interest expenses accrued – 7

798 thousands rubles, amount recievables for the use of the trade markets and web-site 60 726

thousands rubles, other accounts receivable - 18 094 thousands rubles.

Accounts payable as of the end of the reporting period were equal to 2 537 thousands rubles,

including trade liability of 667 thousands rubles, tax accounts payable - 1 870 thousands rubles.

As at December 31, 2013 there are no overdue accounts payable.

Report on financial results explanation 31 December

2013

31 December

2012

Revenue 4.1 80 805 63 574

Cost of sales

4.1 (2 183) (1 991)

Gross profit

4.1 78 622 61 583

SG&A

4.2 (52 507) (48 466)

Operating profit

4.3 26 415 13 117

Profit on equity

4.3 4 813 000 6 714 000

Interests received

4.4 134 736 151 055

Other income

3.13 506 4 774

Other expenses

(73 446) (118 997)

Earnings before tax

3.13 4 901 211 6 763 949

Current income tax

Incl. permanent tax assets

3.13 (29 802)

(947 156)

(33 259)

(1 322 815)

Changes in deferred tax assets

3.10 (3 284) 3 284

Net income

3.10 4 868 125 6 733 974

Profit from operational activity (fees for exclusive rights on the intellectual property) for 2013

amounts to 80 805 thousands rubles.

Income from participation in other companies received as a result of partial distribution of the

net profit for 2013 by the subsidiaries amounts 4 813 000 thousands rubles.

Other income earned in 2013 comprises 135 242 thousands rubles, incl. interest in the amount

of 134 736 thousands rubles for the loans granted

Operational expenses for 2013 – 54 0390 thousands rubles.

Profit (loss) of the reporting period

For 2013 results profit in the amount of 4 868 125 thousands rubles was received by the

company.


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Report of the Revision Commission of

OJSC “Company “M.video” (hereinafter – “the Company”) for 2013

May 5, 2014 Moscow

1. Preamble

The Revision Commission of the Company elected by the Annual General Meeting of

Shareholders on June 10, 2013 and composed by:

Reznikova Vera Vladimirovna – Head of legal department of “M.video Management” LLC;

Bezlik Evgeny Vladimirovich - Head of the forensic investigations’ department of “M.video

Management” LLC;

Tyshkevich Lyudmila Alexandrovna - Leading expert of the forensic investigations’

department of “M.video Management” LLC.

acting within the scope of its authority determined by the Federal law “On Joint-Stock

Companies”, the Charter and the By-law “On the Revision Commission” of the Company

performed its planned revision of the financial and business activity of the Company for 2013.

In April 2014 (from April 1st till April 30

th) the Revision Commission checked and reviewed

annual financial statements of the Company for the FY started in January 1, 2013 and ended in

December 31, 2013. The analysis was done on the basis of documents: financial statements, tax

statements, explanatory notes provided by the Company’s management. The analysis included

among others examination of disclosures presented in the financial statements and related to the

evaluation methods and principles, to the financial and operation activity of the Company, to the

rules applying for preparation of the annual financial statements and annual report of the

Company.

2. Scope of the revision

The Revision Commission used spot checks’ method when analyzing separate operations. The

examination was carried out in a way allowing obtaining of reasonable evidence that financial

statements of the Company contain no material misstatements. The revision check was based on

sample basis and comprised examination based on testing of the evidences affirming the figures

and disclosures of the financial statements of the Company and those of the annual report,

evaluation of accounting methodology and principles, of processing and preparation rules of the

financial statements, determination of the main accounting estimates provided to the

management as well as evaluation of the overall presentation of the financial statements and

annual report of the Company. Besides, the Revision Commission took into consideration the

independent auditor’s opinion prepared by the CJSC “Deloitte & Touche CIS” for the year ended

on December 31, 2013.

The Revision Commission believes that examination results provide a reasonable basis for the

opinion on reliability in all material respects of the financial statements and annual report and on

its compliance with Russian legislation, Russian accounting and reporting standards.

3. Short details of the Company

The full & abbreviated name of the Company: Open joint-stock company «Company

«M.video» /OJSC «Company «M.video»

Location: Russian Federation, 105066, Moscow, Nizhnyaya Krasnoselskaya Str. 40/12

bul.20

The date of the State Registration of the Company: 25.09.2006


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The number of the Certificate of the State Registration (or other document confirming the

State Registration of the Company): Series 77 № 008748648

The Primary State Registration Number (OGRN) - 5067746789248

The authority in charge of the State Registration: Inter-Regional Inspectorate of the Federal

Tax Service No. 46 for the city of Moscow (hereafter referred to as MIFNS)

People responsible for financial and operation activity of the Company:

o General Director: Tynkovan A.A.

o Chief accountant: Vinogradova O.Y.

o Supreme governing body is the general meeting of shareholders, between shareholders’

meeting – Board of directors

Key finance and operation results of the Company’s activity in 2013:

o Revenue - 80 805 thousands rubles

o Cost of sales – 2 183 thousands rubles

o Gross profit – 78 622 thousands rubles

o Profit on equity – 4 813 000 thousands rubles

o Earnings before tax – 4 901 211 thousands rubles

o Net profit – 4 868 125 thousands rubles

4. Conclusion

Basing on the examination results of the financial and operation (business) activity of the

Company for 2013 FY the Revision Commission may conclude the following:

Financial statements and accounting records of the Company are organized in accord with

the regulatory requirements of the Russian Federation and in compalice with the Accounting

policy adopted by the General director of the Company (order №06-20/1 issued on

December 29, 2012);

Financial statements for 2013 are prepared within the terms (time period) set forth by the

Federal Law “On accounting” and comprise of the Balance sheet, Appendixes to the balance

sheet, repot on the financial results, Report on capital changes, Cash flows report and

Explanatory note;

Neither material breaches of the applicable regulatory requirements nor any sufficient

misstatements were discovered by the Revision Commission in the course of examination of

the financial statements of the Company for 2013 FY;

Financial statements of the Company provide full and accurate information of the financial

and operation activity of the Company and its results which are necessary for the

management, investors, creditors, state authorities and other interested parties of the

Company.

Therefore, the Revision Commission concludes that results of the financial and operation activity

of the Company for 2013 contained in the financial statements and in the annual report can be

presented for consideration and approval by shareholders of the Company.

Signed

Position Name signature

Chairman of the Revision Commission V.V. Reznikova [signature]

Member of the Revision Commission: Bezlik E.V. [signature]

Member of the Revision Commission: Tyshkevich L.A. [signature]

ANNUAL REPORT OF the OJSC «Company «M.video» for the year … Report_ENG... · 2014. 6. 20. ·...

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Transcript of ANNUAL REPORT OF the OJSC «Company «M.video» for the year … Report_ENG... · 2014. 6. 20. ·...