Annual Report 2017 PB–1 Content
Chief Executive Officer’s Statement 2 2.5 Countering Corruption 85
Key 2017 Results 4 2.6 Risk Management 86
Key 2017 Events 6 3. Sustainable Development 90
1. Strategic Report 8 3.1 An Approach to Sustainable Development 1.1 Detsky Mir’s History: and Stakeholder 70th Anniversary of the Brand 10 Engagement 92
1.2 About the Company 12 3.2 CSR Strategy 96
1.3 Market Overview 20 3.3 Personnel 98
1.4 The Detsky Mir Retail 3.4 Charitable Business Concept 30 Activity 107
1.5 Strategy 35 3.5 Environmental Responsibility 120 1.6 Financial Results 40 Appendixes 125 1.7 Online Retail 43 Independent 1.8 Supply Chain 48 Auditor’s Report 126
1.9 Product Safety 58 Consolidated Financial Statements 131 1.10 Client-Oriented Service 61 Corporate Governance 1.11 Purchase Management 67 Code Сompliance Report 136 1.12 Information Processing Technology 70 Information on Major Transactions in 2017 162 2. Corporate Management 72 Information on Completed 2.1 Corporate Managtment Transactions with Interest Practice 74 Сompleted by the Сompany in 2017 163
2.2 Corporate Management Information on Transactions with Bodies 75 Company Shares Completed by Members of Management Body 2.3 Dividends 84 Members in 2017 166
2.4 Remuneration 84 Contacts 167
Annual Report 2017 Chief Executive Officer’s Statement 2–3
Chief Executive Officer’s Statement We are continuously improving our custo Detsky Mir Group lays a strong focus on mer-oriented business model and are deve environmental protection and the preserva- loping an omni-channel proposition inte- tion of natural resources. Despite the rapid grating all customer platforms and devices. expansion of our retail chain and increase Dear partners, colleagues, Promotion of e-commerce is a crucial aspect in total selling space, we managed to reduce and shareholders, to the new approach and has remained our energy consumption by 5.2% in 2017. We the fastest growing sales channel since its want to remind everyone that a careful atti- launch in 2011. Over 133 million visits were tude toward nature will directly impact the 2017 was a special year for Detsky Mir, marking Today, Detsky Mir Group generates double- made to the Detsky Mir online store in 2017 future environmental conditions that we and the 70th anniversary of our renowned brand. digit business growth and is strengthening its and more than 2.4 million online orders were the future generation — our children — will Russia’s first children’s department store was leading position in the children’s goods mar- placed. live in tomorrow. established in Moscow during the difficult ket in Russia. post-war years, when the country was striving The development of Detsky Mir’s private Our social responsibility to the community to return to a normal and peaceful life. Despite providing goods for the smallest label has enabled us to offer our customers primarily involves improving the quality of members of our society, our retail chain has high-quality products at the most attractive life for children, including those who are accomplished massive growth, opening 104 prices, with 29 private labels presently in the disadvantaged. Through social and charita- new stores in 2017 and totaling 622 Detsky fashion category. Collections are developed ble projects, we strive to improve the living Mir and ELS stores at the end of the repor exclusively for Detsky Mir both by in-house conditions at children’s social institutions, ting year. The geography of our retail busi- design studio and external designers. raise children’s socialization levels, and ness has expanded to 207 cities across Rus- unlock the creative potential of little Rus- sia and 12 cities in Kazakhstan. According to Detsky Mir Group fully acknowledges its re- sian citizens. Detsky Mir’s Charitable Foun- Ipsos Comcon, the Company’s share of the sponsibility to the country and society, and dation provided a total RUB 417 million Russian children’s goods market is 20%. is a stable source of budget revenue. The in charitable assistance throughout 2017, total amount of taxes and fees paid in 2017 comprising funds both raised and donated Along with our increased market share, the amounted to RUB 4.6 billion. by the Company. task set for Detsky Mir is the improvement of operational efficiency. In 2017, Detsky Mir In line with our focus on sustainable deve We intend to continue the dynamic deve Group achieved the best financial results in lopment and corporate social responsibility, lopment of our retail chain and plan to open the history of the Company, generating a to- Detsky Mir Group’s main goal is providing at least 250 stores in the medium term. tal RUB 97 billion in revenue — a 21.9% in- younger generations with safe, high-quality Detsky Mir is focused on continuously im- crease year-on-year. products at affordable prices. proving our operational efficiency and pre- pared to meet the current and future expec- Our most successful year was highlighted Our internal stability and further develop- tations of our shareholders. by the initial public offering of PJSC Detsky ment is driven by our key asset — Detsky Mir Mir, held at the Moscow Stock Exchange in Group’s employees, exceeding 11.6 thousand February 2017. We have been strongly en- people. Strong efforts are made to ensure couraged by the significant interest in our that employees within our central office, business from the Russian stock market, and retail stores, and logistics centers feel like a warmly welcome the high-quality and geo- single team working toward common goals. graphically diversified investor base while Our investments in human capital ensure sharing our growth and making every effort the continued improvement of the Group’s Vladimir Chirakhov, to generate a high return on investment. financial results. PJSC Detsky Mir’s CEO
PJSC Detsky Mir Annual Report 2017 Key 2017 results 4–5
Key 2017 Results
Revenue, RUB m Adjusted EBITDA, RUB m Like-for-like Sales Growth (LFL)1, % Like-for-like Number of Tickets Growth, %
+21.9% +30.1% +6.0 p.p. –5.1 p.p. 97,003 10,663 12.3 12.2 79,547 8,203 7.2 6.0
2016 2017 2016 2017 2016 2017 2016 2017
Adjusted EBITDA Margin, % Adjusted Net Profit, RUB m Like-for-like Average Ticket Growth , % Tax Payments, RUB bn
+0.70 p.p. +43.8% +12.2% –10.3 p.p.
10.3 11.0 5,501 5.9 4.6 3,826 (4.4) 4.1
2016 2017 2016 2017 2016 2017 2016 2017
Net Debt, RUB m CAPEX, RUB m Average Number of Employees, ‘000 people Charitable Support (Raised and Own Funds), RUB m
–14.4% +41.3% +11.5% +183.7%
12,193 (2,468) 11.6 417 10,436 (1,747) 10.4 147
2016 2017 2016 2017 2016 2017 2016 2017
Online Sales, RUB bn Return on Invested Capital (ROIC), % Electrical Energy Consumption , kW∙h / sq m
+67% +25.0 p.p. –5.2% 1 Like-for-life sales (LFL) growth, like-for-like number of tickets growth, and average ticket growth were calculated based on the results of the Detsky Mir retail chain 4.6 86 150.5 142.7 in Russia, which were in operation for at least 12 full 61 2.8 calendar months preceding the reporting date.
2016 2017 2016 2017 2016 2017
PJSC Detsky Mir Annual Report 2017 Key 2017 Events 6–7
Key 2017 Events
IPO Placement of Bonds Online Store Growth
The successful initial public offering of In April 2017, PJSC Detsky Mir successfully The online segment remains Detsky Mir shares in PJSC Detsky Mir was held at the completed book building for the issuance Group’s the fastest growing sales chan- Moscow Stock Exchange in February 2017. of exchange bonds with a total nominal va nel. The revenue generated by the online The high investor interest in the Company lue of RUB 3 bn and a coupon rate of 9.5% store increased by 67.0% year-on-year to reflected the efficient work of the Com- per annum. The bond placement and high RUB 4.6 bn in 2017. Over 133 million visits pany’s management team. The Detsky Mir demand for the bonds from investors be- were made to the Detsky Mir online store IPO was an important event for the Rus- came another highlight in the Company’s and more than 2.4 million online orders were sian stock market, demonstrating the high history, confirming a high assessment of placed in 2017. The Company’s e-commerce interest of foreign investors in Russian Detsky Mir’s growth potential and its sol- strategy is based on developing its om- assets. At the time of the IPO, the share- vency. nichannel approach, expanding its delivery holder yield was 20.4%1. geography, and improving the overall quality of service. 70 Years of Detsky Mir The renowned Detsky Mir brand turned 70 Increased Number of Stores years old in September 2017. The first Detsky Private Label Social Project and Geography Expansion Mir store was opened on 8 September 1947 in Development Development Moscow on Kirov Street (presently Myasnits- In 2017, Detsky Mir Group opened 104 new kaya Street) as a branch of the Central Depart- As of year-end 2017, Detsky Mir owns 29 In 2017, Detsky Mir opened 108 playrooms stores, including 10 stores in Kazakhstan. The ment Store. In the summer of 2000, the ma private labels of apparel and footwear, in 30 medical and social institutions in Rus- Company added 36 cities to its retail chain in nagement and new shareholders of Detsky each of which has its own target audience, sia, and new playrooms were set up in 20 Russia. Mir, AFK Sistema, made a decision to build a range, and price positioning. The share of cities and villages across the country. So- national chain, and stores within the Detsky the Company’s private labels in the fash- cial project investments in 2017 amounted At the end of the year 2017, the total number Mir retail chain soon began to open in cities ion category is about 80% of Detsky Mir to more than RUB 11.5 million — a 150% in- of Detsky Mir Group stores was 622, compris- across the country. Group’s sales, and a 9.8% and 1.7% share crease upon the Company’s social invest- ing 578 Detsky Mir stores and 44 ELC stores each in toys and products for newborns, ments in 2016. located in 207 cities across Russia and 12 ci Detsky Mir ranked second among Russia’s respectively. On average, the share of the ties in Kazakhstan. most popular children’s goods brands, having Group’s private labels in its full range of Detsky Mir Group’s charity event named moved up three places compared to 2016. The products increased from 24% to 27%. “Participate!” was held in 219 cities through- In November 2017, Detsky Mir Group won “20 Favorite Brands” rating is compiled annu- out Russia and Kazakhstan in 2017, whereby the “Best Growth” category in the East Capi- ally by the Online Market Intelligence agency. In 2017, Detsky Mir launched several new residents donated 7.8 million gifts to disad- tal Awards. Detsky Mir Group also won first place for the private apparel labels while continuing the vantaged children. third time in the “Children’s Goods Retail development of existing ones. Chain” category in the No. 1 Brand in Russia The Company began a new project named award. “Step Forward”, in which a carpentry work- shop and a plastering and painting shop were opened at two orphan schools in Sa-
1 The yield is comprised of dividends and mara and the Smolensk Regions, providing the growth of the exchange value from students the opportunity to learn basic the moment of the IPO until 31 December trade skills under the guidance of experi- 2017. enced teachers.
PJSC Detsky Mir Annual Report 2017 1.1 Detsky Mir’s History: 70th 1.4 the detsky mir retail 1.7 online retail 1.11 purchase management Anniversary Of The Brand business concept 1.8 supply chain 1.12 information processing 1.2 about the Company 1.5 strategy 1.9 item safety technology 1.3 market overview 1.6 financial results 1.10 client-oriented service
Strategic report 104 new
The key strategic goal of Detsky every year, opening new stores in Mir Group is to consolidate the new and existing target cities. stores children’s goods market in Rus- Rapid growth of the online seg- sia and Kazakhstan. Its progress ment is driven by ongoing website towards this goal can be tracked optimization, development of free by a number of milestones already traffic generation channels, and in- achieved by Detsky Mir as it sets creased number of delivery options. itself targets for delivering consis- tently high growth rates. Launches of private labels enable Detsky Mir to offer its customers Being a leading Russian retailer, the the goods they want at the best Company expands its store network market prices. RUB 97 bn Detsky Mir Group consolidates its leading position in the children’s goods market in Russia while Revenue maintaining robust growth rates combined with high dividend levels. strategic report 1.1 Detsky mir’s History: 70th Anniversary of the Brand 10–11
1.1 Detsky mir’s History: 70th Anniversary of the Brand
The most well-known among Russian children’s retail chains is the Detsky Mir brand, which turned 70 years old in 2017.
1947–1996 1997–2002 2003–2011 2012–2017
Creation of the Detsky Mir Brand Establishment of Detsky Mir Group Retail chain Expansion New phase of Development
The first Detsky Mir store was opened on In 1997, AFK Sistema established OJSC In 2003, AFK Sistema approved a five-year In 2012, Detsky Mir acquired 100% of the 8 September 1947 in Moscow on Kirov Detsky Mir — Center, the predecessor of plan to develop the Detsky Mir retail chain, Cyprus company Sparthema Limited and Street (presently Myasnitskaya Street) as a Detsky Mir Group, for children’s retail trade subsequently opening 85 new stores in owner of LLC Kub-Market, which develops branch of the Central Department Store. asset management. Russia from 2003 to 2007 and increasing franchised stores of the British retail toy the Group’s total selling space by approxi- chain, ELC, in Russia. In 1957, the new Central Detsky Mir opened In the summer of 2000, the management mately 145 thousand sq. m. next to the Lubyanka metro station. and new shareholders of Detsky Mir, AFK In the second half of 2012, new Company Sistema, made a decision to build a national In 2007, the “Detsky Mir” trademark was management was appointed as part of a new In 1992, the Moscow government estab- chain, and stores within the Detsky Mir net- registered, and is still in use today. growth strategy, headed by Vladimir Chirak- lished JSC Detsky Mir, which owned and work began to open in cities across Russia. hov, CEO of PJSC Detsky Mir. operated the Detsky Mir department store In 2011, the first store in Kazakhstan opened in Lubyanka in Moscow under the name in Astana, and LLP Detsky Mir — Kazakhstan In December 2015, Floette Holdings Lim- Lubyanka Store Operator. was formed. ited and Exargo Holdings Limited acquired a 23.1% stake in PJSC Detsky Mir from AFK In 1994, AFK Sistema acquired a 43% stake In 2011, Detsky Mir launched its online store Sistema for RUB 9.75 billion. in Lyubanka Store Operator, which at the (www.detmir.ru). time had no other stores under the same In 2017, a successful initial public offer- brand or using the “Detsky Mir” name. ing of shares in PJSC Detsky Mir was held at the Moscow Stock Exchange. The total volume of the offerring, not including the over-allotment option, was approximately RUB 18.4 billion, corresponding to 29% of the Company’s share capital. As a result, AFK Sistema retained a controlling stake of 52.1% (72.6% before placement), and free floated 30.5%.
PJSC Detsky Mir Annual Report 2017 strategic report 1.2 About the Company 12–13
The development program in Kazakhstan Number of Detsky Mir Group’s Stores continued throughout 2017, and our retail 1.2 About the Company chain almost doubled from the opening of 688 10 new stores in Aktau, Zhanaozen, Atyrau, Petropavlovsk, Semei, Almaty, Uralsk, Shym Detsky Mir Group is the 596 kent, and Kostanai. The total number of largest children’s product Detsky Mir stores in Kazakhstan is currently 491 22, across 12 cities. retailer in Russia and Kazakhstan, uniting stores Detsky Mir stores achieved over 180 million of visitors in 2017, and their number conti under the Detsky Mir and 622 nues to grow. ELC brands. 525 425
As of at 31 December 2017 the Group was comprised of PJSC Detsky Mir, LLC Kub- 104 101 104 Market (ELC), LLP Detsky Mir — Kazakhstan, m 2015 2016 2017 >180 JSC Detsky Mir — Orel, LLC DM NORTH- visitors of Detsky Mir WEST, and LLC DM Capital. PJSC Detsky Total number of stores, pcs retail chain in 2017 Mir owns the “Detsky Mir” trademark and manages all stores within its retail network. Number of new stores, pcs
Shopping capacity, ths.sqm Detsky Mir Group is also developing a chain Detsky Mir visitors, million of ELC stores in Russia. To date, the ELC re- tail chain is represented by stores in Mos- A typical supermarket within the Detsky Mir ELC retail chain cow and 18 Russian cities. retail network features around 20–30 thou- sand SKUs of children’s goods priced in the ELC — Early Learning Center is a medium range: toys, apparel and footwear, dynamically developing retail chain Combining a modern business products for newborns, stationery, art and that unites an online store (http:// approach and our recognizable brand craft sets, recreational goods, car seats, and www.elc-russia.ru/) and 44 branded spanning 70 years of history ensures furniture. The Company’s target audience 180 stores in Russia. 156 Detsky Mir Group’s unique character are medium-income families, representing 132 and leading position in the Russian the majority of shopping mall visitors. The British brand ELC is well-known market. worldwide: for more than 30 years the Early Learning Center has been Detsky Mir Group is strengthening its lead- creating high-quality safe toys ing position in the children’s goods market that contribute to the harmonious At the end of the reporting year, the total and has maintained high rates of develop- development of children while 2015 2016 2017 number of Detsky Mir Group stores was ment over recent years. A total 104 new encouraging them to explore 622, comprising 578 Detsky Mir stores and Detsky Mir stores were opened in 2017, and the world around them. When 44 ELC stores in 219 Russian and Kazakh- 36 Russian cities were added to the Detsky developing toys, Early Learning stani cities, while the total selling space Mir retail chain. In the fourth quarter, 62 new Detsky Mir Group’s revenue in 2017 Center cooperates with child reached 688 thousand square meters. Detsky Mir stores were opened, reaching a increased by 21.9% year-on-year, amounting psychologists, leading designers, new record in the Company’s history. to RUB 97 billion (for more details see the and the most important specialists — Financial Results section). children.
PJSC Detsky Mir Annual Report 2017 strategic report 1.2 About the Company 14–15
Northwest Russia Urals Siberia
Detsky Mir Retail Chain 58 4 56 10 54 10 Geography
622 104
Total Total stores new stores
Moscow and the Moscow Region
Saint-Petersburg 166 23
City Centers (excluding Northwestern Moscow and the Federal District Moscow Region)
92 19
Central Federal District
Moscow Nizhny Novgorod Ural Volga Region Federal District
67 9
Volga Federal District
Yekaterinburg Southern Russia
Rostov-on-don 63 19 Siberian Federal District Southern Federal District
Kazakhstan Novosibirsk
22 10 Astana Kazakhstan strategic report 1.2 About the Company 16–17
IPO Dynamics of the Company’s Capitalization Numerous Russian public awards and business Growth1 communities recognize Detsky Mir as a leading In February 2017, PJSC Detsky Mir held national retailer in children’s products. an initial public offering of shares (IPO) on the Moscow Stock Exchange under 4.8x the ticker DSKY. The Company’s shares Increment in Detsky Mir value 100th place (+16 points) in 1st place in “Best Communication were included in the A1 quotation list. Forbes TOP-200 Largest Private Campaign During the IPO” at the Companies list Corporate & Financial Awards, The IPO was the first public placement in London three years with international marketing, and the first IPO of a Russian non-food 62.8 Nine managers from Detsky Mir retailer in 10 years. At the commence- Group, including CEO Vladimir Winner in the Children’s Goods ment of trading, the Company’s market Chirakhov, listed in the TOP-1000 Retail Chain category of the National 13.1 capitalization amounted to approximate- Russian Managers Consumer Confidence Award,Brand 2012 February 2017 (IPO) No. 1 in Russia ly RUB 62.8 billion. Value of 100% of PJSC Detsky Mir shares (RUB bln) 140th place (+30 points) in RBC The total offer volume was approximate- magazine’s The Largest Companies One of the most transparent ly RUB 18.4 billion, not including the in Russia — TOP-500 companies in Russia — Transparent over-allotment option. The offer price Credit Suisse, Goldman Sachs Internatio Public Procurement Rating was set at RUB 85 per share, and the offer nal, and Morgan Stanley acted as the joint included the sale of 216,514,669 shares global coordinators and joint bookrunners 32nd place in RBC magazine by existing shareholders (the “Selling for the offer. Sberbank CIB and UBS Invest- 50 Fastest Growing Companies The winner of the “Children’s Goods Shareholders”), which represented 29.3% ment Bank also acted as joint bookrunners. in Russia Stores” category in the Our People’s Award contest of the Company’s current share capital, The list of financial analysts is available at not including the option of additional corp.detmir.ru 17th place (+5 points) in the largest placement. Russian retail chains rating, 24th place (+1 point) in the Donors INFOLine Retail Russia TOP-100 Forum — Leaders of Corporate The Selling Shareholders were: Charity rating AFK Sistema owned 72.57% in the 59th place in the TOP-200 Largest Company’s capital prior to the offer; 9.0х Companies by Market Capitalization Winner of the national Golden Bear Multiple as of August 1, 2017 Award for the children’s products The Russian-Chinese Investment EV/EBITDA’16A industry in both the “Hall of Glory” Fund (RCIF), the joint fund of the and “Best Shoes”categories, the Russian Direct Investment Fund The winner of the East Capital latter for the Company’s shoes (RFPI), and China Investment Corpo- The number of IPO applications more than Awards in the nomination “Best collection of its private label, ration (CIC), through the investment doubled the placement volume. Detsky Growth” BabyGo companies, Floette Holdings Limited Mir’s Multiple EV/EBITDA ’16A was 9.0x and Exarzo Holdings Limited, owned and comparable to multipliers of the larg- 23.10% in the Company’s capital prior est Russian public retailers at the time of The Retail Week Awards 2017 The Detsky Mir online store (www. to the offer; the IPO. Over 90% of the final placement winner in The Leader of the Year — detmir.ru) is recognized as the leader was purchased by foreign investors. Children’s Products Segment of the Children’s Products Some individual shareholders, includ- ing representatives of the Company’s management and AFK Sistema, owned a combined 4.33% stake in the Com- 1 The business assessment pany’s capital prior to the offer. report was prepared by a firm from the Big Four.
PJSC Detsky Mir Annual Report 2017 strategic report 1.2 About the Company 18–19
Total Allocation We are pleased with the success of Detsky Mir’s Composition of Members Prior to and After IPO offering, and welcome the expanded family of shareholders to this uniquely attractive business. Others 12% 4.3 3.4 14.0 Over the last several years we have grown Detsky 23.1 Mir into a major retailer, while consistently gener- North Europe 13% ating strong growth and returns on capital. Today, 30.5 the Company begins a new chapter in its history with a highly successful IPO — the first in Russia Russia 14% and the largest in EMEA year-to-date — that at- tracted a highly diversified book of domestic and 72.6 international investors from Europe, the USA and 52.1 Continent 16% Asia.
Sistema has maintained its controlling interest in Mikhail Shamolin, USA Detsky Mir as we believe that significant further 19% prior to IPO after IPO President of AFK Sistema potential remains to be unlocked. The Company is AFK Sistema RCIF well positioned to continue its growth by capital- United Kingdom 27% ising on its market leadership, robust infrastruc- Public float Management ture, iconic brand and high-growth e-commerce 1 Mikhail Shamolin held a position segment under one of the best management team of AFK Sistema’s President until 13.03.2018 in the Russian market. Following the IPO, AFK Sistema retained a Mir’s shareholders as of 31 December 2017 controlling 52.1% of stakes with a free float is presented in the Corporate Governance of 30.5%. The structure of PJSC Detsky section of this report.
MOEX Price per PJSC Detsky Mir Share over 2017
We are delighted by the strong market interest in Price per share, RUB
our offering of business, and are pleased now to 110 move forward with a high-quality and geographi- cally diverse shareholder base. The IPO caps off 105 an extremely successful year for Detsky Mir. We expect our 2017 financial results will far exceed 100
those of previous years of Detsky Mir’s history 95 while we continue to develop, increase our mar- ket share, and open new stores. 90
The Detsky Mir team will make every effort to 85
fulfill our promise to investors and achieve the 80 projected growth rates. We aim at sharing our growth and making every effort to generate a 75 Vladimir Chirakhov, high return on investment for our shareholders. 70 PJSC Detsky Mir’s CEO February March April May June July August September October November December
Closing price, RUB.
PJSC Detsky Mir Annual Report 2017 strategic report 1.3 Market Overview 20–21
Macroeconomic situation creased (in ruble terms they decreased The Russian economy recession has led to due to the devaluation of the ruble), while consumers purchasing necessities more 1.3 Market Overview According to the International Monetary unemployment increased. The devaluation cautiously — including children’s goods – Fund, Russia’s GDP in 2017 amounted to of the ruble also led to a sharp increase in tending to exclude impulse purchases, Detsky Mir Group operates about USD 1.5 trillion, making Russia the inflation that amounted to 12.9% year-on- cutting costs by reducing consumption on the children’s goods 12th largest economy in the world and the year in 2015. and switching to cheaper products, there- fourth largest in Europe. by reducing the average retail ticket. market in Russia and The Russian economy returne to growth Kazakhstan. According to Russia’s average annual GDP growth rate as oil prices rose and the macroeconomic In efforts to mitigate potential nega- was 2.4% from 2010 to 2014 resulting from environment stabilized in 2017, however ir- tive financial effects of the challenging 2017 results, the Group the rising prices of oil and other commodi- regularities are still present in the growth macroeconomic conditions, Detsky Mir occupies a 20% share in the ties, as well as a generally favorable macro- dynamics. Inflation slowed significantly to Group adapted its range of products and children’s goods market in economic climate. 2.5% and the ruble appreciation stimulated pricing policy. Like-for-like number of a consumption growth of 3.4% year-on-year, tickets growth and gross profit per square Russia in terms of revenue A sharp decline in commodity prices and although retail prices were subject to addi- meter grew, facilitated by improved sup- as well as a 9.6% share in economic sanctions led to the economic tional pressure and real disposable house- plier terms and competitive pricing, es- crisis in Russia in 2014. Disposable income hold income remained in the negative, pecially in traffic-generating categories, the online segment. and consumer spending in real terms de- largely due to a change in spending habits. including goods for newborns.
Russia’s GDP Growth Year-on-Year, % Real Disposable Income in Russia, %
7.2 Nominal GDP growth, Y-o-Y 2017 in rubles 1.5 Real GDP growth Y-o-Y 3 2016 –0.2
3.7 2015 –3.7
9.8 2014 0.7 13.3 8.8 8.8 6.1 6.6 6.5 11.4 12.9 5.4 2.5 6.1 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2013 1.3 Source: Rosstat 12.1 2012 3.5
20 2011 Real Available Money Income in the Russian Federation, % 4
19.3 2010 0.5 5.9 4.6 4.0 4.5 2.4 3.0 –3.2 –0.7 –5.9 –6 –1.7 2009 –7.8 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 24.2 2008 Source: Rosstat 5.2
Source: Rosstat
PJSC Detsky Mir Annual Report 2017 strategic report 1.3 Market Overview 22–23
The Russian children’s goods, and occupying the second place in decrease in like-for-like sales. Neverthe- Volume of the Children‘s Goods Market in the children’s goods market with a com- less, specialized retailers have remained goods market Russia by Category, RUB bn per Year bined share of 32.2% in 2010. Growing de- the main sales channel for children’s The Russian children’s goods market can mand for a wider range of goods, the active goods, along with hyper- and supermarkets +1% be divided into five major categories: toys, +0.8% dissemination of modern retail spaces, and (in 2017, 39.8% and 39.7%, respectively). +1% apparel, footwear, products for newborns the development of large retail chains led The market distribution strongly reflects (including large-size products), and statio- 525 530 to the sharp reduction of this market share, consumer preferences: according to an 516 521 nery, as well as other products for children which fell to 10.4% in 2017, while buyers Ipsos Comcon survey, the most important 51 51 aged 0–12 years. Seasonal peaks in the mar- 52 51 switc hed to specialized children’s goods factors for buyers are affordable prices ket occur twice a year: prior to the start of 66 stores and hypermarkets. (92%), a wide range of products (77%), 66 66 the school year in September and for New 65 while proximity to one’s home (the key Year gifts in December. 97 In 2016–2017, some specialized retailers advantage for food retailers) only comes 100 110 104 left the market while the remaining fede third. The strong consumer preference to- According to the research company, Ipsos ral and regional retail chains lost traffic and ward children’s product range and variety Comcon, the size of the children‘s goods closed their stores following a significant can only be provided by specialized stores. market in Russia amounted to RUB 525.4 bil- 161 123 153 157 lion in 2017 compared to RUB 303.8 billion in 2008 and showing an average annual mar- ket growth rate of 6.9% over the last 10 years. Nominal Growth Year-by-Year, RUB, % According to analytical forecasts, the market 165 147 151 156 is expected to grow by an average of 1% and total RUB 530.4 billion by 2018.
2015 2016 2017 2018 8.3 The apparel and footwear categories tra- (forecast) Fast moving consumer goods 2.5 ditionally occupy most of the children’s Apparel Stationery 3.7 goods market, with a cumulative share of Nominal GDP 38.5% (28.8% and 9.7%, respectively) in Newborns products Footwear 3.4 2017, while products for newborns and toys Toy s 3 were 29.9% and 19.1%, respectively. The Children’s goods 1 overall share of products for newborns Source: Russian Target Group Index, Ipsos Comcon –3.7 grew, reaching RUB 157 billion compared Real GDP to RUB 81 billion in 2010 at an average an- nificant popularity, as their prices are lower –1 nual growth rate of 9.8%. than those of similar foreign or branded –4.9 goods. Detsky Mir actively develops its DIY –6 Following double-digit growth from 2011 to own private labels (for more details see the –5.6 2013, the market was in a prolonged state Supply Chain section). Clothes of stagnation and the economic climate –1.6 forced Russians to reconsider their ap- Along with daily necessities, children’s –10 proach to the purchase of children’s goods. goods is the most resilient industry to the Furniture –6.8 Price became the most important purcha crisis, showing growth even in times of –14.1 sing factor in 2015, and consumer beha crisis: 2008–2009 and 2014–2016 crises, Consumer electronics vior changed as the focus shifted toward while other categories such as electronics, 7.4 cheaper products. The flow of consumer furniture, and clothes declined. demand decreased from the premium and 2014–2015 2015–2016 medium price ranges into the mass market Unorganized retail stores have historically and low-price segment. Domestic goods been widely distributed in Russia, leading Source: Rosstat, Ipsos Comcon and our own private labels have gained sig- in sales of most goods, including children’s
PJSC Detsky Mir Annual Report 2017 strategic report 1.3 Market Overview 24–25
The internet is an increasingly popular sales lowing an annual growth rate of 28% from 2010 Factors affecting the children’s goods market channel offering both a wide range of products to 2017. In terms of value, sales of children’s at attractive prices and the opportunity for pur- products from specialized stores increased •• Parents’ priority purchases in children’s goods: chasers to evaluate, select, and research prod- from RUB 119 billion in 2010 to RUB 209 bil- Rising educational level of parents and increased access to the internet lead to ucts. The share of online retail in the children’s lion in 2017. Online sales of children’s goods in more conscious purchasing choices. goods market is steadily growing, at 10.1%, fol- 2017 amounted to RUB 53.1 billion.
•• The internet is an increasingly popular sales channel offering a wide range of products at attractive prices, as well as the opportunity for purchasers to evaluate, select, and research products. Online shoppers have become a serious target Children’s Goods Market Structure by Sales Channel , % audience, and their number in Russia has grown by 2.5 times over the last three years, with the biggest group residing in regional areas, according to the Data 14.8 11.1 13.6 10.4 Insight agency. 24.3 22.4 20.0 32.2 8.1 7.6 8.9 10.1 4.3 5.0 •• Business transformation and digitalization: investing in digital technologies and 3.6 2.9 Big Data. 26.9 27.8 29.0 36.3 40.0 39.1 39.7 30.7 •• Deeper diversification in product ranges and development of economically priced private labels. 46.0 45.2 45.6 41.3 40.8 39.8 •• Limited market growth associated with a decline in birth rates, a decrease in 34.3 38.6 disposable household income, and trends in consumer inflation and consumer spending. 2010 2011 2012 2013 2014 2015 2016 2017
Specialty stores Hyper/supermarkets Internet Others Source: Ipsos Comcon
What is Important for Buyers when Choosing a Place to Purchase Key Children’s Goods Retailers in Russia in 2016, % Children’s Goods?
13 11 16,9 5
5 4,2 5 92 3,4 44 77 Specialty stores 67 1,8 3,9 9 54 39 46 1,8 1,8 24 5,1 10 9 Affordable variety Stores shopping Online picking Kids corner 11 price of products location experience opportunities availability
Source: Ipsos Comcon polls Detsky Mir DochkiSinochki Bubble Gum Hypermarkets
Other specialty The rest of non-chain Korablik Begemot retailers retail stores
Mothercare Rich Family Online store
Source: Ipsos Comcon
PJSC Detsky Mir Annual Report 2017 strategic report 1.3 Market Overview 26–27
Sales of children’s goods in Russia vary de- The online children’s goods market is highly Detsky Mir Group Share of the Russian Steady Growth of the Number of Children pending on the region and average income. Ac- fragmented and includes several large play- Children’s Goods Market,% Aged 0–12 Years in Russia1 cording to Ipsos Comcon, the largest per capita ers as well as numerous online small busi- spending on children’s products in 2017 was re- nesses. In 2016, the Detsky Mir online store corded in Moscow at RUB 11.5 thousand, com- became the leader in this market with a share 50 pared to RUB 6.9 thousand across Russia. More of 6.7%, growing to 9.6% in 2017. 44 than a quarter (27%) of Russians’ expenses on children’s goods occur in Moscow. 32 143.7 146.3 146.5 146.8 146.9 147.0 147.0 147.0 24 Key Players in the Online Market of According to Ipsos Comcon, the Company’s 18 Children’s Goods, by Share of Sales in 14 16 20 2016, % revenue share in the Russian market for chil- 17 10 13 dren’s goods (including instore pickup) in 6 7 8 20.8 21.7 22.2 22.6 22.8 23.0 23.2 23.1
1.6 2017 was 20% (16.9% in 2016), and 9.6% in the 2017 2015 2014 2016 2021 2019 2018
1.8 2020 online segment, compared to 6.7% in 2016. 2011 2012 2013 2014 2015 2016 2017 5.1 (forecast) (forecast) (forecast) (forecast) Detsky Mir Group is the prominent leader Share in children’s goods market 1.9 among specialized retailers of children’s Population total, Children aged 0 to 12, m persons m persons goods, with a the share of thenearest com- Share in children’s goods specialty stores Source: Rosstat petitor is four times less. Source: Ipsos Comcon 2.0 2.7 tion — a far lower statistic than in many Euro- The Company’s share of the children’s goods pean countries. market among specialized retailers grew from gories such as toys, for which the market 2.3 2.6 14% in 2011 to 50% in 2017, largely due to 406 share increased from 30.5% to 36.6%, and 2.4 The average annual population growth rate new chain stores opened from 2012 to 2017. products for newborns, which increased from from 2008 to 2017 was 2.5%, exceeding that 20.1% to 24.3%. At the same time, Detsky of many developed and developing countries. Growth in the Company’s market share Mir’s market share in 2017 grew across all Detmir.ru Dochkisinochki.ru Akusherstvo.ru In the coming years, the share of children throughout 2017 was primarily driven by cate children’s product categories. Mamsy.ru Mytoys.ru Korablik.ru within the Russian population will continue to grow by an average of about 0.6% per year, OZON.ru Toy.ru Babadu.ru and the number of children in Russia is ex- Detsky Mir Group’s Market Share by Сategory of Children’s Products, % Source: Ipsos Comcon pected to reach 23.1 million by 2021 follow- ing a slight decrease after 2020 due to the 6.3 cumulative effect of low birth rates. The birth 2017 Stationery 5.5 Russia’s retail market is developing in the same rate decreased to 11.5% (per 1,000 people) in manner as those of more developed countries, 2017 compared to 12.9% (per 1,000 people) in 4.1 2016 whereby the market began to consolidate fol- 2016, and is expected to further decrease to 13.2 lowing the stage of intensive growth. Detsky 10.4% (per 1,000 people) by 2021. Footwear 11.2 2015 Mir considers itself a consolidator in the key 7.9 sales channel. We positively assess organic The distribution of children by age group in growth opportunities in the current economic Russia has remained approximately the same 12.5 climate against the background of weakening in recent years, with a small decrease in chil- Apparel 10.9 competition and the departure of ineffective dren aged 0–4 years. 7.3 retailers from the market. 24.3 Newborns products 20.1 Demographic situation However, the Company’s high- 18.2 The number of children in Russia aged 0–12 performing products for newborns had 36.6 years reached 22.6 million in 2017, surpassing the fastest sales growth rate despite Toy s 30.5 all other European countries. However, chil- the lower birth rate. 23.7 dren make up only 15.4% of Russia’s popula- Source: Ipsos Comcon 1 As at 1 January.
PJSC Detsky Mir Annual Report 2017 strategic report 1.3 Market Overview 28–29
Kazakhstan In comparison with European countries, this Total Birth Rate1 rate is quite high due to the high total birth Kazakhstan is one of the largest CIS coun- rate at 2.3 children per woman in 2016. As a tries, with a population of about 18.4 million result, children make up a larger part of Ka- people. In 2008–2016, the average annual zakhstan’s population compared to some growth rate of Kazakhstan’s nominal and real European and developing countries, at 27.4% 13.3 12.3 12.5 12.6 13.3 13.2 13.3 12.9 11.5 11.7 11.0 10.6 10.4 GDP was 14.4% and 3.7%, respectively. The in 2016. average annual growth rate of the population in the same period was 1.2% and the GDP per According to estimates, the children’s goods capita growth rate was 12.7% per year. Re- market in Kazakhstan totals about KZT 400 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 sources from the National Fund of Kazakh- billion and is dynamically developing with an (forecast) (forecast) (forecast) (forecast) stan allowed the country to maintain positive annual increase of 10–15%. The large market Source: Rosstat, Ipsos Comcon growth in real GDP during the financial crises share of unorganized retail creates opportu- of 2008–2009 and 2014–2015. nities for consolidation. As at the end of 2017, Population of Children Aged 0–12 Years by Countries in 2017 22 stores within the Detsky Mir retail chain The birth rate in Kazakhstan is currently had been opened in Kazakhstan. Country The number of children, mln Children’ share in total population, % rising, with about 400,000 children born in India 313.7 24.0 the country each year, and the average an- China 212.2 15.3 Competitive Environment in Kazakhstan nual rate of growth in births was about 3% USA 52.7 16.2 from 2008 to 2015. The number of children Brazil 38.9 18.6 Competitors Number of stores in Kazakhstan aged 0–12 years in 2016 was Russia 22.6 15.4 4.9 million, and an average annual growth Marvin 37 Turkey 16.6 20.8 rate of 1.2% is expected until 2020. Anvar 27 France 10.2 15.7 Great Britain 10.3 15.6 21 The total population growth in Kazakhstan MAGNUM Germany 9.3 11.2 had been decreasing in recent years: the SKIF 20 Poland 5.1 13.2 natural growth rate was 13 per 1,000 people Kazakhstan 4.6 25.7 Ramstore 20 in 2008 and 11 in 2015, although in 2016 it in- Source: Rosstat, U.S. Census Bureau creased sharply to 16 per 1,000 inhabitants.
Child Population in Russia Aged 0–12 Years by age Group, % 2 Population of Kazakhstan, m People 20 20 20 20 21 22 22 18.4 17.7 17.9 18.2 17.3 17.5 16.7 16.9 17.1 37 37 38 39 39 40 41
13,5 13.9 14 13.6 13.7 13.8 13.3 13.4 13.5 43 43 42 41 40 38 37
2015 2016 2017 2018 2019 2020 2021 4.9 (forecast) (forecast) (forecast) (forecast) 3.4 3.5 3.6 3.7 3.8 3.9 4 4.1 Children aged 0—4 Children aged 5—9 Children aged 10—12 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Rosstat Child population Population over 12 years
1 The number of births per 1,000 people. Source: U.S. Census Bureau 2 On January 1
PJSC Detsky Mir Annual Report 2017 strategic report 1.4 The Detsky Mir Retail Business Concept 30–31
The concept features Detsky Mir Group’s stores come in five categories depending on the retail space and number 1.4 The Detsky Mir an interactive format, is of assortment items: Retail Business based on international best practices, and Store size Selling space, sq.meters Average number of SKUs (excl. apparel and footwear) Concept optimizes the use Super Mini 500–600 5,000 of retail space by The concept of retail trade in the Detsky Mir Mini 600–800 6,500 chain combines five main components: integrating gaming and interactive zones into Super 800–1,500 11,000–14,000
sales areas and product Hyper >1,500 16,000 A children’s goods locations. supermarket with the widest Flagship >2,000 18,500 1 unique assortment The concept also includes an improved store layout and a more vivid overall design. All stores have the same zoning The general store format includes a standard The stores are predominantly located in Carefully planned visual arrangements, height-adjustable trading product assortment of 20–30 thousand modern shopping malls and in densely merchandizing, customized shelves, and widened passages between SKUs (including apparel), individual zones populated residential areas, adjacent to 2 for children and parents aisles to ensure more comfort for shop- for each product category, and a separate main transport routes or near metro and pers with strollers. Products have been zone for advertising. railway stations. laid out in a way that is more under- standable, visible, and logically linked. The average size of the Detsky Mir stores is As at 31 December 2017, Detsky Mir Group Affordable prices focused Promo-places for special offers and about 1,400 square meters, and about 63% managed 565 stores in shopping malls and on the “medium / medium discounted goods have been organized. of stores have a retail area of 1–2 thousand 13 stores outside shopping malls (street 3 minus” range Product categories within the store have square meters. retail). been as heavily organized as possible.
Interactive zones for children have been Building of long-term installed in flagship stores, enabling the relations with customers combination of shopping and entertain- through a loyalty program 4 ment and encouraging the whole family to revisit our stores.
Convenient stores located in Since 2014, new stores within the Detsky modern shopping malls and Mir retail chain in Russia and Kazakhstan 5 densely populated residential have been opening in line with both- areas the concept and modern interior design standards, while the concept’s require- ments are included in renovations of In cooperation with international marketing previously opened stores. agency CampbellRigg, we developed an innovative store design concept in 2013.
PJSC Detsky Mir Annual Report 2017 strategic report 1.4 The Detsky Mir Retail Business Concept 32–33
Number of New Сoncept Stores Toy s
Detsky Mir retail chain in Russia and Kazakhstan 2013 2014 2015 2016 2017 Detsky Mir’s leading market position Share in Revenue Share of Private Total number of new stores per year 34 55 103 100 104 enables the Company to receive special Labels conditions from some suppliers and access
Number of new concept stores, including stores opened and to exclusive products. 1 58 105 101 104 32% 9.8% reconstructed during 2017 Exclusive products drive consumer traffic SKUs DM’s Market Share and increase customer loyalty and sales Cumulative number of new concept stores at the end of 2017 1 59 164 265 375 growth for comparable stores, while buil ding resilience to price competition with 5,900 36.6% Total number of stores in operation at the end of 2017 226 280 380 477 578 other retailers. Key competitors: specialized children’s stores
Share of new concept stores in the Company’s chain 0.4% 21% 43% 56% 65%
Large-size Products Share in Revenue Share of Private Detsky Mir Product Assortment1 Labels These products include children’s car seats, baby carriages, baby carriers, and children’s Products for Newborns furniture. We offer branded goods as well as 4% 45.9% Share in revenue a significant assortment of our own private SKUs Products for newborns include baby food, diapers, and childcare label products in this category. products. 33% 200 Share of private labels Key competitors: specialized children’s Since FMCG (fast-moving consumer goods) are bought stores repeatedly, the products for newborns category are strategically important, as they generate traffic for key customers. 1.7% SKUs We believe that we offer a wide range of products for newborns Stationery and other Products Share in Revenue Share of Private at the best prices compared to our direct competitors. Labels 3,500 This category includes books, multimedia, In addition, products for newborns can reduce the impact DM’s market share sports goods, and the New Year’s range of 6% 27.1% of low-peak seasons affecting non-food products that is products. The sale of stationery is highly experienced by all retailers, as sales of products for newborns seasonal, with peak sales occurring during SKUs DM’s Market Share
Traffic Generator Traffic are not seasonally based. 24.3% the“Back to School” period in August–Sep- Key competitors: Generator Profit tember. 2,500 6.3% grocery store chains Key competitors: specialized children’s stores
1 The Company’s share in the market is presented separately for each product category in 2017 as according to Ipsos Comcon.
PJSC Detsky Mir Annual Report 2017 strategic report 1.4 The Detsky Mir Retail Business Concept 34–35
Investment attractiveness 1.5 Strategy of Detsky Mir Group:
Strategic tasks of Detsky Mir Group: The unparalleled leader of the Russian children’s goods market — a large, growing, and sustainable segment of the consumer market. Constant expansion of the A recognizable retail brand retail chain Online trade within the industry, high development consumer demand, and a long-standing market Business presence of 70 years. model flexibility Improvement A highly diversified product boost of the operating range that ensures a performance constant flow of customers as well as the growth and sustainability of sales and Apparel and Footwear Share in Revenue profitability. The primary strategic goal Our range of apparel includes outerwear, seasonal col- of Detsky Mir Group is The fast-growing online lections, underwear, socks, and accessories, while our 25% retail business and foot wear collections include classic and casual styles, Share of Private the consolidation of the availability of various sales athletic and walking shoes, as well as beach and aquatic Labels children’s goods market channels that contribute to footwear. the Company’s sustainable apparel in Russia and Kazakhstan growth. Our footwear collections include shoes from leading 81% international brands such as Lassie (manufactured by through organic business A business model Reima) and Blue Seven (manufactured by Obermeyer), footwear growth while providing 75% characterized by low capital as well as a wide range from our private labels, which consumers with an intensity and high indicators have a growing share in total sales. SKUs of generated cash flow, affordable and wide range ensuring a high level of The apparel and footwear categories provide the widest of products, including returns and a consistently profit margins of our product range, and we are expan 7,500 high dividends. ding upon the products within these categories in line DM’s Market Share our private labels. We with our strategy, offering more clothes and shoes from have developed a series Scalable infrastructure and our private labels. 12.5% apparel of strategic projects logistics platform. We lay a strong focus on offering a large number of for Detsky Mir that will A strong management team seasonal collections and expanding their range. Eight footwear with successful business seasonal collections were provided in 2017: spring, 13.2% effectively propel us development experience. summer, hot summer, school, early fall, fall, winter, and Key competitors: retail toward our goal upon Profit Generator Profit New Year. stores for apparel and successful completion. footwear, sports stores
PJSC Detsky Mir Annual Report 2017 strategic report 1.5 Strategy 36–37
Consistent retail chain expansion Potential for New Store Оpenings Within the Detsky Mir Retail Chain Miniformat stores Our market share and retail chain can be in- Mini and super mini format Detsky creased through opportunities provided in 578 DM stores as of 31.12.2017 40 Marketplaces of competitors from various regional markets and opening new Mir stores can be opened in any city specialty retail stores stores in new cities as well as cities where in Russia, and will be established 120 Cities with no DM presence Detsky Mir already has a presence. in areas in which there is no pos- 25 Specialty marketplaces in Kazakhstan sibility to open a full-size store. In 65 Shopping centers with priority in the midterm The current market provides upcoming op- the coming year, we plan to open for DM in host cities portunities to open at least 250 new stores mini stores in residential neigh- over the next four years, including at least borhoods of large cities and small 70 stores in 2018: towns in the Moscow Region with populations of about 20 thousand Moscow and the About 65 shopping malls in cities where Moscow Region Center Detsky Mir is already present that both people. We opened our first super meet the Company’s strict investment mini format store in December 2017, 166 25 15 12 92 20 10 5 criteria, including a high level of internal in the city of Krasnoarmeysk (the rate of return (IRR) of at least 40% Moscow Region).
About 120 cities in which there are nei- The total area of a mini format store ther stores of our retail chain nor those is 600–800 square meters, while of our key competitors a super mini store totals 500–600 square meters. Our mini format About 40 stores of specialized retail stores are stocked with a narrower Siberia Urals competitors who have ceased their range of the most popular products, development programs and closed their 54 18 7 4 56 13 8 5 stores with 6.5 thousand SKUs in the mini format stores and 5 thousand SKUs A minimum of 25 store openings in Ka- in the super mini stores, compared zakhstan (including five in 2018), excee to the 11–14 thousand SKUs stocked ding results in Russia by demonstrating a by standard Detsky Mir supermar- 25% growth in like-for-like sales in 2017 kets.
The super mini format stores de- The professional team at Detsky Mir Group Volga Region Southern Russia focuses exclusively on analysis results and velopment plan is yet in the ma potential opportunity assessments for new king and depends on retail space 67 19 10 6 63 22 11 5 store openings by combining information availability and progress analysis based on economic development, dispo of our first two super mini format sable income levels of consumers, and the stores. We are ready to replicate population density in each region and city. this format throughout the country The possibility of developing an extra-small by opening stores in small towns, format or opening stores in the Far East are strengthening our presence in me- yet to be considered in the forecast for new dium and large cities, and opening Northwest Kazakhstan store openings. minishops in commuter towns. 58 5 4 3 22 25
Stores under the Detsky Mir brand as at 31 December 2017.
PJSC Detsky Mir Annual Report 2017 strategic report 1.5 Strategy 38–39
Online retail development tics centers in the Moscow Region (Beka- sovo and Krekshino) and direct distribu- Detsky Mir Group continues to improve tion from suppliers to stores. its business model while focusing on the omnichannel sales strategy to develop its To support the Company’s expansion in online retail segment. Sales volumes have the Ural and Siberian regions of Russia, increased following the launch of our de- we made a preliminary decision to open livery service from any Detsky Mir store, a new logistics center in the Urals with available for orders made in our online an area of about 46 thousand square me- store. The Detsky Mir online store has ters in 2018, with the potential to expand a far wider range of available products to 82 thousand square meters. For more than our retail stores, and its assortment details, see the Purchase Management was increased from 40,000 SKUs in 2016 section. to 50,000 in 2017, while our retail stores stock about 20,000–30,000 SKUs. Increasing operational efficiency through optimizing business More active use of our in-store pickup ser- processes in stores and an asset- vice and upsell will be promoted through light business model expanding the online store range, deve loping delivery options, as well as further Detsky Mir Group is continuously impro reducing the average wait between order ving its operational efficiency with the the best suited to achieving a high return Total maturity period of 18–24 months confirmation and pickup from any retail aim of reducing operational costs (primar- on capital and allows us to quickly change (including fulfillment of projected store. We also intend to generate even ily in staffing and leasing) by optimizing store locations in response to shifting de- indicators such as customer traffic and higher internet traffic to our online store labor productivity and implementing the mand and local foot traffic. Although our gross profit per square meter). through various forms of advertising and asset-light business model2. model is based on leases for businesses further deepening its integration with so- with relatively low capital investments per When a location is being assessed for the cial networks while increasing our sales We are further optimizing our person- store, it enables us to operate with a pre- placement of a new Detsky Mir store, the conversion rate by optimizing the online nel structure, increasing automation, and dominantly positive cash flow and the sub- standard delays that occur during deve store’s interface (UX and UI)1. For more operating under successful efficiency sequent financial expansion plans that are lopment of a new shopping mall are also details see the Electronic Commerce sec- initiatives we have established over the primarily at our own expense. taken into account. New stores are usually tion. past four years. Optimization of business opened in the fourth quarter of the year to processes and the scale of our business When opening new stores, the Company take advantage of higher seasonal sales at Improving infrastructure, growth has allowed us to reduce the per- uses a strict set of investment criteria, the end of the year. maintaining growth, and increasing centage of staffing costs in our revenue. paying attention to return on investment our business model flexibility (ROI): We are constantly monitoring the perfor- In addition to optimizing purchasing pric- mance of each store in our retail network. Supply chain and infrastructure are of es and obtaining discounts for wholesale An Internal Rate of Return (IRR) of at If a store does not reach its projected key paramount importance for the supply of purchases, we are working to further im- least 40% in cash flow for seven years performance indicators within an appropri- retail goods and are particularly crucial prove the commercial terms with our land- without terminal value ate timeframe, we consider its closure or, to rapidly growing retail companies such lords. Almost all our stores are in leased if possible, relocate to a nearby area with as Detsky Mir. We are continuing to use a premises, primarily modern shopping The EBITDA break-even target reached more favorable leasing terms and consum- flexible distribution model that combines malls. Due to its low capital requirements, at least four months after the store’s er traffic. Less than 10 stores have been a centralized system based on two logis- we believe that the asset-light model is opening closed or transferred in the past few years.
1 UI (user interface) and UX (user experience). 2 Asset light model
PJSC Detsky Mir Annual Report 2017 strategic report 1.6 Financial Results 40–41
The Republic of Kazakhstan remains one of Detsky Mir Group’s Revenue, Detsky Mir Group’s Gross the most promising areas for the Group’s RUB bn Profit 1.6 Financial Results business development. Like-for-like sales
(LFL) growth in KZT was 25% in 2017. 36.2 34.1 In difficult socioeconomic The significant number of stores opened 33.8 throughout 2017, as well as the increase conditions, Detsky Mir 97.0 79.5 upon stores opened in 2016 also contri Group continues to 60.5 buted to the revenue growth. 32.8 attract new customers and 27.1 21.9 consolidate the market, The largest portion of Detsky Mir Group’s 2015 2016 2017 revenue is comprised of products for new- borns (33%) and toys (32%). showing a double-digit 2015 2016 2017 like-for-like growth in the One of the main drivers of revenue growth Gross profit RUB bln number of tickets during was a 7.2% increase in like-for-like sales (LFL)1 in Detsky Mir chain stores: 2017. The Group’s revenue Detsky Mir Group’s Revenue by Gross margin, % increased by 21.9% as Like-for-like number of tickets growth Product Category, % amounted to 12.2% a result of like-for-like Like-for-like average ticket decreased by 11 11 10 sales growth and ramp 4.4% Gross Profit, RUB ’000 per sq. m up of stores that opened 25 25 25 a year earlier. Detsky LFL Growth Mir strengthened its position as a leader in the 35 33 32 51.1 13.7 49.9 children’s goods market 12.3 49.7 through a significant 7.2 5 5.9 29 31 33 revenue increase and 12.2 further expansion of its 8.3 6 2015 2016 2017 retail chain. –4.4 2015 2016 2017 2015 2016 2017 Newborns products Despite growth in the children’s goods mar- Like-for-like number of tickets growth Toy s ket and low levels of inflation in the chil- Like-for-like average ticket growth High incomes have allowed us dren’s goods market, Detsky Mir Group’s Apparel and footwear revenue grew by 21.9% to RUB 97 billion by to continue expanding our store LFL growth Large-sized and other goods the end of 2017, compared to RUB 79.5 bil- network in recent years, while lion in 2016. The online store’s revenue in- 1 reducing financial leverage and creased by 67% in 2017, amounting to RUB Like-for-life sales (LFL) growth, like-for- Detsky Mir Group’s gross profit grew by 21% like number of tickets growth, and average providing consistently high dividends 4.6 billion (for more details, see the Online ticket growth were calculated based on year-on-year to RUB 32.8 billion and a gross Retail section). the results of the Detsky Mir chain stores margin of 33.8%. Gross profit per square to our shareholders. in Russia, which were in operation for at meter amounted to RUB 51.1 thousand. least 12 full calendar months preceding the reporting date.
PJSC Detsky Mir Annual Report 2017 strategic report 1.6 Financial Results 42–43
The Company is continuously improving Adjusted EBITDA2 increased by 30.0% to justed profit for the period was RUB 4.8 Tax Payments to the Federal and Regional its operational sq. m reduce operational RUB 10.7 billion compared to RUB 8.2 bil- billion. The significant profit increase in Budgets in 2015–2017, RUB m1 costs (primarily in leasing and staffing) by lion in 2016. The reduction of commercial, 2017 was due to the increased operational optimizing labor productivity and impro general, and administrative costs enabled efficiency of the business and sharp re ving commercial terms with our landlords. an increased adjusted EBITDA margin of venue growth. 685 Our recent efforts and projects aimed at 11.0%. 324 improving operational efficiency resulted Net debt in 2017 amounted to RUB 10.4 717 816 in Detsky Mir Group’s commercial, gen- Unadjusted EBITDA amounted to RUB 9.8 billion and the net debt / EBITDA ratio 236 eral, and administrative costs decreasing billion — a 20.1% increase year-on-year. was 1.1. 562 from 23.7% of the total revenue in 2016 to EBITDA margin was 10.1%. 1,588 1,490 22.8% in 2017. Our adoption of the asset-light busi- 1,174 ness model provides us with high finan- cial results and profit on capital, and we 1,652 achieved an adjusted Return on Invested 1,272 1,511 Share of Commercial, General, Adjusted EBITDA Capital (ROIC) of 86% before tax and a and Administrative Costs in Revenue1 cash conversion of 77% in 2017. We be- 2015 2016 2017 11.0 lieve that our ROIC indicates a high level 25.9 of success in comparison with that of the Social contributions Personal Income Tax 23.7 majority of Russian and international re- 3 22.8 tail operators. Profit tax Other 3.2 10.3 1.8 3.3 10.2 1.3 1.6 Return on Invested Capital 9.6 10,7 8.9 8,2 8.1 6,2 79 77
2015 2016 2017 1.7 Online Retail 60 EBITDA, RUB bln. 11.7 10.3 9.8 In addition to retail Adjusted EBITDA margin, % stores, Detsky Mir 86 78 2015 2016 2017 Group offers its entire 3 61 Adjusted profit for the period increased product range for online Advertising & by 43.8% year-on-year to RUB 5.5 bil- Rent & Utility Marketing lion, including by optimizing the value of purchase at www.detmir. the Company’s debt portfolio. The unad- Payroll Other 2015 2016 2017 ru and www.elc-russia.ru.
ROIC, % The Company’s online segment remains 1 Commercial, general, and administrative costs do not include depreciation costs of fixed assets Adjusted EBITDA LTM-Adjusted Capex/Adjusted. its fastest growing sales channel since and intangible assets or bonus payments to management within the long-term incentive (LTI) EBITDA LTM, % program. launching in 2011. The Detsky Mir online store recorded 133 million visits in 2017 2 Adjusted EBITDA is calculated based on profit for the period prior to deductions for income tax, foreign exchange losses, financial income and expenses, depreciation of fixed assets and while more than 2.4 million online orders 1 intangible assets; and has been adjusted for bonus payments made to management within the Social contributions include the MHIF, FSS and FIU were placed. long-term incentive (LTI) program. in Russia and social contributions, mandatory pension contributions and social tax in Kazakhstan. Personal 3 Adjusted profit for the period (net profit) does not include bonus payments to management Income Tax includes personal income tax in Russia and within the long-term incentive (LTI) program accompanying the corresponding tax effect. individual income tax in Kazakhstan.
PJSC Detsky Mir Annual Report 2017 strategic report 1.7 Online Retail 44–45
Several projects improving our online re- Moscow Region, and St. Petersburg has tail business drove a RUB 1.8 billion in- grown to 45% in 2017, from 30% in 2015. crease in revenue. The aggregate average >133 million annual growth rate in 2011–2017 was 121%. We are constantly seeking new means of communicating with our customers. In visits to the online store 4.8% Detsky Mir’s online retail growth is sup- March 2017, we successfully completed share of online ported by the Company’s presence in all a project implementing the SAP Hybris key regions, allowing rapid delivery. eCommerce platform, which enables high- revenue in the quality personalized interaction with cus- Company’s total tomers via all available channels as well as million A key driver of turnover growth >2.4 revenue collection and analysis of customer data in 2017 was the promotion and online orders from multiple sources. The platform is expansion of the In-Store Pickup a strong basis for the online store’s con- service, whereby the entire online tinued development and improvement. assortment can now be issued to Upgraded the buyer at a checkout point in- Accelerated Growth in Online Business Revenue “In-store pickup” PJSC Detsky Mir online store took 4.8% store. 28th place in E-Commerce Index TOP-100 2017 and enhanced the 121% position as the number-one player Annual average growth Orders can also be collected at pickup with a share of 10%. rate 2011–2017 points of our partners, Ozon and Boxber- 3.5% ry, adding to the online store’s total 1,387 available pickup points at the end of 2017. To help increase conversion rates, we re- Launched 4.6 in-store pickup designed the checkout shopping cart. New 2.1% As regional delivery and pickup services versions of the cart and ordering have also 2.8 further develop, the share of orders from been optimized for mobile devices. 0.2% 0.5% 0.6% 1.0% Russian regions other than Moscow, the 1.3 A peak event for the Company’s online 0.04 0.1 0.2 0.4 sales was CyberDays, in which price dis- Online Store Orders by Region, % 2011 2012 2013 2014 2015 2016 2017 counts reached 85%. Ten sales were held throughout 2017, each with a duration of 10 Online business revenue, RUB bln Online business revenue share in DM total revenue, % 13.9 13.8 2.5–3.5 days and doubling or tripling or- der volumes. Eighteen online sales are
1 29.1 planned for 2018. Delivery Method 2017 35 39.6
In-store pickup Courier Online business Online business revenue share revenue share 60.8 56.2% 43.8% 46.6 51.1
2015 2016 2017 1 Delivery by courier includes delivery to the buyer’s address and to a partner’s self- pickup point. The online store includes online orders for goods that are presented Other regions Moscow Saint-Petersburg in off-line stores and goods that are not available at the time of the order, but can be delivered to the store from the warehouse by the choice of the buyer via the Company’s logistics system (effective from October 2017).
PJSC Detsky Mir Annual Report 2017 strategic report 1.7 Online Retail 46–47
Registered users of the Detsky Mir web- The Client Support Center was estab- Contextual advertising in Social media, site receive a promotional email regarding lished in 2017 to collect customer ap- Google, Yandeх, Bing, Yahoo targeted advertising details and the starting date of the next peals through any communication chan- CyberDays sale two weeks in advance. nel. The independent service operates as a one-stop-shop, whereby comprehensive Video advertising Mobile Display — websites, (Youtube/ Vimeo) applications, banners We are expanding upon our promotional information regarding all customer activ- 14% campaigns via email, increasing order fre- ity including purchases, applications, ap- Paid traffic quencies, and maximizing revenue four- peals, and resolved and unresolved claims Teaser nets In-app native advertising fold from free email communication. is aggregated, creating dynamic data and providing the highest level of customer Coordinated information in social net- service (for more details, see the Client- works and targeted newsletters sent oriented Service section). The frequency of email newsletters was non-brand traffic to 36%, generating a po through Viber, text message, and email increased in 2017, and SEO is planned for sitive impact on turnover. ensures a significant sales increase during We continue to perfect our strategy fo- 2018. We expect to increase the share of CyberDays periods while maintaining our cused on developing omnichannel sales. overall sales margin through effective se- The process of aligning prices in the on- lection of discounted products and sup- line store with those in the retail chain, Non-branded Search plier participation in our marketing activi- which began in 2016, was completed in ties. the reporting year. A synergistic effect has been created from matching prices and Our online store (www.detmir.ru) has be- product range, and offering the option to come a main channel for the annual Black retrieve orders in retail stores through our Friday sales. From 20 to 26 November In-Store Pickup service, while the online 2017, customers were offered 90% dis- store’s high brand recognition and high- Branded Search counts on about 20 thousand items in quality search engine optimization (SEO) toys, apparel, footwear, strollers, diapers, drive a large volume of organic traffic. and more. Compared to last year’s Black Friday, the number of online orders in- Our online retail segment is differenti- creased by 2.5 times and revenue dou- ated by a strong focus on attracting traffic bled. Our most purchased products were through the development of free channels Pampers, Huggies, and Merries diapers, such as SEO and email newsletters, en- The number of visitors to our online store lized orders in 2017. About 86% of visits LEGO construction sets, Monster High abling significantly higher operational ef- is constantly growing, with a 33% year-on- were directed to the website from free and dolls, Nutricia and Friso baby food, and ficiency and profitability than the average year increase in visits and 2.4 million fina shareware traffic. Babyton feeding chairs. across the eCommerce market.
Online Store Visits, million Finalized Orders, million
Distribution Owned platforms via messengers (blogs, video blogs) 133.4 2.4 97.2 86% SEO 63.4 1.1 Free traffic E-mail (branded/non-branded) 0.5
implemented in 2017 in planning for 2018. 2015 2016 2017 2015 2016 2017
PJSC Detsky Mir Annual Report 2017 strategic report 1.8 Supply Chain 48–49
be able to retrieve their order from the Conversion Rate, % nearest Detsky Mir Group store within an hour of ordering online.
By integrating all customer platforms and devices used to interact with the Com- 1.8 pany, we acknowledge the importance of 1.2 convenience and ease of ordering. The 0.8 “Redesign” project “is not only a change in the website’s appearance, but also the optimization of its functional structure 2015 2016 2017 including the store’s home page, product catalog, and product cards, thereby im- proving the online store’s strategic posi- Not stopping at our current achievements, tion and increasing orders from mobile we are continuing to develop the online traffic. service and plan to increase the percent- age of orders processed “just in time”. For this purpose, the Service Level function was launched, calculated separately for each stage of order processing and in a generalized form. The Service Level aver- 1.8 Supply Chain large specialized producers or their rep- Suppliers of our apparel and footwear age is currently 45% as at the fourth quar- resentatives in Russia while reducing the comprise about 90 companies from 15 ter of 2017, and the target for 2018 is 90%. share of contracts signed with distribu- countries: Russia, China, India, Bangla- Taking into account the tors. Direct partnerships with producers desh, Finland, Germany, and many others. We are constantly expanding our ability industry specificity of allow us to fix more profitable prices, The 10 largest suppliers of apparel and to deliver orders to our customers. Over the market, Detsky Mir minimize the risks associated with foreign footwear accounted for 28% of the total the past few years, we have significantly currency exchange, and also provide di- category, and the top 10 suppliers of toys, expanded the geography of our online Group’s global reach rect access to products. As a result, mar- products for newborns, and large-size sales and increased the share of Russian and objectives require gins and revenues increase, and our Ser- products comprise 40%. We maintained regions in our total online sales. Our “Last vice Level grows from the subsequently the same share of Russian suppliers of ap- Mile” project scheduled for 2018 will en- increasingly effective increased uninterrupted deliveries. An parel and footwear at 20% of revenue in able express delivery from regional stores supply chain management exclusive assortment also allows us to this apparel and footwear category sup- and local logistics centers directly to the differentiate ourselves from competitors pliers in 2017. consumer. This is a unique commercial of- and building long-term and strengthen our image of a specialized fer for low-cost and same-day delivery to partner relationships with children’s goods store with the widest Significant progress was made in direct toy distant regions. Through our extensive re- suppliers. product range. supplies in 2017 — their share increased tail chain, we expect to reduce our overall from 1% in 2016 to 6% in 2017, positively logistics costs associated with delivery to Over 73% of our products were produced affecting our toy category’s profitability Russian regions. abroad in 2017, mainly in China, India, at a level comparable to that of our pri- Direct contracts Vietnam, and Bangladesh. However, about vate labels during the same period. Developments within our strategy in 2018 65% of them are purchased from local include further improvement of our in- Solutions for optimizing purchasing pri representatives of international com- A total of 68 direct suppliers were among store services. The ambitious “Ideal In- ces, efficient assortment management, panies or their distributors, and the re- our toy suppliers as at 31 December 2017, Store” project aims to prepare 90% of and improving quality control are ensured maining 35% (predominantly our private 30 in products for newborns, 60 in large- orders in one hour, and a customer will through signing contracts directly with labels) are shipped directly from foreign size products, and 26 in stationery and manufacturers. other products.
PJSC Detsky Mir Annual Report 2017 strategic report 1.8 Supply Chain 50–51
Direct Import Contracts (Toys category) in 2017
TOMY UK CO., Ltd RASTAR GROUP JAKKS Pacific (HK) Limited Aurora World HK Ltd. Just Play (HK) Ltd. SLUBAN (HK) LIMITED JADA TOYS CO, LTD
GONHER S. A. Toy State Procos Paper Products and Household Good Bandai America RASTAR GROUP HTI Toys HK Limited Incorporated International Limited Aurora World HK Ltd.
TOMY UK CO., Ltd GONHER S. A. Just Play (HK) Ltd. JADA TOYS CO, LTD JAKKS Pacific (HK) Limited SLUBAN (HK) LIMITED HTI Toys HK Limited
Bandai America Toy State TOMY UK CO., Ltd Procos Paper Products and Household Good RASTAR GROUP Just Play (HK) Ltd. Incorporated International Limited Aurora World HK Ltd.
GONHER S. A. JADA TOYS CO, LTD JAKKS Pacific (HK) Limited Procos Paper Products and Household Good Bandai America SLUBAN (HK) LIMITED HTI Toys HK Limited Incorporated
PJSC Detsky Mir Annual Report 2017 strategic report 1.8 Supply Chain 52–53
We also strive to consolidate special terms block in the entrance area of each store. Our private labels trast with toys at 9.8% and products for with our suppliers for a unique product Sale assortments were also increased, in- newborns at 1.7%. On average, private la- range that increases traffic, promotes like- cluding basic formal apparel and footwear Private label development is a strategic di- bels accounted for 26.7% of Detsky Mir’s for-like sales growth, increases customer at heavily discounted prices. We are con- rection of Detsky Mir Group. We currently full product range in 2017. loyalty, and strengthens us against price tinuing to develop our Chessford private own 29 private labels in apparel and foot- competition during the pre-sale period. So label of school uniforms and collaborate wear, each with its own target audience, far, special terms have been arranged with with uniform suppliers on a tender ba- product range, and price positioning. Col- Mattel, Hasbro, Lego, Maclaren, and Art- sis, which allows us to offer competitive lections are developed by our in-house Private Labels in Detsky Mir’s Turnover, % sana. prices. design studio, launched in July 2016, and external designers exclusively for Detsky Detsky Mir remains one of the larg- For three years, Detsky Mir Group has sup- Mir Group. est school uniform retailers in Russia. In ported Russia’s national school uniform 2017, we launched a project to design a contest, organized by the Ministry of In- Private label development enables large wide and dynamic variety of discounted dustry and Trade of the Russian Federa- volumes of production while our custo school uniform collections in stores, and tion alongside the Ministry of Education mers are provided products in high de- also tested the cross-category design of and Science of the Russian Federation to mand at unbeatable market prices. promotional zones (apparel, footwear, and promote Russian-made textiles and light 23 24 27 stationery) at discounted prices in a single industry goods. We are able to determine the pricing 2015 2016 2017 for our private label apparel and foot- wear produced by Russian and foreign manufacturers, and the ability to control Children’s Fashion Festival quality standards and materials signifi- cantly speeds up inventory turnover. Private Label Turnover by Category,% Detsky Mir presented its fall-winter th In turn, our private label manufacturers are 2017–2018 collection at the 34 2015 season of Mercedes-Benz Fashion benefited through a stable flow of orders Week Russia in March 2017. and a reduction in branding and logistics 2016 costs. As a result, we are able to offer our 70.1 A live rock music concert was customers high-quality products at the held at the show, accompanied by 2017 professional sound and lighting. most attractive prices. Various kinds of rock music decorations and original accessories The share of our private labels in Detsky fit the atmosphere and were an Mir Group’s commodity turnover for ap- invaluable addition to the young parel and footwear is about 80%, in con- 75.3 rocker theme, emphasizing the style of the collection. 29.8
High valuation of the Company’s private labels 33 18.3
In March 2017, Detsky Mir won the 79.4 22.3 0.5 Golden Bear national children’s 0.5 45.9 7.5 goods industry award for “Best 27.1 7.8 1.7 Footwear” with its shoe collection 9.8 under the BabyGo private label. Apparel Large-sized Other Toy s Newborns and goods goods products footwear
PJSC Detsky Mir Annual Report 2017 strategic report 1.8 Supply Chain 54–55
Own Private Labels FMCG, Apparel and Footwear Category
Jook BABYTON BabyGo Jomoto Erhaft Attivio Demi Star Orsolini
n t ea es rest & dear
Just Mom Ulla Kreiss Mobicaro WAPPO Global Bros LAFFI Tombi
Jook Favaretti BABYTON Jomoto Моя Горошинка Attivio BabyGo Demi Star
n t ea es rest & dear
Kreiss Erhaft Global Bros Just Mom Ulla Tombi Orsolini LAFFI
Mobicaro WAPPO Favaretti BABYTON Tombi Моя Горошинка Attivio BabyGo
PJSC Detsky Mir Annual Report 2017 strategic report 1.8 Supply Chain 56–57
Sportswear Maternity clothing
In response to trending demands, Detsky Mir Since 2015, Detsky Mir Group has been pro- Group has increased its sportswear range, viding clothing for pregnant woman under its now offering clothes for sports not only at private label, Just Mom Ulla, with affordable the beginning of the academic year, but all bright clothes in comfortable styles that are year round. Our technical sportswear brand, made using soft fabrics. We increased the Jomoto, is still present in the brand line and number of stores carrying this line in 2017 is highly popular among customers due to its and launched its sales in Kazakhstan. high-performance natural fabrics, basic and concise designs, and attractive prices. Large-sized goods
Our new Futurino Sport brand was intro- Under our Babyton label, we offer a range of duced in 2017, comprising high-demand large-sized products in the low and medium sportswear for training, physical education price ranges. Products include car seats and classes, kindergartens, and extracurricular strollers from external designers, as well as sports. highchairs and playpens designed by our in- house studio. The products are priced in the “medium mi- nus” range, allowing consumers to purchase Future plans high-quality clothes at affordable prices while Detsky Mir Group continues to signi We plan to widen the Detsky Mir chain ficantly increase its presence in the sporting product range in the medium term, includ- goods market. ing by increasing our assortment depth, developing upon the quality of our private Newborns products labels, and increasing the share of products in the “medium minus” price range. In 2016, our first private label in hygiene, BabyGo, was developed and its line of dia- In addition, we aim to reduce procurement pers was subsequently put into production and retail prices and improving payment in 2016, with the first shipments arriving in terms in favor of Detsky Mir. October that same year. The brand is in the low-price range, and 90% of its wares are We will also continue to develop a mer- Apparel and footwear developed and produced for our Futurino produced in Russia. The share of Baby Go chandizing project providing positive LFL Fashion brand reflecting the latest trends in the turnover of diapers during 2017 was sales by reducing the width of the product In 2017, we launched two new private labels for children aged 2–12 years. 3.8% compared to 1.1% in 2016. range, optimizing trade equipment, and in the category “Footwear”: simplifying in-store procedures. Our Chessford brand has been refreshed We plan to develop and promote the Baby- Tombi –comfortable, high-quality with a special line of inexpensive high- Go brand in 2018 through rebranding, active footwear for children up to 7 years in quality clothes for school, produced by the promotional events, and improving quality the mid-price range, made entirely of Russian company, Sky Lake. without price changes. . natural materials
Puuhtu teens –modern, fashionable, A special Futurino line named Futurino and warm footwear for children aged Cool is planned for launch in 2017, with a 7 years and up focus on elaborate and functional design, attention to detail, and sleek European A new, economically-priced clothing line style. by Detsky Mir’s in-house design studio was
PJSC Detsky Mir Annual Report 2017 strategic report 1.9 Product Safety 58–59
dustry associations aimed at limiting the Systemic Work to Ensure Safety and Quality Control trafficking of illegal products. 1.9 Product Safety Quality and safety control system for goods Children’s products All procedures to Continuous monitoring belong to a category At Detsky Mir Group, safety and qual- confirm the products’ ity control of products is carried out at of goods subject to all stages from supplier choice to order compliance with safety of changes in legislation on increasing quality and formation and placement to stocking and quality requirements technical regulation in the shelves and receiving feedback from con- Russian Federation and the safety requirements. sumers. are undertaken A key obligation to our Customs Union We guarantee that all products at Detsky customers is ensuring Mir retail stores and the online store have in the established manner in gone through each stage of quality assur- that our wares are safe certification authorities and and of a high quality, ance for compliance with the technical regulatory requirements of the Customs testing laboratories, included as well as a crucial Union (Consumer Protection Law and in Unified Register of factor in increasing our regulations on the sale of certain types of goods). All our products have the neces- Certification Authorities and Timely supervisory customers’ confidence sary documentation required by legisla- Testing Laboratories of the audits in our retail chain. Our tion for import into the customs territory of the Russian Federationand sale within Customs Union, accredited business activities are the retail industry. by the Federal Service for of previously certified in full compliance with Accreditation products to extend the the Consumer Protection Through our optimized and effective safety and quality control processes, we validity of documents Law, and Trade Rules. reduce the chance of defective goods ap- confirming compliance, pearing on the shelves of our retail stores as early as during the initial stage of certi- including repeated testing One of the main challenges for the chil- fication and laboratory testing. of samples of previously dren’s products industry is the presence Purchase of products of counterfeit products, which pose po- We check each item’s test report and ISO certified products tential threats to the health of the younger certificate in collaboration with leading that passed laboratory testing generation. Detsky Mir Group purchases international children’s products manu- products directly from the largest inter- facturers, confirming a product’s confor- with a positive result national manufacturers and suppliers to mity to the regulatory standards of the guarantee high quality wares on its store country of manufacture and law sof the shelves. We actively collaborate with in- Russian Federation. Heavy quality control is carried out at each To confirm children’s and adolescent pro stage of production as part of our interac- duct compliance with the Custom Union’s tion with the product manufacturers of our mandatory technical regulations, we send private labels, and we independently orga- request to the certification body, a set of nize a certification process. documents required by the regulations,
PJSC Detsky Mir Annual Report 2017 strategic report 1.9 Product Safety 60–61
and samples of our certified products. curate consumer assessment when deciding than the market level by eliminating additional costs from manufacturing Following documentation review and, if on a purchase. companies necessary, laboratory sample testing, the 1.10 Client-Oriented certification body makes a decision on is- We adhere to the following for packaging holding regular seasonal and off- season sales promotions, developing suing a declaration of conformity, certifi- and labeling Detsky Mir Group’s private la- Service special offers for regular customers cates of conformity and state registration, bel products: and detailed reports on products not sub- Maintaining our policy developing our own loyalty program, Disclosure of product compliance with which allows regular customers to ject to a mandatory confirmation of com- effective Russian legislation inclu for affordable pricing in purchase goods at a discount pliance. ding the Technical Regulations of the providing a 2% discount on goods in Customs Union, Consumer Protection the mass segment while Moscow for customers with a Musco- All received documents are processed by Law, rules for the sale of certain types providing the industry’s vite’s Social Card our certification department and entered of goods, supply contracts, and quality into a single SAP database, accessible to all and safety standards widest range assortment participating in social programs of stores within our retail chain, while infor- the Russian Federation for supporting Necessary product information provided of products is the key families with children. mation on the received documents is sent to customers, the list of which is deter- to the Company’s customs department. mined by the Federal Consumer Protec- strategic task of Detsky tion Law Mir Group, consistent with Loyalty program If a consumer claim is filed regarding a Enhancing the appeal of our products its responsible attitude purchased product at a sub-par quality, we through attractive packaging and labe Detsky Mir updated the terms of its loyalty carefully check the product’s documen- ling to enhance the appeal of our pro toward customers. program in March 2017, increasing value for tation and take all necessary measures to ducts and increase sales customers and the Company’s competitive prevent further sales of potentially inade edge. Now, 100% of a purchase can be paid quate products of the same SKU, and ad- Detsky Mir Group has the most extensive using bonuses, which are accumulated ditional testing is carried out if necessary. All our customers can obtain a copy retail chain both in the Russian capital and within the program and used to purchase If the testing laboratory issues an industrial regions, providing consumers access to high- any products from the Detsky Mir Group’s of any product’s certificate in any manufacturing defect certificate follow- demand products. The children’s product range (excluding gift cards and services). Detsky Mir Group’s store, and the ing examinations, the defective product range assortment in stores of the Detsky is replaced with a new one or the cost of original inspection certificate is Mir retail chain currently totals more than A bonus card can be issued upon any pur- the product is refunded at the customer’s also available within three days of 50,0001. chase at Detsky Mir stores and it provides preference. purchase. a 5% discount for all cardholders.Custo Uniform product pricing and assortment is mers are to fill out a questionnaire in order present across all stores within our retail to use the accumulated bonuses. Packaging and labeling No discrepancy cases or regulation bree chain, regardless of the region in which they ches occurred in packaging or labeling the are located. We are optimizing our internal Customers who have provided their phone Reliable, legible, and accessible information Company’s private label products during business processes, working with suppli- number, email, and permission to receive on product packaging increases visibility on the reporting period, indicating the effec- ers, and further developing our online sales advertisements are sent information about the shelves in our stores and ensures an ac- tiveness of our work in this area. channel. Our prices are kept reasonable and promotions held by the Company’s and fair by: exclusive sale. increasing the range of domestic goods at comparable quality levels and a lower average price point than imported pro ducts development of our private labels, which allow us to offer lower prices
1 Including the expanded range of the Detsky Mir online store.
PJSC Detsky Mir Annual Report 2017 strategic report 1.10 Client-Oriented Service 62–63
The number of participants in the loyalty Gift cards has been expended. A service has been Loyalty Program Participants (Russia), % program was 18 million people at the end developed conveniently enabling cus- of 2017, and the share of purchases (in Detsky Mir Group is continuing its proj- tomers to check the balance of their gift tickets) made by program participants re- ects aimed at improving service levels cards in real time on Detsky Mir’s website mains at the level of 71%, while the share in its retail stores. Particularly important www.detmir.ru. of purchases made by loyalty cardholders products are gift cards and electronic in Detsky Mir’s overall sales for the year 71 71 gift certificates (EGCs). According to 2017 Electronic gift certificates can also be was 77%. results, the Detsky Mir chain’s revenue purchased in the online store and used in 64 derived from the sale of gift cards and Detsky Mir Group’s retail across Russia. Our loyalty program has proven to be ef- electronic certificates increased by 13% The amount of electronic gift certificates fective, with average member’s tecket year-on-year, amounting to RUB 1.8 bil- is growing, reaching 6% in the total re totals 33% higher than purchases made lion, while B2B sales showed a 30% in- venue from the sale of gift cards and elec- 2015 2016 2017 without a bonus card. crease year-on-year. tronic gift certificates in 2017.
The Company decided to launch a simi- Depending on the occasion, such as the Share of Cardholder Purchases in Detsky lar program in its Detsky Mir retail stores birth of a child, a boy’s or girl’s birthday, Mir’s Total Sales (Russia), % Detsky Mir Group’s Sale of Gift Cards in the Republic of Kazakhstan. The bo- and Electronic Certificates, loyalty program customers can receive nus program was launched in all stores Including B2B Sales, RUB m free giftwrapping (card holder) that is tai- of the retail chain on 1 September 2017, lored to the theme of the event. and more than 90,000 people joined the program by December 2017. The bonus Gift cards and electronic gift certificates 77 program in Kazakhstan has also proven 76 are increasingly popular, as they save the effective, with 48% higher average ticket 70 time of selecting a gift and instead allow totals than purchases made without a bo- the recipient to independently select a nus card. 1 799 1 582 2015 2016 2017 1 299
Support for families with children День Пора Новый Родился рождения? в школу? год? малыш? Detsky Mir Group is a key social project partner, facilitated by its minimal retail mark-ups 2015 2016 2017 Дарите свободу on in-demand categories of goods, including newborn products. выбора! Since 2005, the Detsky Mir chain of stores has been participating in the Government of Purchases can be made using a gift card St. Petersburg’s social initiative to support families with children. The local government at any store within the Detsky Mir re- provides monthly welfare payments to families from the date of a child’s birth until seven tail chain. Gift cards and electronic gift years of age. Material aid is transferred to “Newborn” and “Preschool” bank cards issued certificates are available for purchase in by Bank Saint Petersburg. Money received by the family can be used to purchase goods the value of RUB 300, 500, 1,000, 1,500, 1257 34789 58902 40985 3784962 for their children at retail chains accredited by the Administration of St. Petersburg, 2,000, 3,000 and 5,000, as well as gift cards фиксированный номинал: 300, 500, гибкий номинал: от 300 до 50 000 including at Detsky Mir retail chain stores. 1 000, 1 500, 2 000, 3 000, 5 000 с шагом зачисления 100 with a value of the purchaser’s choice be- Срок действия карты – 12 месяцев, возможно многократное списание Detsky Mir Group is also a partner of the Moscow Government’s Department of Labor tween RUB 300 and 50,000, in multiples and Social Protection since March 2016, which runs a project issuing certificates to low- of RUB 100. income families with children to the Muscovite’s Social Card, through which up to 100% of a purchase can be paid (excluding baby food) in accredited retail chains. A gift card is valid for 12 months from the date of purchase and can be used an un- limited number of times before its balance
PJSC Detsky Mir Annual Report 2017 strategic report 1.10 Client-Oriented Service 64–65
gift of their preference, making every gift survey, as well as about 2,000 online store creasingcustomer loyalty. We can adjust purchased with gift cards and electronic NPS –an index used to gauge customers and 500–1,000 online store our retail and online store operations to certificates useful and more appreciated customer loyalty and commitment visitors who did not make purchases but better suit majority preferences, as well by the receiver. to a company, assessing customer accepted the invitation to take the survey. as learn each store’s strengths and weak- likelihood to repeat purchases nesses directly from consumers custom- The positive dynamics of gift card and EGC through their willingness to During the first stage of the survey, buyers ers. The NPS index and aiming for its sales in Russia have enabled Detsky Mir to recommend the company to friends are asked the question: “How likely is it higher score positively affects both the actively develop gift card sales in the Re- and relatives. NPS is an important that you would recommend our company/ satisfaction of the Company’s customers public of Kazakhstan, which showed more indicator of the Company’s product/service to a friend, relative, or and the results of the Company’s activi- than doubled growth in 2017 compared to performance, along with traffic, colleague?” ties. 2016. Gift cards and electronic gift cer- turnover, average receipt, and other tificates for the Detsky Mir retail chain in elements. At the second stage, the reasons influen Feedback mechanisms Russia and the Republic of Kazakhstan can cing a customer’s loyalty are requested be used not only by individuals, but also and the subsequent NPS is calculated. Detsky Mir Group has an effective feed- by legal entities. back system providing all consumers the Customer satisfaction survey The purpose of NPS is to generate cus- opportunity to contact us and transmit Gift cards and electronic gift certificates tomer feedback which can be used for their claim through the following chan- are an effective solution in internal pro- Since 2015, Detsky Mir has been measur- insights on improving our service and in- nels1: grams to increase the loyalty of the Com- ing the loyalty of its customers using the pany’s personnel, motivating clients and NPS (Net Promoter Score), which is calcu- partners, and complementing promotions lated on a quarterly basis by surveying the and events. customers of Detsky Mir retail stores and the online store’s customers. About 7,500 Social media Orders from E-mail visitors of retail shops participate in each “Vkontakte”, the Call center [email protected] “Facebook”, “Instagram” 8-800-250-00-00
Customer Satisfaction (NPS)
Feedback form on the Freight forwarder’s detmir.ru website requests 47 Customer 33 46 38 41 28 support center 43 27 25 Feedback Warehouse (Krekshino, 27 on Yandex.Market Bekasovo) requests
64 65 56 56 56 59 60 61 53 50 Feedback on website Retail shops’ requests flypage
Q 1 Q 2 Q 1 Q 3 Q 3 Q 4 Q 1 Q 2 Q 3 Q 4 2015 2015 2016 2016 2016 2016 2017 2017 2017 2017 1 A claim is defined as any registered appeals received Offline Online from customers requiring a response.
PJSC Detsky Mir Annual Report 2017 strategic report 1.10 Client-Oriented Service 66–67
Established in April 2017, our Customer 24 hours for feedback provided to the Fair advertising Detsky Mir call center or through the Support Center is aimed at retrieval and website’s Feedback Form. collection of detailed customer-oriented We use various channels to keep an open 1.11 Purchase feedback. The main objectives of the Cen- All customer contact is ubiquitously regis line of communication with our custom- ter are: tered as Feedback and sent for processing ers, primarily through television and the Management rapid resolution of customer inquiries to our specialists, who have access to the bi-monthly Detsky Mir newsletter to keep Feedback database for quick response them well-informed about current promo- Commercial purchases adapting the Company’s business pro- times as well as situation control in the tions, special offers and sales, as well as in- cesses based on customer feedback. case of inquiries within the following cat- teresting products and new arrivals. Detsky Detsky Mir’s purchase volumes are The Customer Support Center’s one-shop egories: “Product Inquiries”, “Online Store Mir also actively communicates with mem- planned for each category through assort- format accumulates feedback to a single Inquiries”, “Unsubscribing from the News- bers of its loyalty program via Viber, SMS, ment planning, which corresponds to the division from all our communication chan- letter”, “Bonus Program Inquiries”, and “In- and email. chain’s range policy and full list of SKUs. nels, and began to use the Use desk pro- quiries on Gift Cards and Electronic Gift Research results of category management, gram in September 2017 for further optimi- Certificates”. Detsky Mir Group exclusively uses high- competitor assortments, fashion trends, zation of its services, including: efficiency communication channels: and popular events in the world of cinema integration of most communication TV advertising and entertainment are analyzed during as- sortment planning. Based on the analyses, channels for increased feedback Received and Resolved Сustomer Inquiries Mass and targeted newsletters via Viber, we systematically review contract terms tracking of average inquiries resolution SMS, and email deadlines with suppliers and sign new contracts. 95 Distribution of our free promotional statistics collection on the categories of 90 newspaper to residential mailboxes and Suppliers can independently contact the customer claims by email Company with commercial offers, or they monitoring of the performance of Cus- 84 can be engaged via industry exhibitions as tomer Support Center staff. Advertising in retail stores, such as POS displays and window dressings well as open information channels. The number of individual inquiries received Internet advertising. by the Center from customers sharply in- An important stage in the selection and creased four-fold to 149 thousand in 2017, Detsky Mir Group’s legal department ap- approval of suppliers is the Assortment 124.8 influenced by: proves all advertising prior to publication, Committee meeting, a cross-function- guided by our values in transparency, ho al body uniting experts from different 1) transition to the one-stop-shop princi- nesty, and compliance with legislative re- Detsky Mir departments such as the Com- ple, enabling the Company’s personnel quirements. From 2014 to 2017, the Group mercial Directorate, Certification Depart- to see aggregated information on inco recorded a minimal three cases of non- ment, and Marketing Department. The ming customer inquiries compliance with regulatory requirements Assortment Committee is authorized to on marketing communications. In one of the make strategic approvals on supplier lists, 149.0 2) growth in the number of Detsky Mir re- three cases, the issued penalty was revoked changing the terms with current suppliers, tail stores, to a total of 622 in 2017 29.9 following an appeal, an administrative war and modifying the assortment planning, 18.3 ning was received in another case, and the among other actions. 31.6 3) growth in the number of online store or- 20.5 last resulted in a penalty fine.
dersby 2.1 times compared to 2016. 2015 2016 2017 Purchases for operational requirements
A key achievement of the Center in 2017 Number of petitions received during was its low average response times to cus- the year, ths. The procurement of goods and services tomer inquiries: for our operational requirements is a cru- Number of petitions processed at 15 minutes on VKontakte the year-end, ths. cial development area optimizing costs and improving the efficiency of our busi- 30 minutes on Facebook Share of petitions processed at the year-end, % ness processes. Purchases for operational
PJSC Detsky Mir Annual Report 2017 strategic report 1.11 Purchase Management 68–69
requirements include equipment supply for dren’s goods market. It fully meets modern stores and warehouses, construction and in- Detsky Mir Group was classed as Detsky Mir’s Open Procurement requirements, which guarantees its unin- stallation work, marketing and advertising, a company with a high degree of Procedures terrupted operation and distribution of 5.0 and logistics. About 95% of services and transparency from the National goods to stores within our retail network at products purchased for Detsky Mir’s ope appropriate times. The PNK Bekasovo dis- Rating of Transparency of Purchases rational requirements are purchased from 3.9 tribution center uses a combined storage Russian suppliers, while the remaining 5% in 2017. The Company significantly system that is designed for warehousing are supplied from abroad due to a lack of outpaced the ratings of other the full range of products of a retail chain. domestic analogues. Russian retailers and was the only Opening our own warehouse has enabled In the field of non-commercial purchases, children’s goods representative 246 an increase in logistics centralization (the the Company continued to follow the tar- present. 173 share of turnover passing through the get within its 2015–2016 plan: a maximum warehouse) from 26% in 2014 to 77% in number of purchases done through a com- The National Rating of Procure 2017. We plan to maintain a high level of petitive tendering process and published ment Transparency (http://nrpz. centralization, which will increase the turn- as publicly-available information. For some over of goods in stores, eliminate the oc- ru/) is an independent, non- July 2015 — June 2016 July 2016 — June 2017 purchased services, new contract terms currence of out-of-stock items, and create were applied. This approach inhibited price governmental research center that Number of public procurement procedures a good logistics platform for further scaling increases, and in most cases reduced them specializes in monitoring the state performed of the business. in comparison with previous periods. and corporate procurement market Value of procurement procedures performed RUB bln Through the SAP EWM warehouse man- for transparency and ensuring legal The Company received high praise again in agement system introduced in our distribu- 2017 from the National Transparency Rating compliance. Further improvements upon our procure- tion centers, we can now supervise the full experts, demonstrating its transparency to ment procedures are planned for 2018, in- supply-chain cycle: from order placement suppliers. cluding for standardizing the purchase of to warehouse or store processing prior to goods and services, searching for new and delivery to the customer. Perfecting the procurement customers within Detsky Mir Group to the reliable partners, developing our relation- system procurement department to centralize pur- ship with existing suppliers, and building In 2017, a Transportation Management Sys- chases in logistics, construction, marketing, mutually-beneficial long-term relation- tem was also introduced to optimize logis- As a public company, a key task of Detsky and information technologies, thereby faci ships with new suppliers. tics costs, enabling comprehensive plan- Mir Group’s top management is ensuring litating increased coordination and optimi- ning and management of transportation, as transparent procurement processes. zations in procurement time. Consolidating Centralized logistics activity well as calculating optimal transportation purchases across particular categories also routes. In 2015–2016, Detsky Mir Group managed contributed to our cost reduction. Effective inventory control provides stable to significantly reduce its cost of supplied on-shelf availability, which requires cen- To maintain a high level of centralization, materials, goods, and services through the According to our estimates, RUB 400 mil- tralized logistics. Detsky Mir’s distribution the Company decided to open a new distri- introduction of intracorporate electronic lion in savings was generated during 2017 center was put into operation at the Class bution center in the Ural region for a more document management and the transfer of following implementation of our revised A+ industrial park PNK Bekasovo in the efficient supply of goods to the Urals, Si- 95% of its purchases to the universal trad- procurement scheme for operational needs Moscow Region’s Naro-Fominsk district in beria, the Volga Region, and the Repub- ing platform, Sberbank-AST. These initia- with a purchasing budget of several billion. 2015, it has an area of 70 thousand square lic of Kazakhstan. In September 2017, the tives have reduced the Company’s resultant Detsky Mir’s dynamic development also meters. The Company also leases the Krek- Company signed a preliminary lease agree- costs from purchasing materials, goods, and largely facilitated the savings by the Com- shino distribution center, with an area of ment for a Class A distribution center with services, and increased competition among pany offering to purchase large volumes 20 thousand square meters. an area of 46 thousand square meters at potential suppliers. from suppliers, demonstrating transparency the transportation and logistics complex, in supplier selection, and strict compliance The distribution center of Detsky Mir Yuzhnouralsky, in the Chelyabinsk Region. Our business process was adjusted by dele with the Company’s obligations to counter- Group has become the largest specialized The contract is valid for 10 years, and pro- gating the procurement roles from internal parties. logistics terminal in Russia in the chil- vides the possibility for the leased area’s
PJSC Detsky Mir Annual Report 2017 strategic report 1.12 Information Processing Technology 70–71
expansion to 82 thousand square meters. A single information space was created The new logistics center is scheduled for for data exchange between consumers, launch in 2018. In order to support sales suppliers, and Group companies and their growth in Moscow and the Moscow Region, key divisions, ensuring business process a preliminary decision was made to open transparency and improving efficiency. another distribution center in the Moscow Region’s north in 2019, with an area of 60– A strong emphasis was laid on increasing 70 thousand square meters. our IT Department’s operational efficien- cy throughout 2017, resulting in a reduc- tion of RUB 102 million in IT costs and a RUB 36 million decrease in IT costs as- sociated with opening new stores within 1.12 Information the Detsky Mir retail network. Processing Detsky Mir’s significant IT projects throughout 2017: Technology Modernization of cash register equip- ment for FZ-54 requirements1. All Detsky Mir Group’s cash registers in The Information Russia commenced online data trans- Technology (IT) fers to the Federal Tax Service within our modernization initiative. The pro- Department is a cess of reconciling cash register data Prospective Plans in Information tionality of the Bekasovo distribution reliable business transmitted to fiscal data operators Technology center. Systems for meeting business division supporting the with SAP data to ensure full compli- needs that are planned for launch at ance of ticket data and mitigation of Transfer of ELC to SAP. In 2018, ELC the Urals distribution center include potential tax risks. continuous development business processes will be automated Structured Cabling, Video Surveil- and automation of the Expansion of the In-Store Pickupser- within a single SAP framework. This lance, Access Control and Management, Company’s activities. vice. The IT Department’s largest project will be a final step in the SAP among others. project has been development of the projects program — the Group’s entire Almost all our divisions pickup service for our online store. activities will be concentrated within a Transitioning to joint storage of online The necessary SAP developments projects are implemented single SAP system, with broad opportu- and retail stock. The current system of were made to support delivery from nities for integration and joint develop- online and retail stock storage in sepa- with the cooperation of our distribution center to the custom- ment. The project will also enable ELC’s rate warehouses is unsuitable for our er’s choice of any Detsky Mir store in the IT Department. In 2017, use of the Group’s information resources increased business volume, leading the Russian Federation. communications between without the need for developing dupli- to unproductive logistics costs and the IT Department cate applications. preventing full-scale commissioning and use of distribution centers that and our other business The distribution center in the Urals. are planned to be opened in 2018–2019. divisions were significantly As part of this project, the IT depart- A number of projects are planned ment will set up a modern and reliable for 2018, including the joint-storage improved, and sharp IT infrastructure to ensure the ware- of online and retail stock at the Beka- 1 advancements were made Federal Law No. 54-FZ house’s stable operation, which will be sovo distribution center, changing dated 22 May 2003 On the operating on a SAP EWM management business processes in commercial toward proactive work Application of Cash Register Equipment in Settlements solution, fully emulating the func- business units. within our major projects. in Cash and/or via Electronic Means of Payment.
PJSC Detsky Mir Annual Report 2017 2.1 Corporate Management 2.4 Remuneration Practice 2.5 Countering 2.2 Corporate Management Corruption Bodies 2.6 Risk Management 2.3 Dividends
Corporate Management More than 11.6 thousand
The corporate management model In 2017 the Board of Directors employees of PJSC Detsky Mir was adjusted in and committees of the Board of accordance with the requirements Directors included the maximum of PJSC Moscow Exchange in con- number of independent directors nection with the inclusion of the in the Company’s history. Company’s shares in the first level of securities listing. AFK Sistema retains its control- ling interest in PJSC Detsky Mir. The structure of the governing bo The key shareholder expresses dies is three-tiered and includes: confidence in the profitability General Meeting of Shareholders, growth of its investments and the the Board of Directors, the Collegial Company’s significant future po- and the Sole Executive Body. tential. RUB 4.8 billion distributed dividends The Detsky Mir Group is a team of professionals united by a common goal of contributing to the development of the business Corporate Management 2.1 Corporate Management Practice 74–75
management of the Company and to fa- approved by the Federal Property Man- Plans to perfect corporate miliarize themselves with information on agement Agency Order No. 306 dated Au- management 2.1 Corporate the Company’s activities in accordance gust 22, 2014. with the Federal Law “On Joint Stock In 2018, we plan to improve procedures Management Companies”, the Federal Law “On secu- In accordance with the aforementioned to assess the independence of members Practice rities market “ and regulatory acts of the methodology, the maximum score is 548 of the Board of Directors and to identify Bank of Russia. points (100%), and the minimum allow- conflicts of interest of members of mana able is 356.2 points (65%). The assessment gement bodies, as well as to automate the Our main principle of building relation- of the quality of corporate governance of process of identifying interested-party PJSC Detsky Mir ships with shareholders and investors is PJSC Detsky Mir is 422.5 points (77%). transactions on the basis of SAP. is responsible for a reasonable balance of interests of the Company as an economic entity and as compliance with a joint-stock company interested in pro- regulatory requirements tecting the rights and legitimate interests of its shareholders. The corporate governance system of PJSC in the field of corporate 2.2 Corporate Detsky Mir is aimed at creating and main- governance. Disclosure Model of corporate management Management Bodies taining reliable and honest relations with of information allows shareholders and investors, which further In 2017, the corporate management model enhance the Company’s investment at- the Company to comply of PJSC Detsky Mir was adjusted in ac- tractiveness. with the requirements cordance with the requirements of PJSC “Moscow Exchange” in connection with of legislation of the the inclusion of the Company’s shares in Russian Federation and the first level of securities listing. continuously improve The Board of Directors and committees General the practice of corporate of the Board of Directors included the Review Shareholders’ maximum number of independent direc- commission governance. Meeting tors in the Company’s history. The struc- ture of the governing bodies is three- tiered and includes: General Meeting of Statement of the Board of Directors of Shareholders, the Board of Directors, the PJSC Detsky Mir on compliance with the Collegial Executive Body (the Manage- Department Audit Committee of Internal Control principles of corporate governance en- ment Board) and the sole executive body and Audit shrined in the Corporate Governance Code1 (CEO). The Board of Directors expanded its competence and plays a key role in the Board Nomination and In the field of corporate governance, PJSC management of the Company. The Board of Directors Remuneration Detsky Mir adheres to the principles en- of Directors established Committees on Committee shrined in the Corporate Governance Audits, Nomination and Remunerations, Code, which provides shareholders with and Strategy. every opportunity to participate in the Evaluation of the quality External Auditor Strategy Committee of corporate management Management/ 1 Recommended for use by CEO the Bank of Russia Letter The evaluation was carried out based on No. 06-52 / 2463 dated the Self-Assessment Methodology of 10.04.2014 “On the Code of Corporate Secretary Corporate Governance”. Corporate Governance Quality in Public Companies and Joint Stock Companies subordination cooperation
PJSC Detsky Mir Annual Report 2017 Corporate Management 2.2 Corporate Management Bodies 76–77
General Meeting of Shareholders The function of internal audit is assigned to The main task of the Corporate Secretary Shareholder Structure as of 31.12.2017, % a separate division — the Internal Control is to ensure effective current interaction The General Meeting of Shareholders is the Department. The head of the department is with the Company’s shareholders, coordi- supreme management body and carries out accountable to the Board of Directors, ap- nate the Company’s actions to protect the its activities in accordance with the provi- pointed and dismissed by his/her decision. rights and interests of its shareholders, and sions of the Company’s Charter, internal support the effective work of the Board of documents approved by the decisions of 33,9 The Nomination and Remuneration Com- Directors. the General Meeting of Shareholders, and mittee considers the candidacy for the the requirements of the legislation of the post of Corporate Secretary, which is fur- The quantitative composition of the Board Russian Federation. 52,1 ther appointed by the CEO on the basis of Directors is established by the General of a decision of the Board of Directors. Meeting of Shareholders. PJSC Detsky Mir annually holds a (regular) General Meeting of Shareholders which re- 7,0 solves issues on the election of the Board 7,0 of Directors, the Review Commission, ap- Board of Directors of PJSC Detsky Mir in 2017 proves the auditor, and other matters with- PJSC AFK Sistema in the competence of the Company’s su- Composition, elected on June 28, 2016 Composition, elected on March 3, 2017 Composition, elected on June 28, 2017 preme management body. FLOETTE HOLDINGS LIMITED 1. Christopher Alan Baxter 1. Christopher Alan Baxter 1. Christopher Alan Baxter In 2017 the General Meeting of Shareholders 2. Sean Yan Glodek 2. Artem Ivanovich Zasursky 2. Vitaly Viktorovich Vavilov held 1 annual and 2 extraordinary meetings, EXARZO HOLDINGS LIMITED at which the following decisions were made: Shareholders of more than 5% of shares 3. Valentin Alexandrovich Korchunov 3. Andrei Mikhailovich Kamensky 3. Alexander Evgenievich Gorbunov approval of the annual report of PJSC Detsky Mir for 2016; 4. Oleg Saidashovich Mubarakshin 4. Valentin Alexandrovich Korchunov 4. Artem Ivanovich Zasursky of the General Meeting of Shareholders and approval of the annual accounting (fi- is guided by the legislation of the Russian 5. Nadezhda Konstantinovna Nosova 5. James MacArthur 5. Andrei Mikhailovich Kamensky nancial) statements for 2016; Federation, the Company’s Charter, deci-
distribution of profits and losses (in- sions of general meetings of shareholders, 6. Christopher Allan Parks 6. Oleg Saidashovich Mubarakshin 6. James MacArthur cluding payment of dividends) based on the Regulations on the Board of Directors the results of 2016 and 9 months of the and other internal regulatory acts. 7. Gevork Mushegovich Sarkisyan 7. Christopher Allan Parks 7. Christopher Allan Parks 2017 fiscal year; The Board of Directors expanded its com- 8. Teng Lei 8. Olga Anatolievna Ryzhkova 8. Olga Anatolievna Ryzhkova early termination of the powers of the petence and plays a key role in the manage- Board of Directors; ment of the Company. The main issues in 9. Leonid Alexandrovich Khanik 9. Gevork Mushegovich Sarkisyan 9. Gevork Mushegovich Sarkisyan election of the Board of Directors and the activity of the Board of Directors are: the Review Commission; strategic development of business, control 10. Vladimir Sanasarovich Chirakhov 10. Vladimir Sanasarovich Chirakhov 10. Vladimir Sanasarovich Chirakhov over the execution of financial and budge approval of the Company’s auditor for tary plans, risk management, motivation and 2017; remuneration of personnel and top man- approval of the Charter in a new edition agement, internal audit, and large and sub- The Board of Directors of PJSC Detsky resolved by the committees under the and other internal documents; stantial transactions. Mir held 18 meetings in 2017, 14 of them Board of Directors. in the form of absentee voting, on which Board of Directors The following committees have been crea 84 issues were considered. The Board In 2017, the Board of Directors included ted under the Board of Directors: of Directors’ meetings were preceded 10 members, of which: 4 independent, The Board of Directors is the collegiate ma by 12 meetings and 49 issues held and 5 non-executive and 1 executive director. for audits, nagement body of the Company, it exercises general management of its activities, except for nominations and remunerations, for resolving issues within the competence for strategy.
PJSC Detsky Mir Annual Report 2017 Corporate Management 2.2 Corporate Management Bodies 78–79
Personal Information about the Members of the Board of Directors
Christopher Alan Baxter, born 1963 Christopher Allan Parks, born 1963 Education: higher Education: higher Chairman of the Board of Directors, non-executive director Independent Director, Chairman of the Audit Committee, member of the Share in the authorized capital of the company: 0.65% Nomination and Remuneration Committee Percentage of ordinary shares of the company held by the person: 0.65% Share in the authorized capital of the company: 0% Participation in meetings (presence / pass): 11/7 Percentage of ordinary shares of the company held by the person: 0% Participation in meetings (presence / pass): 18/0
Vladimir Chirakhov, born 1974 Artem Zasursky, born 1979 Education: higher Education: higher Executive Director, Member of the Strategy Committee Non-executive director, member of the Strategy Committee Share in the authorized capital of the company: 1.7% Share in the authorized capital of the company: 0% Percentage of ordinary shares of the company held by the person: 1.7% Percentage of ordinary shares of the company held by the person: 0% Participation in meetings (presence / pass): 18/0 Participation in meetings (presence / pass): 8/7 Participation in the management bodies of other organizations: Vice President, Head of the Strategy Complex of PJSC AFK Sistema James MacArthur, born 1960 born 1983 Education: higher Olga Ryzhkova, Education: higher Independent Director, Chairman of the Nomination and Remuneration Non-executive director, member of the Strategy Committee Committee, member of the Audit Committee Share in the authorized capital of the company: 0% Share in the authorized capital of the company: 0% Percentage of ordinary shares of the company held by the person: 0% Percentage of ordinary shares of the company held by the person: 0% Participation in meetings (presence / pass): 10/5 Participation in meetings (presence / pass): 12/3 Participation in the management bodies of other organizations: Senior Vice President of RCIF Investment Management LLC
Andrei Kamensky, born 1972 Vitaly Vavilov, born 1984 Education: higher Education: higher Non-executive director, member of the Audit Committee Independent Director, member of the Nomination and Remuneration Committee Share in the authorized capital of the company: 0% Share in the authorized capital of the company: 0% Percentage of ordinary shares of the company held by the person: 0% Percentage of ordinary shares of the company held by the person: 0% Participation in meetings (presence / pass): 14/1 Participation in meetings (presence / pass): 8/0 Participation in the management bodies of other organizations: Executive Participation in the management bodies of other organizations: Partner in CJSC Vice President for Finance and Economics, PJSC AFK Sistema STRATEGY PARTNERS GROUP
Aexander Gorbunov, born 1967 Gevork Sarkisyan, born 1982 Education: higher Education: higher Deputy Chairman of the Board of Directors, non-executive director, member Independent Director, Member of the Strategy Committee of the Strategy Committee Share in the authorized capital of the company: 0% Share in the authorized capital of the company: 0% Percentage of ordinary shares of the company held by the person: 0% Percentage of ordinary shares of the company held by the person: 0% Participation in meetings (presence / pass): 18/0 Participation in meetings (presence / pass): 8/0 Participation in the management bodies of other organizations: the CEO of the Participation in the management bodies of other organizations: Vice company “Innova Distribution” LLC President, Managing Telecommunications Assets of PJSC AFK Sistema
PJSC Detsky Mir Annual Report 2017 Corporate Management 2.2 Corporate Management Bodies 80–81
Management Board of PJSC Detsky Mir in 2017 The Federal Law “On Joint Stock Compa- effective fulfillment of the tasks facing the nies” assigns to the Board of Directors an Company and implementing the develop- Valid from January 1, 2017 to February 1, 2017 Valid from February 2, 2017 to February 10, 2017 important role in ensuring the rights of ment strategy in order to ensure the Com- shareholders, in the formation and imple- pany’s profitability and competitiveness, its Vladimir Sanasarovich Chirakhov Vladimir Sanasarovich Chirakhov (Chairman of the Board) (Chairman of the Board) mentation of the Company’s development financial and economic stability, the rights strategy, and in ensuring its successful fi- of shareholders and social guarantees of Maria Sergeevna Davydova Maria Sergeevna Davydova nancial and economic activities. personnel.
Vyacheslav Robertovich Khvan Vyacheslav Robertovich Khvan The activities of the Board of Directors The competence of the executive bodies of PJSC Detsky Mir were organized in ac- includes the resolution of all issues of the Farid Shamilevich Kamalov Farid Shamilevich Kamalov cordance with the approved work plan, the current activities of PJSC Detsky Mir, with implementation of decisions was regularly the exception of issues falling within the Maria Valerievna Volodina Maria Valerievna Volodina monitored. In the exercise of their powers, competence of the General Meeting of all members of the Board of Directors act- Shareholders and the Board of Directors. Tatyana Petrovna Mudretsova Tatyana Petrovna Mudretsova ed in the best interests of the Company, in good faith and reasonably, took an active The CEO and members of the Management part in meetings of the Board of Directors Board in their activities are guided by the Anatoly Viktorovich Mokhov Pavel Pavlovich Pishchikov and committees under the Board of Direc- legislation, the Charter of the Company and tors. other internal regulatory acts. Vladimir Mikhailovich Vladimir Mikhailovich Ilmetov
In subsequent years, the Board of Direc- The election of the Chairman of the Mana Anna Sergeevna Garmanova Anna Sergeevna Garmanova tors of PJSC Detsky Mir will give priority to gement Board of the Company and early improving the quality of business manage- termination of his/her powers falls within Anastasia Vladimirovna Yaroshevskaya Anastasia Vladimirovna Yaroshevskaya ment, increasing the value of the Compa- the competence of the Board of Directors. Valid from February 11, 2017 to May 30, 2017 Valid from May 30, 2017 to December 31, 2017 ny’s shares, as well as financial stability and The Chairman and members of the Mana competitiveness. gement Board carry out close cooperation Vladimir Sanasarovich Chirakhov Vladimir Sanasarovich Chirakhov with the Board of Directors, including regu- (Chairman of the Board) (Chairman of the Board) Executive management bodies larly reporting on the results of their activi- ties. Maria Sergeevna Davydova Maria Sergeevna Davydova The management of the current activities of PJSC Detsky Mir is carried out by the For 2017 the management of PJSC Detsky Farid Shamilevich Kamalov Farid Shamilevich Kamalov collegiate and sole executive bodies — the Mir held 50 meetings, where 169 issues were Management Board and the CEO, ensuring considered. Maria Valerievna Volodina Maria Valerievna Volodina
Tatyana Petrovna Mudretsova Tatyana Petrovna Mudretsova The activities of the Board of In the exercise of their powers, Directors of PJSC Detsky Mir all members of the Board of Pavel Pavlovich Pishchikov Pavel Pavlovich Pishchikov were organized in accordance Directors acted in the best with the approved work interests of the Company, in Vladimir Mikhailovich Ilmetov Vladimir Mikhailovich Ilmetov
plan, the implementation good faith and reasonably, Anna Sergeevna Garmanova Anna Sergeevna Garmanova of decisions was regularly took an active part in meetings monitored. of the Board of Directors and Anastasia Vladimirovna Yaroshevskaya Anastasia Vladimirovna Yaroshevskaya committees under the Board of Directors. Artem Vladimirovich Gubanov
PJSC Detsky Mir Annual Report 2017 Corporate Management 2.2 Corporate Management Bodies 82–83
Personal Information about the Management Members
Vladimir Chirakhov, born 1974 Farid Kamalov, born 1980 Education: higher Education: higher Chief Executive Officer Operations Director of PJSC Detsky Mir CEO of PJSC Detsky Mir Share in the authorized capital of the company: 0.04% Share in the authorized capital of the company: 1.7% Percentage of ordinary shares of the company held by the person: 0.04% Percentage of ordinary shares of the company held by the person: 1.7%
Artem Gubanov, born 1983 Tatyana Mudretsova, born 1973 Education: higher Education: higher Director of the Department of Real Estate and Development of PJSC Detsky Mir Marketing Director of PJSC Detsky Mir Share in the authorized capital of the company: 0% Share in the authorized capital of the company: 0.005% Percentage of ordinary shares of the company held by the person: 0% Percentage of ordinary shares of the company held by the person: 0.005%
Maria Davydova, born 1974 Anastasia Yaroshevskaya, born 1984 Education: higher Education: higher Deputy CEO for Commercial Activities of PJSC Detsky Mir Personnel Director of PJSC Detsky Mir Share in the authorized capital of the company: 0.01% Share in the authorized capital of the company: 0% Percentage of ordinary shares of the company held by the person: 0.01% Percentage of ordinary shares of the company held by the person: 0%
Maria Volodina, born 1973 Pavel Pishchikov, born 1976 Education: higher Education: higher Commercial Director of PJSC Detsky Mir in the “Fashion” segment Director of the Department of Internet Commerce Management of PJSC Share in the authorized capital of the company: 0.01% Detsky Mir Percentage of ordinary shares of the company held by the person: 0.01% Share in the authorized capital of the company: 0.0001% Percentage of ordinary shares of the company held by the person: 0.0001%
Anna Garmanova, born 1976 Vladimir Ilmetov, born 1958 Education: higher Education: higher Financial Director of PJSC Detsky Mir Director of the Security Department of PJSC Detsky Mir Share in the authorized capital of the company: 0.005% Share in the authorized capital of the company: 0.006% Percentage of ordinary shares of the company held by the person: 0.005% Percentage of ordinary shares of the company held by the person: 0.006%
PJSC Detsky Mir Annual Report 2017 Corporate Management 2.3 Dividends 84–85
Dividend policy assumes payment of at of a salary and an annual bonus for the was paid, the total compensation amount- least 50% of consolidated net profit under performance of key performance indica- ed to RUB 10.2 million. 2.3 Dividends IFRS for the previous year. Historically, the tors established by the Board of Directors. Company paid up to 100% of its net profit The size of the salary is determined by the To prevent problem situations, we develop The Board of Directors under RAS. Traditionally dividends are paid staffing schedule. Amount of other pay- training programs for employees on anti- and the management of twice per year: an interim payment for 9 ments: surcharges, compensations and bo- corruption standards and norms, monitor months and for the whole year. nuses are regulated by the Regulations on the effectiveness of our measures. PJSC Detsky Mir assure the remuneration of labor, the Regulation that constant dividends The amount of dividend payments may be in- on bonuses and the Regulations on mate- Quarterly for employees of the Company, are an integral part of the fluenced by the following factors: prospects rial and technical support. an electronic dispatch of a memo on com- for the development of the Company, its fi- pliance with the principles of combating Company’s investment nancial position and financing needs, general For members of the Board and key employ- corruption is carried out. Every year, in- attractiveness and macroeconomic situation and market condi- ees, a long-term incentive program is in op- cluding external consultants, training se the profitability of its tions, as well as other factors, including those eration. The program is aimed at increasing minars on compliance with anti-corruption related to taxation and legislation. the Company’s market capitalization. procedures are held. shareholders. Employees from the legal department pro- The Company developed and approved by vide advice to personnel, as well as coun- the Board of Directors a “Dividend Policy” 2.4 Remuneration 2.5 Countering terparties, on the use of anti-corruption that contains clear indications of financial documents adopted by the Company. (economic) circumstances under which the System of remuneration for Corruption Company should / should not pay dividends. members of the Board of Directors As necessary, the existing ones are updated and new documents aimed at combating The decision on the payment of dividends In accordance with the recommendations The absence of corruption corruption are introduced. (including the amount of dividends and of the Corporate Governance Code, the is an important factor the form of their payment) is made by the Company’s policy on remuneration and in increasing the General Meeting of Shareholders of PJSC reimbursement of expenses (compensa- Detsky Mir on the basis of the recommen- tion) of members of the Board of Directors effectiveness of PJSC The main regulatory dations of the Board of Directors. is enshrined in the Regulation on Remu- Detsky Mir. In this regard, documents that regulate neration and Compensations Payable to we regularly assess the the processes of combating Members of the Board of Directors of PJSC corruption: 1 risks associated with History of Dividends Paid, RUB mln Detsky Mir. The Regulations provide for •• Anti-corruption policy the payment of a fixed remuneration only corruption, check our • to independent members of the Board of partners and job seekers • Code of Ethics Directors. Its magnitude depends on mar- for established posts, put •• Managing Conflict of Interests ket conditions. policy into practice standards •• Anti-Fraud policy 4,427 4,767 In 2017, the payment of remuneration to inde- and procedures aimed at •• Procurement activity policy 2,973 pendent members of the Board of Directors of ensuring the honest work •• The policy “Material and 1,856 PJSC Detsky Mir amounted to RUB 16 million. of the Group of Companies technical and information 420 support of workers” and monitoring their 2013 2014 2015 2016 2017 The remuneration system for •• Information security policy the CEO and members of the implementation. •• Regulation of the process 1 Declared dividends to PJSC AFK Sistema in the Management Board “Realization of purchases of amount of RUB 4.767 were paid in February 2018, due goods, works, services” to the restriction on the receipt of income on the The CEO and members of the Manage- The total remuneration to the members of •• The concept of combating issuer’s shares held by PJSC AFK Sistema, on the basis ment Board of PJSC Detsky Mir are full- the Management Board of PJSC Detsky Mir corruption of a judicial act. time employees, and their salaries consist in 2017 in the amount of RUB 898.2 million
PJSC Detsky Mir Annual Report 2017 Corporate Management 2.6 Risk Management 86–87
In order to improve the effectiveness of 3. The evaluation of business processes strategy, as well as quantitative bench- coordination and coherence of mana combating risks, counteracting abuses, of PJSC Detsky Mir, the so-called anti- marks for target transaction volumes and gement programs and processes that the timely detection of possible facts of corruption risk map, has been updated. possible exposure measures. contribute to the development of the corruption, fraud or other irregularities Company. in the activities of PJSC Detsky Mir and In the person of the legal department, As part of its risk management policy, its non-public subsidiaries, a corporate the Company took part in the All-Russian Detsky Mir identifies, assesses, monitors The policy of the Detsky Mir Group in the intrudes program “EMPLOYEES CAU- action to coincide with the International and warns of threats with a view to redu field of risk management is based on the TION!” http://corp.detmir.ru/about/the- Day Against Corruption organized by the cing the likelihood and potential conse- fact that the developing market of the Rus- staff-warned. Chamber of Commerce and Industry of quences for its operations. Basic methods sian Federation is exposed to significant the Russian Federation. of risk management: risks in comparison with the markets of Channels and means of sending messages more developed countries, including signi rejection of risky investments; (anonymously): ficant economic, regulatory, tax, political and social risks. Investors operating in the email address: rejection of unreliable partners and Results of the Measures to Identify developing market of the Russian Federa- [email protected]; counterparties; Corruption tion should realize that this market is ex- by telephone: +7 (495) 781-08-30 insurance; posed to more significant risks than develo (answering machine) or +7 (800) 250- ped markets, in particular to significant financial planning; 00-00 with the key phrase “Employees economic, regulatory, tax, political and so- 65 caution!”; compliance with and execution of cial risks. Investors should also bear in mind addressed to the Head of the Legal standards; that the emerging economy of the Russian Department and / or Head of the Federation is undergoing rapid changes. Internal Control and Audit Depart- ment and / or Head of the Corporate Security Department marked “For the Key Risks attention of” —” Employees caution!” 17 69 Risks The Company’s approach to risk management In 2017 The company implemented se 7 28 veral initiatives under the framework of Industry risks 9 anti-corruption activity. Insufficient supply of high-quality selling space The development of the Detsky Mir retail chain is 2015 2016 2017 suitable for development could restrain the rapid planned to be carried out in leased areas in shopping 1. The following documents were intro- growth of the retail chain, and an increase in rental centers, as well as in stand-alone facilities. Detsky Mir duced: rates may put pressure on the profitability of the regularly monitors the situation on the retail real estate Corruption activities detected retail business. market. According to current forecasts, restrictions Information security policy, on the volume of commissioning of selling space in circulation are not expected. Criminal cases launсhed under cl.3, art.159, 160 of the Regulation of the process “Implemen- Russian criminal code tation of procurement of goods, works, Insufficiently developed transport infrastructure To eliminate the negative impact of these risks on the in the regions can create difficulties for regional business of the Company, Detsky Mir takes measures services in PJSC Detsky Mir. development and subsequent management of to increase the efficiency of logistics. These measures retail chain due to the increase in logistical costs include increasing the operating capacity of current DCs, increasing the centralization of supply, considering the Updated: possibilities of building new warehouse facilities in the 2.6 Risk Management regions of Russia. Procurement Activity policy in PJSC The unfavorable demographic situation, In order to neutralize this risk, Detsky Mir adheres to Detsky Mir The Company’s risk management policies manifested in the fall of the birth rate in a number a strategy of the best price in the market and a wide include attention to all categories of signi of Russian regions, could cause a decline in assortment, which has a positive effect on attracting demand for children’s goods and, as a result, a fall additional traffic from other retail chains, negating the 2. Documents monitoring aimed at pre- ficant risks and is a combination of quality in the volume of trade turnover of the retail chain negative impact of weak macroeconomic and social venting corruption were monitored. objectives and descriptions of the market indicators in the country.
PJSC Detsky Mir Annual Report 2017 Corporate Management 2.6 Risk Management 88–89
Risks The Company’s approach to risk management Risks The Company’s approach to risk management
Growing competition in the retail trade of Detsky Mir constantly monitors the situation on Inflation could have a negative impact on the The Company is the largest player on the children’s children’s goods, including the development the market, including an analysis of the activities of Company’s performance and cause an increase in goods market, which allows it to receive the of modern retail formats, the emergence of competitors as specialized stores of goods for children expenses sensitive to the growth of the general most attractive offers of purchasing prices from new players in the children’s goods market, the and food retail chains. Based on the data received, price level in Russia, for example, staff costs, manufacturers. Thus, in the event of a price increase, consolidation of retail operators, can lead to a adjustments are made to the commercial policy, the transportation, etc. High growth in advertising buyers will be offered a product at the best price in the change in pricing, marketing policy, lower operating formats of the stores are being finalized. Other types costs could lead to an increase in the Company’s market. In the opinion of the Company, the inflation profit and loss of market share of outlets successfully developed in the West are also marketing expenses to maintain competitiveness. values at which it may have difficulties in meeting being developed and are being prepared for testing. In In the context of growing competition, the its obligations lie significantly higher than the value the future, the introduction of these formats will be impossibility of raising prices to maintain set in the Russian federal budget for the current year another competitive advantage of the Detsky Mir retail operating profitability while increasing costs can (about the level of inflation of 35-40% per year can be chain and will allow them to compete successfully in the have significant negative consequences for the regarded as critical). In the event of a significant excess market. Company’s performance. of actual inflation over the forecasts of the Government of the Russian Federation and the achievement of The change in prices for goods purchased by the Short-term price fluctuations should not affect the inflation critical values, the Company plans to take the Company for further sale may adversely affect Company’s activities in a significant way, as Detsky necessary measures to limit the growth of costs, reduce the Company’s operations. The influence of this Mir forms a sufficient level of reserves to reduce receivables. factor is the same for all market participants, both dependence on short-term price fluctuations. Detsky Mir external and internal. has a significant advantage over competitors due to high A banking crisis could significantly limit the Diversification of banks (opening of additional limits) volumes of purchases. The acquisition of goods is mainly liquidity of the Company. Crisis phenomena and credit instruments. carried out centrally, which allows receiving significant led to a decrease in liquidity and an increase in discounts from suppliers that are not available to other the cost of debt financing in Russia. Borrowers Ensuring continuity of financing on the best market market participants. felt a reduction in available financing, both in conditions with a high level of diversification of the loan the interbank and short-term borrowed funds portfolio. Maintain a sufficient level of unused credit markets, and in long-term capital markets and bank limits in banks. Country and regional risks financial instruments. Bank crisis, bankruptcy or financial insolvency of banks, from which Detsky Mir receives borrowed funds, can have significant The deterioration of the economic situation in For the purpose of the timely prevention of this risk, negative consequences for the Company’s Russia and Kazakhstan could slow the growth of Detsky Mir monitors the market on a weekly basis, business, results of operations and financial per capita income and, in this connection, have analyzes comparable sales figures by region and federal position. a negative impact on the dynamics of sales of district, and on a yearly basis makes up a special anti- children’s goods in the stores of the retail chain. crisis budget providing for a possible drop in consumer demand. At the same time, the experience of the Risk of loss of business reputation crisis phenomena of 2008, 2015-2016 shows that the market of children’s goods in comparison with other non-food retail sectors is less sensitive to unfavorable Detsky Mir has a reputation as a leading player In Detsky Mir Group, the control over the safety and macroeconomic factors, since children’s goods are an in the children’s goods market. Brand awareness quality of goods is carried out at all stages of the life integral part of the family budget and, accordingly, are ofretail chainaccording to polls is close to 100%. cycle: starting from the choice of the supplier, the not the first item of cost reduction in the event of a In the product sector for children, the Company’s formation and placement of the order and ending with decline in disposable income. image and perception of the population plays a the laying of goods on store shelves and feedback to huge role. Such products as baby food, diapers, consumers. children’s cosmetics are usually purchased only in To reduce possible risks from unscrupulous suppliers, Financial risks proven retail chains with a well-known reputation on the market. Loss of business reputation manufacturers were required to strengthen product may adversely affect the Company’s financial quality control. If there are serious claims about Maintenance and refinancing of the Company’s Early repayment of tranches with an increased rate. In performance, as it will directly affect the traffic of quality and safety, the supplier is to return the entire debts requires monetary funds. The Company has most of the loan agreements there are no penalties for customers in the stores of the Detsky Mir retail consignment of goods and cease cooperation with them outstanding debt, consisting mainly of liabilities the gradual withdrawal from the debt contract. chain. in the future. on bank loans and bonds. A significant portion of the Company’s debt portfolio consists of loans Control over the repayment schedule of long-term and short-term receivables, supervision of the use of short- attracted at a fixed interest rate, but the repetition Strategic risk of the growth of the Central Bank’s key rate that term loans through available lines of credit to manage was observed during 2014 can have a direct impact the Company’s liquidity. Managing an effective financing on the dynamics of interest rates on the market. rate, as well as 100% financing in RUB, to avoid FX risks. The possibility of limited growth after the The Company’s entry into new markets of CIS countries Thus, in the event of a worsening macroeconomic saturation of the market of children’s goods and Eastern Europe. situation and an increase in interest rates, the by 2027 and the achievement of the level of Company may incur additional debt servicing costs, consumption of children’s goods on par with Expansion of assortment, horizontal and vertical which may entail a decrease in the Company’s net developed countries. In this case, the development integration. profit and total cash flow. of the retail chain may slow down and the Company will need to look for new niches, markets Impairment of the ruble may lead to a decrease in The Company enters forward contracts with a fixed for growth and development. the Company’s profitability. Part of the procured rate for a period of 3 to 6 months to hedge the risk of goods (about 25%) is denominated in US dollars, depreciation of the ruble. euro and / or other foreign currency, while the Company receives revenues in RUB. Thus, devaluation of the ruble may have a negative impact on the Company’s performance.
PJSC Detsky Mir Annual Report 2017 3.1 An Approach to 3.2 CSR Strategy 3.5 Environmental Sustainable Development 3.3 Personnel Responsibility and Stakeholder Engagement 3.4 Charitable Activity
RUB 417 million Sustainable is the total amount Development of the Charitable The Detsky Mir Group provides ment of high financial results is the younger generation with qua possible due to the personal con- lity and safe goods at affordable tribution of each employee. There- Foundation prices. fore investment in human capital, decent pay and motivation of per- The Company pays special atten- sonnel are integral elements of the tion to the protection of children’s personnel policy of Detsky Mir rights in all aspects of its activities. Group.
By realizing social and charity Taking care of the environment, projects, Detsky Mir has a posi- Detsky Mir seeks to reduce its con- tive impact on the quality of life sumption of resources and intro- of children, including those in dif- duced modern technologies in or- ficult living situations. der to minimize its environmental Reduced Electricity The development of socially re- footprint. sponsible business and achieve- Consumption per m2 by 5.2% Detsky Mir Group involves employees and partners in its charitable activities, enables socially unprotected children to enhance the socialization level and unlock their creativity. Sustainable Development 3.1 An Approach to Sustainable Development and Stakeholder Engagement 92–93
gins at birth, received in early childhood, We also pay special attention to the pro- knowledge, skills and lay the foundation for tection of children’s rights in all aspects 3.1 An Approach further education. Offering quality goods to of our activities. parents and children, we are contributing to to Sustainable this goal. Realizing our charitable programs, Achieving the set goals is impossible Development we help develop those children who lim- without developing a dialogue with our ited such opportunities (children from low- key stakeholders, to which we pay much and Stakeholder income families, orphanages, etc.) (see the attention. section “Charitable Activity”). Engagement
Support for the Child Rights Initiative and Responsible business the Business Principles of the United Nations management is the basic Children’s Fund (UNICEF) element of our strategy, Principle Our Actions In Detail as well as the key to 1. Compliance with the rights We support the UN Convention on – sustainable development of the child and assume the Rights of the Child, ratified by the obligations to protect his/her Russian Federation. and strengthening rights of leadership positions reflects our main activity in the trade of children’s goods, on the other hand, it is in the market of children’s connected with the broad international 2. To promote the eradication We do not accept the use of child – goods and in the sphere context of sustainable development and of child labor in all types labor in all types of activities. challenges facing humanity. of business activities and of social responsibility. business relations Issues of responsible We support the Agenda for Sustainable De- velopment adopted by the UN members in business are discussed September 2015. Of the 17 objectives out- at meetings of the Board lined in it, we identified three for ourselves, 3. Provide decent work for Our personnel policy includes the Personnel Section young workers, parents and most important issues of labor in the achievement of which we can make of Directors, including guardians relations, such as safety in the the greatest contribution taking into ac- workplace, decent wages, social guarantees (including leave to care strategic directions count the specifics of our activities: decent for the child and flexible schedule for of development and key work and economic growth (for more de- young mothers). tails see the section “Personnel”), responsi- performance indicators. ble consumption and production (for more details see the section “Environmental re- 4. Ensure protection and We care about the safety of children – sponsibility”) and quality education. safety for children in all types when they visit our stores. The new The main goal of the Detsky Mir Group in of business activities and at concept of stores implies an increase all sites in the width of the passages for the the field of sustainable development and Among the goods that can be found in our convenience of customers, and all corporate social responsibility is to pro- stores, most of them are toys and goods for interactive zones were developed in conjunction with the world’s leading vide the younger generation with quality creativity. We are sure that they stimulate manufacturers and meet all safety and safe products at affordable prices. the imagination of children, help them to requirements. learn the world and develop to grow into Our activity in the sphere of corporate active members of society with great po- social responsibility, on the one hand, tential. The development of children be-
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.1 An Approach to Sustainable Development and Stakeholder Engagement 94–95
Interaction with Key Stakeholders Principle Our Actions In Detail
Stakeholder Group Aims of cooperation Means of cooperation 5. Ensure the safety of The safety and quality of children’s Item Security section products and services, and products are our priority. All products strive to protect them with the have the appropriate certificates. Suppliers Procure high quality •• Joint projects on assortment planning rights of the child Control of the safety and quality of goods, create a favorable and merchandising competitive environment goods is carried out at all stages of •• Industry conferences their life cycle. and minimize the risks of supply disruptions •• Supplier exhibits
6. Use marketing and We are responsible for our marketing Customer-oriented Service section advertising that respect and communications, which fully comply Employees To form their involvement •• Assessment of professional knowledge protect the rights of children with all legislative requirements and in the main activities • do not violate the rights of the child. of the Group, so that • Intra-corporate portal they make innovative •• Webtutor Training Portal proposals to improve its internal processes •• Investigation of the level of involvement 7. To respect and protect the We are striving to reduce our impact Environmental responsibility and improve the level of rights of children in dealing on the environment, and to instill section customer service •• The Hotline with the environment, as well in children an understanding of the as in the acquisition and use importance of nature and the need to of land protect it.
Consumers Understand their •• Satisfaction surveys preferences and •• Focus groups with consumer 8. Observe and protect the We respect the rights of children – expectations regarding participation rights of children during in all security processes in the the further development security activities framework of our activities. of the Group •• Feedback system •• Sending information about promotions and special offers by SMS and e-mail 9. Promote the protection Within the framework of our Charitable Activity section of children in emergency charitable activities, we provide situations support to children who have been in Industry organizations Exchange experience with •• Industry conferences emergency situations. experts and understand • the prospects for market • Round tables development
10. Strengthen the efforts of A significant part of our activities Charitable Activity section the local community and the are charity and volunteer programs Government for Protection aimed at helping children who • and Compliance on the rights find themselves in difficult living Local communities To promote the • Industry conferences improvement of living of the child situations. These programs draw •• Round tables public attention to the problems of standards in the regions children. and the availability of our goods for children and their parents
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.2 CSR Strategy 96–97
Main indicators Comments 3.2 CSR Strategy Responsibility to business partners and customers
Good business practice Transparency of ownership structure, financial and The logical continuation of our active so- Systematic: operational indicators, structure of the Board of Directors. Professional standards cially responsible activities was the deve Quality control of goods and “Hot Line” for consumers. Public reporting on international standards lopment and adoption in 2016. Corporate – consistency, responsibility for current Establishment and participation in the work of the Compliance with legal and ethical standards social responsibility strategies of Detsky Mir and past activities, as well as for the Association of the Children’s Goods Industry: counteraction Compliance with corporate governance of counterfeit products, uncivilized trade. Group. This document will be fundamental future impact of activities on the ex- standards Accession to the Anti-Corruption Charter of Russian to the development of the Company’s so- ternal environment; Business. cial activity in the coming years. The CSR Compliance with legislation on advertising, consumer strategy assumes an increase in the scope – regularity, long-term; protection, application of ethical methods of promotion. of charitable activities and the involvement Presence of a Code of Corporate Conduct and the Code of of more staff in volunteer programs. – integration of CSR principles into all Ethics. managerial processes. Quarterly disclosure of financial results. Issue of the annual report. The CSR strategy assumes an increase in the scope of charitable activities and the Significance, relevance and necessity An annual audit of the consolidated financial statements prepared in accordance with IFRS has been conducted. involvement of more staff in volunteer of projects. Scale, reach a large audi- A report on sustainable development in accordance with programs: ence. Regular evaluation of program international GRI standards is published every two years. effectiveness. Openness of social programs and mechanisms for their implementation, Avoidance of conflict of interests, Employer responsibility implying the inadmissibility of hiding or rejection of political engagement, Fair compensation and motivation We undertake to comply with the labor laws of the countries falsifying information. support of individual faiths, nationalist where we are present, respect human rights and individual movements. Expenses for the professional development freedom, and not allow any form of discrimination and harassment. Cooperation with stakeholders: dia- of personnel The Company has a time-premium payroll system that takes logue, feedback to addressees of social The volume of investments in health and into account not only individual effectiveness, but also the programs. safety measures financial performance of the entire Group of Companies or a certain store for the year. Occupational safety expenses at PJSC Detsky Mir in 2017 amounted to RUB 21.6 million. Priority Directions of CSR of For more details see the section Personnel Detsky Mir Group
Main indicators Comments Responsibility to society (charity)
Corporate Responsibility Social and charitable projects There are 350,000 children in difficult straits from 800 social institutions in Russia and Kazakhstan under the patronage of Contribution to the economic development Revenue — RUB 97 billion in 2017. the Company. of the country Tax deductions — RUB 4.6 billion in 2017 For more details see the section “Charitable Activity” Tax deductions The number of jobs created is 5,500 for 2015-2017. Job creation Projects on separate collection of cardboard, eco-packages, Minimizing the harmful effect on nature energy-saving lighting. For more details, see the sections “Financial Results”, “Per- sonnel”, “Environmental Responsibility”
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.3 Personnel 98–99
Share of Payroll Costs as Employees Breakdown by Retail Chain of Distribution of Employees of Detsky Mir 3.3 Personnel of Revenue , %2 Regional Branches in 2017, % Group by Age in 2017, %
8.2 4.9 HR Management 9.6 8.9 7.7 8.1 32.3 The key asset of Detsky Mir Group, which 7.7 ensures internal stability and further deve lopment, is our employees. 2015 2016 2017 48.2 46.9 10.6 Our policy in the field of personnel man- agement is aimed at creating a cohesive and Staffing effective team of professionals committed 10.4 12.9 to high standards of work quality and united The average headcount of Detsky Mir 10.2 by a common desire to contribute to the de- Group in 2017 exceeded 11.6 thousand velopment of the Company and society as people. The retail chain in Russia and Ka- RO Moscow and Moscow region Up to 30 years a whole. zakhstan continues to expand from year to year, which is why the average number RO North-West 30-50 years Automation of business processes and the of employees in the last three years has RO Center Over 50 years introduction of new software allowed the increased by 16%. Despite the growth in RO Ural Company to reduce the time of transactions the number of retail stores, the number of and the labor costs of employees per one management personnel in the Central and RO South business process. As a result, the number of Regional Offices is growing insignificantly. RO East employees providing for the operation of a RO Volga region single store decreased from 26 people in 2013 to 18 people in 2017. RO Siberian 78.8 21.2 Average Number of Employees of Detsky Mir Group The average age of employees of Detsky 1,185 Mir Group is 29.3 years for 2017. These are Detsky Mir Payroll Costs, RUB bln.1 874 809 experts at the peak of activity, performing 758 their work responsibly and with interest. 408 Most employees (95.1%) are under 50 years 713 of age, more than three-quarters of the em- Women Men ployees are women. 7,098 7,843 5,746 9,583 In 2015-2017 Detsky Mir Group 8,782 7,367 in Russia created more than 5.5 2015 2016 2017 The Number of New Jobs Created in Detsky Mir Group thousand new jobs.
1 Total staff costs include payroll, insurance premiums, training and staffing costs, medical costs, outsourcing of staff and other Incentive and labor compensation costs. The amount of total expenses is adjusted for bonus 2015 2016 2017 payments to management within the framework of the long- 1,969 1,796 1,775 Ensuring a high level of motivation and term incentive program (LTI). Retail stores 2 The share of total staff costs in revenue is adjusted for decent pay for employees is the most im- bonuses to management within the framework of the long- Central and regional offices portant aspect of the personnel policy of term incentive program (LTI). Detsky Mir Group. Distribution centre 2015 2016 2017
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.3 Personnel 100–101
We have a time-bonus system of labor For employees of the Central Office there KPIs of store personnel were revised and remuneration. All employees receive an is a quarterly or annual bonus, the size of motivational contests were held aimed at LTI 2016–2018 official salary in accordance with the em- which depends on the performance of strengthening the personnel’s material ployment contract, as well as additional financial and functional KPIs. interest in achieving the Company’s stra- Goal: the Company’s entry into the payments for the combination of posts, tegic goals. IPO market and an increase in the work in overtime and / or night, weekends For employees of the retail chain, value of the Company over the period and holidays. The wage system takes into a monthly production premium is At the end of 2017 a calculator for the of the program’s operation. account not only the individual efficiency, provided, the amount of which is set as a number of personnel of the Krekshino At the beginning of 2017 Company but also the financial performance of the percentage of the actual turnover of the was developed. This calculator is a “trans- entered into the IPO market the IPO entire Company for the year. store. The size of the production award parent” model for estimating the required of the administrative and managerial number of labor resources. staff of the store is further affected by the performance of KPIs. Employees who The remuneration in Detsky Mir Group is The pay scale of Detsky Mir is aimed are experts in their field and provided reviewed once a year on the basis of data LTI 2017–2020 at increasing employees’ interest in training for new employees (trainees) to regarding the average level of remunera- Goal: growth of the Company’s achieving the Company’s goals. An the basic skills of the profession receive tion in the labor market and taking into market capitalization after the IPO. important part of the motivation an additional bonuses. account the personal effectiveness of the system is the availability of precise, employee. In the reporting period, the growth of specific goals for all employees the Company’s market capitalization has a positive trend. in a certain reporting period and Structure of Remuneration of Retail Long-term incentive the willingness of the Company to Personnel in the Detsky Mir Retail Chain,% program reward the team for contributing to the achievement of the overall For the key employees of the Company port stops, delivery to the house or to there is a long-term incentive programs accessible transport nodes is orga- result. (Long-Term Incentives, LTI). The program nized; is aimed at increasing the market capita For each category of employees 30 for the employees of the warehouse, lization of the Company. developed their own system of 40 delivery to the place of work and free motivation, taking into account the meals are organized on the territory of The program extends to 20 employees in features of the activity. To this end, the logistics center; managerial positions and to the CEO. various key performance indicators for children of employees various (KPIs) are applied. The KPI events are carried out; Social guarantees composition may differ depending in connection with the production on the category of employees. The 30 As a tool for motivation, we are develo need, employees are provided with Company applies both financial ping a system of corporate benefits. In corporate communications; and functional KPIs (project addition to free corporate training, the employees have the opportunity to Official salary activities, manager’s assessment, Company also provides its employees undergo training in full-time or dis- presence / absence of administrative with the following benefits: tance courses; Administrative bonus omissions). for all employees, regardless of the after six months of work for all em- term of the employment contract, Performance-related bonuses ployees of central and regional offices, from the first day of work there is a store directors and management of the The Company systematically conducts an discount on goods in the stores of warehouse operates a voluntary health analysis of the level of salary of employees At the beginning of 2017, a new system for the retail chain, as well as corporate insurance (VHI) program. in comparison with the labor market and motivating retail staff was developed and discounts from partner companies; periodically conducts a review of both the implemented, aimed at increasing labor An effective cost management system al- for employees of stores closing at level of target employees’ salary and the productivity, and the staffing standards 11 p.m. and remote from public trans- lowed us to reduce the cost of VHI, while system of labor remuneration in general. were modified. In the second half of 2017,
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.3 Personnel 102–103
increasing the number of employees par- the campaign, store employees have the Voluntary Medical Insurance of the In the Company, the Unified Hot ticipating in the program. opportunity to informally communicate Employees of Detsky Mir Group1 with the Company’s management and ask Line “EMPLOYEES CAUTION!” The policy of the Detsky Mir Group of exciting questions. successfully functions where any 16.2 employee, customer, counterparty 15.5 15.6 Companies also provides for financial assistance to employees who find them- The New Year’s corporate event for the or partner of the Company can selves in a difficult living situation. employees of the central office and heads apply to their question or message of regional branches includes the ceremo- either anonymously or formally. See Corporate culture ny of awarding employees who made a spe- the section “Anti-Corruption” for cial contribution to the development of the more details. We make great efforts to ensure that em- Company. ployees of the central office, retail stores and the warehouse feel like a single team 777 924 1,077 working towards common goals.
2015 2016 2017 To unite the collective of Detsky Mir Financing of Voluntary Health Insurance, RUB m Group, sports events, volunteer and charity events, corporate subbotniks are regularly Number of employees covered by organized, the action “Labor landing” is Voluntary Health Insurance, persons held, joint national, corporate and personal holidays are celebrated together.
Providing Material Assistance to the Employees of Detsky Mir Group Detsky Mir Group promotes a healthy lifestyle among its employees, including 2,562 through the organization of sports events, such as the annual sports day of AFK 2,150 Sistema. For participants of industry and 2,072 interbranch sports, the Company organizes trainings with professional coaches, pays rent of the hall, provides players with a team uniform. The Company’s employees can take advantage of corporate benefits and discounts in major fitness centers.
Within the framework of the action “La- 130 143 170 bor Landing”, which is held twice a year 2015 2016 2017 (on the eve of September 1 and New Year), all employees of the central office — from
Material Assisstance, RUB ths. the CEO to ordinary managers — work for one day in one of the stores of the retail Number of employees received material chain as a seller or warehouse employee. assisstance The action enables office employees to see the practical work of the store “from 1 In Detsky Mir-Kazakhstan within”, assess the real workload on per- LLP, VHI is not provided sonnel, identify “bottlenecks” in existing for in accordance with the legislation of the Republic of business processes and offer solutions for Kazakhstan. their elimination, assess the effectiveness of innovations. On the other hand, during
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.3 Personnel 104–105
Detsky Mir Group operates the “Co-finan for improving managerial skills for the 2017 results Employees of the retail chain Detsky Mir cing” program: each employee can trans- store’s management (for example, “Basic are assessed professional knowledge twice fer part of his/her salary to the Company’s Manager Skills”, “Staff Recruitment and a year. Based on its results, the employee is Charitable Foundation, whose funds go Development”). assigned one of the following categories: Number of Training Hours for Employees to help severely ill children and the child of Detsky Mir Group ren of employees who find themselves in Detsky Mir Group has two corporate edu- “Specialist” — is assigned after success- a difficult living situation (for more details cational institutions. The training center, 5.8 ful passing of the assessment of profes- sional knowledge; see the section “Charitable Activity”). which is part of the group structure, pro- 4.8 vides training and professional develop- 4.3 “Expert” — is assigned for the per- Training and development ment for employees of retail stores and formance of established KPIs and territorial managers. Detsky Mir Group outstanding results shown during the We are convinced that the Company’s employees have the opportunity to study evaluation of professional knowledge. strategic goals can be achieved through at two corporate training centers. the personal contribution of each em- 87.9 The receipt by employees of the category ployee. Our investments in human capital For the staff of the central office the fol- 69.5 “expert” is a prerequisite for inclusion in 49.9 ensure the improvement of the financial lowing types of training are provided: the Company’s personnel reserve and fur- results of Detsky Mir Group. ther consideration as candidates for filling short-term training (1-2-day courses) vacant managerial positions in retail. One of our achievements in the field of and medium-term courses (from 5 2015 2016 2017 personnel training and development is a days); The employees of the Central Office are built-in consistent system of continuous Total number of training hours, ths. of hours assessed on the results of their activities training of all our employees with a large programs for the development of com- once a year in accordance with the ap- proportion of remote formats. municative and managerial competen- Training of one employee, h proved KPIs. cies (soft skills), the acquisition and We pay special attention to professional development of technical skills (hard In 2017, 1,018 applications were submitted development and development of the skills). Number of Hours of Training for to transfer to a higher position in the cate- Employees of Detsky Mir Group, h. core competencies of retail employees, gory of administrative and managerial staff which is the key to improving the quality Continuous training of employees and 2015 2016 2017 of stores, 68% of which were agreed. In of customer service and sales growth. regular assessment of their professional total, 692 “vertical” and “horizontal” trans- knowledge correspond to the concept Number of training hours by gender fers of employees in the retail chain were
For each category of employees of the of categorization of employees (imple- Men 6,603 8,402 13,607 implemented during the year. retail chain, regular free-of-charge re- mented since 2014). The proportion of Women 43,260 61,138 77,638 fresher courses are provided based on the employees who received training (“% of compulsory education matrix. It includes training”) is a significant indicator of the Number of training hours of employee training by Number of Personnel Transfers in 2017 both training courses for technical skills activity of the store, the regional office, category Transfers Russia Kazakhstan for line employees (for example, “Ac- the Company. Sales staff 49,291 68,880 90,403 ceptance of goods”), as well as trainings From seller-cashier to 501 21 Office staff 572 660 842 deputy director of the store
From deputy director 129 10 Assessment of personnel activity of the store to store manager Assessment of personal effectiveness is an From store manager to 18 1 important resource in the Company, deve territorial manager loping corporate culture and organization of business processes. From sales manager to — 12 senior sales manager
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.3 Personnel 106–107
Occupational safety and health is carried out during comprehensive in- tion” on their own in the corporate Total costs for occupational health and spections of compliance with the Group’s Training Center, and if necessary with safety in 2017 were as follows: Detsky Mir Group pays great attention standards, including a section on labor the involvement of specialized training centers and state labor inspectors; PJSC Detsky Mir — RUB 21.6 million, per to occupational safety and health issues. protection for employees. Inspections 1 employee — RUB 1,941. They were: Comfortable and safe working conditions of the retail chain are conducted under the establishment of commissions to in LLC Cub-Market — RUB 29.4 thou- are a key factor affecting the recruitment the direction of the territorial managers verify knowledge of the requirements sand, per 1 employee — RUB 1,149. and retention of skilled workers. The sys- according to the established schedule, for labor protection; tem of occupational health and safety in without warning to the management of control over observance of the Rules in LLP Detsky Mir-Kazakhstan — RUB the Company is based on full compliance the stores. In the event of the detection of internal labor regulations and fire 79.8 thousand, per employee — RUB 216. with the current legislation of Russia and of violations, recommendations are made prevention regime; Kazakhstan in this area. for their elimination, which entail a se development of regulations and guide- cond check. lines for structural departments and Personnel responsible for occupational departments of the Company, instruc- safety and health are appointed by the Despite the fact that the nature of the tions and programs for occupational 3.4 Charitable Activity CEO after completing a 40-hour training activities of Detsky Mir Group is not as- health and safety. All documentation program for managers and specialists. sociated with dangerous technologies, we related to this field is posted on the We see our social Training is carried out mainly in the inter- are trying to minimize the possible risk corporate portal for use by employees in the work. nal format by the in-house forces of the of employee injury and occupational di responsibility to society Training Center of PJSC Detsky Mir, which seases. Thanks to these measures, during the re- in having a positive has a corresponding license. porting period it was possible to prevent To minimize injuries in offices, retail the occurrence of occupational diseases impact on the quality of When hiring and then on a regular basis, premises and warehouses, the following and to maintain the rates of injuries in life of children, including all employees are instructed on labor pro- key activities and initiatives are imple- Detsky Mir Group at an admissible low those in difficult living tection in accordance with the require- mented: level. ments of labor legislation. Warehouse special assessment of working con- situations. workers are additionally trained in elec- ditions (workplaces are assessed by Realizing social and trical safety. Instructions on occupational independent accredited organiza- Expenses for Occupational Health and health and safety are held not only for charitable projects, we tions, a class of working conditions: Safety in PJSC Detsky Mir employees of the Company, but also for 2.0. — acceptable working conditions); 1,941 strive to improve living employees of contract organizations. at the end of 2017 in PJSC Detsky Mir a special assessment of the working conditions in children’s The duties of those responsible for oc- conditions of 100% of jobs; social institutions, raise cupational safety include, among other introductory, primary and repeated (at the level of socialization things, inspections to identify possible least twice a year) training of person- 1,000 990 violations. nel on labor protection, fire and elec- and unlock the creative trical safety; potential of little Russian Control over the implementation of la- timely training / retraining of heads of bor protection requirements in the re- departments and responsible employ- 21.6 citizens. tail stores of the Detsky Mir retail chain ees under the program “Labor Protec-
10.9 11.9 We also invite our employees to imple- Employees Responsible for Occupational Health and Safety ment these projects, thereby increasing
2015 2016 2017 their involvement. Increasing the level of Central office Retail Warehouse corporate volunteering is one of our tasks
Heads of structural divisions Store directors and their deputies Shift leaders Total, RUB m within the framework of the CSR Strategy and departments Warehouse heads and their deputies implementation (for more details, see the Per 1 employee, RUB “CSR Strategy” section).
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.4 Charitable Activity 108–109
The goals of the charitable activities of social rehabilitation of children and transparency and responsibility in mak- as voluntary donations to the Detsky Mir ing decisions on providing assistance; Detsky Mir Group: adults with disabilities; Charitable Foundation.. the promotion of the spiritual devel- assistance in the prevention of social compliance with the priorities of pro- The total amount of goods received by opment of the individual, the streng orphanhood, the promotion of the viding charity; family structure of children left with- the Detsky Mir Charitable Foundation in thening of prestige and the role of the the practical effectiveness of measures out parental care; the form of donations in monetary terms family in society; to provide charity; amounted to RUB 382 million in 2017. In assistance in the socialization of assistance in the protection of child- availability of funds for the provision total, for the conduct of charitable events graduates of orphanages with the hood, maternity and paternity; of charity; and assistance, the fund spent RUB 417 aim of ensuring their economic assistance in activities in the field million in 2017, this amount includes our independence, personal and profes- control over the targeted expenditure of prevention and protection of the own and attracted funds. sional self-determination, including of funds allocated for the provision of health of children and citizens; by conducting vocational guidance charitable assistance. activities in the field of competitive promotion of sports and healthy life- Charitable foundation styles; professions. assistance in activities in the sphere of The Detsky Mir Group’s social activi- education, science, culture, art, educa- Principles of charitable activities: ties are implemented by the Detsky Mir tion; Charitable Foundation (www.bfdetmir.ru), presence of objective necessity (expe- established in 2004 and operating in ac- assistance in providing social support diency) of rendering of the charitable cordance with the Charter and the Charity to low-income families with children, help; Policy of PJSC Detsky Mir.
There are 350,000 children in Priority Areas of Charitable Activity difficult straits from 800 social institutions in Russia and Kazakhstan under the patronage of the Company.
Assistance to children Assistance Assistance to The Total Amount of Goods Received by in payments for to children’s residential care the Charitable Foundation “Children’s costly operations, festivals, gala days, institutions Forms of charity: World” in the Form of Donations, rehabilitation, support assistance to gifted in Monetary Terms of their families, children Charitable events: “Participate!”, New assistance to health Year’s and other actions; care facilities for children Social programs: “Together we can do more”, “Our children”, “Art without borders”, “Towards a sport”, “Step for- ward”; 382 Volunteering: Volunteer Puppet The- ater, charitable Saturday events and fairs, mass events. Assistance in occupational Promotion of healthy lifestyles, 113 124 orientation, social integration sporting events management of needy children Sources of charity funding are funds allo- cated from the Company’s budget, as well 2015 2016 2017
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.4 Charitable Activity 110–111
Charitable action Sources of Private Donations: Structure of Donations in 2017, RUB. “Participate!”
The purpose of the action is to collect 1,100 Transfer SMS gifts for orphans and children left with- to account donations 2,867 out parental care living in social institu- 7,228 tions; children from low-income fami- lies; children with disabilities. Private 1,997 donations 906 We spent more than 13 years collecting Monetary assets gifts for children in difficult circumstanc- Co-investment 38 from donation funds es. boxes 3,269 To take part in the action, you must put a gift in a special arena, located next to the 8,499 ticket offices. It can be toys, game sets, clothes, apparel, footwear, stationery Holdings of the charitable Film Forum products, sports and outdoor products, “Detsky Kinomay” etc.
Charitable action Uchastvuyte! (Participate!) Children can be helped not only by leav- ing gifts, but by sending a donation via % Bag sale fee sms to the short number 7715 with the text “Participation” and indicating the % Magazine sale fee amount.
Private donations (collection boxes, Since 2017 The Detsky Mir Charitable electronic donations, SMS donations, transfer to account) Foundation is holding a “Participate!” Action throughout the year. This year 220 cities in Russia and Kazakhstan took Private donations (co-investment) part in events. More than 7.8 million gifts worth a total of RUB 352 million were Donations in Commodity Terms in 2017, RUB ths. Business companies’ donations collected and handed over.
Nonprofit companies’ donations Charitable action “Participate!” 351,764
Products from suppliers 11,608
Detsky mir, PJSC products 17,924
Cub-Market, LLC products 614
Detsky mir - Orel, JSC products 424
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.4 Charitable Activity 112–113
The Key Results of the Action “Participate!” Humanitarian aid Translations 2015 2016 2017
The number of stores taking part in the action 367 428 572 The charitable foundation of Detsky Mir Group sent assistance to children in the Altai Republic in October 2017 for children in difficult circumstances. Number of beneficiaries 450 550 650 The humanitarian “parcel” includes toys, apparel, footwear, strollers, car seats, beds, baby Value of gifts collected within the framework of the action, RUB m 85 112 352 food, hygiene products and much more. The total amount of transferred aid is 5 trucks and is estimated at RUB 12 million.
Humanitarian “parcels” by the Detsky Mir Charity Foundation were delivered to the needy families of Gorno-Altaisk and 11 districts of the republic. Transportation of children’s Dynamics of Participants’ Joining to goods to remote areas is carried out thanks to the financial support from the Government the Action “Participate!” 650 of the Republic and the Sistema Charitable Foundation. 550 450 350 The project Our Children of the Cofinancing program, employees 300 300 of Detsky Mir Group received RUB 3.3 158 160 The project is aimed at providing targeted million. assistance to low-income families with di sabled children, orphans and children left In general, the project for 2017 provided without parental care. assistance to 23 children for a total of RUB 130 142 189 219 267 367 428 572 5.5 million. 2010 2011 2012 2013 2014 2015 2016 2017 The Company has a program called “Co- financing”, under which each employee can The project Operation Toys Number of stores Number of beneficiaries transfer part of his salary to the Company’s Charitable Foundation for the treatment of Since 2013 the Detsky Mir Charitable seriously ill children. Foundation is implementing the project “Operation Toys” for the organization of Charity instead of gifts campaign In 2017, 280 people took part in the pro children’s playrooms in medical institu- ject “Our Children”. Within the framework tions. Its goal is to give children a feeling Employees of Detsky Mir Group from 2013 offer their partners on the eve of New Year holidays instead of traditional corporate gifts to transfer to the Foundation charitable assistance to children in difficult circumstances. In 2017 more than 30 partners responded to the Company’s appeal. The fund not only transferred money, but also transferred toys, apparel, car seats, household appliances, hygiene products, stationery products, books, cosmetics, sets for creativity, bedding, dishes.
The program “Together we Forms of assistance: can do more” targeted assistance to families with chil- dren, The program is aimed at the material and or- ganizational support for low-income fami- the organization of game rooms in medi- lies with children, as well as children from cal and social institutions. orphanage institutions.
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.4 Charitable Activity 114–115
of comfort beyond the hospital walls and (the Republic of Altai) and many others. thus speed up the recovery process. Investments in the project for the year exceeded RUB 11.5 million, which is 1.5 In the game rooms dolls, strollers, design- times more than in 2016. ers, cars, educational games, sets for role- playing games and much more wait for The Detsky Mir Charitable Foundation very young patients. For older kids there not only transfers toys, decorates and are sports games: fussball, air hockey, bow decorates rooms, but also repairs, ac- ling. Also presented are various manuals on quires furniture and medical equipment if musical instruments, speech development, necessary. memory, thinking and attention, vocabulary on various lexical topics. In 2018, the project to open children’s rooms in medical institutions will con- In 2017 Detsky Mir opened 108 playrooms tinue. in 30 medical and social institutions in Russia. New playrooms appeared in 20 ci The project Step Forward ties and villages in the country. Volgograd, Ekaterinburg, Nazran, Nizhny Novgorod, The project is aimed at the socialization of Petrozavodsk, Pyatigorsk, Rostov-on-Don, orphans in residential institutions through Ryazan, Smolensk, Shabalin, Turochak the organization of various workshops.
In accordance with the Agreement on Strategic Cooperation between the Ministry of Economic Development of Perm Krai and Detsky Mir Group, signed in February 2015, the Detsky Mir Group invests up to RUB 150 million in the region’s economy and creates up to 100 permanent jobs in Pem Krai. The agreement expired in 2016, however, the Detsky Goal of the project: help children from conducting excursions that contribute Mir Group continues to develop its business and implement social projects in the region. orphanages to adapt to independent life, to the professional orientation of ado- to instill and develop skills in a certain lescents; In 2017 the retail chain Detsky Mir opened three new supermarkets in the region: two field of activity so that they can later earn stores in Perm and one in Solikamsk, which became the first commercial object in this their living independently. organization of master classes in career city. Also, the first ELC store in Perm was opened. counseling. We support activities for the vocational In addition, within the framework of the Detsky Mir Agreement, in cooperation with guidance and training of adolescents, In the Dukhovschina orphanage (the city of the regional authorities, it implements programs to support childhood and maternity. In as well as on the social and labor adapta- Smolensk), in which orphans and children particular, there is social and material support for children and adolescents who remained tion of children in difficult living condi- with disabilities are trained, the office of the without parental care, children who are in a difficult living situation: with serious tions. plastering and painting business opened its diseases, disabled children, children from large families, boarding schools and children’s doors. To organize the educational process, homes in Perm Krai. Targeted groups: orphans and children the Detsky Mir Charitable Foundation carried left without parental care; children from out cosmetic repairs of the premises, acquired Detsky Mir provides assistance to the Perm orphanage for visually impaired children, low-income families; the necessary furniture and equipment. The the regional children’s sanatorium for tuberculosis patients No. 6 Malysh, a social total cost of the project was RUB 208,000. rehabilitation center for minors, a clinical phthisiopulmonological medical center, and Forms of assistance: Now, under the guidance of experienced also centers for helping children left without parental care Dobryanka and Krasnokamsk, teachers, children with a difficult fate will be Nytva school-orphanage. During the reporting period, the Company transferred to Assistance in additional training for able to learn the basics of the profession of orphans and children in difficult life “plasterer — painter”, which will enable them children in difficult circumstances necessary items worth RUB 6 million. situations; to find demanded work in the future.
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.4 Charitable Activity 116–117
The carpentry workshop in Samara orpha Target groups for program implementa- nage school No. 115 has been renovated, in tion: gifted children, children engaged in which training is being conducted, including creativity, centers of children’s creativity. children with disabilities. For the organiza- tion of the educational process, the Detsky Forms of assistance: Mir Charitable Foundation acquired the support of creative festivals; necessary equipment and furniture. The to- tal size of the Company’s “investment” ex- support for unique methods in the ceeded RUB 200,000. sphere of arts;
organization and support for exhibi- The program Art Without Borders tions and contests;
The program is aimed at developing the cre- organization and support for concert ative potential, morality and aesthetic taste and entertainment shows; of the younger generation. organization and support for New Year’s The expenses for the maintenance of the shows. Volunteer Puppet Theater (purchase of requisites and decorations, transportation In 2017 RUB 1.2 million were allocated to costs, rental of light and music equipment, The largest projects implemented in the reporting period: implement projects in the program “Art food for actors during outings) amount to without borders”. about RUB 100 thousand per month. Organization of charity fairs in Central district (February, November) Support of the festival “To a future without borders” (Moscow Region, Ivanteevka) Volunteer Puppet Theater Charitable events and Support for the film forums held by the Children’s CinemaMay Charitable Foundation subbotniks in Smolensk, Kazan, Nizhny Novgorod, Rostov-on-Don, Moscow, Suzdal, Luxembourg At the end of 2014, the Volunteer Puppet and the Republics of Altai and Karelia Theater of Detsky Mir Group was created. The Detsky Mir Charitable Foundation Organization of a trip for 150 children from 5 orphanage schools in the Smolensk and The actors are employees. The theatrical regularly holds charity actions and events. Moscow Regions to the circus Aquamarine at the show “Astrolabe” company performs in patronized orpha nages, charity fairs and festivals. The project The program of charitable holidays in- Support of the International charitable festival of children’s creativity “Masterpiece” allowed us to involve new employees in the cludes creative master classes, perfor- (Moscow) charitable projects realized by the Compa- mances of variety artists and circus, perfor- Support of the festival of the Charitable Foundation “Studio of Creative Development ny, increased loyalty to the brand. mances with the participation of trained of K. Khabensky “Feathering” (city of Sochi) animals, aqua-grime, soap bubbles and Support of the festival “Eralash” in Orlenok With the performances “Leshy and the Sofa”, games with animators, gifts giving. Support for the “Smorodinnaya party”, organized by the charity foundation “Sozidanie” “Morozko”, “Marviksy”, “As Ivan was looking together with Tatiana Lazareva and Mikhail Shats for the bride”, “About King Gryaznulya” and Representatives of the creative intelligen- “Adventures of the Parrot” Volunteer Pup- tsia respond to our proposals for participa- Organization of a trip of 387 children from 17 orphanage schools of the Nizhny pet Theater gives about 20 performances tion in charitable events. So, for the New Novgorod, Tver, Kaluga, Moscow Region and Moscow to the Nikulin Circus on Tsvet- a year in social institutions, centers for the Year’s holidays, honored artists of Russia noy Boulevard in Moscow promotion of family education, libraries and Sergey Plotnikov and Vladimir Demidov,
Organization of a charitable Christmas tree “New Year’s holiday with friends” for houses of culture, at various charity fairs animator, head of the animation studio 450 children from boarding schools in Nizhny Novgorod, Kaluga, Smolensk, Ryazan, and festivals. “Bee” Maria Muat, popular actors of the- Moscow Region and Moscow (together with the Children’s CinemaMay Charitable ater and cinema Olga Khokhlova and Ivan Foundation) Cognitive stories remind children of the va Kokorin, screenwriter Anna Pendrakovska- Support for New Year’s performances organized by the Sistema Charitable Foundation lues of friendship, the differences between ya, writer Tatyana Bering and TV presenter in Rostov-on-Don and Volgograd good and evil, the need to love and protect Elena Letouchaya took part in. Support for the New Year performance “Chuk and Gek”, organized by the Center for nature. Family Education “Gusenok”
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.4 Charitable Activity 118–119
Action Christmas Tree New Year’s presentations A joint action with of Wishes Procter&Gamble The charitable foundation of Detsky Mir Group helped children in difficult circumstances to get to New Year’s performances. Another kind tradition of Detsky Mir Detsky Mir Group and the became the charity event “Christmas Company Procter & Gamble held New Year’s performances in Moscow were held at the Nikulin Circus, the Theater Tree of Wishes”, held in December a joint charity event “Give care to Center on Strastnoy boulevard and the MIIT Cultural Centre. In the Smolensk region, at the Company’s Central Office. The those who need it!”. the Christmas tree was held in the Yartsevo boarding school, in Volgograd — in the children wrote about their dream to Tsaritsynskaya opera, and in Rostov-on-Don — in the Musical Theater. In total, New Ded Moroz (Grandfather Frost) and In the online store of the Detsky Year’s events were attended by more than 1,500 children in difficult circumstances. the Detsky Mir employees helped Mir retail chain, when purchasing Children’s parties in Moscow were visited not only by children from children’s homes them come true. New Year’s greetings mega-packs of diapers or Pampers of the capital, but also by the Moscow, Nizhny Novgorod, Kaluga, Tver, Ryazan and were received by 129 boys and girls Premium Care panties, it was Smolensk regions. In order to fulfill the children’s dream — to get to the Christmas tree from the Yartsevo orphanage school possible to help needy babies from small children’s homes left in Moscow — the Detsky Mir Charitable Foundation paid for their travel and food. And in the Smolensk Region. without parental care. With each of course not a single child was left without a New Year’s gift! package sold, the organizers provided one package of diapers The Charitable Foundation of Detsky Mir or underwear. As a result of Group also organizes traditional spring sub- the action, more than 2,000 botniks to improve the territories after the packages of hygiene products winter season. In 2017, 39 subbotniks were were collected and transferred, held in 35 cities of Russia and Kazakhstan which is about 40,000 diapers and with the participation of 1,123 Company vol- underwear. unteers. The total amount spent for the sub- botniks organization was RUB 1.2 million.
Detsky Mir partnered with Kodabra
The school of digital creativity Kodabra teaches children programming through the creation of games since 2014. The Charitable Foundation of Detsky Mir Group also organizes the traditional spring subbotniks to improve the territories after the winter season. Over the first month, more than 200 students attended the class. The action Generous Tuesday All educational programs are aimed at developing the digital skills necessary for living Detsky Mir Group held a series of charitable events in the framework of the “Generous in modern economic conditions. Basic knowledge of programming, code reading skills, Tuesday” campaign. logical thinking and analytic abilities will be useful for children and teenagers in choosing a future profession. And the developed ability to work in a team, the ability to present the Orphans from social institutions in Moscow, Kostroma, Smolensk and Ryazan regions results of their work, the knowledge of the principles of the project approach is necessary presented works created by their own hands: christmas toys, felt decoration, wooden for students in everyday life today. interior items for the home and various souvenirs. All collected funds (RUB 300,00 for 2 fairs) are aimed at the additional education of children with disabilities and orphans In addition, Detsky Mir will join the volunteer program of Kodabra, within the framework from orphanages. of which free classes for children with disabilities are held, for pupils in orphanage In addition, in the central office of Detsky Mir Group, from November 27 to schools, as well as patients of rehabilitation clinics. Thus, the teachers and volunteers of December 1, a series of charity events, “Week of Good Deeds” for the Company’s Kodabra, with the support of charitable partner funds, managed to involve more than 500 employees, took place. All proceeds are used to pay for rehabilitation courses children in the IT world. for children with disabilities.
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.5 Environmental Responsibility 120–121
Reducing resource Specific Energy Consumption by the Shops Saving from the Introduction of LED 3.5 Environmental consumption of the Detsky Mir Retail Chain Lighting in Stores 748,800 The introduction of modern technologies 152.8 150.5 Responsibility and solutions aimed at reducing the con- 142.7 sumption of resources is important for us 561,600 466,128 Detsky Mir Group both in terms of reducing operating costs, and in terms of minimizing the impact on pays great attention to the environment. 160 622 100 the protection of the 83 Energy saving environment, the saving 480 The shopping concept of the Detsky Mir 381 of natural resources and 2015 2016 2017 retail chain involves the use of modern packaging recovery. We energy-saving solutions that not only improve shopping spaces, make them 688 Energy saving, kWh per month want to remind everyone 591 more comfortable for visitors and staff, 498 again that it is from our but also significantly save energy. The Number of stores, units careful attitude towards total amount of energy saved in 2017 was 6,450,395 kWh, which in monetary 2015 2016 2017 nature that we depend terms is RUB 35,413 thousand. Despite the project was 748.8 thousand kWh per Stores, pcs. on the environmental the growth in the number of stores and month. An additional positive effect is the the increase in the total sales area of the absence of the need to dispose of mercury Space, ths. sq. m conditions that we and Company, it was possible to reduce ener lamps related to the first hazard class. the future generation — gy consumption in 2017 by 7.8%. Energy consumption per sq. m, kWh/m2 our children- will live in Saving Paper tomorrow. Automation of the Company’s business Since 2014 we have started the process of processes implemented within the frame- 1 Consumption of Energy Resources by Detsky Mir Group equipping stores with LED lighting sys- work of our strategy not only increased tems. In 2017, 160 stores were equipped the efficiency of operations, but also re- 2015 2016 2017 with such systems. In 2018 all stores of the duced the consumption of resources — of- Type of energy resource retail chain are planned to be switched to fice paper. For example, the development RUB RUB RUB unit unit unit thousand thousand thousand a LED lighting system. and implementation of an electronic in- voice format allowed us to abandon its Electricity, kW • h, including: 445,001 92,800,151 590,049 114,998,368 683,934 124,575,803 The warehouse in Bekasovo, opened in paper form. 2015, was equipped with energy-efficient Offices 12,075 2,518,196 31,708 6,179,833 31,667 5,767,999 equipment and a lighting system using mo- Ecological consumer packaging tion sensors. In subsequent years, we plan Stores of the retail chain, 432,926 90,281,955 558,341 108,818,534 652,267 118,807,804 kW • h to conduct a similar upgrade of all existing In the stores of the Detsky Mir retail retail space of the Company. chain, customers are offered packages of The amount of energy saved, –3,265 –680,871 8,503 1,657,247 35,413 6,450,395 kW • h paper — environmentally friendly material This project is focused not only on re- that does not harm the environment du Heat-water-gas supply, Gcal 79,635 46,287 110,280 59,906 142,193.8 72,189 ducing current costs (a solution based on ring decomposition and is easily disposed LEDs at a cost that does not exceed pro of. The launch of the sale of сraft pack- jects based on traditional light sources), ages was the next logical step in the chain 1 Other types of energy resources were not used by PJSC but also to reduce costs in the future. In of environmental initiatives of the retail Detsky Mir in the reporting year. 2017, the electricity savings as a result of
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.5 Environmental Responsibility 122–123
chain. Detsky Mir Group became the first Ecological consumer packaging will Consumption of Paper by the Central Office Collection of Recyclable Materials in the retailer in the children’s goods segment gradually replace the usual plastic bags of PJSC Detsky Mir Company in 2017, in tons in Russia, which offered its customers for customers. Taking into account the 18,5 ecological packaging. scale of the Company’s work, this pro ject will significantly reduce the harmful The retail price of the package is 15 rubles, impact on the environment and increase 250 14,3 the carrying capacity is 7 kg. The package the eco-culture of the inhabitants of our 12,5 is decorated in the style of the brand. Part country. 1,089 of the proceeds from the sale of the bags 150 800 is transferred to support the programs of 100 Modernization of the waste Detsky Mir’s Charitable Foundation. management system 207 9,250 In December 2015, we launched the sale A significant part of waste generated of paper bags in stores in Moscow and the 6,975 6,875 in our warehouses and in stores is ac- RC Krekshino RC Bekasovo Retail chain Moscow Region. In July 2016, the project counted for by cardboard and polyethy was scaled to the entire retail chain. As of lene film. Cardboard is easily recyclable. the end of 2017, 230,628 paper bags had Basically, it produces junk cardboard, In 2015, we implemented pilot projects been sold. The most popular eco-friend- 2015 2016 2017 which today is considered the world’s on the separate collection of recyclables ly packages are used in the Moscow and most promising secondary packaging in trade spaces. As of the end of 2017, 250 A3 paper A4 paper North-Western Regions. consumption, kg consumption, kg material of the near future. Polyethylene stores of the retail chain took part in the is a dangerous source of environmen- project. In the future, we plan to increase Paper consumption per employee, kg/person tal pollution. According to approximate their number to 400. As a result of 2017, estimates, its decomposition takes up 800 tons of cardboard were disposed Sales of Paper Bags in 2017, thousands of pcs. to 300 years. In this case, it undergoes of in the retail chain. This allowed us to thermal aging, gradually decomposing reduce the amount of waste transferred South 12.4 under the influence of sunlight, heat to the contractor organization, which, in and oxygen, as a result of which harmful turn, reduced operating costs. chemicals are released into the soil and Volga region 16.8 water.
We set ourselves the task of reducing Ural 19.2 our own impact on the environment, so Number of Stores Participating in the the implementation of packaging recy- Recycling Project, pcs. cling projects has become a natural step SIberia 19.4 along this path.
In the Company warehouse, since 2014, East 20.3 waste paper and packaging polyethy lene film have been collected, which 400 are sorted separately and transferred Center 24.3 to a specialized organization for fur- ther processing. In 2017 in the distribu- 250
tion centers Krekshino and Bekasovo 114 North-West 29.8 were collected about 1,296 tons of card- 27 board. 2015 2016 2017 2018 Moscow 88.4 (forecast)
PJSC Detsky Mir Annual Report 2017 Sustainable Development 3.5 Environmental Responsibility Independent Report on Compliance with Information on Major Information on Transactions Auditor’s Report the Principles of the Code Transactions Made by the with Shares of the Company Consolidated Statement of Corporate Governance Company in 2017 Completed by Members of of Profit or Loss and other Report on Compliance with Information on Transactions Management Bodies In 2017.w Comprehensive Income for the the Principles of the Code with Interest, Completed by the Year Ended 31 December 2017 of Corporate Governance Company in 2017. Detsky Mir became a partner of the Russian Ecological Week
On October 22, 2017 in Moscow, the III Russian Ecological Week, organized with the support of the Ministry of Natural Resources of the Russian Federation, was completed.
For the first time, a unified ecological space was created on Manezh Square in the capital, encompassing all aspects of the ecological lifestyle — cultural, environmental and consumer — from the best examples of environmental art to the ideology of perceiving ecological standards of consumption and presentation of eco-producers’ products.
With the support of Detsky Mir Group, an action was carried out to plant the trees “Gardens of Russia”. The collection of the “Aptekarsky garden” was replenished with seedlings of rare species of lilac, willow, hydrangea.
Volunteer Puppet Theater of Detsky Mir showed an interactive eco-book “About King Gryaznulya”, in which the story was created in real time together by actors and
Detsky Mir Group became a partner of the International Eco-Event “FSC-Friday”
FSC-FRIDAY is an occasion to recall the important role played by forest in the life of the planet and its inhabitants, including mankind. The holiday provides for the self- organization of companies, institutions and simply enthusiastic people.
FSC-FRIDAY 2017 is celebrated around the world on the last Friday of September, this year it is September 29th.
There are no obligatory conditions, as FSC-FRIDAY is celebrated, except for one — this is the love of the forest. Any activity on this day, as well as the week before and after is welcomed. Appendixes
PJSC Detsky Mir Appendix Independent Auditor’s Report 126–127
31 December2017, and its consolidated fi- Why the matter was determined to be a key How the matter was addressed in the audit nancial performance and its consolidated audit matter
cash flows for the year then ended in ac- Recognition of supplier bonuses We obtained an understanding of the Group’s internal processes and controls in respect of accounting for cordance with International Financial Re- The Group receives significant amounts of supplier supplier bonuses and assessed whether the amounts incentives, discounts, and bonuses. These incentives porting Standards (“IFRSs”) as issued by recognized in the consolidated financial statements largely comprise volume-based bonuses based the International Accounting Standards were in line with the Group’s accounting policies. on percentage levels agreed and also include Board. arrangements with a greater degree of judgement We circularized a sample of suppliers to get assurance such as markdown compensations, margin protection that the amounts of recorded incentives and balances and advertising and marketing support. owed at year-end were accurate and complete. Basis for opinion Where responses were not received, we completed We consider this to be a key audit matter because alternative procedures such as analysing individual determination of the period over which the reduction Independent supplier bonus agreements, tracing the amounts We conducted our audit in accordance in cost of sales should be recognized is judgmental recorded to primary documents signed by suppliers and complex and requires thorough understanding with International Standards on Auditing confirming the Group’s right for a particular bonus. Auditor’s Report of the contractual arrangements and complete and (“ISAs”). Our responsibilities under those accurate source data. In addition, for a sample of volume-based agreements, standards are further described in the Au- we recalculated the bonuses due from suppliers based The Group’s principal accounting policy on supplier on purchases during the year and the contractual ditor’s Responsibilities for the Audit of bonuses is disclosed in Note 4 on page 30. To: Board of Directors terms and audited management’s calculation of and Shareholders of the Consolidated Financial Statements rebates allocated to year-end inventory. section of our report. We are indepen- We also performed a retrospective analysis of bonuses Public Joint Stock dent of the Group in accordance with the recognized in the prior period to check that accuracy of estimates made by management. Company “Detskymir” International Ethics Standards Board for Accountants’ Code of Ethics for Profes- sional Accountants(the “IESBA Code”) to- Net realizable value of inventories We obtained assurance over the appropriateness of management’s assumptions applied in calculating the Net realizable value of inventories gether with the ethical requirements that carrying value of inventories by: Inventories are carried at the lower of cost and net Opinion are relevant to our audit of the consoli- Observing the effectiveness of key inventory realizable value. At 31 December 2017 the value dated financial statements in the Russian controls through attending inventory counts at the of inventories held by the Group was RUB 26,440 distribution center and 9 stores; We have audited the accompanying con- Federation, and we have fulfilled our oth- million (31 December 2016: RUB 24,796 million). Verifying the value of a sample of inventory to solidated financial statements of Public er ethical responsibilities in accordance The valuation of inventories was identified as a confirm it is held at the lower of cost and net key audit matter because it involves significant Joint Stock Company “Detskymir” and its with these requirements and the IESBA realizable value, based on the sales prices; subsidiaries (collectively — the “Group”), Code. We believe that the audit evidence judgement, including estimated selling price of items held, and assessing items which may be slow-moving, Reviewing, recalculating and assessing the accuracy which comprise the consolidated state- we have obtained is sufficient and appro- obsolete or damaged. The assessment process of inventory provision by analysing inventory ment of financial position as at 31 Decem- priate to provide a basis for our opinion. includes studying the historical performance of the ageing, historical and post year-end performance inventories, current operational plans as well as and consistency of the amount of provision as a ber 2017 and the consolidated statements industry and customer specific trends. percentage of gross inventory balance year to year; of profit or loss and other comprehensive Key audit matters The Group’s inventory provision is disclosed in Note Reperforming management’s calculations of income, changes in shareholders’ equity 14 on page 36. provisions to ensure they are accurate and free and cash flows for the year then ended, Key audit matters are those matters that, in from error. and notes to the consolidated financial our professional judgment, were of most statements comprising a summary of sig- significance in our audit of the consoli- nificant accounting policies and other ex- dated financial statements of the current planatory information. period. These matters were addressed in the context of our audit of the consoli- In our opinion, the accompanying con- dated financial statements as a whole, and solidated financial statements present in forming our opinion thereon, and we do fairly, in all material respects, the consoli- not provide a separate opinion on these dated financial position of the Group as at matters.
PJSC Detsky Mir Annual Report 2017 Appendix Independent Auditor’s Report 128–129
Why the matter was determined to be a key How the matter was addressed in the audit that are free from material misstatement, financial statements, whether due audit matter whether due to fraud or error. to fraud or error, design and perform Revenue recognition — customer loyalty program Our audit focused on challenging the Group’s audit procedures responsive to those assumptions applied in determining the redemption The Group’s customer loyalty program was identified In preparing the consolidated financial risks, and obtain audit evidence that is rates and included: as a key audit matter because a significant degree of statements, management is responsible sufficient and appropriate to provide judgment is required in determining the amount of Obtaining a detailed understanding of the process of a basis for our opinion. The risk of not deferred revenue allocated to customer loyalty program the gathering and processing data regarding customer for assessing the Group’s ability to con- and the pattern of its subsequent amortization to loyalty program, as well as key controls over deferring tinue as a going concern, disclosing, as detecting a material misstatement revenue. and recognizing the respective revenue; applicable, matters related to going con- resulting from fraud is higher than for The movement of the Group’s deferred revenue in Assessing expected redemption rates used by the cern and using the going concern basis one resulting from error, as fraud may respect of customer loyalty program is disclosed in Group against historical data on factual redemptions; involve collusion, forgery, intentional Note 22 on page 44. of accounting unless management either Using our computer aided analytics tools to perform intends to liquidate the Group or to cease omissions, misrepresentations, or the a correlation analysis to identify unusual trends in deferral and recognition of revenues for the customer operations, or has no realistic alternative override of internal control. loyalty programs; but to do so. Obtain an understanding of internal Verifying that any changes made by the Group in control relevant to the audit in order the reporting year to its customer loyalty program Those charged with governance are re- terms were appropriately reflected in the Group’s to design audit procedures that are accounting records; and sponsible for overseeing the Group’s fi- appropriate in the circumstances, but Reperforming management’s calculations of revenues nancial reporting process. not for the purpose of expressing an deferred and recognized to ensure they are accurate opinion on the effectiveness of the and free from errors. Auditor’s responsibilities for the Group’s internal control. audit of the consolidated financial statements Evaluate the appropriateness of accounting policies used and the Our objectives are to obtain reasonable reasonableness of accounting esti- Other information consistent with the consolidated financial assurance about whether the consoli- mates and related disclosures made statements or our knowledge obtained in dated financial statements as a whole are by management. Management is responsible for the other the audit, or otherwise appears to be ma- free from material misstatement, whether Conclude on the appropriateness of information. The other information com- terially misstated. due to fraud or error, and to issue an au- management’s use of the going con- prises the information included in the ditor’s report that includes our opinion. cern basis of accounting and, based on Annual and Quarterly reports, but does When we read the Annual and Quarterly Reasonable assurance is a high level of the audit evidence obtained, whether not include the consolidated financial reports, if we conclude that there is a assurance, but is not a guarantee that an a material uncertainty exists related statements and our auditor’s report there- material misstatement therein, we are audit conducted in accordance with ISAs to events or conditions that may cast on. The Annual and Quarterly reports are required to communicate the matter to will always detect a material misstatement significant doubt on the Group’s ability expected to be made available to us after those charged with governance. when it exists. Misstatements can arise to continue as a going concern. If we the date of this auditor’s report. from fraud or error and are considered conclude that a material uncertainty Responsibilities of management material if, individually or in the aggregate, exists, we are required to draw attention Our opinion on the consolidated finan- and those charged with they could reasonably be expected to in- in our auditor’s report to the related cial statements does not cover the other governance for the consolidated fluence the economic decisions of users disclosures in the consolidated finan- information and we will not express any financial statements taken on the basis of these consolidated cial statements or, if such disclosures form of assurance conclusion thereon. financial statements. are inadequate, to modify our opinion. Management is responsible for the prepara- Our conclusions are based on the audit In connection with our audit of the con- tion and fair presentation of the consolidat- As part of an audit in accordance with evidence obtained up to the date of our solidated financial statements, our re- ed financial statements in accordance with ISAs, we exercise professional judgment auditor’s report. However, future events sponsibility is to read the other informa- International Financial Reporting Standards, and maintain professional skepticism or conditions may cause the Group to tion identified above when it becomes and for such internal control as management throughout the audit. We also: cease to continue as a going concern. available and, in doing so, consider wheth- determines is necessary to enable the prep- Identify and assess the risks of mate- Evaluate the overall presentation, er the other information is materially in- aration of consolidated financial statements rial misstatement of the consolidated structure and content of the consoli-
PJSC Detsky Mir Annual Report 2017 Appendix Independent Auditor’s Report 130–131
dated financial statements, includ- We also provide those charged with gov- ing the disclosures, and whether the ernance with a statement that we have consolidated financial statements complied with relevant ethical require- Consolidated Statement of Profit represent the underlying transactions ments regarding independence, and to and events in a manner that achieves communicate with them all relationships or Loss and other Comprehensive fair presentation. and other matters that may reasonably be Income for the Year Ended thought to bear on our independence, and We communicate with those charged with where applicable, related safeguards. 31 December 2017 governance regarding, among other mat- ters, the planned scope and timing of the From the matters communicated with (in millions of Russian Rubles, audit and significant audit findings, in- those charged with governance, we deter- cluding any significant deficiencies in in- mine those matters that were of most sig- except per share data) ternal control that we identify during our nificance in the audit of the consolidated audit. financial statements of the current period and are therefore the key audit matters. Notes 2017 2016
Revenue 6 97,003 79,547
Cost of sales (64,205) (52,439)
GROSS PROFIT 32,798 27,108 Vladimir Biryukov Selling, general and administrative expenses 7 (24,766) (20,483) Engagement partner Share of profit of associate, net of income tax – 9
Other operating expenses, net (8) (30) 2 March 2018 OPERATING PROFIT 8,024 6,604
Finance income 8 28 170 The Entity: PJSC “Detskymir” Audit Firm: ZAO “Deloitte &Touche CIS” Finance expenses 8 (1,866) (1,938) State Registration Certificate No. 7701233499 Certificate of state registration № 018.482, issued by issued by Interregional Inspectorate of the Russian the Moscow Registration Chamber on 30.10.1992. Gain on acquisition of controlling interest in associate 1 – 16 Ministry of Taxes and Levies No. 29 for Moscow on 13.09.1999. Primary State Registration Number: 1027700425444 Foreign exchange (loss)/gain, net (306) 33
PROFIT BEFORE TAX 5,880 4,885 Primary State Registration Number: 1027700047100 Certificate of registration in the Unified State Register № 77 004840299 of 13.11.2002, issued Income tax expense 9.1 (1,036) (1,065) Address: 37 VernadskyProspekt, bldg. 3, Moscow, 117415, byMoscowInterdistrict Inspectorate of the Russian Russia Ministry of Taxation № 39. PROFIT FOR THE YEAR 4,844 3,820
Member of Self-regulated organization of auditors Other comprehensive income: “Russian Union of auditors” (Association), ORNZ Items that may be reclassified subsequently to profit or loss: 11603080484. Effect of translation to presentation currency 16 65
TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,860 3,885
Earnings per share
Weighted average number of shares outstanding, basic and diluted: 738,475,180 739,000,000
Earnings per share, basic and diluted
(in Russian Rubles per share) 6.56 5.17
PJSC Detsky Mir Annual Report 2017 Appendix Consolidated Statement of Financial Рosition as at 31 December 2017 132–133
Consolidated Statement of Financial Consolidated Statement of Changes in Рosition as at 31 December 2017 Shareholders’ Equity for the Year Ended (in millions of Russian Rubles) 31 December 2017 (in millions of Russian Rubles)
At 31 December At 31 December Notes 2017 2016 ASSETS Share Treasury Additional Accu- Currency Total NON-CURRENT ASSETS: capital shares paid-in mulated translation Property, plant and equipment 10 7,486 6,943 capital deficit reserve Intangible assets 11 1,362 1,301 Balance at 1 January 2016 1 – 5,793 (5,448) 49 395 Long-term loan receivable 12 – 1,060 Profit for the year – – – 3,820 – 3 820 Deferred tax assets 9.2 1,593 1,708 Other non-current assets 13 241 263 Other comprehensive income – – – – 65 65 Total non-current assets 10,682 11,275 CURRENT ASSETS: TOTAL COMPREHENSIVE INCOME – – – 3,820 65 3,885 Inventories 14 26,440 24,796 FOR THE YEAR Trade receivables 15 2,244 3,855 Share-based compensation (Note 20) – – – (307) – (307) Advances paid and other receivables 16 1,887 2,351 Prepaid income tax 7 7 Dividends (Note 18) – – – (4,427) – (4,427) Cash and cash equivalents 17 3,155 2,445 Balance at 31 December 2016 1 – 5,793 (6,362) 114 (454) Total current assets 33,733 33,454 TOTAL ASSETS 44,415 44,729 Profit for the year – – – 4,844 – 4,844 EQUITY AND LIABILITIES SHAREHOLDERS’ DEFICIT: Other comprehensive income – – – – 16 16 Share capital 18 1 1 TOTAL COMPREHENSIVE INCOME – – – 4,844 16 4,860 Treasury shares 18 (60) – FOR THE YEAR Additional paid-in capital 5,793 5,793 Accumulated deficit (6,386) (6,362) Share-based compensation (Note 20) – – – 170 – 170 Currency translation reserve 130 114 Purchase of treasury shares (Note 18) – (375) – – – (375) Total deficit (522) (454)
NON-CURRENT LIABILITIES Settlement of share-based compensation – 272 – (272) – – Long-term loans and borrowings 19 8,956 6,514 with treasury shares (Note 20) Deferred tax liabilities 9.2 29 69 Sale of treasury shares (Note 18) – 43 – – – 43 Total non-current liabilities 8,985 6,583
CURRENT LIABILITIES Dividends (Note 18) – – – (4,766) – (4,766) Trade payables 24,388 25,215 Short-term loans and borrowings and current portion of long-term 19 4,635 8,124 Balance at 31 December 2017 1 (60) 5,793 (6,386) 130 (522) loans and borrowings Advances received, other payables and accrued expenses 21 6,076 3,834 Deferred revenue 22 606 816 Current income tax liability 247 611 Total current liabilities 35,952 38,600 Total liabilities 44,937 45,183 TOTAL EQUITY AND LIABILITIES 44,415 44,729
PJSC Detsky Mir Annual Report 2017 Appendix Consolidated Statement of Cash Flows for the Year Ended 31 December 2017 134–135
2017 г. 2016 г. Consolidated Statement of Cash Flows Increase in inventories (2,964) (8,654) for the Year Ended 31 December 2017 (Decrease)/increasein trade payables (1,116) 8,579 (in millions of Russian Rubles) Increase in advances received, other payables and accrued expenses 1,095 845
(Decrease)/increase in deferred revenue (210) 538
2017 г. 2016 г. Cash generated by operations 10,248 9,081
Operating activities: Interest paid (1,658) (1,857)
Profit for the year 4,844 3,820 Interest received 13 45
Adjustments for: Income tax paid (1,523) (1,468)
Income tax expense recognized in profit or loss 1,036 1,065 Net cash generated byoperating activities 7,080 5,801
Expense on equity-settled share-based compensation 170 – Investing activities:
Finance income (28) (170) Payments for property, plant and equipment (2,072) (1,468)
Finance expense 1,866 1,938 Payments for intangible assets (396) (279)
Loss on disposal of property, plant and equipment and intangible assets 14 4 Net inflow of cash and cash equivalents on acquisition of controlling interest in – 15 associate (Note 1) Bad debt expense 25 34
Repayment of loans receivable 1,074 4,888 Shrinkage and inventory obsolescence expenses 1,320 1,264
Dividends received from associate – 9 Depreciation and amortization expense 1,818 1 591
Proceeds from disposal of property, plant and equipment 24 – Foreign exchange loss/ (gain), net 306 (33)
Net cash (used in)/received from investing activities (1,370) 3,165 Gain on acquisition of controlling interest in associate – (16)
Financing activities: Share of profit of associate, net of income tax – (9)
Purchase of treasury shares (375) – Changes in working capital:
Sale of treasury shares 43 – Decrease/(increase) in trade receivables 1,606 (1,149)
Repayment of loans and borrowings (40,666) (30,290) Decrease/(increase) in advances paid and other receivables 466 (566)
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 136–137
2017 г. 2016 г. The status of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Dividends paid (3,623) (4,427) № governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance Share-based compensation paid – (307) governance
The Company must ensure equal and fair treatment of all shareholders in the exercise of their right to participate 1.1 Proceeds from loans and borrowings 39,621 26,569 in the management of the Company.
1.1.1 The Company creates 1. In the public domain there is an Compliant Net cash used in financing activities (5,000) (8,455) the most favorable internal document of the Company conditions for share- approved by the general meeting of holders to participate shareholders and regulating the pro- NET INCREASE IN CASH AND CASH EQUIVALENTS 710 511 in the general meeting, cedure for holding a general meeting. the conditions for working out a justified 2. The Company provides an acces- sible way of communicating with CASH AND CASH EQUIVALENTS, beginning of the year 2,445 1,934 position on the agenda of the general meeting, the public, such as a hotline, e-mail coordinating their or forum on the Internet, allowing shareholders to express their opinion CASH AND CASH EQUIVALENTS, end of the year 3,155 2,445 actions, as well as the opportunity to express and forward questions regarding the their opinion on the agenda in preparation for the general issues under consid- meeting. These actions were under- eration. taken by the Company on the eve of each general meeting that took place during the reporting period.
This report on compliance with the princi- 1.1.2 The procedure for 1. The notice of the general meeting Compliant ples and recommendations of the Code of reporting a general of shareholders is posted (published) Corporate Governance was considered by meeting and submit- on the website on the Internet at least Report on Compliance ting materials to a 30 days before the date of the general the Board of Directors of the Public Joint general meeting gives meeting. Stock Company Detsky Mir at the meet- shareholders the op- with the Principles of portunity to properly 2. In the message on holding the ing of the Board of Directors as of April 13, prepare for participa- meeting, the meeting venue and docu- tion in it. ments required for admission to the the Code of Corporate 2018, Protocol No. 5 as of April 16, 2018. premises are indicated. 3. Shareholders were provided with Governance The Board of Directors confirms that the access to information about who pro- data contained in this report contains com- posed the agenda and who nominated candidates for the Board of Directors plete and reliable information on the Com- and the Audit Commission of the pany’s compliance with the principles and Company. recommendations of the Corporate Gover- 1.1.3 During the prepara- 1. During the reporting period, share- Compliant nance Code for 2017. tion and holding of holders were given the opportunity the general meeting, to ask questions to members of the shareholders had the executive bodies and members of the opportunity to receive Board of Directors of the Company on information about the the eve and during the annual general meeting and materials meeting. on it without hindrance and in a timely manner, 2. The position of the Board of Direc- to ask questions to the tors (including dissenting opinions) executive bodies and on each item of the agenda of general members of the Board meetings held during the reporting of Directors of the period was included in the materials Company, to communi- for the general meeting of sharehold- cate with each other. ers. 3. The Company granted sharehold- ers entitled to this access to the list of persons entitled to participate in the general meeting, starting from the date of its receipt by the Company, in all cases of holding general meetings in the reporting period.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 138–139
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
1.1.4 The realization of the 1. In the reporting period, the share- Compliant 1.1.6 The procedure estab- The procedure established by the Partially com- Providing shareholders with right of the share- holders had the opportunity, for at lished by the Company Company for the conduct of the pliant remote access to partici- holder to demand least 60 days after the end of the cor- for the conduct of general meeting provides an equal pate in general meetings by the convocation of a responding calendar year, to submit the general meet- opportunity for all persons present at using telecommunications general meeting, nomi- proposals for inclusion in the agenda ing provides an equal the meeting to express their opinion means has a number of nate candidates to the of the annual general meeting. opportunity for all and ask questions of interest to them. technical difficulties, one of management bodies persons present at the which is the identification 2. Candidates to the management and and make proposals for 2. During the reporting period, the meeting to express of the identity of the share- control bodies of the Company were inclusion in the agenda Company did not refuse to accept their opinion and ask holder or his representative available for answering the ques- of the general meeting proposals to the agenda or nomi- questions of interest and can be provided only tions of shareholders at the meeting was not accompanied nees for the Company’s bodies due to them. by the person performing at which their nominees were put to by unjustified difficul- to misprints and other insignificant the functions of the count- the vote. ties. shortcomings in the shareholder’s ing commission of the proposal. 3. The Board of Directors, when mak- Company. At present, such ing decisions related to the prepara- an opportunity is realized 1.1.5 Each shareholder had 1. The internal document (internal Non-comp In accordance with the Civil tion and conduct of general meetings for persons whose rights to the opportunity to policy) of the Company contains liant Code of the Russian Fed- of shareholders, considered the issue securities are accounted for freely exercise the provisions according to which each eration, the decision of the of using telecommunications to by a nominal holder. Also, right to vote in the member of the general meeting can general meeting of share- provide remote access to shareholders the Company is considering simplest and most request a copy of the ballot filled out holders of a public joint for participation in general meetings the possibility of including convenient way for by him, certified by the counting com- stock company and the in the reporting period. in the charter provisions on him/her. mission, before the completion of the composition of the Compa- the possibility of complet- relevant meeting. ny’s participants present at ing an electronic form of its adoption are confirmed the voting ballot on the in the person maintaining website of the registrar of the register of shareholders the Company. (registrar) and performing the functions of a counting 1.2 Shareholders are given an equal and fair opportunity to participate in the Company’s profits through the receipt commission. Due to the of dividends. fact that the function of the counting commission is performed by another legal 1.2.1 The Company de- 1. The Company has been developed, Compliant entity, the norms contained veloped and imple- approved by the Board of Directors in the internal documents mented a transparent and disclosed the dividend policy. and understandable of the Company are not 2. If the Company’s dividend policy mandatory for the registrar. mechanism for de- termining the amount uses the Company’s reporting indica- This issue has no solution, tors to determine the amount of in the manner prescribed of dividends and their payment. dividends, then the relevant provi- by the Code of Corporate sions of the dividend policy take Governance (hereinafter — into account consolidated financial CCG). In practice, not one statements. shareholder has yet been refused a copy of the com- pleted ballot, certified by the counting commission.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 140–141
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
1.2.2 The Company does not 1. The dividend policy of the Com- Non-com- The amount of the 1.3.2 The Company does not 1. Quasi-treasury shares are absent or Compliant take a decision on the pany contains clear indications of pliant dividend and the proce- take any actions that did not participate in voting during the payment of dividends, financial / economic circumstances dure for its payment are lead or can lead to an reporting period. unless such decision, in which the Company should not pay determined on the basis artificial redistribution formally violating the dividends. of the recommendations of of corporate control. restrictions established the Board of Directors of by law, is economically the Company. The members unjustified and can of the Board of Directors 1.4 Shareholders are provided with reliable and effective ways of recording rights to shares, as well as the possibility lead to the formation of the Company are obliged of free and easy alienation of their shares. of false ideas about to act in the interests of the activities of the the Company, exercise 1.4.1 Shareholders are pro- 1. The quality and reliability of the Compliant Company. their rights and perform vided with reliable and activities carried out by the registrar in duties with respect to the effective ways of record- maintaining the register of securities Company in good faith and ing rights to shares, as owners correspond to the needs of reasonably. The qualifica- well as the possibility of the Company and its shareholders. tion of the members of free and easy alienation the Board of Directors of of their shares. the Company makes it possible to determine the 2.1 circumstances under which The Board of Directors carries out strategic management of the Company, determines the main principles and the Company should not approaches to the organization of the risk management system and internal control in the Company, controls the pay dividends. The issue activities of the executive bodies of the Company, and also implements other key functions. of adjusting the dividend policy is considered by the 2.1.1 The Board of Directors 1. The Board of Directors has the Compliant Board of Directors at least is responsible for mak- authority to appoint, dismiss from the once every 3 years. ing decisions related to office and determine the terms of con- the appointment and tracts with respect to members of the 1.2.3 The Company does 1. In the reporting period, the Com- Compliant dismissal of execu- executive bodies. not allow deterioration pany did not take any actions leading tive bodies, including of dividend rights of to a deterioration in the dividend in connection with 2. The Board of Directors reviewed the existing shareholders. rights of existing shareholders. improper performance report (reports) of the sole executive of their duties. The body and members of the collegial 1.2.4 1. In the reporting pe- 1. In order to exclude sharehold- Compliant Board of Directors executive body on the implementa- riod, the Company did ers from other ways of generating also supervises that tion of the Company’s strategy. not take any actions profit (income) at the expense of the the executive bodies leading to a deteriora- Company, in addition to dividends of the company act in tion in the dividend and liquidation value, the internal accordance with the rights of existing documents of the Company establish approved develop- shareholders. control mechanisms that ensure the ment strategy and the timely identification and procedure for main activities of the approving transactions with persons company. affiliated with significant shareholders persons having the right to dispose of votes falling on voting shares), in 2.1.2 The Board of Directors 1. During the reporting period, the Compliant cases where the law does not formally sets the main guide- Board of Directors considered issues recognize such transactions as related lines for the company’s related to the implementation and party transactions. activities for the long actualization of the strategy, approval term, evaluates and of the financial and economic plan 1.3 The system and practice of corporate governance ensure equality of conditions for all shareholders — owners of approves key perfor- (budget) of the company, and con- shares of one category (type), including minority (small) shareholders and foreign shareholders, and equal treat- mance indicators and sideration of criteria and indicators ment of them by the Company. the main business (including intermediate) implementa- objectives of the Com- tion of the strategy and business plans 1.3.1 The Company cre- 1. During the reporting period, the Compliant pany, evaluates and of the Company. ated conditions for procedures for managing potential approves the strategy fair treatment of each conflicts of interest of significant and business plans for shareholder by man- shareholders are effective, and con- the main types of the agement bodies and flicts of the shareholders, if any, have Company’s activities. controlling persons of been given due attention by the Board the Company, includ- of Directors. ing conditions ensuring that large shareholders are not abused against minority shareholders.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 142–143
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
2.1.3 The Board of Directors 1. The Board of Directors defined the Compliant 2.1.7 The Board of Direc- 1. During the reporting period, the Non- In the reporting year, the determines the prin- principles and approaches to the organi- tors exercises control Board of Directors took into consider- compliant Board of Directors did not ciples and approaches zation of the system of risk management over the practice of ation the issue of corporate gover- consider the issue of cor- to the organization and internal control in the Company. corporate governance nance practices in the Company. porate governance practice of the system of risk in the Company and in the Company. management and 2. The Board of Directors assessed the plays a key role in the internal control in the risk management system and internal significant corporate Company. control of the Company during the events of the Company. reporting period.
2.1.4 The Board of Direc- 1. The Company developed and imple- Partially com- The Regulation on remu- 2.2 The Board of Directors is accountable to the shareholders of the Company. tors determines the mented a policy (policies) approved by pliant neration and compensation Company’s policy on the Board of Directors on remunera- paid to members of the 2.2.1 Information on the 1. The annual report of the Company Partially Information on the results remuneration and (or) tion and reimbursement of expenses Board of Directors of the work of the Board of for the reporting period includes in- compliant of the evaluation of the reimbursement of ex- (compensation) of members of the Company was approved Directors is disclosed formation on attendance of meetings work of the Board of Direc- penses (compensation) Board of Directors, executive bodies by the General Meeting and provided to share- of the Board of Directors and commit- tors is not disclosed in the to the members of the of the Company and other key man- of Shareholders of the holders. tees by individual directors. Annual Report. Board of Directors, agement personnel of the Company. Company. Provisions on executive bodies and remuneration and com- 2. The annual report contains infor- other key executives of 2. During the reporting period, issues pensation for members of mation on the main results of the the Company. related to this policy (policies) were the management bodies evaluation of the work of the Board of considered at the meetings of the and key employees of the Directors conducted in the reporting Board of Directors. Company (there are several period. local acts) are approved by the Board of Directors 2.2.2 The chairman of the 1. There is a transparent procedure in Compliant of the Company. Thus, the Board of Directors is the society that provides shareholders Board of Directors of the available for com- with the opportunity to send ques- Company annually consid- munication with the tions to the chairman of the Board of ers issues related to remu- shareholders of the Directors and their position on them. neration and motivation Company. of the executive bodies of the Company and other key 2.3 The Board of Directors is the effective and professional management body of the Company, capable of making employees, but does not objective independent judgments and taking decisions that are in the interests of the Company and its share- consider issues of remu- holders. neration and compensation for members of the Board 2.3.1 Only those persons 1. The procedure for evaluating the Partially The Company carries out of Directors, this issue is at- who have an impec- effectiveness of the work of the Board compliant candidate evaluations for tributed to the competence cable business and of Directors includes, among other compliance with the inde- of the General Meeting of personal reputation things, the assessment of the profes- pendent criteria of PJSC Shareholders. and who possess the sional qualifications of the members “Moscow Exchange” and knowledge, skills and of the Board of Directors. the absence of a conflict 2.1.5 The Board of Directors 1. The Board of Directors plays a key Compliant experience neces- of interest. Evaluation of plays a key role in role in preventing, identifying and sary to take decisions 2. During the reporting period, the the professional qualities preventing, identifying resolving internal conflicts. within the compe- Board of Directors (or its nominations of candidates is carried out committee) evaluated candidates and resolving internal tence of the Board by persons who nominate for the Board of Directors in terms conflicts between the 2. The Company established a system of Directors and are candidates for the Board of having the necessary experience, Company’s bodies, for identifying transactions related required for the effec- of Directors. In the event to a conflict of interest and a system tive performance of its knowledge, business reputation, lack that shareholders offer shareholders and of conflict of interest, etc. employees of the of measures aimed at resolving such functions are elected an insufficient number Company. conflicts by the members of the of candidates for the Board of Directors. formation of the Board of 2.1.6 The Board of Directors 1. The Board of Directors approved a Compliant Directors, the current Board plays a key role in provision on information policy. of Directors shall be guided by the Company’s needs ensuring the transpar- 2. The Company is responsible for the for specific specialists and ency of the Company, subjective assessments. the timeliness and implementation of the information completeness of the policy. In 2018, the Board of disclosure by the Com- Directors does not plan pany of information, to implement procedures and the easy access for evaluating candidates of shareholders to to the Board of Directors the documents of the in terms of having the necessary experience and Company. knowledge.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 144–145
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
2.3.2 Members of the 1. In all cases the holding of a general Partially The Company carries out 2.4 The Board of Directors includes a sufficient number of independent directors. Company’s Board of meeting of shareholders in the re- compliant candidate evaluations for Directors are selected porting period, the agenda of which compliance with the inde- 2.4.1 An independent direc- 1. During the reporting period, all Compliant through a transparent included issues on the election of pendent criteria of PJSC procedure that allows the Board of Directors, the Company “Moscow Exchange” and tor is a person who independent members of the Board shareholders to obtain provided the shareholders with the the absence of a conflict has sufficient profes- of Directors met all independence information about their biographical information of all candi- of interest. Assessment of sionalism, experience criteria specified in recommendations personal and profes- dates for the Board of Directors, the the professional qualities and independence 102 — 107 of the Code, or were recog- sional qualities. results of the evaluation of such can- of candidates is carried out to form his/her own nized as independent by the decision didates held by the Board of Directors by persons who nominate position, is able to make of the Board of Directors. (or its nominations committee), as candidates for the Board objective and con- well as information on the candidate’s of Directors. In the event scientious judgments compliance with the criteria for inde- that shareholders offer that are independent pendence, in accordance with recom- an insufficient number of the influence of the mendations 102 — 107 of the Code of candidates for the executive bodies of and written consent of candidates for formation of the Board of the Company, certain election to the Board of Directors. Directors, the current Board groups of shareholders of Directors shall be guided or other interested par- by the Company’s needs ties. It should be borne for specific specialists and subjective assessments. in mind, however, that in ordinary circum- In 2018, the Board of stances an independent Directors does not plan candidate (an elected to implement procedures member of the Board for evaluating candidates of Directors) who is to the Board of Directors connected with the in terms of having the Company, its significant necessary experience and shareholder, significant knowledge. counterparty or com- petitor of the Company 2.3.3 The composition of 1. Within the framework of the Board Compliant or is connected with the the Board of Directors of Directors evaluation procedure state cannot be consid- is balanced, including conducted during the reporting pe- ered independent. by the qualifications riod, the Board of Directors reviewed of its members, their for its own needs in the field of 2.4.2 An assessment is made 1. During the reporting period, the Partially The criteria for the indepen- experience, knowledge professional qualifications, experience of the compliance Board of Directors (or the Commit- compliant dence of the members of and business qualities, and business skills. of candidates to the tee on Nominations of the Board of the Board of Directors are and enjoys the share- Board of Directors with Directors) formed an opinion on the determined by the rules of holders’ trust. independence criteria, independence of each candidate to the listing of PJSC “Moscow as well as a regular the Board of Directors and presented Exchange”. The compli- analysis of the compli- a respective conclusion to the share- ance of the members of 2.3.4 The quantitative 1. As part of the Board of Directors’ Compliant ance of independent holders. the Board of Directors with composition of the evaluation procedure conducted members of the Board independence criteria deter- Board of Directors of during the reporting period, the Board of Directors with 2. During the reporting period, the mined by the PJSC “Moscow the Company provides of Directors considered the issue of independence criteria Board of Directors (or the Committee Exchange” is carried out an opportunity to the quantitative composition of the is carried out. When on Nominations of the Board of Di- quarterly by the Company. organize the work of Board of Directors in accordance with carrying out such rectors) at least once considered the The criteria for indepen- the Board of Directors the needs of the Company and the an assessment, the independence of the current members dence of PJSC “Moscow Ex- in the most effective interests of shareholders. content should prevail of the Board of Directors, whom the change” are objective and do manner, including the over the form. Company specifies in its annual report not depend on subjective possibility of forming as independent directors. assessments of the Board of committees of the Directors of the Com- Board of Directors, 3. The company developed procedures pany. Information on the and also provides for that determine the necessary actions compliance of candidates significant minor- of a member of the Board of Direc- to the Board of Directors, ity shareholders of tors in the event that it ceases to be with the aforementioned the Company the independent, including the obliga- independence criteria, was opportunity to elect a tion to promptly inform the Board of provided to shareholders candidate for whom Directors about it. as part of materials for the they vote. annual general meeting of shareholders. The provision of duplicate information on this issue is superfluous.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 146–147
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
2.4.3 Independent directors 1. Independent directors make up at Compliant 2.5.2 The Chairman of the 1. The effectiveness of the work of the Compliant make up at least one- least one-third of the composition of Board of Directors chairman of the Board of Directors third of the elected the Board of Directors. ensures a construc- was evaluated in the framework of Board of Directors. tive atmosphere for the procedure for evaluating the ef- holding meetings, free fectiveness of the Board of Directors 2.4.4 Independent directors 1. Independent directors (who have Partially The opinion of indepen- discussion of issues in the reporting period. play a key role in pre- no conflict of interest) preliminarily compliant dent directors is taken into on the agenda of the venting internal con- assess significant corporate actions account first of all, but the meeting, monitoring flicts in the Company related to a possible conflict of evaluation of any actions of the implementation of and in committing the interest, and the results of such an the Company is purely sub- decisions taken by the Company to significant assessment are provided to the Board jective, it is not conducted Board of Directors. corporate actions. of Directors. within the framework of any formalized procedure 2.5.3 The Chairman of 1. The obligation of the chairman of Compliant and is not mandatory. The the Board of Direc- the Board of Directors to take mea- Company does not plan tors shall take the sures to ensure the timely provision to introduce formalized necessary measures to of materials to members of the Board procedures for evaluating provide the mem- of Directors on the agenda of the significant corporate ac- bers of the Board of meeting of the Board of Directors is tions in 2018. Directors with timely enshrined in the internal documents information necessary of the Company. for making decisions 2.5 The Chairman of the Board of Directors promotes the most effective implementation of the functions assigned on the agenda items. to the Board of Directors.
2.5.1 An independent 1. The Chairman of the Board of Direc- Partially The role, rights and duties 2.6 Members of the Board of Directors act in good faith and reasonably in the interests of the Company and its director elected chair- tors is an independent director, or a compliant of the chairman of the shareholders on the basis of sufficient information with due diligence and circumspection. man of the Board of senior independent director is defined Board of Directors are Directors, or a senior among independent directors. defined in the Regulations 2.6.1 Members of the Board 1. The Company’s internal documents Compliant independent director on the Board of Direc- of Directors make establish that a member of the Board 2. The role, rights and duties of the appointed from among tors of the Company. The decisions taking into of Directors must notify the Board of chairman of the Board of Directors the elected indepen- Chairman of the Board of account all available Directors if he has a conflict of inter- (and, if applicable, the senior indepen- dent directors, coor- Directors is not an inde- information, in the est with respect to any item on the dent director) are duly determined dinating the work of pendent director. Inde- absence of a conflict agenda of a meeting of the Board of in the internal documents of the independent directors pendent members of the of interest, taking into Directors or a committee of the Board Company. and interacting with Board of Directors do not account equal treat- of Directors before the discussion of the chairman of the elect a senior independent ment of the sharehold- the relevant agenda item. Board of Directors. director to interact with the ers of the Company, Chairman of the Board of within the framework 2. Internal documents of the Company Directors. A ll independent of normal entrepre- stipulate that a member of the Board directors have the right to neurial risk. of Directors must refrain from voting freely express their opinion on any issue in which he/she has a and apply to the chair- conflict of interest. man on any issues of the 3. The Company has established a activities of the supervisory procedure that allows the Board of Di- board. From the point of rectors to receive professional advice view of the Company, the on matters within its competence at excessive regulation of the expense of the Company. relations between members of the Board of Directors complicates and delays 2.6.2 The rights and duties 1. The Company adopted and pub- Compliant decision-making processes. of the members of the lished an internal document that The Company does not in- Board of Directors are clearly defines the rights and duties tend to alter the aforemen- clearly articulated and of members of the Board of Directors. tioned approach in 2018. fixed in the internal documents of the Company.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 148–149
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
2.6.3 Members of the Board 1. Individual attendance of meetings Partially The Company keeps 2.7.3 The form of the meet- 1. The Charter or internal document of Partially The content of the list of Directors have of the council and committees, as well compliant records of attendance of ing of the Board of Di- the Company stipulates that the most compliant given in Recommendation enough time to fulfill as the time devoted to preparing for meetings of the council rectors is determined important issues (according to the list 168 of the Code is redun- their duties. participation in meetings, was taken and committees, but the by taking into account given in recommendation 168 of the dant. Regulations for the into account in the procedure for Company does not have the importance of the Code) should be considered at the Company’s Board of Direc- evaluating the Board of Directors in procedures that allow it to issues on the agenda. Board’s internal meetings. tors may provide for a list of the reporting period. take into account the time The most important issues, which may be only paid by the members of issues are resolved considered at formal Meet- 2. In accordance with the Company’s the Board of Directors to at meetings held in ings of Board of Direc- internal documents, the members of prepare for the meetings. full-time. tors of the Company. The the Board of Directors are required First of all, this is due to the Company does not intend to notify the Board of Directors of fact that members of the to alter the aforementioned their intention to join the manage- Board of Directors are not approach in 2018. ment bodies of other organizations (in employees of the Company addition to the Company’s controlled and do not comply with the 2.7.4 Decisions on the 1. The Charter of the Company Non- In practice, all decisions and dependent organizations), as well Company’s internal labor most important issues provides that decisions on the most compliant taken by the Board of as the fact of such appointment. regulations. of the Company’s important issues set forth in Recom- Directors are made by a activities are taken at a mendation 170 of the Code should majority vote of all elected meeting of the Board be taken at a meeting of the Board of members of the Board of 2.6.4 All members of the 1. In accordance with the Company’s Compliant of Directors by a quali- Directors by a qualified majority of no Directors. Board of Directors internal documents of, members of fied majority or by a less than three-quarters of the votes, have an equal op- the Board of Directors have the right majority of all elected or by a majority of votes of all elected portunity to access to access documents and make in- members of the Board members of the Board of Directors. documents and infor- quiries concerning the Company and of Directors. mation of the society. organizations under its control, and Sufficient information the executive bodies of the Company 2.8 The Board of Directors establishes a committees for preliminary consideration of the most important issues on the Company and are obliged to provide relevant infor- regarding the Company’s activities. the work of the Board mation and documents. of Directors is pro- 2.8.1 For the preliminary 1. The Board of Directors formed an Compliant vided to newly elected 2. In the Company there is a formal- ized program of familiarization activi- consideration of issues audit committee consisting exclu- members of the Board related to the control sively of independent directors. of Directors in the ties for newly elected members of the Board of Directors. over the financial and shortest possible time. business activities of 2. The Company’s internal documents the Company, an audit set out the tasks of the Audit Commit- tee, including, among others, the tasks 2.7 Meetings of the Board of Directors, preparation for them and participation in them by the members of the committee has been contained in recommendation 172 of Board of Directors ensure the effective functioning of the Board of Directors. set up consisting of independent directors. the Code. 2.7.1 Meetings of the Board 1. The Board of Directors held at least Compliant 3. At least one member of the Audit of Directors are held as six meetings for the reporting year. Committee, who is an independent di- necessary, taking into rector, has experience and knowledge in the preparation, analysis, evaluation account the scope of and audit of accounting (financial) activities and the tasks statements. facing the Company in a certain period of 4. The meetings of the Audit Commit- time. tee were held at least once a quarter during the reporting period. 2.7.2 The Company’s inter- 1. An internal document has been Compliant nal documents stipu- approved in the C ompany which de- 2.8.2 For the preliminary 1. The Board of Directors established Compliant The Committee on ap- late the procedure for termines the procedure for preparing consideration of issues a remuneration committee, which con- pointments and remunera- preparing and holding and holding meetings of the Board of related to the forma- sists only of independent directors. tions created by the Board meetings of the Board Directors, which, among other things, tion of an effective and of Directors. transparent remunera- 2. The chairman of the remuneration of Directors, which en- stipulates that notice of the meeting committee is an independent director sures that members of should be made, as a rule, no less than tion practice, a remu- neration committee who is not the chairman of the Board the Board of Directors 5 days before the date of the meeting. of Directors. can properly prepare has been set up con- for its conduct. sisting of independent 3. The Company’s internal documents directors and is headed set out the tasks of the remuneration by an independent committee, including, among other director who is not the things, the tasks contained in recom- chairman of the Board mendation 180 of the Code. of Directors.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 150–151
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
2.8.3 For the preliminary 1. The Board of Directors established Compliant The Committee on ap- 2.9 The Board of Directors provides an assessment of the quality of the work of the Board of Directors, its commit- consideration of a committee on nominations (or its pointments and remunera- tees and members of the Board of Directors. issues related to the tasks specified in recommendation tions created by the Board implementation of 186 of the Code, implemented in the of Directors. 2.9.1 The assessment of the 1. The self-assessment or external Partially Self-assessment did not personnel planning framework of another committee quality of the work of evaluation of the work of the Board of compliant include individual assess- (succession planning), <4>), the majority of whose members the Board of Directors Directors carried out in the reporting ment of board members professional composi- are independent directors. is aimed at determin- period included the evaluation of the tion and efficiency of ing the degree of work of committees, individual mem- the work of the Board 2. In the Company’s internal docu- efficiency of the work bers of the Board of Directors and the of Directors, a commit- ments the tasks of the nominations of the Board of Direc- Board of Directors as a whole. tee on nominations committee (or the corresponding tors, committees and (appointments, cadres) committee with combined functions) members of the Board 2. The results of the self-assessment has been created, the are defined, including, among other of Directors, match- or external evaluation of the Board of majority of whose things, the tasks contained in recom- ing their work to the Directors held during the reporting members are indepen- mendation 186 of the Code. needs of the Com- period were considered at the internal dent directors. pany’s development, meeting of the Board of Directors. revitalizing the work of 2.8.4 Taking into account 1. In the reporting period, the Board of Compliant The Strategy Committee the Board of Directors the scale of activities Directors of the Company considered was formed and identifying areas in and the level of risk, the issue of the compliance of the which their activities the Board of Directors composition of its committees with may be improved. of the Company was the tasks of the Board of Directors satisfied that the com- and the objectives of the Company’s 2.9.2 Evaluation of the work 1. For an independent assessment of Non- The Company did not position of its com- activities. The additional commit- of the Board of Direc- the quality of the work of the Board of compliant involve consultants for an mittees fully meets the tees were either formed, or were not tors, committees and Directors, at least once the Company independent assessment objectives of the Com- deemed necessary. members of the Board was involved in external organization of the quality of the work pany’s activities. The of Directors is carried (consultant) at least once in the last of the Board of Directors. additional committees out on a regular basis three reporting periods. Such an item of expendi- were either formed at least once a year. To ture is also not provided in or were not deemed conduct an indepen- the 2018 budget. necessary (Strategy dent assessment of the Committee, Corporate quality of the work of Governance Commit- the Board of Directors, tee, Ethics Committee, an external organiza- Risk Management tion (consultant) is Committee, Budget engaged at least once Committee, Health, every three years. Safety and Environ- ment Committee, etc.). 3.1 The corporate secretary of the Company effectively carries out current interaction with shareholders, coordina- tion of the Company’s actions to protect the rights and interests of shareholders, supporting the effective work 2.8.5 The composition of 1. Committees of the Board of Direc- Compliant of the Board of Directors. the committees is de- tors are headed by independent fined in such a way that directors. 3.1.1 The corporate secre- 1. The Company adopted and dis- Partially Qualification requirements it allows for a compre- 2. The internal documents (policies) tary has the knowledge, closed an internal document — provi- compliant for the Company’s corpo- hensive discussion of experience and quali- sion on the corporate secretary. rate secretary are in ac- of the Company provide for the provi- the issues considered fications, sufficient for cordance with the rules of sions according to which persons who in advance, taking the performance of 2. The biographical information on the listing of PJSC “Moscow into account different are not members of the audit com- the duties assigned to the corporate secretary, with the same Exchange”. opinions. mittee, the Nominations Committee him/her, an impec- level of detail as for members of the and the remuneration committee, can cable reputation and Board of Directors and executive The Company did not attend committee meetings only at enjoys the trust of the management of the Company, is pro- receive the consent of an the invitation of the chairman of the shareholders. vided on the Company’s website on individual to disclose his/ relevant committee. the Internet and in the annual report. her personal data
2.8.6 The chairmen of the 1. During the reporting period, chair- Compliant 3.1.2 The corporate secre- 1. The Board of Directors approves Compliant committees regularly men of the committees regularly tary has sufficient in- the appointment, removal from office inform the Board of reported on the work of the commit- dependence from the and additional remuneration of the Directors and their tees to the Board of Directors. executive bodies of corporate secretary. chairman about the the Company and has work of their commit- the necessary powers tees. and resources to carry out the tasks assigned to him/her.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 152–153
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
4.1 The level of remuneration paid by the Company is sufficient to attract, motivate and retain individuals who have 4.1.4 The Company de- 1. In the remuneration policy (policies) Compliant the necessary competence and qualifications for the Company. Payment of remuneration to members of the termines the policy or in other internal documents of the Board of Directors, executive bodies and other key executives of the Company is carried out in accordance with of reimbursement of Company, the rules for reimbursement the Company’s remuneration policy. expenses (compensa- of expenses of members of the Board tions), which specifies of Directors, executive bodies and 4.1.1 The level of remunera- 1. The company adopted an internal Compliant the list of expenses other key management personnel of tion provided by the document (documents) — a policy subject to reimburse- the Company are established. Company to members (policies) for the remuneration of ment, and the level of the Board of Direc- members of the Board of Direc- of service for which tors, executive bodies tors, executive bodies and other key members of the and other key execu- management personnel, which clearly Board of Directors, tives creates sufficient defines the approaches to remunera- executive bodies and motivation for their ef- tion of the said persons. fective work, allowing other key manage- the Company to attract ment personnel of the and retain competent Company can claim. and qualified special- Such a policy can be ists. At the same time, an integral part of the the Company avoids policy of the Company more than necessary, on remuneration. the level of remu- neration, as well as an 4.2 The system of remuneration of members of the Board of Directors ensures the convergence of the directors’ unreasonably large gap financial interests with the long-term financial interests of shareholders. between the levels of remuneration of these individuals and the 4.2.1 The Company pays 1. Fixed annual remuneration was the Compliant Company’s employees. a fixed annual fee to only monetary form of remuneration the members of the for members of the Board of Direc- Board of Directors. The tors for their work on the Board of 4.1.2 The Company’s policy 1. During the reporting period, the Compliant Company does not pay Directors during the reporting period. on remuneration was remuneration committee reviewed remuneration for par- developed by the the remuneration policy (policies) and ticipating in individual remuneration commit- practices of its (their) implementation meetings of the Board tee and approved by and, if necessary, submitted appropri- or Committees of the the Board of Directors ate recommendations to the Board of Board of Directors. of the Company. The Directors. Board of Directors, The Company does with the support of not apply forms of the remuneration short-term motivation committee, ensures and additional material control over the incentives to members implementation and of the Board of Direc- implementation of the tors. remuneration policy in the Company, and, if 4.2.2 Long-term ownership 1. If the internal document (s) — the Compliant necessary, revises and of the Company’s Company’s remuneration policy introduces amend- shares is the most con- (policies) provides for the provision ments to it. ducive to convergence of Company shares to the members of of financial interests of the Board of Directors, clear rules for 4.1.3 The Company’s 1. The Company’s remuneration policy Compliant members of the Board the ownership of shares by members remuneration policy (policy) contains (contains) transpar- of Directors with long- of the Board of Directors should contains transparent ent mechanisms for determining the term interests of share- be provided and disclosed, aimed at mechanisms for deter- remuneration of members of the holders. At the same encouraging long-term ownership of mining the remunera- Board of Directors, executive bodies time, the Company such shares. tion of members of and other key management person- does not stipulate the the Board of Directors, nel of the C ompany, and regulates all rights to sell shares by executive bodies and types of payments, benefits and privi- achieving certain per- other key manage- leges granted to these individuals. formance indicators, ment personnel of and the members of the Company, and the Board of Directors regulates all types of do not participate in payments, benefits and optional programs. privileges granted to these individuals.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 154–155
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
4.2.3 The Company does 1. The Company does not provide Compliant 4.3.2 The Company intro- 1. The Company introduced a long- Compliant not provide for any for any additional payments or duced a long-term term motivation program for mem- additional payments compensation in the event of early motivation program bers of the executive bodies and or compensation in termination of the powers of the for members of the other key executives of the company the event of early members of the Board of Directors executive bodies and using the Company’s shares (finan- termination of the in connection with the transfer of other key executives cial instruments based on the shares powers of the mem- control over the Company or other of the Company with of the Company). bers of the Board of circumstances. the use of Company Directors in connec- shares (options or 2. The program of long-term motiva- tion with the transfer other derivative tion of members of executive bodies of control over the financial instruments, and other key management person- Company or other the underlying asset nel of the Company provides that circumstances. for which are shares the right to sell shares and other of the Company). financial instruments used in such a program comes into effect no earlier than three years from the date of 4.3 The system of remuneration of members of executive bodies and other key management personnel of the Com- their provision. At the same time, the pany provides for the dependence of remuneration on the result of the work of the company and their personal right to implement them is condi- contribution to achieving this result. tioned by the achievement of certain indicators of the Company’s activity. 4.3.1 Remuneration of 1. During the reporting period, the Partially All procedures related to members of the annual performance indicators ap- compliant the motivation and remu- 4.3.3 The amount of com- 1. The amount of compensation Compliant executive bodies and proved by the Board of Directors neration of members of pensation (golden (golden parachute) paid by the other key executives were used to determine the amount executive bodies and other parachute) paid by the Company in the event of early ter- of the Company is of variable remuneration for mem- key executives of the company in case of mination of powers to members of determined in such bers of executive bodies and other Company are structured in early termination of executive bodies or key executives a way as to ensure a key management personnel of the such a way as to exclude powers to members at the initiative of the Company and reasonable and justi- Company. the receipt by the above of executive bodies in the absence of unfair acts on their fied ratio of the fixed employees of improper or key executives at part did not exceed twice the fixed part of the remunera- 2. In the course of the last evalua- bonus payments. The the initiative of the portion of annual remuneration in tion and the variable tion of the remuneration system of Company does not provide Company and in the the reporting period. part of the remunera- members of the executive bodies for a procedure ensuring absence of unfair acts tion that depends on and other key management person- the return to the Company on their part does the results of the nel of the Company, the Board of of bonus payments illegally not exceed twice the Company’s work and Directors (remuneration committee) received by members of the personal (indi- was satisfied that an effective ratio the executive bodies and fixed portion of an- vidual) contribution of the fixed part of the remuneration other key management nual remuneration. of the employee to and the variable part of the remu- personnel of the Company. neration is applied in the Company. the final result. The collection of ille- 5.1 The Company created an effectively functioning system of risk management and internal control, aimed at 3. The Company provides for a pro- gally obtained funds from ensuring reasonable confidence in achieving the goals set out for the Company. cedure that ensures the return to the employees is regulated by the legislation of the Rus- Company of bonuses paid improp- 5.1.1 The Board of Direc- 1. The functions of various man- Compliant sian Federation and can be erly by members of the executive tors of the Company agement bodies and divisions of bodies and other key management established by local regula- tory acts of the Company. defines the principles the Company in the system of risk personnel of the Company. and approaches to management and internal control the organization of are clearly defined in the internal the risk management documents / relevant policies of the system and internal company, approved by the Board of control in the Com- Directors. pany.
5.1.2 The executive bod- 1. The executive bodies of the Compliant ies of the Company Company ensured the distribution ensure the creation of functions and powers with regard and maintenance of to risk management and internal the functioning of an control among the subordinate effective system of managers (heads) of divisions and risk management and divisions accountable to them. internal control in the Company.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 156–157
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
5.1.3 The system of risk 1. The Company adopted a policy to Compliant 5.2.2 The Internal Audit 1. During the reporting period, within Compliant management and combat corruption. Division evaluates the framework of the internal audit, internal control in the the effectiveness of the effectiveness of the internal 2. An accessible way of informing Company provides the internal control control and risk management system the Board of Directors or the audit an objective, fair and system, evaluates was assessed. committee of the Board of Direc- clear picture of the the effectiveness of tors about a violation of legislation, current state and the risk management The Company uses generally accept- internal procedures, and the code of Company’s prospects, system, and also the ed approaches to internal control ethics of the company is organized the integrity and corporate governance and risk management. in the Company. transparency of the system. The Company Company’s reporting, applies generally ac- the reasonableness cepted standards of and acceptability of activity in the field of the risks accepted by internal audit. the Company.
6.1 The Company and its activities are transparent to shareholders, investors and other interested parties. 5.1.4 The Board of Direc- 1. During the reporting period, the Partially The annual report of the tors of the Company Board of Directors or the Audit compliant Company does not include takes the neces- Committee of the Board of Direc- the results of evaluating 6.1.1 The Company has 1. The Company’s Board of Directors Partially The Board of Directors sary measures to tors assessed the effectiveness of the effectiveness of the developed and approved the company’s informa- compliant approved the informa- ensure that the the Company’s risk management and risk management system implemented an tion policy, developed taking into tion policy. The Board of existing system of internal control system. Informa- and internal control of the information policy account the recommendations of Directors of the Company risk management and tion on the main results of such an Company. that ensures effective the Code. did not consider issues information interac- related to the Company’s internal control in the assessment is included in the annual 2. The Board of Directors (or one of Company corresponds report of the Company. tion of the Com- compliance with its pany, shareholders, its committees) considered issues information policy in the to the principles and related to the Company’s compli- approaches to its investors and other reporting year. interested persons. ance with its information policy organization that are at least once during the reporting determined by the period. Board of Directors and efficiently oper- ates. 6.1.2 The Company dis- 1. The Company shall disclose Partially The Company discloses closes information information on the corporate gov- compliant all the necessary informa- on the corporate gov- ernance system in the Company and tion on the Company’s 5.2 For a systematic independent evaluation of the reliability and effectiveness of the system of risk manage- ernance system and the general principles of corporate website and in the annual ment and internal control, and the practice of corporate governance, the Company organizes an internal practices, including governance applied in the Company, report. The Company will audit. detailed information including on the Company’s website publish a memorandum on compliance with on the Internet. of the controlling person 5.2.1 To conduct internal 1. In order to conduct internal audit, Compliant the principles and regarding the plans of 2. The Company shall disclose audit, a separate a separate structural subdivision of recommendations of such person with respect information on the composition of structural subdivi- internal audit has been created in the Code. to corporate governance the executive bodies and the Board sion was created in the Company, which is functionally in the Company if such of Directors, the independence of the Company or an accountable to the Board of Direc- document is prepared by the members of the council and independent external tors or the audit committee, or an the controlling person their membership in the commit- organization was in- independent external organization or the controlling person tees of the Board of Directors (in volved. The functional with the same principle of account- notifies the Company of accordance with the definition of and administrative ability was involved. his/her plans. the Code). accountability of the internal audit unit is 3. In the event that the person con- delineated. The inter- trolling the Company, the Company nal audit function is publishes a memorandum of the functionally subordi- supervisory person regarding the nate to the Board of plans of such person with respect Directors. to corporate governance in the Company.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 158–159
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
6.2 The Company in a timely fashion discloses full, up-to-date and reliable information about the Company in order 6.3.2 When providing infor- 1. During the reporting period, the Compliant to ensure that the shareholders of the Company and investors can make informed decisions. mation to shareholders, Company did not refuse to satisfy the the Company provides shareholders’ requests for information, 6.2.1 The Company dis- 1. The information policy of the Com- Compliant a reasonable balance or such refusals were justified. closes information in pany defines approaches and criteria to between the interests accordance with the determine information that could have of specific sharehold- 2. In cases determined by the principles of regularity, a significant impact on the valuation of ers and the interests information policy of the Company, consistency and ef- the Company and the value of its secu- of the Company itself, shareholders are warned about the ficiency, as well as the rities and procedures that ensure the which is interested in confidential nature of the information availability, reliabil- timely disclosure of such information. preserving the confi- and assume responsibility for preserv- ity, completeness and dentiality of important ing its confidentiality. 2. If the securities of a Company are comparability of the commercial informa- traded in foreign organized markets, disclosed data. tion that may have a the disclosure of material information significant impact on in the Russian Federation and in such its competitiveness. markets is synchronous and equivalent during the reporting year. 3. If foreign shareholders own a 7.1 Actions that significantly affect or may affect the structure of the share capital and financial condition of the significant number of shares in the Company and, accordingly, the position of shareholders (significant corporate actions) are carried out on fair Company, during the reporting year, terms ensuring compliance with the rights and interests of shareholders as well as other interested parties. information was disclosed not only in Russian, but also in one of the most 7.1.1 Significant corporate 1. The Company’s Charter defines a Non The Charter of the widely used foreign languages. actions include the list of transactions or other actions compliant Company does not define reorganization of that are significant corporate actions the notion of “signifi- 6.2.2 The Company avoids a 1. During the reporting period, the Com- Compliant the Company, the and criteria for their determination. cant corporate action”. formal approach when pany disclosed the annual and semi- acquisition of 30 Decisions on significant corporate Members of the Board of disclosing information annual financial statements prepared in percent or more of actions are within the competence Directors of the Company and discloses signifi- accordance with the IFRS. The annual the Company’s voting of the Board of Directors. In those responsibly approach to cant information about report of the Company for the reporting shares (takeover), the cases where the implementation of consideration of all issues its activities, even if period includes annual financial state- Company’s material these corporate actions is directly within its competence, the disclosure of such ments prepared in accordance with the transactions, the in- attributed by law to the competence regardless of their level of information is not IFRS, together with an audit report. crease or decrease of of the general meeting of sharehold- materiality provided for by law. 2. The Company shall disclose full the Company’s Char- ers, the Board of Directors provides information on the Company’s capital ter capital, the listing shareholders with the appropriate structure in accordance with the and the de-listing of recommendations. Code’s Recommendation 290 in the the Company’s shares, as well as other ac- 2. The Charter of the Company refers annual report and on the Company’s to significant corporate actions, at website on the Internet. tions that could lead to a significant change a minimum: reorganization of the Company, acquisition of 30 percent 6.2.3 The annual report, 1. The annual report of the Company Compliant in rights sharehold- ers or violation of or more of the Company’s voting being one of the most contains information on key aspects shares (takeover), fulfillment by the important tools of of the Company’s operating activities their interests. The Company’s charter Company of material transactions, information interac- and its financial results. increase or decrease of the Charter tion with shareholders defines a list (criteria) 2. The annual report of the Company of transactions or capital of the Company, listing and and other interested de-listing of the Company’s shares. parties, contains in- contains information on the envi- other actions that are formation allowing to ronmental and social aspects of the significant corporate evaluate the results of Company’s activities. actions, and such the Company’s activi- actions are attributed ties for the year. to the competence of the Company’s Board of Directors. 6.3 The Company provides information and documents on the requests of shareholders in accordance with the principles of fairness and ease.
6.3.1 The provision of infor- 1. The information policy of the Com- Compliant mation and documents pany determines an easy procedure by the Company at the for providing shareholders with access request of sharehold- to information, including information ers is carried out in on entities controlled by the Com- accordance with the pany, at the request of shareholders. principles of fairness and ease.
PJSC Detsky Mir Annual Report 2017 Appendix Report on Compliance with the Principles of the Code of Corporate Governance 160–161
The status The status of compli- Explanations of deviation of compli- Explanations of deviation Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing Principles of corporate Criteria for assessing compliance with ance with from criteria for assessing № № governance the principle of corporate governance the principle compliance with the princi- governance the principle of corporate governance the principle compliance with the princi- of corporate ple of corporate governance of corporate ple of corporate governance governance governance
7.1.2 The Board of Direc- 1. The Company provides for a Non Any member of the 7.2.2 The rules and proce- 1. The Company’s internal docu- Partially Internal documents of the tors plays a key role in procedure in accordance with which compliant Board of Directors of dures related to the ments provide for the procedure for compliant Company do not provide making decisions or independent directors state their the Company, including implementation by the attracting an independent appraiser for an expanded list of making recommenda- position on significant corporate ac- independent directors, has Company of significant to determine the value of property grounds on which members tions for significant tions before they are approved. the right to freely express corporate actions are alienated or purchased under a major of the Board of Directors corporate actions, the his/her position on any fixed in the Company’s transaction or an interested party of the Company and other Board of Directors re- issue referred to the internal documents. transaction. persons provided for by law lies on the position of competence of the Board are recognized as inter- independent directors of Directors before voting 2. The Company’s internal docu- ested in transactions of the of the Company. on this issue. ments provide for the procedure for Company. attracting an independent appraiser to estimate the cost of acquiring and repurchasing the company’s shares. 7.1.3 In case of substantial 1. The Charter of the Company, Partially The legislation does not corporate actions taking into account the specifics compliant set minimum criteria for 3. The Company’s internal documents affecting the rights of its activities, establishes a lower classifying the Company’s of the Company provide for an ex- and legal interests of minimum criteria for the attribution transactions to significant panded list of grounds on which mem- shareholders, equal of transactions of the Company to corporate actions, it is bers of the Board of Directors of the conditions are provid- significant corporate actions. therefore not possible to Company and other persons provided ed for all shareholders establish lower criteria. by law are recognized as interested in of the Company, and 2. During the reporting period, all transactions of the Company. in the event that the significant corporate actions were mechanisms provided approved before they were imple- for by law are not mented. sufficient to protect the rights of share- holders, additional measures that protect the rights and legiti- mate interests of the shareholders of the Company. At the same time, the Company is guided not only by compliance with the formal requirements of legislation, but also by the principles of corporate governance set out in the Code
7.2 The Company provides such an order of committing significant corporate actions that allows shareholders to receive timely, complete information about such actions, provides them with the opportunity to influence the commission of such actions and guarantees compliance with and an adequate level of protection of their rights in the performance of such actions.
7.2.1 Information on the 1. During the reporting period, the Compliant performance of sig- Company disclosed in a timely and nificant corporate ac- detailed manner information on tions is disclosed with significant corporate actions of the an explanation of the Company, including the grounds and reasons, conditions timing of such actions. and consequences of the commission of such actions.
PJSC Detsky Mir Annual Report 2017 Appendix Information on Major Transactions Made by the Company in 2017 162–163
Information on Major Information on Transactions Made by Transactions with Interest, the Company in 2017 Completed by the Company in 2017
Information on related-party transactions, the amount of which was less than 2% of the book value of assets The body Transaction Transaction approving completion approval Subject of the transaction and its essential terms the Information about date date Transaction The body an entity (entities) transaction Transaction Subject of the transaction and its essential completion approving the interested in the approval date terms date transaction completion of transactions 27.06.2017 24.03.2017 Board of The Bank grants the Borrower money in Russian rubles (“Loans”) in Directors the form of a revolving line of credit (“Credit Line”). The maxi- mum amount of non-recurring indebtedness under the Loans 31.03.2017 24.03.2017 Board of The Lender provides the Borrower with PJSC AFC Sistema is on any day of the term of the Credit Line is not more than RUB Directors monetary funds in the amount of RUB the entity in control of the party to the 6,000,000,000.00 (Six billion 00/100) (the “Limit Limit”), the 100,000,000.00. The interest rate is 12% transaction. maximum amount of interest on interest RUB 7,381,643,835.62 per annum. The term for repayment of the (Seven billion three hundred eighty one million six hundred forty loan is no later than March 4, 2019; Par- three thousand eight hundred thirty five 62/100). Term of the Credit ties to the transaction: PJSC Detsky Mir Line: until December 31, 2020 inclusive. The Borrower is obliged -Lender; LLC “Kub Market”-Borrower to repay all received Loans no later than the expiration date of the Credit Line. Term of the Credits: no more than 36 (Thirty-six) months. Transaction parties: PJSC Detsky Mir — the Borrower; Alfa- 06.06.2017 24.03.2017 Surety agreement: PJSC Detsky Mir — PJSC AFK Sistema — Bank JSC the Lender, the Bank. Deal price: RUB 13,381,643,835.62 Guarantor; JSC Raiffeisenbank — Bank; the entity who con- (Thirteen billion three hundred and eighty-one million six hundred The beneficiary: LLC Kub Market. Secured trols the beneficiary forty-three thousand eight hundred thirty-five 62/100). Obligation: Agreement No. RBA / 15143/2 on the issue of bank guarantees dated June 06, 2014. Transaction amount: The total amount of simultaneously valid 27.12.2017 22.09.2017 Board of Within the framework of the Credit Line, the Borrower is entitled guarantees issued by the Bank under the Directors to receive Loans, the maximum amount of a one-time debt for Agreement at any time may not exceed which on any day of the Credit Line period is no more than RUB RUB 200,000,000.00 (Two hundred mil- 9,000,000,000.00 (Nine billion 00/100); The term of the Credit Line lion and 00/100). Guarantees are issued expires on December 31, 2021 inclusive, the Borrower shall repay all with the term of validity ending no later received Loans no later than the expiration date of the Credit Line. than December 17, 2018 inclusive. Com- Term of the Credits: Loans during the term of the Credit Line are mission for the issuance of Guarantees no granted for a period not exceeding 36 (thirty six) months; Parties more than 1.4% per annum of the amount to the transaction (Agreement): PJSC Detsky Mir — the Borrower of the Guarantee, but no less than: RUB and JSC “Alfa-Bank” — the Lender, the Bank; Transaction price: RUB 1,000,000. 18,622,602,739.73, the maximum amount of non-recurring indebted- ness under the Loans on any day of the validity of the Credit Line is no more than RUB 9,000,000,000.00, the maximum amount of interest on interest is RUB 9,622,602,739.73. 15.06.2017 29.05.2017 Board of Surety agreement: PJSC Detsky Mir — PJSC AFK Sistema — Directors Guarantor; JSC Raiffeisenbank — Bank; the entity who con- The beneficiary: LLC “Kub Market”. trols the beneficiary Secured Obligation: Agreement on the opening of letters of credit with a maximum debt of no more than RUB 200,000,000.00. Term of the agreement: until December 17, 2018, inclusive. Com- mission for opening no more than 1.4% of the actual amount of the Letter of Credit, but no less than USD 400 for the term of the Letter of Credit.
PJSC Detsky Mir Annual Report 2017 Appendix Information on Transactions with Interest, Completed by the Company in 2017 164–165
Information on related-party transactions, the amount of which was less than 2% of the book value of assets Information on related-party transactions, the amount of which was more than 2% of the book value of the assets
Information about Information on Transaction The body an entity (entities) persons interested Transaction Subject of the transaction and its essential Trans- Trans- The body completion approving the interested in the in the transaction, approval date terms action action approving date transaction completion of Subject of the transaction and its essential terms grounds for interest comple- approval the transac- transactions and participation in tion date date tion the issuer and the counterparty 27.07.2017 29.05.2017 Board of The Lender provides the Borrower with PJSC AFC Sistema is Directors monetary funds in the amount of RUB the entity in control 70,000,000,000. The interest rate is 12% of the party to the 13.12.2017 22.09.2017 Board of The Rightholder is obliged to present a fee to the PJSC AFC Sistema is per annum. The loan is repayable no later transaction. Directors User for the right to use the following set of rights the entity in control than May 25, 2018. The maximum amount of in the entrepreneurial activity of the User for selling of the party to the debt on the interest is RUB 84,000,000.00. children’s goods: transaction. PJSC AFK Transaction parties: PJSC Detsky Mir “Sistema manages — Trademark No. 359487 registered with respect to -Lender; LLC Kub Market-Borrower. 52.1% of the voting classes 1-32, 35-44 in the State Register of Trade- shares of PJSC Detsky marks and Service Marks of the Russian Federa- Mir, PJSC Detsky Mir tion of September 11, 2008 with the priority of the disposes of 100% 26.09.2017 25.09.2017 Board of The Lender provides a loan to the Borrower PJSC AFC Sistema is trademark of August 18, 2006, with respect to all of its shares in the Directors in the amount of RUB 500,000,000. the entity in control goods and services for which it is registered; authorized capital of The interest rate is 12% per annum. The of the party to the — the commercial designation Detsky Mir; LLC “Detsky Mir — loan repayment date is August 31, 2018. transaction. North-West” Transaction parties: PJSC Detsky Mir — — unique loyalty programs: a bonus program, a Lender, LLC DM Capital - Borrower, the program for the implementation of gift cards and transaction size is RUB 556,384,000. certificates with associated databases containing personal data of the Rightholder’s clients; — software required for the User to conduct com- 28.12.2017 14.12.2017 Board of The seller undertakes to transfer to the PJSC AFC Sistema is mercial activities, loyalty programs and the per- Directors Buyer’s ownership a non-residential the entity in control formance of their duties under the Agreement; building with a total area of 6887.1 of the party to the sq. meters., Cadastral number 77: 07: transaction. — commercial practices based on goodwill and 0013007: 1139, located at the address: commercial experience of the Rightholder, and 119415, Moscow, Vernadsky Prospect, the Rightholder also undertakes to provide the 37, building 3, the parties undertake to Customer with subleasing of the commercial and transfer documents for state registration subsidiary premises in the territory St. Petersburg of transfer of ownership right no later than and Leningrad Region, the tenant of which is 01.02.2018; The Parties to the transaction the Legal owner, for the purposes of conducting are PJSC Detsky Mir, TIN 7729355029, — trading activities and using the above rights, in Buyer; LLC UK LandProfit, TIN particular, sub-letting premises with a total area 7715969741, D.U. Closed-end real estate of 1,073 sq. meters at the address: Kolpino, ul. mutual fund Sistema-Rental Real Estate Proletarskaya, 36, A, on the 3rd floor of the build- 2 — Seller. The amount of the transaction ing and a total area of 1,014.5 square meters at the is RUB 550,000,000. address: St. Petersburg, VO, Sredniy Ave, 36/40 Liter A on the 2nd and 3rd floors of the building, while the rental rates under sublease agreements are determined by the parties in them at their own discretion. The transaction is approved for a period of five years from the date of the decision to approve the transaction. Parties to the transac- tion PJSC “Detsky Mir”, TIN 7729355029, — Legal owner; LLC “Detsky Mir — North-West”, TIN 7813266070, — User. The amount of the transac- tion is RUB 1,189,636,370.
28.12.2017 14.12.2017 Board of The Seller sells, and the Buyer purchases the goods PJSC AFC Sistema is Directors on DDP terms in the Republic of Kazakhstan in accor- the entity in control dance with the International Rules for the Interpreta- of the party to the tion of Trade Terms (INCOTERMS, 2010); transaction. PJSC AFK Sistema manages 2.4. Term of performance of obligations under the 52.1% of the voting transaction, parties and beneficiaries under the shares of PJSC Detsky transaction, the size of the transaction in monetary Mir and indirectly terms and in percentage of the value of the issuer’s disposes of 100% of assets: The contract is concluded for a period of one shares in the autho- year; Parties to the transaction PJSC Detsky Mir, TIN rized capital of Detsky 7729355029, — Supplier, Detsky Mir-Kazakhstan LLP, Mir-Kazakhstan LLP; BIN — 111040006142, TRN -620200380026 (Buyer); Transaction in the amount of RUB 2,000,000,000
PJSC Detsky Mir Annual Report 2017 Appendix Information on Transactions with Shares of the Company Completed by Members of Management Bodies in 2017 166–167
Information on Contacts Transactions with Shares of the Company Completed by Address: 127238, Moscow, 3, bld. 6, 3rd Nizhnelikhoborsky proezd Tel.: + 7 495 781-08-08, 8 800 250-00-00 Members of Management Web: http://corp.detmir.ru/ Bodies in 2017
During the course of 2017, the following transactions with the Company’s ordinary registered shares were made by the members of the Board of Directors and the Management Board:
Content of the transaction Transaction Number of shares that were Full name made with shares of the date the subject of the transaction Company
Vladimir Chirakhov 13.03.2017 sale 3,313,656
Maria Volodina 13.03.2017 sale 12,081
Farid Kamalov 13.03.2017 sale 68,913
Valentin Korchunov 13.03.2017 sale 1,942,432
Christopher Baxter 13.03.2017 sale 1,610,525
Anna Garmanova 14.07.2017 purchase 20,064
Maria Volodina 14.07.2017 purchase 42,152
Farid Kamalov 14.07.2017 purchase 89,291
Maria Davydova 14.07.2017 purchase 36,313
Tatyana Mudretsova 14.07.2017 purchase 18,258
Vladimir Ilmetov 14.07.2017 purchase 24,076
Vladimir Chirakhov 01.12.2017 purchase 2,629,472
Pavel Pishchikov 14.12.2017 purchase 1,000
PJSC Detsky Mir Annual Report 2017