SUSTAINABILITY REPORT 2015-2016 The Detsky Mir Group 1 Table of Contents

Message from the CEO...... 2 5.3. Engagement...... 59

1. Confident Leadership...... 4 5.4. Motivation and Remuneration System...... 60

1.1. About the Detsky Mir Group...... 6 5.5. Social Benefits...... 62

1.2. The Children’s Goods Market in Russia...... 12 5.6. Training and Development...... 64

1.3. Consolidation Strategy: Key Results...... 16 5.7. Labour Safety...... 66 1.4. Record of Achievements...... 20 6. Caring for the Future...... 68

2. Sustainable Development...... 22 6.1 Charity...... 70

2.1. Our Approach to Sustainable Development and Interaction 6.2 Ecological Responsibility...... 77 with Stakeholders...... 24

2.2. Strategy of Corporate Social Responsibility...... 27 Glossary...... 80

List of Abbreviations...... 80 3. For Children and Their Parents...... 30 Information About the Report...... 81

3.1. Safety of Products...... 32 GRI G4 Context Index...... 82

3.2. Customer-oriented Service...... 35 Opinion on the Independent Non-Financial Approval of the Report...... 86 Contacts...... 88 3.3. Online Store...... 40

4. Responsible Supply Chain...... 42

4.1. Cooperation with Suppliers...... 44

4.2. Procurement Management...... 47

4.3. Information Technology...... 52

5. Decent Work...... 54

5.1. HR Management...... 56

5.2. Our Employees...... 57 2 Sustainability Report 2015–2016 The Detsky Mir Group 3 Message from the CEO

Dear partners, continue our expanding business at remains a stable source of budget and encouraging a bigger number of colleagues and friends! the current fast pace. income. The total amount of taxes employees to take part in volunteer and fees paid by Detsky Mir in 2016 activities over the coming years. In 2015 and 2016, the Detsky Mir The development and improvement comprised RUB 4.1 billion. Group strengthened its leading market of a client-oriented business model In 2017, Detsky Mir will celebrate its positions and enhanced the efficiency remains our top priority. We adhere to By taking part in the Development 70th anniversary – an age when our of its business processes. The financial the omnichannel approach, integrating Strategy for the Children’s Goods aspirations match our possibilities. results for the year 2016 were the all platforms and devices that the Industry by 2020 approved by The Company’s projects are ambitious: best in the in the Company’s history. customer uses to interact with the the Government of the Russian we plan to continue the dynamic Sustainability report 2015—2016. Company. Detsky Mir’s online store is Federation, we offer a wide range development of Detsky Mir’s chain a vital component of this approach. of products produced by Russian stores in Russia and Kazakhstan, to More than 200 new Detsky Mir and ELC We consider this vector to be highly manufacturers in Detsky Mir stores retain the current pace of development stores have been opened over the last prospective and plan to actively and thus contribute to the increase of and increase it a to a bigger amount two years, and by the end of 2016, we develop it. The option of picking up domestic product sales. of sales outlets in the Moscow Region, have a total of 525 stores. We entered online orders at retail supermarkets, Saint-Petersburg and in cities with a retail markets in Chechnya, Ingushetia launched in 2015, has become one of We do the utmost to provide our high potential for business growth and and Dagestan, and proceeded with the key drivers of online store sales employees with the most comfortable a population exceeding 50 thousand implementing our development growth, which has ensured our leading working environment, as well as people. In the mid-term perspective, we programme in Kazakhstan. position in the children’s goods online opportunities for training and career plan to open at least 250 stores. sales segment in 2016. development. The Detsky Mir Group’s Following the provisions of the headcount comprises more than The Company’s high investment Detsky Mir Group’s development The efficient management of business 10 thousand employees. Over the attractiveness draws the attention of strategy, in 2015–2016 our key goal processes allows the Company to course of two years, we have provided potential Russian and foreign investors; was to increase the market share adapt to the economic situation in approximately 5 thousand people with this trend is supported by the fact that while retaining the level of financial a confident and timely manner. The new employment opportunities. in December 2015, 23.1% of PJSC and economic activity. We have deployment of new IT solutions, Detsky Mir shares were purchased by successfully completed all of the tasks such as a SAP platform, has enabled Detsky Mir’s charity foundation the Russia-China Investment Fund. set by shareholders. The Group’s sales the Company to automate business coordinates the Company’s complex In 2017, the Company will continue comprised RUB 60.5 billion (+33,2%) in processes, reduce costs and enhance social activity; its priority is to help communicating with potential investors. 2015, and in 2016 to RUB 79.5 billion labour productivity. By enhancing our children in difficult life situations. (+31,4%). According to Ipsos Comcon, operating efficiency, we have made The foundation invested RUB 287 We are aimed at providing our the Company’s share on the children’s our business model much more million into charity projects for shareholders with a high income goods market grew from 10% in 2014 competitive. implementation in 2015–2016, with and keeping them proud of their to 17% in 2016. the majority of this amount raised investments, thus sharing in the As the absolute leader among Russian from the funds attracted. Company’s success. In 2015, we opened the largest retailers of children’s goods, the Detsky logistics centre for the children’s Mir Group fully understands its liability The Corporate Social Responsibility goods segment in the Moscow region, to the state and society. In the present Policy of the Detsky Mir Group was with a total area of 70 thousand challenging circumstances both for developed and adopted in 2016; it is Vladimir Chirakhov, square metres that will allow us to businesses and the state, the Company aimed at increasing charity scales CEO of PJSC Detsky Mir 4 Sustainability Report 2015–2016 The Detsky Mir Group 5

1⁄ Confident Leadership Our 70-year history and modern business approaches allow the Detsky Mir Group to win leading positions on the children’s goods market 6 Sustainability Report 2015–2016 The Detsky Mir Group 7 1.1. About the Detsky Mir Group

The Detsky Mir Group is the largest retailer of children’s In 2015, the Company continued to implement the development goods in Russia and Kazakhstan, uniting the Detsky Mir programme in Kazakhstan; we opened and ELC1 brands . It offers toys, products for expectant the first supermarket in Almaty, representing a new concept similar to mothers and infants, shoes and clothes, stationery, the Russian stores with renewed shop craft materials and products for active recreation. equipment, progressive merchandising standards and internal design. In 2016, 5 more stores were opened. Currently, there are 12 stores operating in A modern approach of doing business, combined with Kazakhstan. a recognisable brand with a 70-year history, ensures the The year 2016 was heralded by the Number of Detsky Mir Group Stores and Retail Areas unique character and leading position of the Detsky Mir Company’s entrance into the retail Group on the Russian market. markets of Chechnya (Grozny), Ingushetia (Magas, Nazran) and Total quantity of Dagestan (Makhachkala). Furthermore, 596 stores, pc Detsky Mir chain stores were As of 31 December 2016, 525 of the Group’s stores Quantity of new also opened in Arzamas, Bratsk, 491 stores, pc operate in 171 Russian cities and 7 Kazakhstani cities. Buddenovsk, Gubkin, Domodedovov, Istra, Lukhovitsy, Lytarkino, Sergiev Shopping space, Of these existing stores, 480 belong to Detsky Mir and 390 525 thousand sq.m Posad, Solnechnogorsk, Staraya 425 45 to ELC. We are actively expanding our business: in Kupavna, Chaikovsky and Chita. 2015 we opened 103 new Detsky Mir stores and 1 ELC 322 store, and in 2016 we opened 100 Detsky Mir stores and 1 ELC store. 1 Detsky Mir Group comprises PJSC Detsky 104 101 Mir, Detsky Mir – Kazakhstan LLP and Kub- 71 Market LLC. 2014 2015 2016 8 Sustainability Report 2015–2016 The Detsky Mir Group 9

2016 2016 2016 2015 2015 2015 Geography 2014 2014 2014 54 46 of the Presence 29 49 31 38 25 33 44 of Detsky Mir North-West Ural Siberia Stores

2016 2015 2014 74 107 147 Moscow Region 2016 2015 Northwestern Federal District 2014 42 62 71 Central Region Central Federal District 2016 2015 2014 Moscow 52 61 Region 44 Volga Federal District Ural Federal District Volga Region 2016 2015 2014 27 33 45 South Siberian Federal District

2016 Southern Federal District 2015 2014 6 7 12 Kazakhstan Kazakhstan 10 Sustainability Report 2015–2016 The Detsky Mir Group 11

The New Concept for Stores area and product range, there are four and more logically sound. There are store categories (See table “Formats also promotional spots for promoting Since 2014, Detsky Mir stores used at Detsky Mir chain stores”). special offers and products with in Russia and Kazakhstan have discounts. been reflecting a new concept in All stores use the same zoning accordance with the up-to-date adapted to ceiling height, and Flagship stores contain interactive standards of interior design. The expanded aisles for easier child zones to enable parents to renewal of old stores is performed accessibility and movement with combine entertainment and shopping, in line with the new concept prams. Merchandise display became encouraging them to come back to our requirements. Depending on the retail easier to understand, more obvious store.

Formats used at Detsky Mir chain stores

Size of the store Retail area, square metres Average number of products (excluding clothes and shoes)

Mini < 600 6,500

Super 600–1,500 11,000–14,000

Hyper > 1,500 16,000

Number of Stores Reflecting the New Concept

Detsky Mir chain stores in Russia 2013 2014 2015 2016 and Kazakhstan The Detsky Mir Group and the Skolkovo Fund Total amount of stores opened 34 55 103 100 in one year have signed an agreement on strategic cooperation Amount of new stores implementing 1 58 105 101 the new concept, with new stores In October 2016, the Detsky Mir Group and reconstructed stores taken into and the Skolkovo Fund agreed to implement a project aimed at revealing consideration (over a year) innovative ideas, service solutions for development and starting to create an Amount of stores implementing the 1 59 164 265 updated format for Detsky Mir retail new concept by the end of the year stores. Authors of the best proposals (total accrued) will gain an opportunity to implement their project at the chain’s new flagship store. Total amount of operating stores by 226 280 380 477 the end of the year

Share of stores implementing the new 0.4% 21.1% 43.2% 55.6% concept out of the total amount of A Member of the Management Board – the Deputy General Director on Operating Activities of the Detsky Mir Group, Farid Kamalov, and vice-president of the Skolkovo Fund and CEO of the IT chain stores cluster, Igor Bogachev, signed the cooperation agreement 12 Sustainability Report 2015–2016 The Detsky Mir Group 13

2015, price became a much more Share of Russian Children’s Goods on the Market important factor, resulting in a change in (excluding Baby Food), % customer behaviour, with their attention being drawn to cheaper products. This 32 Source: Report on the state of affairs led to the transition of 28 30 aims and objectives of 1.2. The Children’s customer demand from premium and the Ministry of Industry 23 23 mid-segments to mass market and low- and Trade for 2016 and price segment. Domestic products and key operating results private labels are gaining popularity, as for 2015 their prices are lower than the prices of similar foreign or brand products. The Goods Market Internet is becoming a more and more 2014 2015 2016 2017 2018 source for sales; it offers a wide range (assessment) (forecast) (forecast) of products, attractive prices and the possibility to assess, choose and consult before purchasing a product. Size of Children’s Goods Market in Russia, RUB billion per year

The children’s goods market remains 554 in Russia one of the least vulnerable markets to 545 the crisis (along with the basic goods 536 market): it demonstrated growth 528 after both crises in 2008–2009 and in 516 520 Source: 2014–2015. Ipsos Comcon 500 In 2016, some players withdrew from the market, leading to a short-term fall in the share of specialised retailers. However, these retailers remain as the main sales channel, in addition to hyper- and supermarkets. The share of online trade 2014 2015 2016 2017 2018 2019 2020 (assessment) (forecast) (forecast) (forecast) (forecast) shows stable growth and is expected to comprise more than 9% in 2017.

During the last three years, the biggest Share of the Sale of Private Labels in Detsky Mir Chain share of the market stability belonged Stores, % to children’s wear (~30%), baby goods (~26%) and toys (~21%), with the 24 segment of baby goods demonstrating 23 the highest growth rate. 22

Children’s goods sales in Russia differ depending on the region and income In 2013, the Government of the Russian Federation The plan of events for 2016–2020 is level. According to Ipsos Comcon, aimed at implementing a Strategy that Moscow experienced the biggest approved the Development Strategy for the Children’s stipulates the inclusion of children’s spending on children’s products per 2014 2015 2016 Goods Industry by 2020, providing for a reduction in the products into industry-specific plans capita in 2016 (RUB 11.4 thousand concerning import substitution, as well as compared to RUB 6.9 thousand share of imported products and an increase in the share as updating the standards of children’s in other cities of Russia). More than Structure of Children’s Goods Market by Sales Channel of Russian products on the domestic market from 20% goods, and monitoring of the quality and a quarter (27%) of Russian citizens’ safety of the products, including baby total spending on children’s goods is Hyper-Hyper- (as of 2013) to 42%. food. registered in Moscow. The Detsky Mir 14.814.8 11.111.1 13.613.6 10.210.2 supermarketssupermarkets Group is actively expanding its presence 8.18.1 9.39.3 According to Ipsos Comcon, the volume in the Moscow Region (in 2016, 40 7.67.6 8.98.9 SpecializedSpecialized stores stores According to expert analysis, in 2015 the share of of the children’s goods market in Russia new stores opened) and in Saint OnlineOnline stores stores Russian children’s goods amounted to 23%. Items comprised RUB 519.5 billion. According Petersburg. The total quantity of stores to analysts’ forecasts, the market is in the Moscow Region and in Saint 41.341.3 40.840.8 38.638.6 40.440.4 OtherOther produced by Russian manufacturers in the segment of expected to grow by an average of 1.5% Petersburg comprised 147 and 33 stores children’s clothes and shoes comprise 10–15%, while p.a., reaching RUB 554.4 billion by 2020. respectively by the end of 2016. in the segment of toys their share comprises 10–20%. After the market had experienced According to Ipsos Comcon, the a double-digit growth in 2011–2013, it Company’s share on the Russian 36.336.3 4040 39.139.1 40.140.1 The biggest share of items produced by Russian reached a state of long-term stagnation. children’s goods market by total revenue manufacturers comprises approximately 70–80% and The current economic situation made (including customer pick-up) comprised Russian citizens review their approach 17% by the end of 2016 (13% in 2015), 20142014 20152015 20162016 20172017 Source: belongs to the segment of baby food and diapers. to purchasing children’s goods. In and 6% in the first half of 2017 in online (assessment(assessment)) (forecast(forecast)) Ipsos Comcon 14 Sustainability Report 2015–2016 The Detsky Mir Group 15

sales channel (3% in 2015). The Size of Children’s Goods Market by Category, RUB billion Stable Growth of the Number of Children, ages 0 to 12 years Detsky Mir Group is the absolute leader among Russian retailers of ToysToys children’s goods, as the share of the 474.97.9 525.32.3 525.42.4 535.03.0 147.1 Population, nearest competitor is three times StationeryStationery 146.9 total mln pers Maternity Capital smaller. 146.5 16136.43.4 16156.45.4 15145.84.8 1515.15.1 BabyBaby goods goods 146.3 Children from 0 Since 2007, the Russian to 12, mln pers The key drivers of market share ClothesClothes government has been growth in 2015 were represented by 22.9 implementing a special social the segments of toys and baby goods, ShoesShoes maternity capital programme 1191.49.4 12132.43.4 13153.65.6 14114.11.1 22.6 demonstrating market share growth 22.2 aimed at supporting families from 17.6% to 23.7% and from 11.8% with two or more children; to 18.2% respectively. 636.03.0 646.94.9 656,57,7 66.46.4 143.7 21.7 in 2016, the programme amounted to RUB 453 In 2015, the number of children from 10160.86.8 10190.89.8 111.01.0 1121.02.0 20.8 thousand (in 2007 – RUB 250 0 to 12 years old reached 22.2 million. Source: thousand.). Ipsos Comcon Concerning this matter, Russia 20142014 20152015 20162016 20172017 surpasses other European countries. (assessment(assessment) ) (forecast(forecast) ) Source: Russian Maternity capital can be used: The average annual growth rate in Federal State Statistics 2013 2014 2015 2016 2017 for housing improvement; 2008–2015 comprised 2.8%, which (forecast) Service (Rosstat) is higher than in many developed and for the education of developing countries. In recent years, children; this trend is expected to continue Structure of Children’s Goods Market by Costs in 2016, % Age Structure of Children from 0 to 12, % for the development of the with the average annual growth rate mother’s future pension; of 1.4%, meaning that the number 3 Moscow South and North Children, 0–4 years for purchasing products of infants will exceed the number 12 Caucasus District Children, 0–4 years 3 St.Moscow Petersburg South and North 20.3 20.2 19.9 20.1 and services necessary 27 Caucasus District 20.3 20.2 19.9 20.1 Children, 5–9 years of children reaching the age of 13. 12 Ural District Children, 5–9 years for the social adaptation The number of children in Russia is North-WestSt. Petersburg 27 Ural District Children, 10–12 years and integration of disabled (excluding Siberia Children, 10–12 years expected to comprise 22.9 million. 9 North-West children into society (since St. Petersburg) 9 (excluding FarSiberia East 36.9 37.0 37.8 38.7 2016). The number of children in different age CentralSt. Petersburg) District 36.9 37.0 37.8 38.7 (excluding Moscow) Far East groups remains relatively the same Central District Since the programme’s with a slight reduction in the number implementation, the birth rate 11 Volga(excluding District Moscow) of children from 0 to 4. Nonetheless, 11 in Russia has grown by 30%. sales in the baby goods segment, 11 Volga District In 2016, the programme was Source: 42.7 42.8 42.3 41.2 which the Company feels very 11 42.7 42.8 42.3 41.2 prolonged until the end of 2 Ipsos Comcon confident about, are growing faster 15 2018. than in other segments. 10 2 Source: Russian 2014 2015 2016 2017 15 Federal State Statistics 10 2014 2015 2016 (forecast2017) (forecast) Service (Rosstat)

Key Players on the Children’s Goods Market in Russia in 2015, %

Specialized shops Specialized shops 13.0 Detsky Mir Other specialized Detsky Mir Otherretailers specialized The Children’s Goods Market in Kazakhstan 13.0 Korablik retailers 3.8 Other channels 39.5 31.9 Korablik 3.83.2 39.5 MotherCare Other channels The birth rate in Kazakhstan is experiencing a boom: every year 31.9 MotherCare 33.0.2 Dochki-Synochki approximately 400 thousand children are born in the country; since 2007, 3.01.7 Dochki-Synochki Begemot average growth rates of new-born children has comprised more than 3%. The 1.7 Begemot number of children in 2015 comprised 4.1 million (22.8% of the population), 59.2 16.1 with the average annual growth rate expected to remain at 1.2% until 2020. 59.2 9.3 16.1 9.3 Source: 4.2 7.4 7.8 Ipsos Comcon 4.2 7.8 According to experts, the children’s goods market in Kazakhstan comprises 7.4 approximately KZT 400 billion and is actively developing with annual incremental value of 10–15%. 16 Sustainability Report 2015–2016 The Detsky Mir Group 17

Revenue growth by 1.3. Consolidation Results for the past 2 years +205 75 % Strategy: new stores totaling RUB 79.5 billion Key 17 % 6 % 7.4 share of children’s market share of the Internet RUB billion goods market shop in the H1 2016 of dividends paid Results (+7 percentage points) (+3 percentage points) Detsky Mir Group Revenue, Adjusted EBITDA1 RUB billion The Detsky Mir Group successfully The strategy goals set by the Detsky Mir Group in 2012 9.89.8 10.210.2 10.310.3 EBITDA,EBITDA, RUB RUB billion billion implemented its development strategy 79.5 were reached by 2015. In 2015, the Group updated in 2015–2016. Despite the fact that ProfitabilityProfitability per per adjusted adjusted 8.28.2 EBITDA,EBITDA, % % the strategy. Our key goal is to increase our market retailers are suspending expansion 60.5 programmes, we adhere to an organic 6.26.2 share while retaining the same level of financial and growth strategy that allows us to 45.4 economic activity. Our competitive advantages will confidently strengthen our leading 4.54.5 positions and increase our share on the allow us to reach the strategic goals we have set. children’s goods market.

We have built a successful client-oriented business model, having broadened the geography of our presence and increased 2014 2015 2016 20142014 20152015 20162016 the amount of stores, by adjusting prices at retail and on online stores, and having offered our customers the best prices in square metre indicator. Conducted in the Gross Profit per Square Metre, Detsky Mir Group’s Share on the such product categories as hygiene and meantime, events devoted to a reduction RUB thousand per square metre Russian Children’s Goods Market, % baby food. in expenses allowed us to maintain Strategic goals of the Detsky Mir Group average annual revenue growth rates at The scale of our business allows us the level of 30% and an adjusted EBITDA 48.6 49.7 49.9 to remain the No. 1 customer for the at the level of 44% over the last four 17 majority of suppliers, which positively years. Sustainable development of chain stores affects the conditions of our cooperation. 13 Revenue growth was mainly driven by 10 From 2013 to 2016, the Company’s the increase of sales in LFL chain stores Growth of LFL sales and gross profit per revenue increased more than twofold, by 10.8%. Sales in LFL stores grew as a square metre of a store from RUB 36 billion to RUB 79.5 billion. result of larger receipt amounts (+6.2%) The quantity of the Group’s stores and the average size of receipts (+4.4%). increased from 252 to 525, their area The increase in average receipt size is Integration of omnichannel sales strategy incremented from 320 to 596 thousand stipulated not only as a result of inflation square metres. The Company’s share but also as a result of the attraction of 2014 2015 2016 2014 2015 2016 on children’s goods market grew new customers. Investments into supply chain and infrastructure from 8% to 17%. Revenue growth has also been ensured Competitive and attractive prices by the opening of a significant number 1 led to the growth of LFL sales and, of stores in 2015–2016, and growth Adjusted EBITDA is calculated as profit before interest, taxes, exchange losses, addition due to the Increase of operating efficiency and profitability acquisition of a controlling interest in associates, financial costs and revenues, and the depreciation correspondingly, of revenue, which in the capacity of stores opened in of fixed and intangible assets, adjusted for single effects due to the sale of the “Yakimanka Children’s positively affected the gross profit per 2014–2015. Gallery,” and the building and payment of remunerations under the long-term motivation programme. 18 Sustainability Report 2015–2016 The Detsky Mir Group 19

is one of the key projects in Number of Visitors to Detsky Mir Adjusted1 Net Profit of this field. Utilisation of our own Group Stores, million persons the Detsky Mir Group warehouse allowed us to reduce logistics expenses, increase the 4.8 centralisation of supply, enhance the efficiency of trading stock 156 3.9 management and, as a result, 3.7 3.6 increase the turnover of goods 132 (more details are provided in the 108 Centralisation of Logistics Activity 2.2 section). 1.7

Transition to a unified SAP platform also played important role in the Group’s efficiency enhancement.

It allowed us not only to create 2014 2015 2016 a unified information space, 2014 2015 2016 Adjusted Profitability and the possibility to obtain Net profit, RUB per adj. analytical information online, million net profit, % but also to significantly optimise key business processes as a result of their automation (more Reduction in Ratio of Expenses Dividends Paid in 2014–2016, details are provided in Information to Revenue at the Detsky Mir Group RUB billion Technologies section).

Detsky Mir’s strategy in terms of Structure of Detsky Mir Group’s Revenue by Product Category, % PJSC Detsky Mir paid a record 28.2 assortment management was aimed amount of dividends in 2016, 25.9 4.4 at optimising the product grid, reducing totalling RUB 4.4 billion, which is 23.7 the share of non-liquid product items, 5 5 4 4 4 4 Toys Toys further proof of the Company’s 8 8 7 7 7 7 3.0 increasing the share of private labels Baby goodsBaby goods investment attractiveness. 18,884 2.5 and market share across all the 26 26 25 25 25 25 segments, especially in the category Clothes andClothes shoes and shoes The Detsky Mir Group was the 15,708 of traffic-generating hygiene and food StationeryStationery largest taxpayer in the children’s 12,808 products. In 2016, the share of baby 24 24 29 29 31 31 goods segment for the years goods in the turnover of goods grew by Large-formatLarge-format goods goods of 2015–2016. The amount of 2 percentage points when compared to (furniture, carriage,(furniture, etc.) carriage, etc.) taxes paid in 2016 by Detsky 2015, which has significantly affected Mir Group grew by 26.8% and 38 38 35 35 33 33 the growth of receipt amounts in LFL amounted to RUB 4.112 billion, stores. with RUB 92.997 million having 2014 2014 2015 2015 2016 2016 been paid to the federal budget of 2014 2015 2016 2014 2015 2016 The double-digit growth of LFL is a Kazakhstan. Corrected Commercial result of the competitive pricing policy, expenses, G&A, RUB million marketing activity and developments Growth of LFL Sales (Like-for-like1), % in merchandising. The opening of new Revenue share, % stores under the implementation of the new concept, an attractive loyalty programme and competitive prices 2014 2015 2016 stimulated the growth of LFL sales. Taxes Paid to Federal and Regional Budgets in 2014–2016, RUB million2 LFL sales2 13.7 12.3 10.8 Significant increase of income by the end of 2016 was stipulated by the Amount of LFL3 8.3 3.7 4.4 151.7151.7 33.6 growth of operating efficiency and receipts 33.6 rapid revenue growth. 1 Adjusted net profit is a net profit without VAT VAT 4 151.8151.8 1,323.21,323.2 Average LFL 5.0 8.2 6.2 one-off expenses in connection to sale of the receipt 50.7 50.7 6.1 6.1 IncomeIncome tax, FB tax, FB The ratio of commercial, Children’s Gallery “Yakimanka” building (including 0 0 1,046.91,046.9 administrative and other operating a corresponding tax effect) in 2014, loss from 991.3991.3 29 29 PersonalPersonal income income tax tax costs to revenue decreased from goodwill deprecation in 2015, and performance pay 1 LFL stores of Detsky Mir chain are stores that have been operating for at least a year since their opening. to the management under the long-term incentive 1 1 SocialSocial fees fees 28.2% in 2014 to 23.7% in 2016 due 79 79 1,511.21,511.2 Stores that have not been operating for more than a month by the time of repair works and reconstructions are programme (LTI) (including a corresponding tax to corrections performed by the TransportationTransportation tax tax excluded from LFL. effect). 1,127.31,127.3 1,272.21,272.2 Company and the implementation 2 Ratio between goods turnover of LFL stores for the reporting period as compared to the similar period of the 2 Social contributions were made to the MHIF, Income tax, RB of projects aimed at increasing the Income tax, RB previous year FSS and FIU in Russia, with social contributions 594.8594.8 562.2562.2 716,693716,693 operating efficiency. 3 Ratio between amount of LFL stores’ receipts for the reporting period as compared to the similar period of also made to the mandatory pension fund and Sales Salestax and tax others and others 97.6 97.6 127 127 265 265 the previous year social taxes paid in Kazakhstan. Personal income 51.1 83.1 51.1 83.1 109.7109.7 PropertyProperty tax tax The opening of a warehouse in the 4 Ratio between the average purchase price at LFL stores for the reporting period as compared to the similar tax includes personal income tax in Russia and village of Bekasovo (Moscow Region) period of the previous year individual income tax in Kazakhstan. 2014 2014 2015 2015 2016 2016 20 Sustainability Report 2015–2016 The Detsky Mir Group 21 1.4. Record of Achievements

Detsky Mir won The Golden Bear national prize for the children’s goods The top DETSKY MIR – ABSOLUTE LEADER ON industry for the years 2015–2016 THE CHILDREN’S GOODS MARKET 116 th 170 th In June 2016, the Detsky Mir Group was announced as the winner in the Leading Company of the Year category of the Russian Retail Awards. place place 10 The winners were determined by a national jury that included representatives from the Ministry in Forbes’ Top 200 in RBC’s Top 500 managers of Industry and Trade of the Russian Federation, In categories: the Russian Association of Retail Market Experts, Largest Private Largest Private 5 the Union of Independent Networks of Russia, Companies rating and Municipal Companies of the Detsky Mir Group, Nielsen Russia, the RusBrand Commonwealth of Person of the Year (General Director in Russia including CEO Vladimir Manufacturers, Deloitte, INFOLine, and Gaffer & Vladimir Chirakhov), Store of the Gaffer law firm. places Chirakhov, were included +20 Year (Internet shop www.detmir. compared percentage in the TOP 1000 Russian According to the event’s initiators, the +33 ru), Best Products for Expectant to 2015 points compared to 2015 Managers rating award is a symbol of quality, confirming the and Nursing Mothers (the collection professionalism of trade networks for consumers in 2015–2016 and partners. It acknowledges the outstanding of clothes under the store’s own +35 places industry achievements of top managers, Winner of the Customer brand “Just Mom Ulla”), Social significantly contributing to the development of as compared eXperience Awards Russia Project of the Year (the Operation retail and creating a civilized market of consumer to 2014 services in Russia. 2015 in the category of Toys project), Store of the Year (the Best Customer Experience opening of the flagship Detsky Mir A year earlier, in June 2015, the Detsky Mir Group in Non-Food Retail store on Vozdvizhenka St., 10) was announced as the winner in the Breakthrough of the Year category. 2⁄ Sustainable Development Our commitment to the international goals of sustainable development are the determining factors for the priority pillars of the Detsky Mir Group’s corporate social responsibility strategy 24 Sustainability Report 2015–2016 The Detsky Mir Group 25

Support of the Children’s Rights and Business Principles Initiative, developed by UNICEF

2.1. Our Approach 3 goals Principle Our actions More details 1. All business should meet to which we can make the responsibility to respect We support the UN Convention on the children’s rights and Rights of the Child ratified by the Russian – the most significant commit to supporting the Federation contribution due to the human rights of children to Sustainable specifics of our activity 2. All business should con- tribute towards elimination of child For us, the use of child labour in any aspect labour, including in all – of our activity is inappropriate and forbidden business activities and Development business relationships Our personnel policy includes the most 3. All business should significant issues concerning the employer- provide decent work for employee relationship, for example, safety Decent Work young workers, parents in the workplace, a decent salary, and social section and caregivers guarantees (including child-care leave and a and Interaction with flexible schedule for young mothers) We care about the safety of children during their visits to our stores. The design of 4. All business should our new concept includes wider passages ensure the protection and to make the shopping experience more safety of children in any comfortable and all interactive zones were – business activities and at developed in collaboration with the lead- any facility Stakeholders ing global producers and meet all safety requirements

The safety and quality of children’s products 5. All business should are our key priority. All of our products have ensure that products and Safety of Prod- respective certificates. Our products un- services are safe, and seek ucts section dergo product safety and quality assurance to support children’s rights at all stages of their life cycle

6. All business should use We address our marketing communications marketing and advertising with all due responsibility to make sure they Client-oriented that respects and supports meet all the legal requirements and do not Service section A responsible approach to business operations is On one hand, our corporate social Among the products available at our children’s rights violate children’s rights responsibility activities reflect store, the majority belongs to toys and a vital element of our strategy, as well as the key our core operations concerning craft materials. We are sure that they 7. All business should We do the utmost to reduce the impact our to sustainable development and strengthening of the children’s goods trade; on the stimulate the imagination of children respect and support chil- activity has on the environment as well as Environmental other hand, they are integrated into and help them to explore the world and dren’s rights in relation to to explain to children how important the Responsibility leadership positions on the children’s goods market the global context of sustainable develop, enabling them to grow up and the environment and land environment is and that it is necessary to section acquisition and use take care of it and in the sphere of social responsibility. Matters development and challenges that become active members of society with humanity is facing. high potential. Children start developing concerning a responsible approach to business 8. All business should from the moment they are born and respect and support We respect children’s rights in all of the – operations are discussed at the meeting of the Board We support the Agenda concerning acquired knowledge and skills become children’s rights in security security arrangements in our activity sustainable development approved the basis for further development. arrangements of Directors, including strategic development vectors by the UN in September 2015. We Offering a wide range of high-quality have adopted three of the seventeen products to parents and children, we 9. All business should and key performance indicators. As part of our charity activity, we support Charity Activity help to protect children af- goals set in the Agenda to which contribute to the achievement of this children affected by emergencies section we can make the most significant goal. By implementing our charity fected by emergencies The key goal of the Detsky Mir Group, in the sphere contribution due to the specifics of programmes, we help children whose our activity: the provision of decent possibilities to develop are limited, e.g. 10. All business should A significant part of our activity is represented reinforce community and by charity and volunteer programmes aimed work and economic growth (more children from families with low income, Charity Activity of sustainable development and corporate social government efforts to at helping children in difficult life situations. section responsibility, is to provide the younger generation details are provided in Decent Work from orphanages, etc. (more details are protect and fulfil children’s These programmes draw society’s attention section), responsible consumption provided in Charity Activity section). rights to children’s problems with high-quality and safe products at affordable and production (more details are provided in Environmental Furthermore, we pay special attention to prices. Responsibility section), and high- the protection of children’s rights across The achievement of the goals set is impossible without continuing dialogue with our key quality education. all aspects of our activity. stakeholders, and we do pay a lot of attention to achieving them. 26 Sustainability Report 2015–2016 The Detsky Mir Group 27 ФОТО 2.2. Strategy of Corporate Social Responsibility

As it logically follows our active social responsibility The Strategy is based on the activity, the Strategy of Corporate Social Responsibility following principles: The transparency of social was developed and approved by the Detsky Mir Group programmes, including mechanisms of their in 2016. This document will play an eminent role in the implementation that do not Interaction with Key Stakeholders development of the Company’s social activity in recent allow the concealment or faking of information. years. The Strategy of Corporate Social Responsibility Group of stakeholders Goals of interaction Methods of interaction Interaction with stakeholders: suggests that the scale of charity activity will be dialogues, feedback with the recipients of social help To design and implement joint projects on increased and a larger number of employees will be provided by the Company. To procure high-quality goods, form an enabling assortment planning and merchandising Suppliers competitive environment, and minimise the risks Industry-specific conferences involved in volunteer programmes. Consistency: of supply disruption Exhibitions for suppliers –– Consistency and responsibility for current and previous activity, as well Evaluation of professional knowledge To form their engagement into the Group’s core as for their future impact on activity so that they would provide innovative Corporate intranet the environment;

Employees ideas concerning the perfection of its internal Web tutor educational portal –– Regularity, continuity; processes and the increase the customer service Study of the engagement level level –– Integration of principles Hotline from the Strategy of Corporate Social Study of their satisfaction level Responsibility across all To understand their preferences and expecta- Focus groups with customer participation management processes. Customers tions concerning the further development of the Feedback system Significance and relevance Group Newsletters with information on special of the projects; Scale offers via SMS and e-mail and significant exposure; Regular assessment of the Industry-specific organisa- To share experience with the experts and under- Industry-specific conferences programmes’ efficiency. tions stand perspectives of market development Round tables Prevention of conflicts of interest, from influences of To contribute to the higher living standards in politically bias, and from Local communities the regions and availability of our products for Corporate volunteer programmes the support of separatist children and their parents confessions and nationalistic movements.

New Year’s party for children living in orphanges 28 Sustainability Report 2015–2016 The Detsky Mir Group 29

Priority Areas of the Strategy of Corporate Social Responsibility at the Detsky Mir Group Key indicators Comments ФОТО Responsibility of a corporate citizen

Contribution to the economic Revenue – RUB 79.5 billion in 2016 development of the country Taxes paid – RUB 4.1 billion in 2016

Taxes Amount of employment opportunities created – RUB 5.5 thousand in 2014–2016

Creation of employment Projects on separate board collection, ecologically friendly bags, energy-saving lighting

Minimisation of negative More details are provided in the Consolidation Strategy, Key Results, Regular Personnel and impact on the environmentу Environmental Responsibility sections

Responsibility to business partners and customers

Transparency of ownership structure, financial and operating indicators, structure of the Board of Directors

Product quality assurance and Hotline for customers Good business practice Establishment of and participation in the work of Association of Children’s Goods Industry: Professional standards countering infringement products and “uncivilized trade”

Public reporting Accession into the Anti-Corruption Charter of Russian Business documentation according to Compliance with laws on advertising, consumer protection, by the use of ethical methods of international standards promotion

Compliance with legal and Application of the Corporate Code of Conduct and the Code of Ethics ethical norms Disclosure of financial results on a quarterly basis. Issue of Annual Report Compliance with corporate management norms Since 2004, annual audit of the consolidated financial statements prepared in accordance with the US GAAP has been carried out

Sustainability Report as per the international guidelines of Global Reporting Initiative has been published biannually

Charity fair at the flagship Detsky Mir store on Vozdvizhenka St., 10 Responsibility to Society (Charity)

Key Performance Indicators for the CSR Activities of the Detsky Mir Group Fair compensation and We are committed to observing the labour laws of the countries where we operate, to respecting motivation human rights and individual freedom, and to preventing any form of discrimination and harassment

Investment in the The Company has implemented a time-bonus system for the payment of labour that takes into KPI Description Actual value Target values Weight professional development of account not only individual performance, but also the financial results of the whole Group or a the personnel particular store for the year

Significant investments in Total occupational health and safety costs of PJSC Detsky Mir in 2016 amounted to RUB 11.9 Share of employees from the Company’s total personnel Acceptable 14% occupational health and million Corporate volunteering level who are involved in general corporate programmes and 15% Target 15% 40% projects Aggressive 16% safety measures See more details in the Decent Work section

Involvement of the Com- Average weighted coefficient of the Company’s participa- Acceptable 14% Social Responsibility (Charity) pany in joint projects with tion in integrated programmes and projects (taking into 65% Target 15% 30% JSFC Sistema account scale of the activities) Aggressive 16% 220 thousand children with deprived backgrounds from 550 social institutions of Russia and Social and charity projects Kazakhstan are under the patronage of the Company Share of mentions of CSR projects from the total number Acceptable 14% CSR translation in mass of publications about the Company in the mass media 10% Target 15% 30% See more details in the Charity Activity section media and social media (Mediology), social media and the Blogosphere (Yandex) Aggressive 16%

The document includes key performance indicators for the CSR strategy. 3⁄ For Children and Their Parents Our main task is to provide to the younger with generation safe and high quality products at affordable prices 32 Sustainability Report 2015–2016 The Detsky Mir Group 33

All activities to verify the conformance of products to safety and quality requirements 3.1. Safety are provided in the certification bodies and testing laboratories accredited in the prescribed Purchase of products which have passed manner and included in the Unified Register of laboratory tests with positive results Certification Authorities and Testing Laboratories (Centres) of the Customs Union, accredited by of Products the Federal Service for Accreditation

Timely inspection of products certified Constant monitoring of changes in laws on previously to extend the validity of documents technical regulation in the Russian Federation of conformance, including repeated sample and the Customs Union tests on products certified previously

Systematic Product Safety and Quality Control

Children’s goods are subject to strict quality and Product Safety and Quality of children’s goods, we check the availability of documentation (in Control System Each customer can get a consumer safety requirements. Ensuring the safety particular, test reports and ISO Detsky Mir Group copy of the certificate for In Detsky Mir Group, safety and quality certificates) confirming product and quality of products is our key obligation to any product at any Detsky control of products is provided at was awarded the compliance with the applicable Mir store. Within 3 days, customers, as well as a prerequisite for increasing each life-cycle stage: from choosing regulatory requirements of the country they may review the original the supplier and placing the order, to Industry Trust of origin and are required for obtaining customer loyalty to our stores. We carry out our certificate for the product. arranging the goods on the shelves of Certificate documents confirming the quality of activities in full compliance with the Law on our stores and working with feedback products in accordance with the laws of Protection of Consumers’ Rights and the Rules of from customers. In March 2016, the Detsky the Russian Federation. Mir Group was awarded the Trade of the Russian Federation. We guarantee that all goods offered in Industry Trust Certificate As part of cooperation with the product Having reviewed the received chain store locations and in the Detsky stating that ‘Counterfeit manufacturers of our store brands, documentation, the certification Mir online store have undergone all products are not sold here’ quality control is provided at every stage body shall identify the product and One of the main challenges of the children’s goods the necessary procedures to confirm from the Association of of production. In this case, we organise make a decision as to whether to test industry is the sale of counterfeit products, which compliance with regulatory documents Children’s Goods Industry. the certification process independently. the product samples in the testing in the field of technical regulation in the Thus, the Company has been laboratory. In case of positive findings carry a potential threat to the health of the younger territory of the Customs Union (technical one of the two companies To reduce any possible risks from from the laboratory test of products, the generation. The Detsky Mir Group purchases products regulations, the Law on Protection of in the segment of children’s unscrupulous suppliers, manufacturers certification body will issue documents Consumers’ Rights, and the Rules for products who was given the are required to increase product quality of conformity for the Company’s directly from the largest international manufacturers the Sales of Certain Types of Goods). certificate. control. If there are heavy claims in products (certificates of conformity, All goods have statutory documents respect of quality and safety, the entire declarations of conformity, certificates and suppliers, which guarantees the high quality required; without them, it would not consignment of goods shall be returned of state registration, and explanatory of the products. In cooperation with industry be possible to import the goods into to the supplier, and any prospective letters on products not subject to the customs territory of the Russian appearance of defective products on cooperation with them shall be ceased. mandatory conformity assessment). associations, we participate widely in initiatives aimed Federation and sell them at retail. our stores’ shelves at the initial stage of at limiting the circulation of illegal products. certification, namely during laboratory To confirm the compliance of products All certificates of conformance for the Thanks to our well-established and testing. for children and teenagers with the Company’s products are processed efficient safety and quality control mandatory requirements of the Customs by the certification department and processes, in addition to our long-term The quality control processes are Union’s technical regulations, we submit entered into a single SAP database cooperation only with proven and managed by specialists from the a work request, a set of documents that is accessible to all retail stores. well-regarded testing laboratories and Certification, Quality and Claims established by the regulation, and The information about the documents highly qualified experts of certification Department. Cooperating with the samples of certified products to the obtained is transferred to the customs bodies, we manage to prevent the leading international manufacturers certification body. department of the Company. 34 Sustainability Report 2015–2016 The Detsky Mir Group 35 ФОТО 3.2. Customer- oriented Service

Implementation of an affordable price policy for With walking distance to socially important goods for the population, the mass segment and offering of the widest Detsky Mir has the most extensive network of stores both in the capital product range for our customers is one of the and in the regions of Russia. The range strategic objectives of the Detsky Mir Group, which of children’s products in Detsky Mir stores totals to about 20–30 thousand corresponds to the principles of our customer- items.

oriented approach. We adhere to the principle of uniform pricing and assortment of goods in all stores of our network, regardless of the region in which they are located. To achieve this, we optimise internal Taking into account the growth of the Product Labelling drawing customer attention business processes, we make Detsky Mir Group’s businesses (see to the products, emphasizing persistent efforts to cooperate with the Confident Leadership section) in Labels that are adequate, readable the products’ advantages on suppliers, and we develop sales in the 2015–2016, the number of customer and accessible for inspection by the packaging and labelling to online channel. Affordability of our increase sales. complaints about product quality has customer provide identification of the products for customers is ensured decreased significantly (by 40% in product and bring basic information through: 2013–2014). In total in the reporting about the product to the customer. We include in the labels all information increase in the share of the range period, 16 non-conformance notices mandatory in accordance with the of domestic products, the average in respect of the products sold were We adhere to the following labelling regulatory requirements (country price of which is lower than that of issued; taking into account the scale rules for the products of our own store of origin, date of manufacture, imported goods, while the level of of business, this number is within the brands of the Detsky Mir Group: warranty period, minimum age, etc.) quality is comparable; acceptable values. Labels may also contain additional disclosure of information intended to development of own store brands establish the compliance of products information and warning signs that allow us to offer products at In case of any defects in a product after to the current requirements of the concerning the safe operation of prices below the market level by purchase, in the course of its operation laws of the Russian Federation, the product. For example, for PVC eliminating additional mark-ups by and after receiving a complaint from the including the Technical Regulations toys intended for bathing: Use the manufacturers; customer, we check the documentation of the Customs Union, the Law on toy only in shallow water and under holding promotional events, making for this product thoroughly and take all the supervision of adults; for radio- Protection of Consumers’ Rights, special offers to loyal customers necessary measures to prevent the sale the Rules for the Sales of Certain controlled goods: Keep this toy out of and holding regular seasonal sales; of products of inadequate quality. In Types of Goods, and contracts on direct sunlight, etc. particular, additional tests of the product assortment, quality and safety; granting of a 3% discount for goods in the Moscow area, subject are carried out if necessary. If, after the bringing all necessary information During the reporting period, there were examination, the testing laboratory issues no cases of inconsistency of labels on to presentation of the Muscovite about the goods to the attention of Social Card; a certificate of manufacturing defects, the interested parties, in accordance the Company’s store brand products defective product shall be replaced with with the list established by the with regulatory requirements, which development of our own loyalty a new item or, if the customer so desires, Federal Law on Protection of indicates the efficiency of our programme, which allows loyal the cost of the product is refunded. Consumers’ Rights; performance in this area. customers to purchase goods at discounted prices. 36 Sustainability Report 2015–2016 The Detsky Mir Group 37

Supporting Families with Children the project, low-income families with private label Just Mom Ulla, thanks to Detsky Mir Group Revenue from specific categories of goods and goods children are provided with certificates which the Company was announced the Sale of Gift Cards and Online participating in promotions and special The Detsky Mir Group is a key partner that allow them to cover up to 100% the winner in the nomination Best Gift Certificates, RUB million offers. in the implementation of a social of the cost of the purchase, excluding Maternity and Nursing Goods. project aimed at dealing with minimal baby food, in one of the partner stores. To be able to use bonuses, a client retail margins for socially important Additionally, a customer may get a Sportswear 1,340.5 should fill out a registration form and categories of goods, including products 3% extra discount with the Muscovite In April 2015, Detsky Mir also 1,101.0 provide his/her personal data. 200 for the new-borns. Social Card, or cover up to 20% of the presented a new sportswear collection welcome bonuses are accrued upon cost of the purchase with the chain’s for children aged 2–12 produced under 824.8 completion of the form. 200 gift bonuses Since 2005, the Detsky Mir chain has Loyalty Programme bonus points. the private label JOMOTO. are accrued for a child’s Birthday. The participated in the social project of clients who provided their telephone the Government of Saint Petersburg These products are presented in numbers or e-mails receive notifications for supporting families with children. New Product Categories the medium minus price segment, on promotions and private sales. The local Government offers social allowing consumers to purchase high- payments to the families: a lump Maternity Wear quality clothes at reasonable prices, The number of loyalty programme sum upon the birth of a child and In April 2015, the Detsky Mir chain at the same time enabling the Detsky 2014 2015 2016 participants made 14.7 million people monthly payments for children below started to sell maternity wear. Products Mir chain to significantly increase its as of the end of 2016. The percentage the age of seven. Financial aid is of this category are mainly sold at “By launching the corners for expectant market share in sportswear segment. of purchases (in receipts) performed transferred to “Infant and Pre-school” specialized shops. Detsky Mir chain mothers, we plan to expand our target by the programme participants bank cards issued by PJSC Bank of stores became the first full-line retail The products are made of specially online store allows customers to buy comprised 71.3%. customer group: mothers-to-be come Saint Petersburg. Families can use operator on the children’s goods market designed durable material that does online gift certificates that can be to the store and get familiar with the these monetary funds that have been to offer its customers a wide range not hinder a child’s movements, is used at chain stores locations within Our loyalty programme’s efficiency is transferred to their social cards to of clothes and undergarments for assortment while expecting their baby. easily washable, does not stretch and Russia. Depending on the occasion, confirmed by the larger than average buy goods at the stores that received expectant mothers. We aim to make the most attractive shrink over the course of time. such as a birthday of a boy or a girl, receipt amount of loyalty programme accreditation from the Administration offer to our customers: bright clothing, or the birth of a new child, clients can members, which is 33% higher compared of Saint Petersburg, including the Customers are offered a range of goods comfortable design, soft and convenient The JOMOTО brand also offers choose a free cardholder designed to to the customers who have no loyalty Detsky Mir chain. for expectant mothers of both domestic fabrics with affordable prices.” footwear for children aged 2–12 for suit the occasion. card issued. and foreign production. Among the athletic training and outdoor activities. In March 2016, the Detsky Mir Group famous Russian producers, the Detsky The lightweight and flexible insoles Gift cards and online gift certificates became the first partner of a social Mir chain has undergarments for Maria Volodina, reduce the load on child’s feet and are very popular since they greatly Customer Satisfaction Survey project implemented by the Department pregnant women and nursing mothers Clothing and Shoes spine due to a shock absorbing save time and allow its receiver to of Labour and Social Protection of the of the FEST brand (Kostroma), as well Commercial Director system. Our footwear is produced with buy the necessary things for him/ Since 2015, the Detsky Mir chain has Moscow City Government. As part of as maternity wear from the company’s of the Detsky Mir Group the use of up-to-date high-technology herself and ensure that the gift is started to assess its clients’ loyalty materials. a pleasant and desired one. The by means of the NPS (Net Promoter positive dynamics of gift cards Score) index. and online gift certificates sales in Gift Cards Russia has allowed us to expand the Starting form 2016, the NPS has project’s geography: in 2015, the sale been measured in the Company on The Detsky Mir Group continues of gift cards was implemented in a quarterly basis. The key element DETSKY MIR IS KIDZANIA’S PARTNER IN RUSSIA to implement projects aimed at Kazakhstan. of the survey is a poll given to improving the level of service in the shoppers. As part of the survey, In January 2016, the Kidzania park opened in Moscow: a miniature town for kids aged chain’s retail stores. One of these key Both individuals and legal entities can between 7 and 8 thousand retail store 4–14 where they can try out a variety of professions, while learning practical skills projects is the sale of gift cards and use gift cards from the Detsky Mir respondents are polled, as well as nearly online gift certificates. According to chain in Russia and Kazakhstan. Gift 1.5 thousand online store clients, and and obtaining knowledge about the world around us. The project’s base principle is the results of 2016, sales at Detsky cards and online gift certificates are over 2 thousand online store visitors “Learning through play.” Mir from gift cards and online gift an effective tool when implementing who did not complete a purchase but certificates grew by 22% YOY to RUB internal programmes aimed at agreed to complete the survey. Kidzania’s objective is to show children various opportunities that they can expect 1.34 billion. increasing staff loyalty, performing motivational projects for clients and In the course of the survey’s first to do in the future, to orient them in the right direction in their development and Customers can pay for the cost of partners, holding promotional and stage, the customers are offered to help them choose a job they would be passionate about. That is why everything purchases with the gift card at any advertising events when promoting is absolutely lifelike at Kidzania: young visitors to Kidzania develop useful social store location of the Detsky Mir chain. goods and/or services. skills, acquire financial literacy basics, learn to set goals and how to achieve them Gift cards and online gift certificates with the following values are sold: NPS (Net Promoter Score) is independently. RUB 300, 500, 1,000, 1,500, 2,000, Loyalty Programme an index of customer loyalty 3,000 and 5,000. In 2016, we started and loyalty to a company to The Detsky Mir Group built a miniature analogue of a children’s goods supermarket selling flexible value cards that allow Detsky Mir chain stores have a loyalty assesses their repurchase in Kidzania 50 square meters in total area. Kids can try out being sales clerks, sales the customer to place a sum between programme for customers by the name willingness via their willingness RUB 300 and RUB 50,000 divisible by of Yo-Yo. The loyalty card is given out to recommend the company to assistant, marketing experts or try the role of a customer. The mini supermarket RUB 100. The card is valid within 12 to customers upon any purchase. friends, relatives and colleagues. is performed using an interactive concept that the Company has been replicating months from the date of purchase. It allows customers to accumulate It is an important indicator of a successfully across Russia since 2014. Gift cards can be used unlimited 5% of the cost of purchases. For company’s operation along with number of times until the balance is families with many children, this bonus traffic, turnover, average receipt zero. For the clients’ convenience, amounts to 7%. With accumulated amount, etc. a special service was developed to bonuses, one can pay for up to 20% of check the card’s balance online. The the cost of the purchases, except for 38 Sustainability Report 2015–2016 The Detsky Mir Group 39

Percentage of Purchases by Loyal Customer Satisfaction Survey Findings (NPS) The Detsky Mir Group uses only those Customers, % communication lines that have proved to be highly effective: 64 Оffline TV spots; 77 56 56 56 Оnline 53 50 mass and targeted SMS and email 70 46 47 notifications; 43 41 65 38 free distribution of the chain’s own advertising newspaper delivered to 27 home mailboxes; posted materials in the retail space, including window dressing;

online marketing;

All advertising materials of the Detsky 2014 2015 2016 Q1, 2015 Q2, 2015 Q1, 2016 Q2, 2016 Q3, 2016 Q4, 2016 Mir Group are reviewed and pre- approved by the Legal Department. The main principles we follow while preparing advertising materials include answer the following question: “How Number of Filed and Processed Claims from Clients transparency, honesty, and legal likely is it that you would recommend compliance. For the past three years Detsky Mir to your friends, relatives and (2014–2016), only three cases of non- colleagues?” The survey’s second stage 95 compliance with regulations concerning finds out the reasons affecting visitors’ marketing communications were loyalty and thus, the NPS. 90 Number registered across the Group. Only one 31.6 of applications of them resulted in an administrative 85 p.a., thousand The survey’s goal is to get feedback 29.9 penalty. One case is currently under from our clients. By taking into Number of applications, consideration. The third case had account their opinion, we can improve processed as of the year- a penalty cancelled as a result of end, thousand our service and enhance our visitors’ 20.5 an appeal. loyalty. Based on the survey, we 18.3 Number of applications, can modify the stores’ operation, 16.6 processed as of the year- and get to know our strengths 14.0 end, % and weaknesses directly from our customers. In the long run, the above-mentioned factors affect the Company’s customer satisfaction and therefore, have a positive influence on our performance. 2014 2015 2016 Feedback Mechanism The Detsky Mir Group has an effective feedback mechanism, making it possible for everyone to contact us All claims are registered in the result of this, 95% of all claims were and file a claim using the following integrated feedback management processed in 2016. communication lines1: system and forwarded to relevant specialists for handling. Specialists leaving a comment on Yandex. Fair Advertising Market; from relevant units have access to New Positioning of the Chain components of our new advertising the integrated feedback management To keep our customers updated image. Since 2016, Detsky Mir’s feedback form on the Detsky Mir system for prompt control and and informed of active campaigns, “In childhood, there are lots of things that At the end of 2015, the Detsky Mir advertising campaigns have been online store website; response to claims on such topics special offers and sales, as well happen for the first time: first steps, trips, chain launched a new advertising using a new slogan for the brand that banners on the online store website; as: questions regarding goods, online as new and interesting products and discoveries. This is what makes campaign on TV that was developed outlines renewed chain positioning: store operation, opting out of mailing available at our stores, we use a range childhood a happy and unmatched in partnership with the Lowe “A happy childhood is available to making a call to our hotline; and messaging lists , questions of communication lines, the most experience. At Detsky Mir, every parent Adventa agency (presently known as everyone!” feedback left on social networks; regarding the loyalty programme, and significant of them being television and can present his/her child all the best and MullenLowe). It is the first output of e-mail address: [email protected]. questions regarding gift cards and the chain’s own advertising newspaper necessary things for a happy childhood, cooperation, of which our new brand Videos are available on the Detsky Mir online gift certificates. issued once every two weeks. We also thanks to reasonable prices and a wide positioning and communication official channel on YouTube: http:// reach our customers through SMS and range of products.” concept were developed. www.youtube.com/user/detmirtv/ 68.7 thousand claims were received email notifications, using segmentation videos. 1 Here a claim is understood as any registered in 2014–2016. The Company is of our clients’ preferences based on Tatyana Mudretsova, Children’s goods with moderate enquiry received from a client and implying a continually improving the quality of their questionnaires and purchase Marketing Department Director prices and invaluable moments response. its interaction with customers; as a history. of the Detsky Mir Group of childhood are the two major 40 Sustainability Report 2015–2016 The Detsky Mir Group 41

store pick-up service in June 2015: about 50% of online store orders in 2016 had pick-up points in the chain stores’ locations. One of the reasons online segment is growing 3.3. Online Store is because Detsky Mir now has a presence in all major regions, which about allows for the arrangement of a quick delivery.

First and foremost, pick-up service is popular among those of our clients who would like to receive 1,387 50 % their orders promptly. In as little as several hours after the order is placed, the one customer can pick own and partner of online store orders it up at one of the chain’s store pick-up points as of in 2016 had pick-up locations. It is convenient, prompt the end of 2016 points in the chain and free. stores’ locations According to Detsky Mir’s online store research, the most popular goods that customers order through pick-up points are baby goods and toys.

In addition, under the partner Online Store Revenue, RUB million Online Store Traffic, million visits agreement with Ozon.ru, orders can be received at Ozon.ru pick- up points. Thus, as of the end of 2016, the online store has 1387 of its own and partner pick-up points. 2,776 97.1 Delivery to the chain’s own pick-up points is free, and the delivery to the partners’ pick-up points is paid by the customer according to the 63.5 partner company’s rates. 1,260 43.5 In 2016, the Detsky Mir online store (http://www. Online store customers can also The percentage from have their goods delivered to their detmir.ru) became the largest specialised player in the home or office via courier service. 443 children’s goods market. We pay great attention to its the online store in the Company’s revenue in In the course of developing development and improvement. 2016 grew to our online service, we plan to 2014 2015 2016 2014 2015 2016 implement and offer our customers a mobile version of the online store The key advantages of online store and continue to improve the quality include: In 2016, due to the and convenience of the delivery of goods. access to a wider range of growth of the service % products compared to smaller 3.5 sized offline shops (for three level and by expanding We implement an omnichannel years, product assortment was product assortment, approach that integrates all Breakthrough of the Year expanded by almost four times platforms and devices that the to 40 thousand items as of revenue has increased client uses while interacting with In 2016, the Detsky Mir online store was announced the winner in December 2016); growth in sales. Due to the growth the Company. Combining all one of the most competitive categories of the Large Turnover Award, opportunity to return a product of the service level and by expanding communication channels that the a Russian professional award in the field of e-commerce – the category of bought online via any retail store of more than product assortment, revenue has customer users in order to receive Breakthrough of the Year. the chain; increased more than twofold in 2016. all information on their every The percentage from the online store action, such as his/her purchases, The Large Turnover Award is granted for outstanding achievements and opportunity to collect and spend in the Company’s revenue in 2015 requests, enquiries, solved and bonus points within the Yo-Yo meaningful contributions to e-commerce development to online stores, loyalty programme integrated with comprised 2.1%, and as of the end of unsolved problems, allows us to multichannel retailers, e-commerce professionals, as well as projects 2016, grew to 3.5%. obtain integrated information and offline channel. -fold and persons that have significantly influenced the industry. 2 provide the highest level of service In recent years, the chain’s online store One of the key drivers of revenue to our customers. has demonstrated an unprecedented growth was the launch of an in- 4⁄ Responsible Supply Chain The efficient management of all processes related to the supply of goods ensures the business’s reliability and stability 44 Sustainability Report 2015–2016 The Detsky Mir Group 45

We solve problems related to the were signed with companies such as optimization of purchasing prices, the Mattel, Hasbro, Lego, Maclaren and effective assortment management, Artsana. In August 2015 at the to improving quality control of goods Detsky Mir flagship store via concluding direct contract with For the past two years, Detsky Mir in Moscow, there was an 4.1. Cooperation major manufacturers, who specialise Group has supported an all-Russian exhibition dedicated to the in particular product groups or their School Uniform Competition organised history of school uniform representatives in Russia, and to by the Ministry of Industry and Trade, in fashion, starting with unique reducing the number of distributors. cooperation with the Ministry of Science school uniform samples This allows us to secure profitable and Education of the Russian Federation, prices, mitigate currency exchange as part of promoting consumer and from the imperial period with Suppliers risks and ensure direct access to textile industries in Russia. up to the present day; goods. the school uniform of the In 2015, the winners of the all-Russian Competition winners were As of 31 December 2016, among our School Uniform Competition 20 flagship also displayed. In April 2016, suppliers, we had 7 direct suppliers in stores of the Detsky Mir chain in 15 manufactures from the toys category, 58 in the baby goods Moscow and St. Petersburg over 260 Moscow and the Moscow category, 59 for large-size goods, and thousand items for resale, totalling RUB Region took part in the school 22 for stationery and other goods. 380 million. uniform exhibition organised by the Ministry of Industry With our suppliers, we are also aiming The development of private labels is and Trade, in cooperation with to conclude exclusivity agreements one of the strategies of the Detsky that increase traffic, promote the Mir Group. At the moment, we own the Department of Education growth of same-store sales, increase 25 private labels in the clothing and of the City of Moscow, at the customer loyalty and protect us from footwear category. Each of these Detsky Mir site. price competition in the pre-sale period. labels has their own target audience, Thus, in 2016, exclusivity agreements assortment and price positioning.

All-Russian School Uniform Competition

Given the industry specifics, the scale and goals This competition is held to popularize school uniforms of domestic manufacture and of Detsky Mir Group require increasingly effective We have ensures that best items are entered into the assortment of retail chains. supply chain management and the building of long- term partner relationships with suppliers. 114 designers and 73 enterprises from across Russia participated in the Competition. over The assessment criteria considered both an aesthetic component, and the quality of materials, hygiene factors, comfort, usability and affordability of the school clothes. We have over 600 suppliers from 21 countries, including: Russia, China, India, Hong Kong, the The winners’ list comprised the companies from different Russian regions: Smena, Smena by Guschina, Ufimskiy trikotazh, BTK Group, and Sky Lake. Cooperation with the Netherlands, Germany, etc. In 2016, the top 10 Detsky Mir chain was the grand prize awarded to them. largest suppliers of clothing and shoes covered 600 44% of supply categories, while the top 10 largest Long-term orders for school uniforms ensured a safeguard that allowed the suppliers of toys; baby goods and large-size goods suppliers manufacturers not only to avoid discontinuing production, but also to increase their production volumes. covered 42%. Firstly, these events offer companies an additional opportunity to present consumers with domestic products. Secondly, they encourage trading companies to cooperate from 21 with Russian producers. countries 46 Sustainability Report 2015–2016 The Detsky Mir Group 47

We developed the design for eight private labels ourselves, while the others were developed by designers invited exclusively to the Detsky Mir Appreciation of the Company’s Private Labels Group. All private labels are produced by our partner companies. 4.2. Procurement The Detsky Mir chain’s private labels were appraised highly as part of the Private Label Awards contest involving the Retail Companies Association The sale of private label goods of (ACORT). domestic and foreign production enables us to control pricing, to Detsky Mir won the prize in the category of Best Brand in the Children’s comply with the quality requirements Goods Segment. The following Company’s’ private labels were announce and ensure the safety of materials the winners: Management they are made of, in turn significantly reducing the stock turnover cycle. Futurino (children’s clothing); Favaretti (children’s footwear); The producers of private label goods, in turn benefit from steady orders, Attivo (arts and crafts sets). and cost reduction in branding and The Contest’s participants included 37 retail chains that nominated logistics. As a result, we have the 88 private label product lines and 43 manufacturing companies opportunity to offer our customers high quality goods at the most from 14 countries. attractive prices.

Percentage of Private Labels in Turnover by Category, % The winners of the all- Russian School Uniform 75.3 2014 Competition sold 70.1 64.5 2015

2016

Commercial Procurements An important stage of the supplier selection and approval process is the 33.0 The procurement of products by the Detsky Mir Group 30.6 29.8 meeting of the Assortment Committee – a cross-functional body made up of 22.3 is planned for each product category on the basis 260 18.3 experts from different units of PJSC 13.5 of assortment matrices aligned with the assortment Detsky Mir (including, among others, the 5.9 7.5 7.8 policy and covering the list of all items. The matrices Commercial Directorate, the Certification thousand Department, the Marketing Department, are based on the results of studies made by category etc.). The Assortment Committee is Clothes and shoes Large-size goods Other goods Toys managers, the results of monitoring competitors’ authorised to take strategic decisions products on the approval of the list of suppliers, assortments, as well as fashion trends and significant amendment of the terms and conditions events in the movie and entertainment industry. Based of cooperation with existing suppliers, the modification of the assortment on these analytical materials, we revise the conditions in the flagship Kids Fashion Festival matrix, etc. stores of the of cooperation with existing suppliers and conclude In October 2016, as part of the 33rd season of Mercedes-Benz Fashion new contracts on a regular basis. Procurement for Detsky Mir chain Week Russia, the Detsky Mir Group presented its new collection, Spring and Summer 2017. the Group’s Own Needs

The collection’s hallmark is natural fabrics: cotton, linen, and bamboo Suppliers can contact us on their own initiative; Procurement of goods and services for the Group’s own needs is an important combined with light denim and viscose that provide comfort along with some of them are invited for cooperation at industry area for the optimisation of business beauty to young fashion plates. exhibitions or by using public information sources. processes and the enhancement of The percentage of private label As part of the Kids Fashion Festival at MBFW Russia, the Russian office of their efficiency. The main categories goods in the clothing and footwear of such procurement include: the the Disney Company, in cooperation with the Detsky Mir chain, have also categories comprised 60–70% of supplies of retail and warehouse presented a clothing collection inspired by the heroes of the film the Beauty the Detsky Mir Group’s turnover. equipment, construction and assembly In the toys and baby goods categories, and the Beast. work, marketing and advertising, and it comprised 7% and 1% respectively transportation services. Around 95% in 2016. of goods and services procured for the 48 Sustainability Report 2015–2016 The Detsky Mir Group 49

Group’s own needs are provided by Russian suppliers. The remaining 5% are procured from foreign suppliers due to the absence of domestic analogues.

In 2016, PJSC Detsky Mir was honoured with the highest award by the experts of the National Procurement Transparency Ranking project as a company with assured transparency status, along with private company ranking leaders such as PJSC Tatneft and PJCS Gazprom Neft.

The National Procurement Transparency Ranking project (http://nrpz.ru/) is an independent non- governmental research centre focusing on monitoring state and corporate procurements for transparency and legal Centralisation centralisation of logistics activities. compliance. of Logistics Operations In 2014, 26% of products were channelled through the Group’s To ensure continuous product central warehouse in Krekshino availability in our stores, we need to (Moscow Region), whereas be able to control product inventory. 74% were delivered directly by Therefore, one of our goals is the distributors. In May 2014, we launched our Procurement System distribution centre, putting it into The PNK Group was the developer for the logistics complex in Bekasovo. Improvements operation in the territory of PNK- Investments into the project comprised RUB 3 billion. The PNK in 2015–2016 Bekasovo in the Naro-Fominsk Bekasovo industrial park is the first project implemented in cooperation In the reporting period, the District of the Moscow Region with the Government of the Moscow Region as part of the investment Detsky Mir Group has achieved a in 2015. programme “The Development of Industrial Parks on the Territory of the significant reduction in the delivery Moscow Region until 2015”. The PNK Group not only invests in modern costs of materials, goods and The Detsky Mir Group’s new Dmitrov complex construction, but it also covers the development of transport services thanks to the corporate distribution centre, with a total floor and social infrastructure of adjacent territories at its own expense, Electronic Document Interchange area of 70 thousand square metres, Klin Sergiyev Posad including the construction of an elevated roadway above the railroad in (see the Information Technology became the largest specialised Bekasovo. section) and the transfer of 95% Volokolamsk logistics terminal in the segment of of procurement to the electronic Noginsk children’s goods retailers. It meets trading platform (CJSC Sberbank- Orekhovo-Zuyevo all up-to-date requirements for such AST trading platform), which Moscow terminals, which allows us to ensure resulted in a significant increase its continuous operation and to have on the shelves) and build a solid were be transferred from in competition among potential Mozhaysk goods supplied to the chain’s stores logistical platform for the further 3PL-operators1 to a warehouse suppliers. Podol'sk in due time. The PNK-Bekasovo expansion of our business. in Krekshino, with a total area of Kolomna distribution centre has a combined 20 thousand square meters, rented Naro-Fominsk Business process changes that storage system for warehousing In 2015, a SAP EWM warehouse by the Company under a long-term Serpukhov include the transfer of functions the entire assortment of the chain’s management system was lease agreement. from the Customer to the Buyer Kashira goods. implemented at our warehouses, in such categories as logistics, allowing us to see the supply chain Around 1.5 thousand new jobs construction, marketing and IT Opening our own warehouse allowed full cycle, starting from the order to serve the logistics complex allowed us to minimise procurement to us enhance the centralisation of placement, order processing in (1,176 jobs were already created as timeframes. Consolidation of logistics operations (the percentage the warehouse or store, until the of the end of 2016) will contribute procurement for certain categories of turnover processed through the final delivery to the customer (for considerably to the development of also contributed to cost reduction. Warehouse area 70,467 sq. m (+100 sq. m checkpoint) warehouse) from 26% in 2014 up to more details on this, please see the Moscow Region’s economy. 65% in 2016. By 2019, we are planning the Information Technology section). Location Bekasovo village (Naro-Fominsky District, Moscow Region) According to the Company’s to increase this indicator to 75–80%, estimates, the economic benefit of Direction South-East, Kievskoe highway, 50 km from the Moscow Ring Road which will allow to us enhance stock In 2015–2016, warehouse operations procurement procedures comprised turnover in the stores, eliminate of Detsky Mir’s online store and ELC 1 3PL-operator is a specialised company that RUB 700 million in 2015–2016. Commissioning date June 23, 2015 stock outs (the absence of products (Early Learning Centre) subsidiary provides outsource logistics services. 50 Sustainability Report 2015–2016 The Detsky Mir Group 51

The Company’s Legal Department employees consult the staff, as well as counterparties, on Major Regulations on Counteracting issues related to anti-corruption In March 2015, PJSC Detsky Mir signed the Anti-Corruption Charter of documents application adopted by the Russian Business. The Ceremony for joining the Charter and the Corruption: the Company. issuance of a corresponding certificate took place on 26 March as part Anti-Corruption Policy of JSC Detsky Mir of the International Conference Public-Private Partnerships against The existing documents on Corruption, held under the auspices of the United Nations. Code of Ethics of JSC Detsky Mir counteracting corruption are Conflict of Interest Management Policy of JSC Detsky Mir updated and new ones are The Anti-Corruption Charter of the Russian Business was developed as part of the National Plan on counteracting corruption for 2012–2013, Anti-Fraud Policy of JSC Detsky Mir introduced when necessary. approved by the Decree of the President of the Russian Federation Procurement Policy of JSC Detsky Mir In order to improve the efficiency No. 297 of 13 March 2012. of combating risks, countering Office Supplies and IT Policy for PJSC Detsky Mir employees The Charter members are aiming to comply with international improprieties, the early detection regulations, and Russian legislation related to preventing and Concept for counteracting corruption in PJSC Detsky Mir of potential cases of corruption, counteracting corruption; they are governed by ethical standards of fraud or other violations in the open and fair business. “Detsky Mir is the only retailer of the activities of PJSC Detsky Mir children’s goods segment to have and its non-public subsidiaries, Over 1000 companies joined the Charter from 2012 through 2016. joined the business community in an internal corporate alert its cooperative efforts to counteract programme “WARNING FROM THE corruption, and in forming principles EMPLOYEES!” was developed and to reject its manifestations, both when implemented. http://corp.detmir.ru/ interacting with public authorities and about/the-staff-warned. within corporate relations.” Messaging channels and media Sergey Bellevich, (anonymous): Results of Activities on Revealing Corruption in 2015–2016 Director of Legal E-mail: [email protected] Department of Telephone numbers: +7 (495) the Detsky Mir Group 781-08-30 (voicemail) or +7 (800) 250-00-00 with key phrase “Warning from the employees!” 28 Revealed facts Mailing address: 28 of corruptionRevealed facts of corruption 1 Timiryazevskaya St., Dismissed employees, Moscow, 127422, Attn.: Head involved inDismissed corruption employees, of Legal Department and/ involved in corruption or Head of Internal Control 17 Instituted criminal cases under Counteracting Corruption and Audit Department and/ 17 Part 3. Art.Instituted 159, 160 criminalof the cases under 14 Criminal Code or Head of Corporate Security 14 Part 3. Art. 159, 160 of the The absence of corruption is an Department, with a private and Criminal Code important factor for improving the 9 Prosecuted persons confidential note. 8 Prosecuted persons company’s business efficiency. As 97 8 such, on a regular basis, we assess 7 5 3 5 corruption risks, check our business The Results for the 3 partners and candidates for Reporting Period: positions, introduce standards and 2015 2016 procedures to ensure due diligence In 2016, our Concept of counteracting 2015 2016 of the Group and monitor our corruption was approved at PJSC compliance with these standards. Detsky Mir, thus serving as the Company’s basic document in this To prevent problematic situations sphere. from arising, we develop anti- corruption training programmes A section for counteracting PJSC Detsky Mir’s affiliates, Kub-Market Procurement Policy of JSC Detsky for our employees and monitor the corruption was added to the LLC (ELC) and Detsky Mir – Kazakhstan Mir (2015); efficiency of our actions in this area. Company’s website, http://corp. LLP, have implemented anti-corruption Procedure for a Contractual detmir.ru/shareholders-and- procedures and have put into effect Workflow at JSC Detsky Mir’s Head On a quarterly basis, the Company’s investors/corporative-governance/ basic anti-corruption documents. Office (2015); employees receive newsletters anti-corruption-2. The section A template for an additional with memos on compliance with contains a Code of Ethics, an In 2015–2016, the Company’s principal agreement and reservation clause counteracting corruption principles. Anti-Corruption Policy, a Conflict anti-corruption documents were for contracts in force to mitigate the Workshops and seminars on of Interest Management Policy, adopted in with new wording: risk of corruption (2015). compliance with anti-corruption and a Code of Corporate Conduct, Code of Ethics (2016); procedures are held annually, all of which are publicly available. including those conducted by Published information is updated Office Supplies and IT Policy for outsource consultants. when necessary. PJSC Detsky Mir employees (2016); 52 Sustainability Report 2015–2016 The Detsky Mir Group 53

4.3. Information mid-2013 Project development Autumn 2014 Pilot and field testing Technology January 2015 SAP implementation (excluding stores) May 2015 SAP implementation in stores

August 2016 SAP implementation in Kazakhstan

Stages of SAP Implementation Project at the Detsky Mir Group

updating cash desk software to “The transition to electronic document flow is a comply with requirements set result of our focus on reducing general expenses forth in the Federal Law No. 54-FZ and improving the quality of store operation and of 22 May 2003 (in force as of 8 personnel efficiency. Reducing manual operations March 2015) on “Concerning the The integrated automation of all activities of the flow. The retailer sends dozens in the process of order placement, in the supply of thousands orders monthly use of cash register equipment in Detsky Mir Group creates an integrated infosphere chain and in the final acceptance of goods has to counterparties, processes carrying out cash settlements and (or) settlements using payment allowed us to reduce the risk of making mistakes. for data exchange between consumers, suppliers, the response EDI2 -messages, cards,”; Automation of the transfer and verification of the Group’s companies and their key divisions, and delivers closing accounting documents on supplies. IT portal development for online invoices and consignment notes has contributed ensuring transparency of business processes and interaction with the Detsky Mir to the optimisation of accountants’ work and the In order to reduce operational Group’s suppliers. withdrawal from the long-term storage of hard copies improving their efficiency. costs, the Company has taken to of documents.” a decision to computerise original document processing. In 2015, Alexander Shlyapochnikov, an EDI3 full-cycle with product member of the Detsky Mir Management Board, suppliers was implemented. This Director of IT Department allowed us to minimize or totally Automation of When introducing SAP, it was integrated discard hard copies thanks to Business Processes with POS-system1 called Profi-Т, which digitisation. provided the overall integration of the In the reporting period, we continued Company’s IT Landscape. This ensured Major Business Effects of IT Projects at the Company: our activities in the automation of the the efficient management of pricing, The Company’s long-term Group’s business processes, based on conveying the right prices to each Solving of the problem of integration for different information systems. cash desk, and receiving sales reports IT plans include: the integrated SAP IT platform. Seamless information interoperability across the entire Detsky Mir chain. promptly.

improvement of the EDI Improving the quality of management reporting. In 2015–2016, the following SAP system – the development solutions were implemented: and implementation of a cross Improving the quality of automated orders. functional accessory document; SAP ERP (Enterprise Resource Electronic Document Elimination of discrepancies in web banner information. Planning) – an integrated system implementation of the Providing an in-store pick-up service thanks to the visibility of stock balance online (with no two-day delays as before). for the overall automation of Interchange application pattern of the management. Introduced in Russia electronic document called Simplification of VAT reporting formation due to digitised invoices. The broad geography of stores and Kazakhstan, covers all processes The Act of Acceptance that of the Detsky Mir chain in Russia Minimising the risk of mistakes involving the human factor. across the company except HR uses EDI when performing and Kazakhstan (covering 178 management (the latter uses 1С ЗУП direct supplies to stores in Reducing working hours needed for mechanical operations. cities total), as well as a large Kazakhstan; [Salary and Management]). number of suppliers, determine Reducing the time needed for processing each document in the chain of “order to delivery”. creating a data processing back- the specific character of tasks SAP EWM (Extended Warehouse up centre in order to ensure Ensuring transparency of the document interchange process. Management) – a warehouse for the optimisation of document database security; management system providing Reducing the negative impact on the environment related to paper document flow. the overall automation of stock 1 POS-system (POS – Point of Sale) – a hardware Immediate receiving of information by suppliers upon acceptance of the goods in stores and distribution centres. 2 movement. Operates in the and software system that has a typical set of cash EDI – electronic data interchange. 3 company’s two distribution centres. functions. EDI – electronic document interchange. 5⁄ Decent Work The Detsky Mir Group consists of a group of professionals united by a common goal to make a contribution to the development of the business 56 Sustainability Report 2015–2016 The Detsky Mir Group 57 5.1. HR 5.2. Our Management Employees

Detsky Mir Group’s headcount exceeded 10 thousand people in 2016. Employees of the Detsky Mir Group are our key asset We build relations with our employees based on common For the last three years, it has increased by 30% as a result of the chain’s and the base of the Group’s internal stability and goals, mutual respect, long-term significant expansion in Russia and Kazakhstan (see the Confident future development. We actively introduce best HR partnership, mutual interest, due diligence and fairness. Leadership section). Despite an increasing number of retail stores, the management practices in order to create the most number of managing personnel has remained the same at the head office comfortable working conditions for our employees We are committed to complying with employment legislation in and regional offices. 96.4% of all employees work at PJSC Detsky Mir. and allow them to reach their potential. the countries of our presence, respecting human rights and freedom, and avoiding any Detsky Mir Group’s Headcount, Breakdown of Retail Employees at PJSC Detsky Mir Detsky Mir Group’s Total Costs for Percentage of Total Revenue discrimination and harassment. persons by Regional Division (RD) in 2016, % Personnel1, RUB billion Costs for Personnel, % Our HR personnel management 7.7 Retail stores Moscow and Southern Region policy is aimed at the creation of 874 7,129 a cohesive and effective team of 8.0 Moscow Region 6,809 758 Central and regional offices Eastern Region 11.5 11.2 professionals committed to the 408 32.3 North-West Distribution centres high standards of work quality 713 Volga Region and united by a shared desire 284 8.3 Central Region 9 Siberia 5,217 766 to contribute to the development Ural of the Company and our society as 8,782 a whole. 7,366 8.9 5,863 Automation of the business process and the implementation of new software solutions have 10.4 13.7 helped us reduce the time and labour input needed per business 2014 2015 2016 10.7 process. As a result, the number 7.7 2014 2015 2016 2014 2015 2016 Moscow and Southern Region of employees providing the Retail stores 8.0 Moscow Region operation of one store reduced 874 Eastern Region Central and regional offices 32.3 North-West 1 The total costs for personnel include a payroll fund, insurance payments, personnel training and selection, from 26 persons in 2013 to 21 758 408 Volga Region healthcare expenses, personnel outsourcing, etc. person in 2016. Distribution centres8.3 Central Region 713 Siberia 284 Ural 766

8,782 8.9 7,366 5,863 10.4 13.7 10.7 2014 2015 2016 58 Sustainability Report 2015–2016 The Detsky Mir Group 59

As of 2016, the average age of the Breakdown of the Detsky Mir Group’s Employees Detsky Mir Group’s employees is 29.5 by Age in 2016, % years old. These consist of mature specialists at their sharpest, most responsible and highly engaged. The 5.65.65.6 5.3. Engagement majority of employees (94.4%) are 24.524.524.5 younger than 50, with three quarters of 50.050.050.0 them being women.

As a result of the improvement of working conditions, the development of a corporate culture, and providing a wide range of opportunities for 44.444.444.4 professional and career growth, the level of employee turnover has gradually decreased over the reporting 75.5 period. The Group’s turnover indicators 75.575.5 do not exceed the respective averages under 30 years Women for the retail sector. under 30under years 30 years WomenWomen 30-50 years Men 30-50 years30-50 years Men Men over 50 years over 50 overyears 50 years A high level of staff engagement contributes The Number of New Jobs Created Employee Turnover at the Detsky Mir Group, % to the increase in employee productivity and business at Detsky Mir Group DETSKY MIR GROUP efficiency. 81.3 76.2 WAS ANNOUNCED 76.2 Head Office and Accounting Service Centre The Detsky Mir Group conducts employee EMPLOYER OF THE engagement surveys on an annual basis. It is our 1,969 55.6 54.1 47.7 Strores and regional YEAR 1,775 offices goal to find out, straight from the source, how our Representatives of AON Best 1,410 Distribution centres employees view various aspects of life at the Group Employers and its Russian partners, AXES Management, in order to understand our strengths and weaknesses, assessed the applicants for 28.6 31.4 29.7 identify issues to focus on and areas where actions the title of Employer of the Year based on the surveys of need to be taken to improve the situation. employees, top management, and the companies’ HR 2014 2015 2016 2014 2015 2016 representatives. In the course of gathering information, According to the results of an note that the Company creates the experts examined four employee engagement survey conditions that drive their success key indicators: engagement, conducted in 2016, we have (76% of respondents). confidence in the leadership, substantially increased the level sustainable development and of employee engagement in the According to a 2016 survey, culture of efficiency, and the About reporting period. the aggregated engagement of employer’s brand. employees amounted to 76% It has also discovered that the of PJSC Detsky Mir, and amounted The winners of the overwhelming majority of the to 77% for the employees of Detsky Mir International Award AON Detsky Mir Group’s employees: Kazakhstan LLP. Best Employers Russia for 2016 were announced thousand understand the company’s 5 In order to enhance the staff engagement as part of the HR forum goals and strategy and level at the Detsky Mir Group, we have Strategic Issues in Human their connection to the work of employees (88% of deliberately implemented actions in the Resource Management, held new workplaces respondents); following areas: by Vedomosti Business Daily. Apart from the Detsky Mir were created by the highly appreciate their developing motivational tools for achieving strong performance; Group, 13 other companies Detsky Mir Group immediate supervisors and have were announced winners confidence in them (84% of improving the employee reward including MTS, the State in Russia respondents); system; in 2014–2016 Atomic Energy Corporation believe that there is an building and maintaining a stable Rosatom and LEROY atmosphere of cooperation and and attractive image of the Group MERLIN. mutual support at the Company as an employer. (81% of respondents); 60 Sustainability Report 2015–2016 The Detsky Mir Group 61 5.4. Motivation and Remuneration System

Long-term Motivation Remuneration of Retail Staff at Detsky Mir’s Chain Locations, % Programme Salary 30 Ensuring a high level of motivation and decent The head office’s employees receive In September 2016, PJSC Detsky Administrative bonus remuneration for employees are key aspects of an annual bonus, depending on the Mir’s Board of Directors approved achievement of KPIs. a new long-term financial incentive 40 Production bonus personnel policy at the Detsky Mir Group. programme for employees called the Retail staff receives a monthly Motivation Programme 21. operation bonus set as a per cent We have a time-plus-bonus remuneration system. All of the store’s actual turnover. The According to the Motivation amount of the monthly operation bonus Programme 2, certain employees employees receive a fixed official salary set forth in for administrative and management holding management positions are their labour contract, as well as additional payments staff is additionally influenced by the entitled to get remuneration based achievement of KPIs. Additionally, on shares (so-called phantom for overlapping positions, working extra hours at employees who have demonstrated the shares), which they will be provided 30 night, on weekends and/or public holidays. The best performance during their appraisal with once a year from 2016 and received the grade of expert are through 2018. remuneration depends not only on the individual eligible for an additional bonus. PJSC Detsky Mir Average Employee Wages, RUB thousand employee’s effectiveness, but also on the annual In case of a liquidity event, the For line warehouse employees who participant of the Motivation financial performance of the entire Group. have worked over a year, a monthly Programme 2 shall receive upon Stores in Russia Stores in Moscow seniority pay is provided, with the the resolution of Board of Directors amount depending on the number the corresponding number of the Manager Specialist Manager Specialist of years of continuous employment Company’s shares or a cash reward at the Company. based on the Company’s ordinary 2014 44.7 26.2 50.9 30.6 share market price. The size of remuneration is revised once 2015 44.4 26.9 54.5 33.1 a year, based on the data of the average compensation offered on the labour 1 Motivation Programme 1 was in effect since 2016 45.5 26.9 54.6 33.1 market. 2014. 62 Sustainability Report 2015–2016 The Detsky Mir Group 63

with uniforms. The Company’s Voluntary Medical Insurance for Detsky Mir Group’s Employees1 employees can use corporate discounts at major fitness centres. 924924 As part of a Labour Team campaign 776776 777777 VMI financing,VMI financing, 5.5. Social held twice a year (shortly before RUB millionRUB million 1 September and before New 15.415.4 15.515.5 15.615.6 NumberNumber of employees, of employees, Year’s), all of the head office’s participatingparticipating employees – from the General in VMIin programme, VMI programme, pers. pers. Director to low-level managers – work in one of the chain’s stores as Benefits a sales assistant or a warehouse employee. Such a campaign allows office employees to see the store’s operation “from the inside,” 2014 2014 2015 2015 2016 2016 to assess the actual workload of the staff, to define bottlenecks 1 According to Kazakh legislation, voluntary medical insurance in not provided at Detsky Mir – Kazakhstan LLP. in relative business processes and make suggestions on how to eliminate them, and to estimate Financial Aid to Detsky Mir Group Employees the efficient of innovations in place. Furthermore, thanks to the campaign, the store personnel have 143143 the opportunity to socialise with the 132132 Company’s management and raise 130130 AmountAmount of of financial financial aid, aid, any vital questions they may have. RUBRUB thousand thousand 2,0722,072 2,1502,150 NumberNumber of of employees employees The New Year’s corporate event receivingreceiving financial financial aid, aid, held for the head office’s employees 1,2781,278 pers.pers. and regional division managers includes an award ceremony for employees who have made a significant contribution to the Company’s development. 20142014 20152015 20162016 We are developing a system of corporate benefits Formation and Development The Company has a telephone as a tool for staff motivation. In addition to free hotline that allows each employee corporate training, the Company offers the following of Corporate Culture to confidentially address an enquiry or a leave a comment. The number benefits to its employees: We put a lot of effort into making our of the hotline is available on head office, retail, and warehouse staff the corporate web portal and at feels that they are part of a single team each retail store, in addition to a discount at all chain’s stores is An efficient cost management working together to achieve common being emailed to employees on available to all employees from the system allowed us to reduce costs of goals. a weekly basis. The project’s goal first day of employment, regardless voluntary medical insurance, with a is the prompt communication of the period of employment; simultaneous increase in the number The Detsky Mir Group organises and clarification of issues related employees of the stores that of employees participating in the teambuilding events on a regular to the Company’s Procurement are open until 23:00 and that programme. In 2016, an insurance basis: sporting events, volunteer Policy, accounting and financial are located far from public company with more attractive and charity initiatives, Community reporting, compliance with internal transport stops are provided with conditions was chosen. Clean-up Days, conducts the Labour regulations, as well as any social or transportation service to their Team action; in addition, we celebrate HR issues. Enquires received from homes; The Detsky Mir Group’s Policy also public holidays, company dates, and an employee are forwarded to the warehouse employees are provided allows employees who are in difficult employees’ individual dates together. relevant division of the Company’s with transportation service to and life situations to receive financial aid. head office, with the maximum from the site and free meals on the The Detsky Mir Group promotes response time being two weeks territory of the logistics centre; a healthy lifestyle among its on average. employees with children under employees, i.e. by organising three years of age have an sporting events, such as the The Detsky Mir Group has opportunity to work flexible hours annual Spartakiad Sistema JSFC. a Co-Financing programme: any or part-time; For employees participating in employee can donate a part of their all employees of the head office industry and cross-industry sports salary to the Company’s Charity and regional offices, store directors tournaments, the Company arranges Foundation, to be spent on helping and warehouse managers are trainings with professional coaches, children of employees who are in covered by a voluntary medical pays for the rental of sports difficult life situations. (For details, Employees of the Detsky Mir Group are notable participants insurance (VMI) programme. facilities, and supplies the teams please see the Charity section). in the activities of Spartakiad Sistema JSFC 64 Sustainability Report 2015–2016 The Detsky Mir Group 65

A professional development Total Number of Training Hours of the Detsky Mir Group’s programme called “Labour Safety Employees Training for Employees of the Company” was developed; the programme was approved by 5.6. Training the head of the State Labour 110.8 Inspection in Moscow in June Total number of training hours, thousand h. 2016. 69.5 18.4 Training of one Starting from the 2nd quarter employee, h. of 2016, a distance-learning 49.9 programme for ELC employees and Development was implemented. 11,728 employees participated 4.3 4.8 in training in 2015, with 14,360 employees participating in 2016.

2014 2015 2016 We are actively developing distance- learning technologies for our employees. In 2015–2016, for the purpose of modernising the training portal, the following steps were taken: Total Number of Training Hours of the Detsky Mir Group’s Employees, hours Access to the Internet training portal of Detsky Mir Group, including to the one on the corporate website, was secured. 20141 2015 2016 Employees can be trained at their We believe that it is only possible to achieve the long-term training, provided on the workplaces and can also use Number of training hours by gender Company’s strategic goals with the personal basis of a special training agreement, their persona computers for this according to which the Detsky Mir purpose whenever it is convenient Men 11,079 6,603 8,402 contribution of each employee. Our investment in Group pays all training costs, while to them. the employee commits to work for the human resources enables the improvement of the company for at least one year upon A system of multiple browsers Women 99,710 43,260 61,138 the completion of his/her training. for the training portal was Detsky Mir Group’s financial performance. implemented (this gives Number of training hours by category of employees The continuous training and the regular employees the opportunity to enter and work from any browser appraisal of employees’ professional Sales staff 75,912 49,291 68,880 One of our achievements in the field of personnel knowledge are consistent with the concept or from any mobile device). of employee categorisation (implemented training and development is the established The training portal was activated Office staff 34,877 572 660 since 2014). The proportion of employees using encrypted security protocol continuous system of on-going training for all who have passed their trainings (a certain (https). employees via a large number of distance-learning % of the training) is a significant operation indicator of the store, regional division, and The significant reduction in the courses. the Company. number of training hours in 2015, 1 The method used to calculate the amount of course hours (the total number of hours) has been changed: when compared to 2014, is a since 2015, the actual time spent training is calculated, not the difference between the beginning and the end Results of 2015–2016 result of the transfer to the unified of the training as previously thought. We pay special attention to regional managers. The head informational SAP platform (for more upgrading the skills and developing office’s employees have trainings In 2015–2016, we were modernising details, please see the Information the core competencies of our retail at the corporate university of our training courses by updating training Technologies section) As the result of employees, which guarantees the Joint-Stock Financial Corporation programmes, visuals, and by automating revision of the training programmes, their professional knowledge and Employees who are assigned the improvement of customer service Sistema in accordance with organizational and training processes. the number of courses and time performance efficiency, regardless of grade of expert are included in the and boosts sales. individual development plans,1 needed for training were reduced their position or work record. candidate pool and are regarded as or upon the division manager’s The results for the reporting period without a loss of in the quality of potential substitutes for management Each category of the chain’s retail staff request. include: knowledge obtained. Evaluation of the professional vacancies in retail. regularly takes free training courses in knowledge of Detsky Mir’s chain store A license for educational activity was accordance with the mandatory training The head office’s employees receive obtained; license subtype: additional Evaluation of Employee employees is carried out twice a year. Evaluation of the performance matrix. The matrix includes both the following types of training: professional education. On the basis of its results, one of the efficiency of the head office’s training courses in technical skills for following grades is assigned to each employees is carried out once a year mid-term training (one or two Activity line staff (e.g., Product acceptance) and A professional development employee: on the basis of the approved KPI. week-long courses); programme called “Fire Safety Basics courses for management staff (e.g., Evaluation of each employee’s personal for Management and Employees Personnel management). short-term skill upgrading efficiency is an important resource for Specialist – assigned after 772 transfer applications to senior Responsible for Fire Safety in Trade the successful evaluation of courses in the employee’s the Company as it helps to develop positions, in the category of field of specialisation, such as Organizations, Public Catering professional knowledge; The Detsky Mir Group has two the corporate culture and to organise administrative store management staff, finance or law; Systems, Warehouses and Stores” corporate training centres. The was developed; the programme was business processes. Expert – assigned for the were submitted in 2016, 62% of which training centre, which is a part of the approved by the Ministry of Civil achievement of set KPIs and for were approved. In total, 665 “vertical” Group, develops training courses 1 Drafted for the leading specialists and Defence and Emergency Response in All employees of the Detsky Mir Group outstanding results demonstrated and “horizontal” employee transfers of and delivers them to retail staff and above. April 2016. undergo evaluation procedures of during the evaluation procedure. were made in the retail chain. 66 Sustainability Report 2015–2016 The Detsky Mir Group 67

the timely training and retraining Labour Safety Expenses at PJSC Detsky Mir of the heads of divisions and responsible employees in accordance with programme “Labour Safety” is carried out 990990 1,0001,000 5.7. Labour by our own corporate Training Centre, and if necessary, with Total,Total, RUB RUB million million outsourcing to specialised PerPer 1 1employee, employee, training centres and state labour 887887 RUBRUB 11.911.9 inspectors; 10.910.9 the creation of Committees for Safety checking employee knowledge of 7.87.8 labour safety requirements; checking on the observance of the Rules of internal labour routine and fire safety arrangements; the development of regulations and guidelines for structural 20142014 20152015 20162016 divisions and departments of the Company, as well as instructions and labour safety programmes. the allowable low level of work- The total expenses for labour safety in All documents related to this related injuries at the Detsky Mir 2016 amounted to: segment are placed on the Group within the reporting period. corporate portal for use by at PJSC Detsky Mir – RUB 11.9 million, employees while they are at 9 incidents followed by work-related 1,000 RUB per 1 employee; work. injuries occurred at PJSC Detsky Mir in 2016; no injuries resulting in death at Kub-Market LLC – RUB 237.8 The above-mentioned measures were registered. At Detsky Mir – thousand, 1,149 RUB per 1 employee; The Detsky Mir Group pays special attention to of chain stores are carried out under have allowed the Company to Kazakhstan LLP and Kub-Market at Detsky Mir – Kazakhstan LLP – the supervision of the territorial prevent the occurrence of any LLC (ELC), no industrial injuries were RUB 52.8 thousand, 235 RUB per labour safety issues. Comfortable and safe labour management in accordance with a set occupational diseases and preserve registered in 2014–2016. 1 employee. conditions are a key factor influencing our hiring schedule without the notification of the stores’ management. If any violations and retaining of qualified personnel. The labour are discovered, recommendations for safety system at the Company is based on the full their removal are given, resulting in an observance of existing legislation in Russia and additional follow-up inspection. Kazakhstan concerning this sphere. Despite the fact that the activity of Detsky Mir Group does not involve the use of dangerous technologies, we strive for the maximum reduction Employees Responsible for Labour Safety of possible risks relating to industrial injuries and the occurrence of Head office Retail Warehouse occupational diseases.

For the purpose of minimising the Heads of structural Directors of stores Heads of shifts divisions and departments and their deputies Head of the warehouse and its occurrence of injuries at our offices, deputies shopping premises and warehouses, the following key measures and initiatives have been implemented:

Employees responsible for labour its employees on labour safety, but also a special evaluation of labour conditions (work places are safety are appointed by the CEO of the the employees of its subcontractors. evaluated by independent certified Company upon completing a training companies, with the class of course amount of 40 hours. These The employees who are responsible labour conditions of 2.0 meaning employees are trained mainly in person for labour safety also perform checks allowable labour conditions); as by our Training centre, which possesses aimed at uncovering any possible safety of the end of the reporting period, the respective license. violations. a special evaluation of labour conditions was carried out at PJSC All employees are introduced to labour Observance of labour safety Detsky Mir, and 100% of work safety upon employment; afterwards requirements in the Detsky Mir Group’s places were inspected; they are regularly instructed in retail stores is controlled by performing introductory, primary and accordance with the requirements of comprehensive examinations of the secondary instructions, made at labour legislation. Warehouse workers adherence to the regulatory standards least twice a year, are given to are trained additionally in electrical of the Group, including a section on the personnel on labour safety, as well safety. The Company informs not only labour safety of employees. Inspections as on fire and electrical safety; 6⁄ Caring for the Future The charity activities of the Detsky Mir Group are aimed at the support of children experiencing hardship 70 Sustainability Report 2015–2016 The Detsky Mir Group 71

contributing to the provision of Charity Priorities social support to low-income families with children and the social rehabilitation of children and adults 6.1. Charity with disabilities; Assistance to residential care facilities contributing to the prevention of children being orphaned, promoting the adoption of children who have Assistance with the payment of expensive surgeries and rehabilitation for children, been left without parental care; support for their families and support for children’s health care centres contributing to socialising graduates of residential care facilities to ensure Support of children’s festivals, holidays, assistance to gifted children their economic independence, and their personal and professional self- determination by performing career guidance in the field of competitive Assistance in career guidance and the social adaptation of children in need professions.

Support of a healthy lifestyle and the arrangement of sporting events Charity Principles:

an objective need (expediency) for charity assistance; Donations in Commodity Terms for 2016, RUB thousand transparency and responsibility of decisions made to render charity Goods of assistance; Kub-Market LLC 5,14.4 conformance with charity priorities; Goods under “Magic New-Year tree” event 1,000 the practical efficiency of charity Goods from activities; suppliers 2,000 the availability of funds for charity Goods of PJSC assistance; Detsky Mir 7,245.9 We see our social responsibility to society at large in 112,904.8 “Get involved!” event The Detsky Mir Group took control of the targeted expenditure of funds allocated for charity improving the quality of children’s life, and in taking 25th place in the Leaders assistance. care of those in difficult life situations. of Corporate Charity, with 2016’s rating having risen by 4 positions YoY. Charity Foundation Over 200,000 children experiencing hardship from 550 social By performing social and charity projects, we strive institutions in Russia and Kazakhstan are under the patronage The rating following the Social activities of the Detsky Mir of the Detsky Mir Group. to improve the living conditions at social institutions results of 2015 was issued in Group are performed by the Detsky Mir for children, to raise their level of socialisation November 2016 by the Donors Charity Foundation (www.bfdetmir.ru), Forum non-profit foundation, established in 2004, which performs and to reveal the creativity of little citizens of Russia. PwC and Vedomosti Business activities in accordance with the Sources of Private Donations Daily. Charter and Charity Policy of PJSC Detsky Mir. We invite our employees to take part in these projects, thereby increasing their involvement. Charity targets of Types of charity activities: Raising the level of corporate volunteering is one Funds raised under the Funds from charity events, such as: “Get “Co-Financing” project the Detsky Mir Group: coin collectors of our targets under the implementation of our Involved!”, plus New Year’s and other CSR Strategy (see the Strategy of Corporate Social contributing to the spiritual events; advancement of the individual, and social programmes, such as: Responsibility section). strengthening the prestige and the Together We Can Do More, Art role of family in society; Without Borders, Going in for Sports, contributing to protecting childhood, and Step Forward; Private donations maternity and paternity; targeted assistance to children – our contributing to the provision of “Co-Financing” project; healthcare to children and adult volunteering: Volunteer Puppet citizens; Theatre, charity Saturday events and Transfers fairs, plus other mass events. SMS donations contributing to the promotion of to settlement account physical fitness and a healthy Sources of financing for charity lifestyle; activities include funds allocated from contributing to developments in the Company’s budget, as well as education, science, culture and arts voluntary donations to the Detsky Mir activities; Charity Foundation. 72 Sustainability Report 2015–2016 The Detsky Mir Group 73

Donation Structure in 2016, RUB In 2015, this charity event was held in 140 cities of Russia and Kazakhstan. The gifts collected amount to a total New Lease on a Toys’ Life 380,000 50,000 amount of RUB 85 million, and were handed over to 450 social institutions. For the first time in Russia, the ELC chain and the social institutions 760,260 1,000,000 Arrangement of Kinomay Donations from of Moscow held a joint event entitled the Toy Trade-In. The event was charity film festival individuals (Co-Financing) In 2016, the same charity event held twice a year, in July and October 2016. The buyers could bring 3,166,530 Arrangement of “Get involved!” event was held in 160 cities of Russia and toys their children are no longer playing with to the store, and receive a Donations Kazakhstan. 3 million gifts to the discount of up to 30% for ELC goods. The collected toys were then sent % of shopping bags sales from business 4,127,762 companies total amount of RUB 112 million were to children from social institutions, to large families and to children with % of magazine sales collected and handed over to the social health disabilities. Donations relevant institutions. 908,564 SMS-donations from non-profit companies Donations from individuals In 2017, the Detsky Mir Charity 843,217 (collection boxes) Assistance to veterans Foundation plans to hold the “Get 93,480 Involved!” event over the course of the year. 5,008,045 Under the Agreement on the Strategic Cooperation between the Ministry Together We Can Do of Economic Development of the Perm Territory and the Detsky Mir Group signed in February 2015, we cooperate with the regional authorities to The total of goods donated to the Key Results of the “Get Involved!” Event More Programme implement childhood and maternity support programmes. Detsky Mir Charity Foundation, in terms of currency, amounted to This programme is aimed at the We provide additional social and financial support to children and RUB 113 million in 2015 and RUB 2015 2016 financial and organizational support of adolescents left without parental care, and to children in difficult life 124 million in 2016. In 2015–2016, Number of stores participating in the event 367 428 low-income families with children, as situations: those with severe illnesses, disabled children, children from the Foundation spent a total of RUB well as for children from residential care large families, and from residential care facilities and orphanages in the 287 million on charity events and Number of charity recipients 450 550 facilities. Perm Territory. assistance. This amount includes Cost of collected gifts, RUB million. 85 112 both the Company’s own and Types of assistance: externally raised funds. targeted assistance to families with children; The largest projects implemented within the reporting period include: The “Get Involved!” Dynamics of Joining the “Get Involved!” Event by its Participants the arrangement of activity rooms at Charity Event medical and social institutions. Number of stores, The purpose of this event is to collect participating in the event 550 Targeted Assistance to gifts for orphans and children left Families with Children Number of charity without parental care living in residential recipients Programme care facilities; children from low-income 450 428 The is aimed at providing targeted families; and children with disabilities. assistance to low-income families with 350 367 disabled children, orphans and children For over 12 years, we have been left without parental care. 2015 300 300 collecting gifts for children in need. The 267 event is held three times a year: in April- The Company has a “Co-Financing” Support for cinema forums organized by the Children’s 219 May, it is devoted to the national holiday 189 project that invites each employee Cinema May charity fund in the cities of Rostov-on- of Children’s Day; In August, it is held on 158 160 to donate a part of their salary to the Don, Moscow, Saint-Petersburg, and Smolensk the eve of Knowledge Day, September 130 142 Company’s Charity Foundation aimed at 1; in November-December, it is devoted rendering medical assistance to severely to the upcoming New Year holidays. ill children. 2010 2011 2012 2013 2014 2015 2016 Support for the Constellation of Children’s Talents festival (Moscow) To take part in the event, you should In 2013–2015, 306 people took part take a gift to a specially designated in the project. At the end of 2016, the area at our store locations, located number of participants amounted to Celebrating the birthday of the SOS Children’s Village, next to the cash desks. The gifts can 710 people, 250 of whom joined the Non-state Educational Establishment (Vologda) consist of toys, game sets, clothes, The “Charity Instead of Gifts” Event project in the reporting period. In 2015– shoes, stationery, goods for outdoor 2016, RUB 7.2 million was received activities, etc. Since 2013, Detsky Mir employees have been offering its partners on New from Detsky Mir Group employees Support for the International Festival of Family Year’s Eve to transfer assistance to the Foundation charity for children in under the “Co-Financing” programme. Dynasties, “Faith. Hope. Charity.” (Suzdal) You can support children not only by need instead of giving traditional corporate gifts. 20 partners took part in leaving gifts, but also by sending a this event in 2016. Funds, toys, clothes, footwear, hygiene products, and Under the programme, we cooperate th donation via SMS to the short number kits for creativity were transferred to the Foundation. with the Rusfond Russian Charity Fund Support for the 6 city exhibition of creative works, 7715 with the words “Uchastye” and and render financial assistance under A Formula for Kindness 2015 (Moscow) indicating the amount you would like the applications that are submitted to donate. directly to us. 74 Sustainability Report 2015–2016 The Detsky Mir Group 75

In 2015–2016, assistance in the amount programme Towards Sport in 2015, In the reporting period within the Towards Sport programme ,seven projects were of RUB 5,662 thousand was rendered to with RUB 86 thousand being implemented: 45 children. transferred in 2016. The Toy Campaign Project Step Forward Programme Since 2013, the Detsky Mir Charity 2016 Foundation has been implementing the This project was aimed at the Toy Campaign Project, which arranges Support for cinema forums organized by the Children’s socialization of orphans in residential children’s activity rooms at medical Cinema May charity fund in the cities of Smolensk, facilities by the arrangement of various institutions. The project is aimed at workshops. 2015 Kazan, Saint-Petersburg, Rostov-on-Don, Narva, Berlin, giving children a feeling of comfort in A “fun run” by Rusfond (Sochi) hospitals and thus ensuring a speedy and Luxemburg The project goal: to help children from recovery. orphanages adjust to individual life, Assistance to 200 disabled children with the opening of to teach and develop skills in certain Provision of awards for winners of a rock-climbing For very young patients, the activity spheres that can enable them competition at the “Lizard” club (Moscow) activity rooms have dolls, strollers, the exhibition the Greek Heroes of Hellas to earn a living on their own. construction kits, toy cars, educational games, sets for role-playing games and The provision of gifts to seriously ill children We support campaigns aimed at career Support for the charity soccer match of the Regional much more. For older children, they guidance and the professional orientation Society for Disabled People, “Perspektiva” (Moscow) offer sports games: foosball, air hockey participating in a creative exhibitions at hospitals of teenagers, as well as projects aimed and bowling. They also have various (Yaroslavl) at the societal and labour adaptation of manuals on musical instruments, the children in hardship situations. development of speech skills, memory, thinking, attention span and vocabulary Support for the Constellation of Children’s Talents Target groups: orphans and legally on various lexical topics. festival (Moscow) independent children; children from families with low income. In 2015–2016, Detsky Mir opened 138 Arranging trips for 300 children from 10 orphanages in activity rooms in 49 medical and social Types of assistance: institutions of 30 cities under the Toy the Smolensk, Kostroma, Ryazan and Moscow regions Campaign Project. In 2015–2016, RUB to see the Akvamarin circus’s The Dream Show assistance with further education 11 million was spent on equipping and for orphans and children in hardship upgrading these activity rooms. situations; 2016 Support for children participating in the Soulful Creative arrangement of excursions Provision of awards for winners of a rock-climbing Beside donating toys and decorating Festival contributing to career guidance for competition at the “Lizard” club (Moscow) the rooms, the Detsky Mir Charity teenagers; Foundation also carries out repairs and acquires furniture and medical Support for the Orange Festival (arrangement of a arrangement of career guidance master classes. Support for the festive sporting event “Mother, Father equipment, if needed. “shop”) and Me – A Sports Family,” with the participation of In 2016, within the implementation of In 2017, the project of opening this project, the Company arranged trips children with Down syndrome (Novokuznetsk) children’s rooms at medical institutions Arranging trips for 200 children from 10 orphanages in for 300 children from 10 establishments will be continued. the Smolensk, Kostroma, Ryazan and Moscow regions under patronage to the Kidzania Support for a “fun run” in aid of “butterfly children” educational park in Moscow. to see the Nikulin circus on Tsvetnoy boulevard in (Moscow) Art Without Borders Programme Moscow Volunteer Puppet This programme is aimed at developing Support of a “fun run” in aid of children with scoliosis of the creativity, morality and aesthetic Arranging a festive New Year’s charity event entitled Theatre taste of the younger generation. “Mother, Father and Me – A Healthy Spine!” (Moscow) “The New Year Among Friends” for 450 children from At the end of 2014, the Detsky Mir Group Target groups for the programme’s different orphanages (in cooperation with the Children’s established a Volunteer Puppet Theatre, implementation include: gifted children, Cinema May charity fund ) whose actors are the employees of the children involved in creative work, and company. The theatre group performs in youth creativity centres. orphanages sponsored by the Company, as well as at charity fairs and festivals. In November 2016, the My Equator charity fund, with assistance from the Detsky Types of assistance offered include: Within the Art Without Borders Target group: children involved and The project allowed the Company Mir Group, offered the citizens of Moscow and guests to the capital, for their programme, RUB 3 million were interested in sport. to attract new workers to its charity viewing pleasure, an exclusive collection of the best photographs from The support of creative festivals; transferred for the implementation of projects and enhance loyalty to the Golden Turtle festival for the last 10 years, which were displayed on Tverskoy support of unique methods in the all projects in 2015–2016. Types of assistance offered: brand. boulevard. artistic sphere; equipment of children’s arrangement and support of Towards Sport Programme establishments by sports facilities; The Volunteer Puppet Theatre gives The My Equator charity fund collects donations and brings to light the problems exhibitions and contests; about 20 performances per year (whose of childhood diseases through the beauty of wild nature. The Fund’s largest This programme is aimed at the arrangement and support of plays include Leshy and Sofa, Morozko, project was an International Ecological and Educational Festival called The Golden arrangement and support of development of children’s and children’s sporting events. and Marviks) at social establishments, Turtle, all proceeds of which are transferred for the payments needed for children’s concerts and entertainment shows; youth sport, and the promotion of a family centres, libraries and community surgeries. arrangement and support of New healthy lifestyle among the younger RUB 72 thousand were transferred centres, as well as at charity fairs and Year’s shows. generation. for the implementation of the festivals. 76 Sustainability Report 2015–2016 The Detsky Mir Group 77

Educational fairy tales remind children The programme for festive charity Children from 10 social establishments about the value of friendship, the distinction events includes: creative master- in Moscow and the Moscow, between good and evil, the importance of classes, performances of variety and Smolensk, Ryazan, Kostroma regions love and to take care of nature. circus artists, shows with live animal participated in charity fairs arranged performances, face painting, soap- by the Detsky Mir charity fund in 6.2. Ecological Expenses for the Volunteer Puppet bubbles, games with entertainers 2015–2016. Theatre (the acquisition of stage props and gift giving. and theatrical scenery, transportation Proceeds from charity fairs exceeded expenses, the lease of lighting and Our offers to participate in charity RUB 500 thousand for the reporting musical equipment, food for actors events are often accepted by the period. All funds raised were during guest performances, etc.) amount representatives of the artistic transferred by their recipients for the to RUB 100 thousand per month. intelligentsia. In 2015, at a New purchase of materials for new creative Responsibility Year’s festive event at the Research works. Institute of Emergency Paediatric Charity Events Surgery and Traumatology, the The charity fund of the Detsky Mir and Volunteer Clean-ups following guests participated: Group also arranges traditional spring composer Dmitriy Dunaev, actress volunteer clean-ups of regions after The Detsky Mir charity fund regularly Elena Zakharova, television hosts the winter season. Within the period organizes charity events such as New from the Reloading television from April to May of 2016, the fund Year’s festivals and fairs, special events programme on the TNT channel, arranged 22 clean-ups at 21 children’s such as the Wishing Tree, and arranges Yulia Baranovskaya, Yuriy Stolyarov establishments with participation of other festive New Year’s events. and Evgeniy Sedoy. 510 volunteers.

The Detsky Mir Group pays special attention similarly modernise all existing sales to protecting the environment, saving natural premises of the Company. resources and recycling waste. We would like to This project focuses not only on the reduction of current operating draw your attention once again to the fact that our expenses (the cost of the LED based friendliness towards the environment determines solution doesn’t exceed the cost of projects based on traditional lighting the quality of the environment that we, and the next sources), but also to decrease these generation – our children, will live in tomorrow. expenses in future. As the result of Corporate Volunteer Puppet Theatre the project’s implementation, monthly energy saving totalled 561.6 thousand kWh in 2016. An additional positive sales and make it more comfortable effect is that there is no further need Reduction of Resource for our customers and personnel, but to dispose of mercury lamps, which Consumption also to considerably reduce our energy fall under the 1st class of hazardous consumption. The total volume of waste. The introduction of modern technologies saved energy in 2016 amounted to and solutions aimed at reducing the 4,377,148 kWh. Reduction of Paper Consumption consumption of resources is important The automation of business processes for us not only in terms of reducing our Since 2014, we have started equipping at the Company, carried out within our operating expenses, but also in terms of our stores with LED-based lighting strategy, led not only to an increase minimising our hazardous impact on the systems. In 2015, the company of the efficiency of operations, but environment. equipped 83 stores by such systems, allowed the Company to reduce its and in 2016 100 stores were equipped. consumption of paper resources, Energy Saving A new warehouse in Bekasovo, opened i.e. office paper. For example, the in 2015, (please see the Procurement development and introduction of an The updated merchandising concept Activities section) was equipped electronic invoice format eliminated the of Detsky Mir’s stores offers the use of with energy-saving devices and need to use its paper version. For more modern energy saving solutions that a lighting system with motion sensors. details, please see the Information make it possible not only to improve our In the coming years, we plan to Technologies section. Well-known TV presenters Victor Vasiliev and Dmitry Khrustalev supported “Participate!” charity event 78 Sustainability Report 2015–2016 The Detsky Mir Group 79

Consumption of Energy Resources by the Detsky Mir Group Sales of Paper Bags in July-December of 2016, thousand pieces.

Type of energy resource 2015 2016 Moscow 46.7 RUB thousand unit RUB thousand unit North-West 26.4

East Electricity (kWh) 445,001.3 92,800,151 590,048.9 114,998,368 18.5 Center 18.6 including offices 12,075.4 2,518,196 31,708.3 6,179,833 Siberia 14.9

including Detsky Mir stores (kWh) 432,925.9 90,281,955 558,340.7 108,818,534.3 Ural 15.9 Povolzhye 15 Heat, water and gas supply (Gcal) 79,635.2 46,2881 110,279.9 59,906.4 South 9.7

1 Data on heat enegry. The average share of heat energy at the Company in the cost of heat, water and gas supply,totalled 92.7%.

Specific Energy Consumption at Detsky Mir stores Environmentally This new environmentally friendly Collection of Recyclable Materials Number of Stores Participating in Friendly Packaging for Consumers packaging will gradually replace the in 2016, tonnes the Project for the Collection of usual plastic bags. Given the Company’s Recyclable Materials, by the end At Detsky Mir store locations, customers 151.6 152.8 146.8 scope of activities, this new project of the year, pieces are offered bags made of paper – eco- Shops, number will help to significantly decrease any 463.1 friendly material that does not harm hazardous impact on the environment Area, th. sq.m. the environment during decomposition 591 and increase the eco-friendly culture of and is easily disposed of. Launching the Energy consumption the citizens of our country. 114 sale of Kraft paper bags was one more 498 480 per sq.m., kWh/sq.m. 300.6 step among the chain’s environmental 385 381 Modernisation of initiatives. The Detsky Mir Group became the first retailer in Russia in the segment 278 the Waste Management of children’s that offered environmentally System friendly packaging to its customers. 134.5 The majority of waste generated in The Segezha Group (included in Sistema our warehouses and stores consists 27 JSFC), who produces environmentally of cardboard and polyethylene film. 36.7 friendly packaging for large retail 2014 2015 2016 Of this waste, cardboard is easily 5.6 chains and manufacturing companies, recycled; it is used for production became the partner of the project. The of white lined chipboard, which at Krekshino Bekasovo Retail chain 2015 2016 retail price of one bag is 15 RUB, with a the moment is considered to be weight capacity of 7 kg. The bags are the most promising secondary cardboard embellished with the company’s logo. Part package material for the future Paper Consumption of the Head Office of PJSC Detsky Mir of the proceeds from the sales of bags is worldwide. Polyethylene, by contrast, package film transferred for support of programmes of is a potentially dangerous source the Detsky Mir charity fund. of environmental pollution. It is estimated that the process of its Indicator 2014 2015 2016 In December 2015, we launched sales decomposition takes up to 300 Since 2014, the Company’s warehouses recyclable materials in sales areas. As of paper bags at store locations in years, undergoing thermal ageing have arranged the collection of waste of the end of 2016, the project involved Moscow and in the Moscow region. In Paper consumption 480 250 150 and gradually decomposing when paper and polyethylene film, which are the participation of 114 of the chain’s July 2016, the project was expanded (A3 size, kg) exposed to sunlight, heat, and oxygen, sorted separately and handed over store locations. We plan to increase across the entire chain, after which the thus as a result, emitting hazardous to a specialized company for further this amount in future. By the end of amount of paper bags sold increased pollutants into the soil and water. recycling. In 2016, distribution centres 2016, our retail chain stores disposed 5 times – from 5.8 thousand in July to Paper consumption 8,325 9,250 6,975 in Krekshino and Bekasovo collected of 300.6 tonnes of cardboard and (A4 size, kg) 30.6 thousand in August. As of the end We’ve made it our mission to decrease about 500 tonnes of cardboard and 5.6 tonnes of film. This allowed us to of 2016, the sale volumes of paper bags our impact on the environment, which 134.5 tonnes of film. decrease volumes of waste passed amounted to 52%. Eco-friendly bags Paper consumption 16.7 18.5 14.3 is why implementing projects related on to the subcontractor, which in turn, are mostly popular in the Moscow and per employee (kg/person) to package disposal were a natural and In 2015, we launched pilot projects reduced our expenditures for this Northwestern regions. necessary step in this direction. related to the separate collection of purpose by 25%. 80 Sustainability Report 2015–2016 The Detsky Mir Group 81 Glossary Information About the Report

The Group of Companies, the Company – the Detsky Mir Report – the report of the Detsky Mir Group, which is This report is the Company’s second report about the Group. related to its sustainable development in 2015–2016. sustainable development of the Detsky Mir Group. The Stakeholders – the physical or legal entities that have an Own brand (OB) – a brand, the owner of which is the previous report was published in December 2015. influence on the activities and/or are influenced by the Detsky Mir Group, under which goods are produced by the Detsky Mir Group (clients, employees, shareholders, state request of the Detsky Mir Group and for the purpose of sale authorities, non-profit organizations, etc.) in its stores

Corporate Social Responsibility (CSR) – the body of Like-for-like sales – a comparison of sales performance principles and obligations, by which the Detsky Mir Group year by year, excluding data related to new stores that were Report Process of Deterring to date by a questionnaire survey is governed in its activities related to the management of not yet opened in the referenced year. of the internal stakeholders. Upon relations with its stakeholders and its own influence on Boundaries of the Level the results of the questionnaire national, economic, social and ecological spheres. Sustainable development (UN wording) – the development of Materiality survey, the priority of two aspects of society that allows the current generation to satisfy its This report reflects information on was raised: “The grades of products Merchandising – a set of measures taken in the sales room needs without damaging the opportunities left as a legacy activities related to the sustainable The Report is compiled with an and services» and “Counteracting and aimed at the promotion of this or that good, brand, type for future generations for the satisfaction of their own development of the Detsky Mir Group, account of requirements of the G4 corruption.” or packaging, resulting in the encouragement of customers needs. including Detsky Mir’s stores in Russia version of GRI guidelines (the “main” to choose and buy the goods promoted. and Kazakhstan and the ELC chain (Kub- variant). These Guidelines make The areas viewed as material Omnichannel – integrated trade via all available sales Market LLC). Sustainability Reports are particularly focus on the description (highlighted by light blue Impact – a positive or negative effect on society, economics channels (including the offline store, the Internet shop, issued once in two years. of approaches of the organization in background in the chart below) or the environment, fully or partially caused by the activities sales via mobile devices, sales via social networks, by determining material areas of activity were reflected in this Report: of the Detsky Mir Group. telephone or other means). Several quantitative indicators related to sustainable development in relation to each of them, a demonstrate only the results of PJSC and interaction with stakeholders description of approaches to Detsky Mir due to the reporting system within this process. For the purpose of management, the results achieved features. In case of narrowing of the fulfilling of the recommendations of for the reporting period, and an coverage scope, the text of the Report the GRI Guidelines, the material areas analysis of performance indicators List of Abbreviations includes the respective commentaries. determined in 2015 were brought up are given. Materiality matrix

VMI – Voluntary Medical Insurance CIS – Commonwealth of Independent States 5.0 IT – Information Technologies OB – Own Brands Social impact Health and safety Social of the customer investments

Ecological impact Financial sustainability KPI – Key Performance Indicators FB – Federal Budget Corporate and operating efficiency 4.5 volunteer activity Training and development Economic impact of employees CSR – Corporate Social Responsibility FCMIF – Federal Compulsory Medical Insurance Fund Branding of products and services Labour safety Arrangement of sales areas 4.0 VAT – Value Added Tax PB – Payroll Budget Quality of service and work with clients Motivation and encouragement of employees IT – Income Tax SIF – Social Insurance Fund Optimisation of packaging volumes Energy efficiency 3.5 Development Attraction of partnership with suppliers PFR – Pension Fund of Russia ELC – Early Learning Centre Provision of equal Good faith marketing of younger staff communications Emissions into opportunities the atmosphere Countering Importance for stakeholders RB – Regional Budget GRI – Global Reporting Initiative 3.0 corruption Reduction of water Development Separate collection consumption of internal communications RD – Regional Division LFL – Like-for-like of wastes Compliance with requirements DC – Distribution Centre MBA – Master of business administration 2.5 of ecological legislation

MM – Mass Media POS – Point of sales 2.0 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Importance for the Detsky Mir Group 82 Sustainability Report 2015–2016 The Detsky Mir Group 83

General standard elements of reporting Reference

Children’s Goods Industry Association Membership in associations and/or national and international organisations involved in Association of Internet Trade G4-16 GRI Content Index the protection of interests Companies Association of Russian Managers for the Basic Version of Identified Material Aspects and Boundaries

Legal entities whose financial statements have been included into http://corp.detmir.ru/u/section_ G4-17 the Report, issued the consolidated statements file/3266/dm_ifrs_cons_fs_16-r.pdf Method for determining the content of the report and the boundaries of aspects, applica- G4-18 81 in accordance tion of the principles of financial statements for determining the content of the eportr G4-19 List of material aspects revealed when determining the content of the report 81

G4-20 Description of the boundaries of each material aspect inside the company 81

G4-21 Description of the boundaries of each material aspect outside the company 81 General standard elements of reporting Reference G4-22 Restatement of the indicators, shown in the previous reports, with substation no Strategy and Analysis Material changes in the scope and boundaries of aspects compared G4-23 no G4-1 Statement of the most senior manager, who makes decisions in the company 2–3 to the previous reporting periods

Organizational Profile Stakeholder Relations G4-3 Name of the organization 6 G4-24 List of the stakeholders 26 G4-4 Primary brands, products, and services 6 G4-25 Stakeholder identification and selection procedure 26 3rd Nizhnelihoborskiy passage, 3, G4-5 Location of the organization’s headquarters Block 6, Moscow 127238 G4-26 Approach to stakeholder communication 26 G4-6 Number of countries of the company’s operations 8–9 G4-27 Key topics and concerns raised by stakeholders in the process of communication 26 G4-7 Nature of ownership and legal form 6 Report Profile G4-8 Markets served 8–9, 12–15 G4-28 Reporting period 81 G4-9 Company scale 17, 57

>99% of the employees G4-29 Issue date of the previous sustainability report 81 G4-10 Headcount, broken down by type of employment contract and gender are on the payroll G4-30 Reporting cycle 81 As of December 31, 2016 no such G4-11 Coverage of employees by collective bargaining agreements agreements were signed G4-31 Contact person to address questions regarding this report or its contents 88

G4-12 Organization’s supply chain 44–49 G4-32 GRI content indicatorI 82–84 Significant changes in the scope, structure or property G4-13 or supply chain that occurred during the reporting period G4-33 External approval of sustainability report 86–87

The Detsky Mir Group doesn’t Corporate Governance apply a precautionary principle due to a low probability of G4-14 Application of a precautionary principle serious or irreparable harm to the G4-34 Corporate governance structure, including the committees of the supreme corporate see Annual report 2016 environment caused by the Group’s governance body activities. Ethics and Integrity Economic, environmental and social charters, principles and other initiatives, developed G4-15 51 by external parties and shared or supported by the company G4-56 Values, principles, standards and norms of behaviour, such as codes of conduct 25, 50 and ethics codes 84 Sustainability Report 2015–2016 The Detsky Mir Group 85

Excluded Material aspects MTA and Indicators Reference information

Economic Data on management approaches 16–19 performance

In 2016, PJSC Detsky Mir did not receive any G4-EC4 Financial assistance received from the company financial assistance from the state

Energy Data on management approaches 77

G4-EN3 Energy consumption inside the company 78

Health and safety Data on management approaches 66–67 at work

G4-LA6 Types and rate of occupational injuries, rate of oc- Occupational injuries fre- cupational diseases, lost day rate and absentee rate and the quency rate1 among PJSC total number of work-related fatalities, broken down by region Detsky Mir’s employees and gender

2014 0.81 2015 0.49 2016 0.92

Education Data on management approaches 64–65 and training

G4-LA9 Average annual number of training hours per one 65 employee, broken down by gender and employee groups

G4-LA11 Share of employees undergoing scheduled assess- ments of performance and career development, broken down 65 by gender and employee groups

Counteracting Data on management approaches 50–51 corruption

G4-SO4 Information on policies and methods of counteract- 50–51 ing corruption and the relevant trainings

G4-SO5 Confirmed cases of corruption and actions taken 51

Consumer health and Data on management approaches 32–34 safety

G4-PR2 The total number of non-compliances to the regula- No cases of tions and voluntary codes in terms of the impact of products non-compliance have and services on health and safety, broken down by the types been observed within of impact the reporting period

Grades of products and Data on management approaches 34 services

G4-PR4 The total number of non-compliances to the regula- tions and voluntary codes in terms of information on grades 34 and properties of products and services, broken down by the types of impact

G4-PR5 The results of assessment of the degree of customer satisfaction 37–38

Marketing Data on management approaches 39 communications

G4-PR7 The total number of non-compliances to the regula- tions and voluntary codes in terms of marketing communica- 39 tions, including advertising, product promotion and sponsor- ing, broken down by the types of impact

1 Occupational injuries rate is equal to the number of injuries in the reporting period*1,000/average staff employed. 86 Sustainability Report 2015–2016 The Detsky Mir Group 87

• studying information about Detsky Regarding the subject matter of drafting the report in compliance with Mir Group in the mass media; the audit (2), we conclude that the GRI Standards. process has been implemented with Opinion on the Independent • assessment of observance by the application of recommendations Statement of Independence Detsky Mir Group the principles of of AA1000SES (2015) to the principles and Competence AA1000APS (2008); of inclusiveness and mutual linkage Nexia Pacioli Consulting LLC is an of goals, format and audience of independent audit and consultancy Non-financial Approval • compliance assessment of the engagement. company that observes requirements Sustainability Report with the of the Code of Ethics for Professional principles of GRI G4 of defining the Without changing our opinion, we Accountants IFAC and has a corporate content and assuring quality; draw attention to the presence of quality control system which includes of the Report inseparable limitations inherent control of the abovementioned • compliance assessment of in the assurance due to a random guidelines. The team of specialists information disclosure with nature of the check. As a result, there that audited the Sustainability Report Nexia Pacioli Consulting requirements of GRI G4 for standard is a probability that unscrupulous of Detsky Mir included competent Limiting Liability Company (Nexia Pacioli Consulting LLC) disclosures. practices, errors or violations may employees of Nexia Pacioli Consulting TIN 7729517976 KPP 770601001; OGRN 1047796989679 remain unfound. LLC who had done a special training Conclusions in the GRI Guidelines, standards of Phone: +7 (495) 640-6452 and Observations Recommendations the series AA1000, standard ISO Fax: +7 (495) 640-6453 Based on the work done, we have The disclosure of indicators is 26000:2010, and who have many years E-mail: [email protected], http://www.pacioli.ru not found circumstances which reasonable to exercise with a link to the of experience in consultancy on public 2 Malaya Polyanka st., Moscow 119180, Russia would indicate that the assurance target values as well as future plans non- financial reporting. subject matter (1) does not comply with criteria of its audit in all material It would be beneficial to engage an The Head of the Audit has a Uniform aspects: extended spectrum of key stakeholder Qualification Certificate of the Auditor; representatives in the process of there is a specialist in the team who STATEMENT on Results of • With recommendations of standard The in-field audit procedures were • we have not found material the Report preparation, in particular has the existing certificate CSAP of Independent Assurance of Detsky AA1000SES (2015). limited to visits to Detsky Mir PJSC deviations from the requirements to by conducting dialogues, public AccountAbility. Mir Group Sustainability Report for Headquarters. the Core Option “in compliance” with consultations, getting Public Assurance 2015–2016 Responsibility of the Parties GRI G4 Guidelines; Statement. Executive Director Detsky Mir PJSC management shall The assurance was carried out Nexia Pacioli Consulting LLC be responsible for preparation and exclusively based on the Sustainability • we have not found material On the whole, we take a favorable view presentation of the Sustainability Report revision provided in the inconsistences with criteria of towards Detsky Mir Group strive to Addressees of the Statementя Report, and for conduct of the process Russian language in MS Word format. standard AA1000AS (2008) as to comply with advanced Russian and The Statement is addressed to the of stakeholder engagement, including observance by Detsky Mir Group international practices of disclosure of March 01, 2017 executives of Detsky Mir PJSC. fulfillment of all related procedures We were unable to verify the fact of of the principles of inclusiveness, public non-financial information and Moscow and requirements, among other, to the the Sustainability Report publication materiality and responsiveness. recommend considering a possibility of Subject Matter of the Assurance internal control system. in its final revision available to the Parfenova T.V. 1. Information included in the Detsky public, because the date of signing Mir Group Sustainability Report for Nexia Pacioli Consulting LLC shall be this statement came earlier. 2015–2016. responsible for results of assurance of the Sustainability Report only Methodology 2. The process of stakeholder towards Detsky Mir as part of the During the work we implemented the engagement during preparation of the terms of reference agreed with it and following actions: Sustainability Report for 2015–2016. shall not undertake any third party liability. • holding interviews with Criteria representatives of the top 1. Compliance of the information, Standards and Assurance Level management of Detsky Mir PJSC, as included in the Detsky Mir Group The assurance was conducted in well as management representatives Sustainability Report for 2015–2016: engaged in the Sustainability Report accordance with the standard preparation process; • with requirements of the Sustainability AA1000AS (2008). The assurance Reporting Guidelines of GRI G4 (Core corresponds to the level “moderate” as • studying and sampling checking the Option); per AA1000AS (2008). The assurance systems and processes of collection corresponds to Type 2 as per AA1000AS of information for the preparation of • with recommendations of standard (2008). the Sustainability Report; AA1000APS (2008) regards to observance by Detsky Mir Group the Boundaries • sampling checking of the data principles of inclusiveness, materiality The assurance was conducted used for the preparation of the and responsiveness. exclusively in respect of the 2015– Sustainability Report; 2016 data. The assurance was not 2. Compliance of the process of conducted in respect of forward- • studying information on activities stakeholder engagement during looking statements and statements of Detsky Mir Group posted on preparation of the Sustainability expressing opinions, convictions and the website http://corp.detmir.ru/ Report for 2015–2016: intentions. including in the sustainability context; Contacts

Nadezhda Kiseleva, Head of PR of the Detsky Mir Group Phone: +7 (495) 781-08-08, ext. 2041 E-mail : [email protected]

Valery Prokopiev Press Secretary of the Detsky Mir Group Phone: +7 (495) 781-08-09 E-mail: [email protected], [email protected] SUSTAINABILITY REPORT 2015-2016