ANNUAL REPORT 2007 Contents

Opening Statement 2

About the Company 5

General Information 5 Our Geography 11 Legal Structure of the Company 16 Structure of Company Management 17 HR Policy: New Possibilities for Career Growth 18

Social Responsibility and Charitable Activity 23

Results of 2007 27

Events of the Year 27 Key Annual Indicators 30 Marketing Policy and Operational Activity 36 - Multi-format and Format Development 36 - Assortment Policy, Logistics, Distribution Center 38 - High Quality Products and Service 41 - The Company's Own Production 43 - The Private Labels of Seventh Continent 45 - Special Events and Additional Services 46 - Order and Delivery Service 49 - IT 51

Information for Shareholders and Investors 53

Plans and Perspectives 67

Independent Auditor's Report 71

Company Management 81

Events After the Reporting Date 83 ANNUAL REPORT/2007 2 SEVENTH CONTINENT high rates-onthewhole,storesinKaliningradand region, markets. In2007thenumberofcustomersinRussianregionsgrewbyvery choice foranactiveregionalexpansionstrategy,especiallyinregards tohyper- The financialresultsoftheregionalsectorchainconfirmed thecorrect and systems. ness processesbyintroducingthelatestinformationtechnology equipment and hypermarket stores,aswellsignificantlyoptimizingouroperationalbusi- existing technology,deliveringbetterservice,restylingpremium supermarket In 2007theCompanysuccessfullyimplementedaprogramforimprovingour cities throughouttheRussianFederation. Petersburg, Tomsk, Novocherkassk,Rostov-on-Donandmanyothermajor Moscow region,Yaroslavl, Perm,Kaliningradandthe Kaliningradregion,St. dozen sitesfornewhypermarket andsupermarket storesinMoscowand Hypermarket” (OurHypermarket) inChelyabinsk;we'vepreparedseveral investment regions,byopeningthehypermarket underthebrand“NASH We havesuccessfullyenteredtheUralsmarket, oneofthemostattractive 33% comparedwith2006andamountedto1,272.9millionU.S.dollars. ment underIFRSfor2007,thegrossrevenuesofCompanyincreasedby confirm stabledevelopment.According totheresultsofauditedfinancialstate- Operational andfinancialperformanceindicatorsoftheCompanyfor2007 region, thankstojointdevelopmentprojectswithourstrategicpartners. expansion andconsolidationoftheCompany'sleadingpositioninMoscow for futureopenings,andhavelaidasolidfoundationmid-termregional Moscow, Perm,andChelyabinsk;we'vealsoacquiredanumberofretailsites development, opening6storesofsupermarket andhypermarket formatin term developmentstrategyofSeventhContinent.We continuedourorganic The year2007withoutadoubtcanbestbedescribedasmilestoneinthemid- Dear shareholders,colleaguesandpartners, Opening Statement Chief Executive Officer JSC“TheSeventhContinent” Galina Iliyashenko share ofhypermarkets inthechain. ening theleadingpositioninsupermarket formatandactivelyincreasingthe in Moscowandtheregion,aswellwholeofRussia,strength- ing year-significantlyacceleratingtherateofdevelopmentchainboth kets acrossRussia.Amongthe strategicprioritiesoftheCompanyforcom- plan tocontinuerolloutthisstrategywithsuccessthemanyregionalmar- business modelhasprovenitseffectivenessintheMoscowregion,andwe active developmentthroughoutthemid-termperspective.TheCompany's We lookpositivelyontheresultsofpastyearandfurtherCompany's team. of businessprocessesandtheworkourhighlyprofessionalmanagement stone ofoursuccessisatrulywell-thought-outstrategy,efficientmanagement growth oftheCompanywhileatsametimeincreasingprofitability.Thekey- In allouractivities,weaimtokeep a balancebetweenensuringthestable amounted toa101%increasecomparedwith2006. of 2006.GrowthinthetradеrevenueCompany'shypermarkets in2007 revenue ofstoresthatarelocatedintheregionsincreasedby113%overthose than 20millionpeople-thatisa37%increaseoverof2006.Thetradе St. Petersburg,Ryazan,Perm,ChelyabinskandMinskwerevisitedbymore OPENING STATEMENT

3 SEVENTH CONTINENT

of theCompanyincreasedbymorethan3times. U.S. dollars.Ingeneral,sincetheIPOtookplacemarket capitalization of sharesinApril2006,capitalizationtheCompanyexceeded 1.8billion U.S. dollars.Asaresultofthesuccessfulplacementanadditional issue Stock Exchange. Thevolumeofattractedfundsamountedto81million tor whichcarriedoutasuccessfulIPO,havingplaceditsshares ontheRTS In 2004SeventhContinentbecamethefirstcompanyinfood retailsec- variety ofshoppingpreferencesanddifferentincomelevels. stores, whilebroadeningtherangeofourloyalcustomers,whohavea scope ofouractivities,butalsotoimprovethecompetitiveness Operating inseveralformatsallowsusnotonlytocontinuouslyexpandthe Seventh ContinentisoneofthefirstRussianmulti-formatretailchains. of Belarus(1hypermarket). Ryazan (1hypermarket), Chelyabinsk (1hypermarket) andMinsk,Republic (10 supermarkets), Perm(1supermarket), St.Petersburg(1hypermarket), supermarkets and2hypermarkets), Kaliningradandthe region The storesofthechainarelocatedinMoscowandregion(110 the brandname“NASHHypermarket” and1“ProStore”hypermarket). Seventh Continent-Nextdoor”andhypermarkets (5hypermarkets under Stars”, 64of“TheSeventhContinent-Supermarket” and28of“The in twomainformats:supermarkets (29of“TheSeventhContinent-Five As ofDecember31,2007,theCompanymanaged127storesoperating demands ofthemarket and being high-techretailsites. ices ofhighquality,withaflexiblepricepolicy,alwaysmeetingthe stores ofthechainoffertheircustomersawiderangegoodsandserv- al retailchainandoneoftheleadersinRussianmarket. The JSC “TheSeventhContinent”wasfoundedin1994anditisaninternation- GENERAL INFORMATION About theCompany ABOUT THECOMPANY

5 SEVENTH CONTINENT NULRPR /2007 ANNUAL REPORT INCREASED BY MORETHAN3TIMES TOOK PLACE THE MARKET CAPITALIZATION OFTHECOMPANY EXCEEDED 1.8BILLIONU.S.DOLLARS.INGENERALSINCETHEIPO ISSUE OFSHARESINAPRIL2006CAPITALIZATION OFTHECOMPANY AS ARESULT OFTHESUCCESSFULPLACEMENT OFANADDITIONAL 6 SEVENTH CONTINENT JSC “TheSeventhContinent”planstocontinueitsactiveexpansion in discounted-bonus co-brandcards. a breakthrough,attractingbuyersthroughloyaltyprogramsbased onjoint Continent stores.TheCompanybecamethefirstretailchainthat achieved which isnowactivelybeingdevelopedandpresented inSeventh ed, theCompanyacquiredacontrollingstake inJSC“BankFinservice”, In May2006withafocusonbroadeningthespectrumofservicesprovid- formance andhighlyprofitable. Company planstofurtherexpandinthisdirection,seeingitashigh-per- level ofincome,havebeenopenedinourstoresthroughoutRussia.The sections, offeringmorethan1000differentproductstosuiteverytasteand own productionproject.Numerousculinary,meat,fish,saladandbakery ern consumers,since2006theCompanyhasbeenactivelydevelopingits and takingintoaccountthedynamiclifestylesbusynessofmod- While constantlykeeping pacewithconsumerdemandandpreferences business relationship. tion withsuppliers,inwhichwetrustandwhomhavelong-term in ourstores.Thoseproductsofhighqualityaredevelopedcoopera- Today, morethan1150differentproductsunderourownbrandsaresold “Sedmoi Continent”(SeventhContinent)weresuccessfullyintroduced. the averagepricesegment-firstproductsunderbrandname Product” (OurProduct).In2007theprojectcontinueditsdevelopmentin in 2005theCompanycreatedlow-pricesegmentprivatelabel“NASH Following thesuccessfulexperienceofwellworldknownretailoperators staff andcompetentmanagementstructure. as theorganizationandeffectiveuseofinformationtechnology,professional mize thebusinessprocessesinmanagementoflogistics,inventory,aswell continuous, acivefocustoopti- ment ofthechainoccursthrougha standards. Theintensivedevelop- work, adherestothehighestworld company, which,throughoutallits Seventh ContinentisaRussian estate devel itscustomers.MajorcourseoftheCompanyinmid-termarereal isfy petitive abilitiestosupplyandsat- while constantlyimprovingitscom- agement ofbusinessprocesses technological solutionsintheman- ence, byintroducingthelatest markets, usingthevastexperi- Moscow, regionalandinternational U.S. dollarsin2006). the netprofitfor2007amountedto99.2millionU.S.dollars(67.6 increased by19%.TheCompanyhasachievedhighratesofprofitability: ple; theaverageticket amounted to14.1U.S.dollars(includingVAT) and increased by10.4%overthatof2006andamountedto100.1millionpeo- At theendof2007numbercustomersinstoresCompany ment. opment projectsandthefurtherhypermarket formatdevelop- VICE” WHICHISNOW ACTIVELY BEINGDEVELOPEDANDISPRESENT- COMPANY ACQUIRED ACONTROLLINGSTAKE INJSC“BANKFINSER- FIRST RETAIL CHAINTHAT ACHIEVED ABREAKTHROUGH,ATTRACT- ING BUYERSTHROUGHLOYALTY PROGRAMSBASED ONJOINTDIS- ED INSEVENTHCONTINENTSTORES. THECOMPANY BECAME THE COUNTED-BONUS CO-BRANDCARDS ABOUT THECOMPANY

7 SEVENTH CONTINENT ANNUAL REPORT/2007 8 SEVENTH CONTINENT COMPETITIVE ADVANTAGES Special priceoffersanddiscountprograms A widerangeofadditionalservices:fromdrycleaningtophotoservices Modern stores,convenientlylocatedindifferentpartsofthecity Comfortable atmosphereandhighlevelofserviceinallstores Wide rangeofgoodsandserviceshighqualityguaranteed Consumer orientatedpolicy Multi-format stores A strongrecognizablebrandthatconsumerstrust Experienced managementandahighlyqualifiedstaff Well establishedcooperation withsuppliers Advanced informationtechnologies (Our Product)and“SedmoiContinent”(SeventhContinent) Average andlow-pricesegmentprivatelabelbrands:“NASHProduct” bakeries Own productionexclusive offer:meat,culinary,saladsectionsand Own OrderandDeliveryservice Convenient schedule:fromdailytoaroundtheclock ABOUT THECOMPANY

9 SEVENTH CONTINENT 10 SEVENTH CONTINENT ANNUAL REPORT /2007 Observanceoftherightsandprotectioninterestsshareholders - AnnualfinancialreportingincompliancewithInternational Financial - transparency Informational - - Observanceoflegislation PRINCIPLES OFCORPORATE GOVERNANCE relations,builtonmutualrespectandtrust Client - Individuality, strengthenedbyinternalcorporatestructure - Traditions andexperienceofthefirstnationalretailchain - KEY VALUES competitors byactivelydevelopingandexpandingthebusiness. ing positionsinthemarket, increasingmarket shareandmovingaheadofits The Company'sstrategicgoalistoensureandmaintain,forthelongterm,lead- Seventh Continent”intheinterestsofshareholdersandpotentialinvestors. The activitiesoftheCompanyaimtoincreasecapitalizationJSC“The with veryhighstandardsofqualitybothproductsandservices. es forcustomers,whilemakingpurchasesinconditionsoftheutmostcomfort, The missionofJSC“TheSeventhContinent”istocreateauniquesetservic- MISSION ANDGOALS Reporting Standards(IFRS) 11 SEVENTH CONTINENT OUR GEOGRAPHY .Moscow,TC“Novomitinsky”, 4. Moscow,BogorodskyVal st.,6b.2 3. Moscow,Mikluho-Maklayast.,18b.2 2. Moscow,Begovayast.,4 1. Address № 9 Moscow,BolshayaLubyankast.,12/1 29. Moscow,Horoshevskoe hwy., 52b.1 28. Moscow,Udaltzovast.,32b.2 27. Moscow,BolshayaTatarskaya st.,30 26. Moscow,BolshayaSpasskayast.,27 25. Moscow,Arbatst.,54/2b.1 24. Moscow,Serafimovichast.,2 23. Moscow,TC“Zapadniy”, 22. Moscowregion,Odintsovskiy 21. Moscow,Osenniyblv.,8b.1 20. Moscow,Olympiyskiyave.,30b.1 19. Moscow,BolshayaNovodmitrovskayast., 18. Moscow,Nijegorodskayast.,34 17. Moscow,Neverovskogo st.,15 16. Moscow,TC“Petrovsky”,Mojaiskoe hwy.,39 15. Moscow,TLC“Festival”,Michurinskyave., 14. Moscow,TC“Ohotniyryad”, 13. Moscow,Leninskyave.,61/1 12. Moscow,Leningradskoe hwy.,68 11. Moscow,TLC“Atrium”, ZemlyanoyVal st.,33 10. Moscow,Koshtoyantsa st.,21“a” 9. Moscow,Kosmonavtov st.,4 8. Moscow,MarshalaJukova ave.,42b.1 7. Moscow,Delegatskayast.,9b.1 6. Moscow,BolshayaGruzinskaya st.,63b.1 5. Rublevskoe hwy.,52“a” p. Gorki-10,TLC“Gorka”,23 23 b.3 Olimpiyskaya derevnya,3b.1 Manegnaya sq.,1b.2 Volokolamskoe hwy.,103 “Seventh Continent-Fivestars” 5 Moscow,PodolskihKursantovst.,10 35. Moscow,Papernikast.,9 34. Moscow,NarodnogoOpolcheniyast.,24 33. Moscow,Novocherkasskiyblv.,7 32. Moscow,Novoperedelkinskayast.,16b.1 31. Moscow,Novomaryinskayast.,14/15 30. 29. Moscow,2-yaMelitopolskayast.,3“a” 28. Moscow,TC“Petrovsky”,Medinskayast.,7 27. Moscow,Magnitogorskayast.,2b.1 26. Moscow,Leskova st.,16 25. Moscow,TC“PragskiyPassag”, 24. Moscow,Korovinskoe hwy.,21b.1 23. Moscow,Kargopolskayast.,11b.1 22. Moscow,2-yaKaracharovskayast.,6/16 21. Moscow,Kantemirovskayast.,16b.1 20. Moscow,Ingenernayast.,3 19. Moscow,Izumrudnayast.,3b.1 18. Moscow,Julebenskiyblv.,16 17. Moscow,TC“Petrovsky”,Dubninskayast.,30b.1 16. 15. Moscow,Dnepropetrovskayast.,4“a”b.1 14. Moscow,TC“Petrovsky”,MusaDjalilyast.,6b.2 13. Moscow,Dekabristovst.,15 12. Moscow,GeneralaBeloborodovast.,14b.1 11. Moscow,Gabrichevskogo st.,10b.3 10. Moscow,Veshnyakovskaya st.,13“a” 9. 8. Moscow,TC“Petrovsky”,Borovskoe hwy.,35 7. Moscow,Borovskoe hwy.,56 6. Moscow,Borisovskieprudist.,10b.1 5. Moscow,TC“Petrovsky”,Belozerskayast.,11“g” 4. Moscow,Barvihinskayast.,6 3. Moscow,Baikalskayast.,12 2. Moscow,TC“Arfa”,73km,MCAR,7 1. Address № “Seventh Continent-Supermarket” Moscow, TC“RusskiySuvenir”,Nametkinast.,3 Krasnogo Mayakast.,2“b” Moscow, Dubninskayast.,50 Moscow, TC“Bum”,Perervast.,43b.1 36. Moscow, Privolnaya st., 3 b.1 6. Moscow, Krasny Kazanets st., 1 “a” 37. Moscow, Piyatnitskoe hwy., 8 7. Moscow, 5-ya Kojuhovskaya st., 13 38. Moscow, Piyatnitskoe hwy., 27 b.1 8. Moscow, Okskaya st., 42/1 b.1 39. Moscow, Rokotova st., 5 9. Moscow, Perovskaya st., 13 b.1 40. Moscow, Ryazanskiy ave., 14 b.2 10. Moscow, Profsouznaya st., 98 b.1 41. Moscow, Svobody st., 44 11. Moscow, Sirenevy blv., 69 b.1 42. Moscow, Tallinskaya st., 18 12. Moscow, 5-ya Sokolinoy Gory st., 25 b.2 43. Moscow, Ferganskaya st., 21 13. Moscow, Uralskaya st., 8 44. Moscow, Festivalnaya st., 8 b.1 14. Moscow, Chapaevskiy ln., 18/1 45. Moscow, Habarovskaya st., 12/23 15. Moscow, Bogdanova st., 32 46. Moscow, Harkovskaya st., 2 16. Moscow, Borisovskie prudi st., 14 b.5 47. Moscow, Chertanovskaya st., 45 “a” 17. Moscow, Borisovsky rd., 3 b.1 48. Moscow, Schelkovskoe hwy., 8 18. Moscow, Brateevskaya st., 16 b.1 49. Moscow, Elevatornaya st., 12/1 b.1 19. Moscow, Gurievsky st., 15 b.1 50. Moscow, Yunih Lenintsev st., 10/15 b.2 20. Moscow, Lebedyanskaya st., 14 b.1/2 51. Moscow, Yana Rainisa st., 18 b.1 21. Moscow, Martenovskaya st., 35 52. Moscow, Yaroslavskoe hwy., 115 22. Moscow, Rossoshanskaya st., 7 b.1 53. Moscow region, Balashiha, TC “Svetofor”, 23. Moscow, Stalevarov st., 22 b.1 Entuziastov hwy., 1B 24. Moscow, Novokosinskaya st., 47 54. Moscow region, Balashiha, TC “Ideya”, COVB, 20 25. Moscow, Bolshaya Kosinskaya st., 16 b.1 55. Moscow region, Dmitrov, TC “Albatros”, 26. Moscow region, Electrostal, Mira st., 22/02 Professionalnaya st., 5 B 27. Kaliningrad region, Kaliningrad, Mira ave., 66-68 56. Kaliningrad region, Gurievsk, Krasnaya st., 2 “a” 28. Kaliningrad region, Pribregny, Stroitelnaya st., 9A 57. Kaliningrad, Batalnaya st., 62 A 58. Kaliningrad, Kuibisheva st., 91-91A “NASH Hypermarket” 59. Kaliningrad, Lesoparkovaya st., 1-7 60. Kaliningrad, Mariupolskaya st., 14 № Address 61. Kaliningrad, Soglasia st., 1 1. Moscow, Bibirevskaya st., 10 b.2 62. Kaliningrad, TRC “Mega-market”, Uralskaya st., 18 2. Moscow, TRC “Rio”, Bolshaya Cheremushkinskaya st., 1 63. Kaliningrad, Frunze st., 15 “a” 3. Saint-Petersburg, TRC “Grand Kanion”, 64. Perm, TRC “Kolizey-Atrium”, Kuybisheva st., 16 Engelsa ave., 154, lit. A 4. Chelyabinsk, TRC “Gorki”, Artilleriiskaya st., 136 “Seventh Continent - Next door” 5. Ryazan, TC “Kruiz”, Esenina st., 2e

№ Address 1. Moscow, 800-letiya Moskvy st., 11 Hypermarket ProStore 2. Moscow, Aviamotornaya st., 22/12 3. Moscow, Akademika Vargi st., 36 № Address SEVENTH CONTINENT 4. Moscow, Volgogradskiy ave., 175/32 1. Republic of Belarus, Minsk, 5. Moscow, Zelenodolskaya st., 9 b.2 Dzerjinskogo ave., 126 12 MOSCOW AND MOSCOW REGION

55 Dmitrov 15 25 4 1 1 23 1 16 19 52 18 44 12 22 38 41 51 11 37 11 45 4 8 2 48 13 11 10 18 14 3

26 42 19 54 53 33 12 Balashiha 23 7 5 1 21 28 6 25 9 21 Gorki-10 2 29 25 13 9 10 22 24 20 21 26 23 26 6 7 34 Electrostal 16 17 8 40 5 4 24 3 43 15 2 50 17 36

27 30 12 8 9 14 29

32 15 10 7 31 SEVENTH CONTINENT 2 5 18 6 3 16 13 14 20 17 13 24 35 19 39 47

22 49

46 20 27

28 REGIONS OFTHERUSSIANFEDERATION ANDCIS 3 7 56 1 1 6 4 7 5 3 2 57 2 1 6 58 3 5 Minsk Ryazan Perm Chelyabinsk Kaliningrad andregion St. Petersburg Moscow andregion 59 60 5 61 4 64 62 4 63 27 28 14 SEVENTH CONTINENT ABOUT THE COMPANY

OUR GEOGRAPHY 16 SEVENTH CONTINENT ANNUAL REPORT /2007 LEGAL STRUCTUREOFCOMPANY 40% PART INCHARTERCAPITAL LLC “RETAIL MEDIAGROUP” 50% +1SHAREOFCAPITAL JSC “PROSTORMARKET” 100% PART INCHARTERCAPITAL LLC “SKMO” 99,999 %PART INCHARTERCAPITAL LLC “THESEVENTHCONTINENT-SZ” 100% PART INCHARTERCAPITAL LLC “THESEVENTHCONTINENT-R” 100% PART INCHARTERCAPITAL LLC “THE7K-DEVELOPMENTANDMAINTENANCE” 100% PART INCHARTERCAPITAL LLC “7K-DELIVERY” 51% PART INCHARTERCAPITAL NIZED TO JSC“BANKFINSERVICE”) LLC “BANKFINSERVICE”(INJANUARY 2008WAS REORGA- 100% PART INCHARTERCAPITAL LLC “MEGAPOLIS-INVEST” CJSC “THESEVENTHCONTINENT-RT”100%OFSHARES JSC “THESEVENTHCONTINENT” FOR OPENING PREPARATION OFNEWSTORES SERVICE OFTHEBUILDINGS, MAINTENANCE ANDTECHNICAL ORDER ANDDELIVERYSERVICE REGION RETAIL TRADEINKALININGRAD ENTH CONTINENT” MEDIA INTHECHAIN“THESEV- DISTRIBUTION OFTHEPRINTED OF BELARUS RETAIL TRADE,MINSK,REPUBLIC UCTS SALE OFRETAIL BANKPROD- PERM REGION REAL ESTATE OPERATIONS IN REGION TRADE ACTIVITIES INMOSCOW MANAGEMENT OFRETAIL REGION ANDOTHER REGIONS RETAIL TRADEINMOSCOW MANAGING COMPANY STRUCTURE OFCOMPANY MANAGEMENT CHIEF EXECUTIVEOFFICER BOARD OFDIRECTORS INNER DEPARTMENTS TOP MANAGERS STORES FIVE STARS” CONTINENT - “THE SEVENTH OF 29 MANAGERS STORES SUPERMARKET” CONTINENT - “THE SEVENTH OF 64 MANAGERS STORES NEXT DOOR” CONTINENT - “THE SEVENTH OF 28 MANAGERS HYPERMARKETS HYPERMARKET” “NASH OF 5 MANAGERS MAINTENANCE OFDAILY OPERA- MANAGEMENT OFSTORES SERVICES ANDSECTIONS TIONS OFTHECOMPANY HYPERMARKET “PROSTORE” OF MANAGERS MANAGEMENT MANAGEMENT BY FORMATS OPERATIVE STRATEGIC ABOUT THECOMPANY 17 SEVENTH CONTINENT 18 SEVENTH CONTINENT ANNUAL REPORT/2007 up totrainlinemanagers. 2007 intheframeworkofimplementingthisproject,aTraining Centerwasset within allpostsoftheCompanyinaccordancewithformats stores.In One ofthestrategicHRpolicyprojectsisprofessionaldevelopment ofstaff 2007 onward,severaltrainingandmotivationalprojectshavebeen started. implement theCompany'sdevelopmentstrategyovernext 5 yearsfrom enhanced systemsoftrainingfornewemployeesandstaffmotivation. To qualified personnel,increasedprofessionalismofCompanyemployees,and The HRpolicyoftheCompanyisaimedataddressingchallengestoensure ment andmorethan2,000newpositionswerecreated. more than14,500employees.In2007thechaincontinueditsactivedevelop- At theendof2007totalnumberstaffJSC“TheSeventhContinent”was Company isassured. regions, theongoingimprovementoforganizationalstructure To ensurepermanentstronggrowthbothinMoscowandthroughoutthe 3. Implementationoftheimageacustomer-orientedCompany. 2. IncreasingloyaltyoftheemployeestoCompany. 1. Permanentprofessionaldevelopmentofstaffinallpositionsstoresaswell Key directionsforthedevelopmentofemployees ofSeventhContinent: ward tonewvictories. skilled team,allowingtheCompanytogrowactively,whilesteadilymovingfor- an importantasset.ThesuccessofSeventhContinentisatributetoitshighly The staffoftheCompanyisCompany'smaincompetitiveadvantageand ties forcareergrowth. requirements oftheRussianFederation,whileprovidingemployeesopportuni- package andbenefits,aswellfullycomplyingwiththeLaborlegislation employees andapplicantsinterestingwork,competitivecompensation,social Seventh Continentisaresponsibleandreliableemployer,guaranteeingits HR POLICY: NEWPOSSIBILITIESFORCAREER GROWTH as offices. to competentlyanswercustomersquestionsandprovidethemwithsound advice. being sold.ThatiswhythesalesstaffofSeventhContinentchain alwaysready manufacturing, aswelldifferentcharacteristics,andthebroadrange ofproducts each employeereceivessomeideasabouttaste,ingredients,technology usedin tice, thetechnologicalprocessesofmanufacturingawiderangeproducts. Thus sold inthechain.Thankstosuchfieldtraining,employeeswereable see,inprac- regularly organizestrainingsthatareconductedbythesuppliersof theproducts Along withthebasictrainingandprogramsofTraining Center,theCompany as wellTasks oftheSalesAssistantinStore:MerchandisingandService. of service,theCompanyhasdevelopedprogramsforSalesPremiumProducts advanced trainingforregularstaff.Inordertoprovidecustomerswithabetterlevel ing newlyhiredemployeesoftheCompany,developmentpracticalskillsand The basictrainingforemployeesofthestoresincludesprogramsaimedattrain- management efficiency,careerandpersonalgrowth. service, guidingnewemployees,theintroductionofuniformstandardstraining, training andskilldevelopmentprogramsinsuchareasasimprovingcustomer Each yearabout12,000employeesoftheCompanysuccessfullyundergobasic training. been carriedoutusingthelatestadvancedtechniquesandmethodsofbusiness The developmentandtheimplementationofTraining Center'sprogramshave todifferentiateapproaches learning,inordertodevelopasystemof - effectivelyachievedevelopment oftheCompanyandtoconductreor- - toorganizeandaccumulatecorporateknowledgeprofessional - toincreasetheefficiencyandreducecostsoftrainingprogramsfor - That allowed: and everyemployee. permanent andongoingtrainingwhichimprovestheefficiencyofeach ganizations; itive imageoftheCompanyinjobmarket; experience, improvecorporateculturelevel,todevelopandsustainapos- staff inaccordancewiththeneedsofstoreteams; ABOUT THECOMPANY 19 SEVENTH CONTINENT 20 SEVENTH CONTINENT ANNUAL REPORT/2007 careergrowthopportunities. - freetrainingandskilldevelopment(includingthatfromthebestinstitutions - rewardstaffforcompliancewithlaborregulations,buildandmaintainhigh - The Companymotivationsystemaimsto: competitiveratesofpay. - objectivity; - compliancewiththestrategy andlongtermdevelopmentplansofthe - compliancewiththerequirements oflegislation; - Labor wagespolicyisbasedontheobservanceoffollowingprinciples: by usingvariousmaterialandnonmaterialtools. In thepastyearwecontinuedworktoimproveouremployeemotivationsystem Manager Book,theCashierSalesStaffBookandMentorBook. experience theCompanyhasdevelopedfollowingtrainingmanuals: In ordertoconsolidateandtransfercorporateknowledgeprofessional Company. nomic performanceandoverallenhancementofthecompetitiveness development ofcorporateculture,andinthelongtermleadstoimprovedeco- transmission ofknowledge,thetransferpracticalexperience,aswell The InstituteofMentoringcontributestotheintroductioncorporatevalues, Mentoring: theStandardsofTraining andtheAdaptation ofStaff. year, twoprograms:Mentoring:theStandardsofTraining intheCompanyand operation theInstituteofMentoringproject,whichincluded,atend improve theadaptationofCompany'sstaffin2007wasdesignedandputinto In ordertooptimizeandstandardizelearningprocesses,trainemployees, of highereducationinRussia); exceeding targets; executive discipline, professionalskills,mentoring,achievementand Company; regional andnationalcompetitionsrankings. ous awardsandaccomplishmentsofCompanyemployeesinvariousMoscow, The effectivenessoftheCompany'sHRpolicyhasbeenconfirmedbynumer- TheSeventhContinent-the LifeofMyParents!children'sartcontestfor - Organizingthefollowingcompetitions forlinestaffandmid-levelman- - ThepublicationofourSuccess Stories-providingexamplesofsuccess- - Thepublicationofthecorporate newspaperSemerka,withreportsonsig- - ThepublicationoftheNewEmployeeBook-corporatebrochuresfornew - duced withthehelpoffollowingactivities: mation ofapositiveinformationfieldwithintheCompanyin2007wasintro- management. Theintroductionofcorporatestandardsandvaluesforthefor- Corporate cultureisamainintegralcomponentinthesystemofpersonnel children oftheemployeesCompany. Service competition,heldbetweenthestoresofchain. agers: BestCompanyEmployee,CashierandtheOurMotto: Company. ful professionalandcareerdevelopmentofemployeeswithinthe and theemployeesofCompany. employees, toensureacontinuousdialoguebetweenthemanagement nificant developmentswithintheCompanyandinterviewswithitsbest grams andopportunitiesforcareergrowth. other standards,theorderofinteractionwithinCompany,trainingpro- staff withinformationabouttheCompany:itshistory,social,legal,and ABOUT THECOMPANY 21 SEVENTH CONTINENT

tion boxes, thefundsfromwhichgodirectlytoorphanages. dren's wheelchairs,etc.AllthestoresofCompanyhavespecial collec- chasing clothing,giftsforgraduates,upholsteredfurniture,utensils, chil- education classes,medicalrooms,publicareas,conferencehalls, forpur- dren's institutions,aswellallocatingmoneyforequipmentto beusedin The Companycontinuestoprovidematerialassistancedirected tochil- ans andthedisabled. part intargetedprogramsforspecialassistancetochildren,retirees, veter- tional system,togetherwithlocalauthoritiesinMoscowandregularlytakes Seventh Continentisactivelysupportingmunicipalinstitutionsoftheeduca- products duringthattimeatreducedprices. mornings from7:00to10:00,allowing,forexample,retiredpeoplebuy In addition,thesupermarkets ofthechainhave a5%discountonweekday egories ofgoodsunderprivatelabelandtheproductsitsownproduction. pliers theCompanyhasbeenabletomaintainlowpricesforimportantcat- Through theCompany'sinternalreservesandlong-termrelationswithsup- surcharge onthemostpopularproducts,suchasmilk,islessthan5%. prices byfixingaminimumsurchargeto20sociallyimportantgoods.The 2007, whentheGovernmenttookmeasurestostabilizeprices,regulatedits ing theriseinfoodprices,SeventhContinent,evenbeforeautumnof nerable groupsofcitizens.Inassessingcurrentglobaltrendsandforecast- ited byconsumerswhohavedifferentincomelevels,includingsociallyvul- Seventh Continenttakes intoaccountthefact thatthechainofstoresisvis- commercial efficiencyandsocialresponsibility. gral componentofitsactivitiesisstrongdesireforabalancebetween Company supportsavarietyofhumanitarianandcharityprojects.Aninte- dards ofasociallyresponsiblecompany.Aspartitssocialinitiatives,the JSC “TheSeventhContinent”inallitsactivitiesisguidedbythehighstan- and CharitableActivity Social Responsibility SOCIAL RESPONSIBILITYANDCHARITABLE ACTIVITY 23 SEVENTH CONTINENT 24 SEVENTH CONTINENT HAD THEOPPORTUNITYTO FURTHER THEMSELVES BY WORKING AT SONS. SEVERALHUNDREDPEOPLEWITHMINORDISABILITIES HAVE THE COMPANY RESPONSIBLY CONSIDERSPHYSICALLY DISABLE PER- SEVENTH CONTINENT ANNUAL REPORT/2007 Labor CodeoftheRussianFederation,providescomprehensivesocial protec- them withparticularattention.TheCompanycompliesallthe normsofthe The Companyemploysmorethan14,500employees,andtreats eachoneof selves byworkingatSeventhContinent. dred peoplewithminordisabilitieshavehadtheopportunityto further them- The Companyresponsiblyconsidersphysicallydisablepersons. Several hun- fortably andeasily. wheelchairs canmovearoundwithoutdifficultyandmake purchasesbothcom- the cashregistersandtradeshelvesaredesignedinsuchawaythatpeople entrances andexitsforthemaswell.Inmoststoresthepassagewaysbetween equipped withspecialparkingspacesforthedisabled,andthereare for thosecustomers.Forthisreason,thestoresofSeventhContinentchainare abilities andstrivestomake the shoppingareasofthechainmostcomfortable Seventh Continenttakes intoaccount theneedsofpeoplewithphysiologydis- purchase ofmedicalequipmentusedfortreatingchildhoodcancer. from thesalesofgoodswithspecialcampaignbadges,willbedonatedfor tomers forthepurposeofhelpingseriouslyillchildren.Theincome,received paign. TheaimofthecampaignispartneringCompanywithitscus- October 2007SeventhContinentlaunchedthe7PetalsofDesirecharitycam- working tobringtogetheritshelpcombinedwiththatofallcustomers.In development allowstohelpthosewhotrulyneedassistance.TheCompanyis As asociallyorientedcompanySeventhContinentbelievesthatsuccessand the fund,andtheirtotalnumberhassincereachedfifty. expectations, andonNewYear's eve,tennewplaygroundswereaddedinto modern playgrounds.Theactivityoftheparticipantssurpassedourgreatest Continent wouldprovidewith(includinginstallation)free-of-charge,new special ballotbox, selectedschoolsandkindergartenswhichSeventh ment ofEducation.Underthetermscampaign,customers,througha support oftheMoscowDepart- paign wasconductedwiththe paign waslaunched.Thecam- the ContinentofChildhoodcam- International DayofKnowledge On September1,2007duringthe development withinindividualregionsandacrosstheentirecountry. provides additionalsourcesoflocalbudgetrevenues,therebypromotingsocial ages. Thusbyexpandingitschain,theCompanyreducesunemploymentand places, whileofferingcompetitivesalariesandcomprehensivesocialpack- the regionalmarket, SeventhContinentprovidescitieswithadditionalwork trying tofullymeetthedemandsofpopulation.Inaddition,withentryinto Seventh Continentoffersawiderangeofhighqualitygoodsatthebestprices, economic spheresoflifeintheregions,whereCompanyhasapresence. The developmentoftheCompanyfavorablyaffectsconsumerandsocio- for professionaldevelopmentandcareergrowth. ees, givingeveryoneopportunities sional developmentofitsemploy- cifically caresabouttheprofes- me. Inaddition,theCompanyspe- tion, andensuresadecentinco- ENUES, THEREBY PROMOTING SOCIALDEVELOPMENTWITHININDIVID- THUS BY EXPANDING ITSCHAIN,THECOMPANY REDUCES UNEMPLOY- MENT ANDPROVIDES ADDITIONALSOURCESOFLOCAL BUDGETREV- UAL REGIONSANDACROSS THEENTIRECOUNTRY SOCIAL RESPONSIBILITYANDCHARITABLE ACTIVITY 25 SEVENTH CONTINENT

WithBlackSeaTrade andDevelopmentBank(BSTDB)weconcludeda - Together withtheVisaInternationalpayment systemandFinserviceBank, - Acontractforacomplexinsuranceprogramofproperty interestswascon- - Withhighdemandbyinvestors,afullvolumefiveyear bond02seriesis - SharesofJSC“TheSeventhContinent”areincluded inthesetofmost - EVENTS OFTHEYEAR Results of2007 changes havebeenmade: the managementoffinancialflowswerebegun,andimportantstructural focused onthelong-termdebtmarket, anumberofstepstowardsoptimizing ing capitalizationoftheCompany.We successfullyimplementedprojects, In 2007SeventhContinentcontinueditsprogressiveadvancetowardsincreas- years. loan agreementintheamountof36millionU.S.dollars,foraperiod of3 cards havebeenissued. projects inRussia.Morethan100,000Visa-SeventhContinentco-brand the Companylaunchedoneofmostsuccessfulandmassiveco-brand term ofthecontractwassetfor2years. amount ofthecontracttotaledmorethan300millionU.S.dollars,and cluded withJSC“KapitalStrahovanie”(“CapitalInsurance”).Theinsurance underwriter andpaymentagentwasMDMBank. rubles. Thecouponrateamountedto7.8%perannum.organizer, placed (GRN4-02-00462-Hfrom26.12.2006)amountingto7,000million liquid sharesofMICEX. RESULTS OF2007 27 SEVENTH CONTINENT 28 SEVENTH CONTINENT ANNUAL REPORT/2007 BetweenJSC“TheSeventhContinent”andtheGroupofCompanies - tion oftradeobjects: growth oftotalsellingareathroughjointdevelopmentprojectsandtheintegra- was formedforactivemulti-formatentryintonewcities,aswelltheintensive Newhigh-techpremium“TheSeventhContinent-Gastronomy” storeswere - Two new“TheSeventhContinent-Supermarket” storeswereopenedinthe - OnDecember20,2007anew“TheSeventhContinent -Supermarket” store - OnMarch15,2007“NASHHypermarket” storewasopenedinChelyabinsk. - eral districtsoftheUralsandVolga regions: Inordertooptimizethemanagementoftradingactivity intheMoscow - AlexanderZanadvorovconsolidateda100%stake inCJSC“7C-investhold- - Paymentofthecouponwasmadeonbondsseries02(GRN4-02-00462 - TheCompanymadethefinalrepaymentofloantoDresdnerBankAG's - In 2007theCompanylaidasolidfoundationforfuturegrandopenings.Abasis The CompanycontinuedtostrengthenitsleadingpositionsinMoscowregion. Over thepastyear,Companyenteredintoeconomicallyattractivefed- given SLCs,theaverageofwhichrangefrom10,000to15,000sq. meters, Lipetsk, Yaroslavl, andmanyothercities.Theareasofthestoresin Moscow, Kostroma, Vologda, Bryansk,Arkhangelsk,Petrozavodsk, Hypermarket” andSeventhContinentsupermarkets willbeopenedin accommodate storesofthechain.Hypermarkets underthename“NASH more than20modernshoppingandleisurecenters(SLC), which will “TASHIR” strategicagreementwassignedonthejoint developmentof opened onManezhSquareandRublevo-UspenskHighway. southern andsouth-easterndistrictsofMoscow. was openedinthehistoriccenterofcityPerm. more than10,000squaremeters,becamethepropertyofCompany. The newstoreislocatedintheheartofcity.areastore,being region, the100%subsidiarycompanyLLC“SKMO”wasestablished. ing”, whichowns74.8%ofJSC“TheSeventhContinent”. - Hfrom26.12.2006)intheamountof272.23millionrubles. London Branch,withthefinalinstallmenttotaling31.8millionU.S.dollars. ThetopmanagersoftheCompanywereamongleadersinsuchratingsas: - TheprofessionalismoftheteammanagersJSC “TheSeventh - At theVIGoldenChains-2007All-RussiacontestSeventhContinentwon - positions inprofessionalratings: management weremarked bythefollowinghonorableawardsandleading dards ofqualitywork.In2007theachievementsCompanyandits from yeartoupholdsitsstatusastheretailoperatorwithhigheststan- 29objectsofretailrealestateinMoscowwithtotalarea of68,000sq. - Animportantdevelopmentprojectin2007wasthejoint constructionofthe - TheCompanytookpartinprojectsrealizationofnewtradeandentertainment - Being oneoftheleadingcompaniesinretailmarket, SeventhContinent Professional HRDirectors. Directors, the100MostProfessionalFinancialDirectorsand 100 Most the 500MostProfessionalSeniorManagers,100 IT- represented inmostkey categories,dividedbyeconomicsectors. TOP -1000Russianmanagersin2007theofCompany are leading positionsintermsofthetotalnumbernominations.Inrating Kommersant andManagersAssociation(AMR).SeventhContinenttook Continent” isrightfullymarked intheeighthjointratingofnewspaper the grandprizeincategory“TheBestSupermarket Chain”. stores ofSeventhContinentwillbeopenedinthoseproperties. meters havebeenpurchased.After reconstructionintwo-threeyears the meters ofareawillbetransferredintothepropertySeventhContinent. leries ofthechain.Uponcompletionconstructionaround20,000sq. hypermarket underthename“NASHHypermarket”, aswellsellinggal- total areaofapproximately 40,000sq.meters.Thecomplexwillincludea largest shoppingandentertainmentcomplexinNovocherkassk,havinga to openin2008-2009. complexes inMoscow,Kolomna, Lyubertsi,andLobna,whicharescheduled The totalsellingareawillbemorethan200,000sq.metersinsize. markets theSLCswillaccommodate Company'sownsellinggalleries. will beownedbyJSC“TheSeventhContinent”.Together withthehyper- RESULTS OF2007 29 SEVENTH CONTINENT 30 KEY ANNUAL INDICATORS SEVENTH CONTINENT ANNUAL REPORT/2007 NET SALES (mln.USD) 957,7 2006 1 272,9 2007 + 33 % GROSS PROFIT(mln.USD) 298,0 2006 398,0 2007 + RESULTS OF2007 33, 6%

31 SEVENTH CONTINENT 32 SEVENTH CONTINENT ANNUAL REPORT/2007 EBITDA (mln.USD) 106,8 2006 145,1 2007 + 36 % NET INCOME(mln.USD) 67,6 2006 99,2 2007 + RESULTS OF2007 46, 7% 33 SEVENTH CONTINENT 34 SEVENTH CONTINENT ANNUAL REPORT/2007 741,1 2006 TOTAL ASSETS (mln.USD) 1 403,0 2007 + 89 % NUMBER OFCUSTOMERS (mln.) 91,0 2006 100,1 2007 + 10,4 RESULTS OF2007 % 35 SEVENTH CONTINENT 36 SEVENTH CONTINENT ANNUAL REPORT/2007 amounted tomorethan25%. of 2007theproportionturnoverstoresinthisformatgeneral revenue unique productboutiqueatmosphereintheseGastronomystores. At theend Combined withthehighqualityofservices,allthistogetherhas createda assortment ofhotfoodculinaryandsalads,aswellFreshProduce goods. Gastronomy” storesofferanumberofprestigiousbrandswine, awide interesting newandexclusive products.New“TheSeventhContinent- hold tastingevents,wherevisitorshavetheopportunitytotryfor thefirsttime nent, loyalcustomers.“TheSeventhContinent-FiveStars”stores regularly products, eliteandexotic thedemandsofperma- items,whichmostlysatisfy mat constitutesaround20,000.Ofthese,morethan35%arepremiumclass were visitedbymorethan17millionbuyers.Productrangeinstoresofthisfor- mium qualityproductswithshortwaittimes.In2007premiumformatstores who knowthevalueoftimeandareusedtogettinghighservicepre- Moscow. Thetargetaudienceofthesestoresarecustomerswithhighincomes nomy” storesareusuallylocatedinthecitycenterandprestigiousareasof “The SeventhContinent-FiveStars”andGastro- (“The SeventhContinent-Gastronomy”) “The SeventhContinent-FiveStars” dollars andhigher. ious segmentsofbuyerswithmonthlyincomesrangingfrom250to1,500U.S. regards totheirlocations,productpolicies,andselectionsofproductsforvar- hypermarket (“NASHHypermarket” and“ProStore”)whichhavedifferencesin Continent -Supermarket”, and“TheSeventhContinent-Nextdoor”) market (sub-formats:“TheSeventhContinent-FiveStars”, Today, thestoresofSeventhContinentoperateintwomainformats:super- growth oftheCompanythroughbothextensiveandintensivedevelopment. oped Moscowmarket, butinentirelynewareasaswell,ensuringthenatural of theconsumermarket allowsthechaintogrownotonlyinalreadydevel- strategic elementoftheCompany'sgeneralpolicy.Work indifferentsegments The multi-formatcharacteristicofthechainisacompetitiveadvantageand Multi-format andFormatDevelopment AND OPERATIONAL ACTIVITY MARKETING POLICY to 11%. “The SeventhContinent-Nextdoor”storesinthegeneralrevenue amounted stores ofthisformatwerevisitedbyabout17millionpeople.Intotal turnoverof goods andservicesunderthebrand“TheSeventhContinent”. During 2007 er levelsofservice,round-the-clockstorehoursandtheguaranteed qualityof stores inthisclass,unlike discount-stores,are:awiderrangeofproducts,high- appreciates thehighqualityofourservices.Thecompetitiveadvantages of are focusedonthecustomer,whowantstosavebothtimeandmoney, on popularandseasonalgoods.“TheSeventhContinent-Nextdoor”stores affordable andattractivepricesforkey products,andcontinuouspriceoffers the store,constitutesupto7,500products.Thepricingpolicyofthisfocus- most popularamongcustomers.Theassortment,dependingupontheareaof balanced selectionconsistsmainlyofgoodsfordailyusage,thoseproducts on localserviceandareintendedfordailypurchases.Therefore,thebulkof atively smallsellingareas-upto1,000sq.meters.Thesestoresarefocused and usuallylocatedinadjoined-built-inpremisesofapartmenthouses,withrel- lated residentialcommunitiesinthecity,farfrommajortransportationhubs, “The SeventhContinent-Nextdoor”storesarelocatedinsidedenselypopu- “The SeventhContinent-Next door” ceeds ofthechain. than 51.5millionpeople,whilerevenuesamountedto44%ofthetotalpro- sonable prices.In2007thisdivisionofthechainstoreswasvisitedbymore Supermarkets providetheoptimumcombinationofawideselectionandrea- time totime.Thebulkoftheproceedsthisformatisfromfamilypurchases. include bothproductsfordailyusage,aswellgoodspurchasedonlyfrom ranges. Storesofthisformatarefocusedonintegratedpurchases,asthese items andrelatedgoods,includinggoodsoflow,medium,premiumprice Supermarket” is1,500sq.meters,and theproductrangetotals15,000food transportation. Theaveragesellingareaofa“TheSeventhContinent- intersections, infreestandingbuildingswithconvenientparkingandaccessfor ed areas,inrelativelycloseproximity tosubwaystationsormajortransport “The SeventhContinent-Supermarket” storesarelocatedindenselypopulat- “The SeventhContinent-Supermarket” RESULTS OF2007 37 SEVENTH CONTINENT 38 SEVENTH CONTINENT ANNUAL REPORT/2007 Continent increasedtheshareofdomesticallyproducedgoodson theshelves these majortrendsarereflectedintheoperationsofCompany. Seventh consumer market, andtheincreasednumberofRussianproducers-all The highrateofgrowththeRussianeconomy,rapiddevelopment ofthe ed forformat,size,storelocation,andincomelevelsofitstarget consumers. in theregionofstore'spresence.Inaddition,productmatrix isadjust- account thepeculiaritiesoftargetaudienceandconsumer preferences The productrangeofSeventhContinentisworked out,whiletakinginto by imposinguniformstandardsforexistingandnewlyopenedstoresofthechain. variety ofaudiencesconsumers,butalsohelpstooptimizetheproductmatrix Company, allowsnotonlytomaintainbalancedselectionofproductsforawide The productrangepolicy,developedandsuccessfullyimplementedinthe Assortment Policy,Logistics,DistributionCenter ber ofpurchasesreachednearly14.5million. in thegeneralrevenueofchainamountedto20%,whiletotalnum- selections. At theendof2007rateturnoverstoresthiscategory Promo zones,whereshoppersinacomfortableatmospherecanmake their selling areasallowthedisplayofalargenumberpromotionalgoodson this makes purchasesforthewholefamilymore comprehensive.Spacious food andnonfoodproducts,popularseasonalgoodsatreducedprices.All Customers ofthosestores,onaregularbasis,areofferedwiderange for longerperiodswhencomparedwithbuyinginthesupermarket. of products(35,000-40,000products)isaimedatcomplexfamilypurchases selling areaofhypermarkets isfrom3,000sq. meters.Theadvancedrange has five“NASHHypermarket” storesandone “ProStore”hypermarket. The Moscow in2005underthename“NASHHypermarket”. Today theCompany es andtechnologies.Thefirsthypermarket of theCompanywasopenedin resources inordertoorganizethefundamentallydifferentbusinessprocess- attract anewbuyingaudience,yetthisrequiredgreaterhumanandfinancial “urban supermarket” class,thenewkindofstorewaschoseninorderto access tothenewregions.Conceptuallydifferentfromalreadymastered the implementationofitsstrategyfordevelopmentnewmarkets and The hypermarket-discount storeformataroseintheCompanyfromwithin The Company'sHypermarkets and, thankstothelargevolumesofsupplies,itwaspossible toachieve In 2007preliminarynegotiationswereheldwiththelargestlogistics companies, trally coordinatestheordersofthesesuppliers. pliers intheregionsthroughlogisticscompanies)andSeventhContinent cen- basis ofoutsourcing(fortheconsolidateddeliveryproductsby federalsup- stores openingintheregions,suppliersengagelogisticscompanies onthe system. Underthissysteminordertoprovideuninterruptedsupplies tothenew ucts inallregionalstores,SeventhContinentintroducedanintegratedlogistics ensure thedirectsupplybymajorfederalsuppliersoflong-termstorageprod- Company, themostimportantofwhichistoexpanditsregionalchain.To The logisticalstructureissetoutincompliancewiththeprioritygoalsof of goodstoitsstoreshelves. ment: startingfromsigningcontractswithsuppliersonthroughtothedelivery through theimplementationofaneffectivesystemproductflowmanage- In 2007theCompanywasabletosuccessfullyassurehighgrowthratesaswell CisLink systemofelectronictenders. gies toenhancetheresultsofmutualinteraction.TheCompanyoperates While workingwithitspartners,SeventhContinentusesup-to-datetechnolo- Borodin MeatHouse,PepsiCo,Rust,Ludingandmanyothers. panies as:Coca-Cola,BAT, Danone,Nestle,Dymovskoe SausageProducers, Company arethemostimportantandreliablecontractors,includingsuchcom- among themareleadingRussianandGlobalproducers.Suppliersofthe The Companymaintainsanddevelopseffectivepartnershipswithsuppliers, ences ofmanagingparticularproductgroups. specifics ofgoodsandimplementthebestpracticesgainedfromexperi- in productgroups.Categoryspecializationallowsustotake intoaccountthe popular products,aswellforimprovingthekey performanceindicatorswith- responsible forbothprovidingcustomerswithonlythehighestqualityandmost product range,underwhichthemanagersofpurchasingDepartmentare Seventh Continentintroducedacategoryapproachtothemanagementofits throughout theentirechainwas64/36. of itsstores:attheend2007ratiodomesticandforeignproducts RESULTS OF2007 39 SEVENTH CONTINENT 40 SEVENTH CONTINENT ANNUAL REPORT/2007 tomers. have beenreduced.Asaresult,allthisallowsthereductionofprices forcus- stores hasbeenfreedup,andinventoriesaswellcostsfortheir services both timeandlaborcosts.Withthecreationofterminal,additional spacein suppliers andplacedintooneconsignmenttruck,itispossible todecrease In addition,throughtheaccumulationofgoodsreceiveddirectly fromseveral tion ofthedistributioncenterallowsareductioncostsviacentralizedsupply. For SeventhContinent,whichhasadevelopedwidenetworkofstores,opera- business solutionstoenhancetheprocessofimprovingoperationalactivities. The introductionoftheterminalwasanimportantstepinbringingmodern centralized storageanddeliveryofthevegetablesfruitstostores. acceptance servicesarealsooutsourcedalongwithsorting,qualitycontrol, common tomanyleadingoperatorsofretailtradeinEurope.Inaddition Continent resortedtotheoutsourcingofitsdistributioncenter-anexperience As partofitsstrategytoreducethecostsupplychainservices,Seventh improve itssystemofplanning. process willenabletheCompanytoimprovecooperationwithpartnersand domestic andinternational,introducingadistributioncenterintothebusiness distribution center.Withthedevelopmentofanetworksuppliers,both fruits tothestoresinMoscowandregionthroughCompany's the Companylaunchedaprojectforcentralizedsupplyofvegetablesand In ordertooptimizeproductflowsofcertaingroups,inNovember2007 in cooperationwithsuppliers. achieving thepossibilityofholdinguniform,centralizedpromotionalcampaigns ically reducingpaperworkflowbetweencentralandregionaloffices, significant reductioninthecostsofopeningnewstoresregions,dramat- mization ofprocurementcostsfortheCompanyanditspartners,butalsoa The introductionofanintegratedlogisticssystemenablednotonlytheopti- suppliers ofSeventhContinentwereagreedupon. ply goodstotheregionswhereCompanyhasapresence,uniformtariffsfor to regionalstoresofthechain.Withanumberlogisticscompaniesthatsup- the minimumtariffsforfederalpartnersthatconductedsupplyofproducts Premiumsegmentstores(AzbukaVkusa,Gurmeetc.)werenotcompared * Magram, etc. Business Analytics,Me whole. ThemajorinformationpartnersofSeventhContinentare AC Nielsen, the dynamicsofproductcategories,andMoscowconsumer market asa research companies,studiesfocusedonconsumerdemandand preferences, Seventh Continentconductsonapermanentbasis,incooperation withleading of alcoholicbeveragesbyexplainingthefeaturesandbenefitssuch products. sections ofCompanysupermarkets, andthesespecialistswillhelpintheselection For theconvenienceofcustomersqualifiedsalesassistantsareworkinginwine weather forecasts,currencyexchange rates,etc. ties, butalsotocommunicateinaconvenientformsuchusefulinformationas motions instores,aswelldrawattentiontoaninterestingassortmentofnovel- vate televisionchannelallowstheCompanynotonlytoannounceitsongoingpro- cally designedchannelforSeventhContinenttobroadcastvideoclips.Thispri- In 2007theIn-StoreTVprojectcontinueditssuccessfuldevelopment-aspecifi- tions createapleasant,invitingatmosphereduringtheholidays. ground musicisplayed,andcarefullychosenholidayseasonaldecora- are constantlycarriedoutinthestoresofchain.Speciallyselectedback- Steps towardscreatingapleasantandcomfortableatmosphereforshoppers assist customersandmaintainthehigheststandardsofCompanyinthisarea. In ordertomaintainahighlevelofservice,employeesundergospecialtraining improve turnaroundindicators,yetalsoincreasesconsumerbasket. goods. Inaddition,itallowsthestafftoquicklymanageproductrange, to findtheirwayaroundinsidestores,facilitatingsearchesfornecessary Professional merchandisingandproperzoningmakes iteasierforconsumers speed ofserviceandtheirknowledgethecharacteristicsproducts. ice, accordingtoconsumers,arethepolitenessofemployeesinstores,their level ofserviceamongcompetitors*.Themainelementsahighserv- standing customersgaveSeventhContinentthehighestratingintermsof According toresearchbyAC Nielsen,conductedinNovember2007,long- ProductsandService High Quality mbr, Comcon,GfK,RomirMonitoring,TNSGallupMedia, RESULTS OF2007 41 SEVENTH CONTINENT 42 SEVENTH CONTINENT ANNUAL REPORT/2007 gories. chain complywiththerequirementsforstorageofvariousproduct cate- the moderntechnicalequipmentinCompany'sstores.All storesofthe Compliance withsuchhighstandardsofproductqualityisensured thanksto products beingsupplied. with suppliershavemandatoryrequirementsthatensurethequalityof including qualitycertificates,certificatesofcompliance,etc.,andcontracts the chainonlywithavailabilityofallaccompanyingdocumentation, retail stores.ProductssuppliedtoSeventhContinentstoresarereceivedby quality, andexpirationdatesoftheproductsdirectlyonshelvesinCompany storage ofgoodsinareas,aswelldailycheckstheappearance, documentation fromthesupplierormanufacturer,temperaturecontroland include: theacceptanceofproductsandverificationaccompanying The existingsystemofqualitycontrolconsistsseveralstages,which employees onproductqualitycontrol. tem isfunctioningsuccessfully,theCompanyconstantlyprovidestrainingforits ments ofcurrentlegislationiseffectivelybeingcarriedout.Sothatthecontrolsys- program, thedailymonitoringofshopsandcompliancewithnecessaryrequire- the DivisionofInternalAuditandInventory.WithhelpCheckingStore dards isanintegralpartoftheworkallunitsCompanyandespecially petitive advantageoftheCompanyasawhole,thusmatchingitshighqualitystan- The qualityofgoodsguaranteedbySeventhContinentbrandisanimportantcom- through clearlytargetedandmulti-formatofferings. of thetargetaudience,andmakes possible dynamicresponsestosuchchanges VIP cards,heightenstheabilitytotrackcustomerbehaviortrendsandpreferences the Company'sownbaseofpermanentcustomers-holdersSeventhContinent icy, whileincreasingloyaltyofpermanentconsumers.Inaddition,theavailability allow theCompanytoeasilyandqualitativelyadjustitsproductrangetradepol- behavior andthebuyingpreferencesoftargetconsumergroups.Researchresults its owninternalandexternalstudiesaimedatstudyingthefeaturesofconsumer To maximizethequalityofserviceCompany'smarketing departmentconducts items) aswellawiderangeofdietaryandsemi-preparedfoodproducts. tion dishesofrestaurantlevel(65items),alargenumberfish products (70 ed (from200to500items):theCompanydevelopedandintroduced intoproduc- The assortmentofsaladsandculinaryproductshasbeenmodified andexpand- products fromarangeoffrozenhavinghighdegreereadiness. ing theyear,Companyadditionallyofferedmorethantwentytypes ofbakery and fish,beganofferingmorethan50typesofsuchproducts.In addition,dur- 150 to400items,introducedprocessesandequipmentforsmoked meat,poultry During 2007theCompanysignificantlyincreaseditsrangeofmeatproductsfrom goods. which hasnoticeablyincreasedtheattractivenessofCompany'sownbakery Earlier thisyearanewdesignofpackagingbakery productswasdeveloped, products bythespecialistsofCompany. duction morethan70newitems.Particularattentionispaidtohealthyfood ducted: duringtheyearCompanydevelopedandimplementedinitspro- improving theassortmentofbakery andconfectioneryproductsisbeingcon- In ordertomaximizethesatisfactionofconsumerdemand,continuousworkon nary, 16saladshopsand2fish-seafoodshops. sisted of:31bakeries and2confectioneryshops,124meat21culi- increased by3.3times.Intotal,theCompany'sownproductionin2007con- culinary products68.5%;confectioneryalsogrewrapidly-sales ume ofsalesbakery productsamountedto34.5%,meat20.17%, salad shops,bakery andconfectioneryproducts.Thegrowthrateofthevol- 14 ownproductionsectionswereopened,including:meat,fish,culinary, In 2007SeventhContinentcontinuedgrowthinthisdirection.Duringtheyear of ready-to-eatdishes. pers, thestoresofchainintroducedtheirownsectionsproduction accelerating rhythmofmodernlifeandthelackfreetimebytargetshop- ket trendsandthechangingdemandsofcustomers.Thusinresponseto teristics ofconsumerbehavior,theCompanyrespondsquicklytonewmar- Constantly studyingthecharac- Production The Company'sOwn DURING THEYEAR14OWN PRODUCTIONSECTIONSWEREOPENED, INCLUDING: MEAT, FISH,CULINARY,SALAD SHOPS,BAKERYAND CONFECTIONERY PRODUCTS RESULTS OF2007 43 SEVENTH CONTINENT 44 SEGMENTS AREBEINGPRODUCEDTODAY GOODS INTHELOW PRICECATEGORY OFTHEFOODANDNON-FOOD REGISTERED (PTM)UNDERWHICHMORETHAN1,100ITEMSOF 2005 THE“NASH PRODUCT”(OURPRODUCT)PRIVATE LABELWAS KET THAT DECIDEDTO ESTABLISH ITSOWN PRIVATE LABELBRAND.IN SEVENTH CONTINENTISONEOFTHEFIRSTCOMPANIES ONTHEMAR- SEVENTH CONTINENT ANNUAL REPORT/2007 manent customersandheightensthepopularityofSeventhContinentstores. the availabilityofawiderangesuchproductsincreasesnumberper- Taking intoaccountthattheCompany'sownproductsarehighlyindemand, ious barbecueandsemi-kebab products. duced aselectionofproductsconsistingmorethan15differentitemsvar- the spring,summer,andvacationperiod,Companydevelopedintro- duced withmorethan30itemsforfestivemeals.ForaBarbecuecampaignin days (over20items).SpecificallyforChristmasagroupofproductswasintro- developed andintroducedintoproductionathematicrangeforreligiousholi- ety ofdishescomposedvegetablesandcereals(45items);theCompany ring totheLent,aswellforvegetarians,chain'sstoresalwaysofferavari- For veryreligiousconsumersadhe- Gastronomy” stores. ned for “ Moscow chefshasbeendesig- containing therecipesofleading A specialrangeofalacartemenus The SeventhContinent- 30% bynon-foodproducts. metics andtextiles.Inthestructureofsales70%ismadeupfood products and fish, freshproduce,cheese,accompanyingproducts,householdchemicals, cos- drinks, bakery products,frozengoods,dairyfoods,meatseafoodand gories: groceries,confectioneryproducts,conserves,alcoholicbeverages, soft Products undertheprivatelabelarerepresentedinfollowing product cate- ply ofproductstotheCompany'sgrowingchainstores. uninterrupted supplies,andhavesufficientproductioncapacitytoensurethesup- the buyers,canoffercompetitivepricescombinedwithhighqualityofproducts, to respondquicklychangingconsumerdemandsandadjusttherequestsof ence ofworkingtogether.Theclearadvantageisgiventosuppliers,whoareable manufacturers, whosequalityofproductsisbeingtestedbymanyyearsexperi- produced underprivatelabels.TheCompanyiscooperatingwithmorethan100 Company developedandimplementedasystemofqualitycontrolforitsproducts the “NASHProduct”and“SedmoiContinent”brandnames.Inearly2007 Seventh Continentplacestoughrequirementsonthequalityofproductsbearing factured products,highturnoverandsalesvolume,socialsignificance. “NASH Product”brandareuniqueornewconsumercharacteristicsofthemanu- The maincriteriaforselectingasuppliertheproductionofgoodsunder guaranteed highlevelofquality. An importantadvantageofthesegoodsistheratiocompetitivepricesand under itsprivatelabelinthepremiumpricerange. term theCompanyispreparingtolaunchaprojectforproductionofgoods product categoriesandattractadditionalbuyerstoitsnumerousstores.Inthemid- multi-format developmentofitsprivatebrandsinordertoincreasesalesmost Continent) privatelabel.ThusinthepastyearCompanywasabletoobtain goods intheaveragepricecategoryunder“SedmoiContinent”(Seventh In 2007theCompanysuccessfullyimplementedaprojectforproductionof today. the lowpricecategoryoffoodandnon-foodsegmentsarebeingproduced vate labelwasregistered(PTM),underwhichmorethan1,100itemsofgoodsin establish itsownprivatelabelbrand.In2005the“NASHProduct”(OurProduct)pri- Seventh ContinentisoneofthefirstCompaniesonmarket thatdecided to The PrivateLabelsofSeventhContinent RESULTS OF2007 45 SEVENTH CONTINENT 46 SEVENTH CONTINENT ANNUAL REPORT/2007 all goodspurchasedduringthisprogram. granted theuniqueopportunitytoreceiveacash-backdiscountof up to12%on “An Additional Bonus”. Underthisprogram,customersbytheendofofferwere ducted bybothSeventhContinentandFinserviceBank,withtheprogram titled In October-December2007ajointcompanyloyaltyprogramwas created, con- and supermarkets inthecityofKaliningrad). discount inallSeventhContinentstores(except for“NASHHypermarket” stores card holdersofFinserviceBankVISAGoldcards,grantingthemtherighttoa10% as aresultoftheirweeklypurchases,wonover12,000giftsandbecamebank alty programwasheldtitled“TheMagnificentSeven”,inwhichmanycustomers, In 2007inallpartsofthechain(excluding thehypermarket division)anannualloy- as seasonalandaccompanyingproductselections. by thepublicationofacataloguewithbestoffersforessentialgoodsaswell In thispartofthechainpricecampaignsareheldfrequentlyandaccompanied Conducting pricecampaignsisalsoaregulareventforthehypermarket division. accompanied withdistributionsofleafletshavingliststhebestpriceoffers. to activelyacquireadditionalproductsatattractiveprices.Campaignsare paigns allowprice-consciouscustomersnotonlytobuyessentialgoods,butalso ing awiderangeofpopularandseasonalgoodsarefrequentlyheld.Suchcam- For customersofthewholechainSeventhContinentpricingcampaignscover- ing culture. of thespotlightedproductsandexpandcustomer'sknowledgefoodprepar- logues aregivenout,theirpurposeistoacquaintthecustomerwithnovelties traditional dishesfromaroundtheworld.Aspartofcampaigncolorfulcata- are heldregularly,duringwhichtastingsormasterclassesforpreparing For example,in“TheSeventhContinent-FiveStars”storesgastronomyfestivals Such campaignsmaybeseasonalaswellcarriedoutonanneededbasis. customers. increase customerloyaltyamongpermanentcustomers,aswelltoattractnew held, targetedatdifferentconsumersegments.Thepurposeoftheseisto For customersofSeventhContinentspecialeventsandcampaignsareregularly Special EventsandAdditional Services non-food items,butalsotousetheservicesofmobilecommunication providers, Seventh Continentstoresprovideanopportunitynotonlytopurchase foodand can bescaled,andgiftsetspacked. premium classstores,uponcustomerrequest,foodproductscan becut,fish tions ofitscustomersandprovideabroadspectrumadditional services.In allthedemandsandexpecta- Seventh Continentisalwaysstrivingtofullysatisfy rising. cate. Salesstatisticsshowsthateveryyearthenumberofusersthisserviceis chain inMoscowortheregionuptoamountindicatedoncertifi- holder mayataconvenienttimechoosegiftinanystoreofSeventhContinent tificates infournominalvalues:1000,2000,3000,and5000rubles.Acertificate For theconvenienceofbuyersin2007allSeventhContinentstoressoldgiftcer- is alsosupportedbysystematicresearchconductedthroughoutthechain. existing discountandbankcardscertifiesthepopularityoftheseprograms,which customer loyaltyamongpermanentcustomersofthechain.Agrowingnumber Discount programsallowtheCompanytoattractnewcustomersandincrease At theopeningofnewstoreschain,whenmakingapurchasefor - Onweekdays from7:00amto10:00allcustomersofthechain - AnJSC“BankFinservice”VISA Goldbankcardprovidedtheopportunity - AnJSC“BankFinservice”bankcard,whichallowedcustomerstonotonly - AnannualVIPdiscountcard,effectivefrom1Januaryto31December, - discount programswereinforce: In 2007forregularcustomersofSeventhContinentstores,severaltypes could beusedontheirnextpurchase. certain amount,customersreceivedacertificatefor7%discountwhich received a5%discount. for customerstoobtaina10%discountinallsupermarkets ofthechain. chases. save andget5%onallgoodsinthenetwork,butalsotopayfortheirpur- for hypermarkets andsupermarkets inKaliningrad. providing 10%discountonallgoodsinthestoresofchain,except RESULTS OF2007 47 SEVENTH CONTINENT 48 SEVENTH CONTINENT ANNUAL REPORT/2007 under freefloatwassoldtocustomersoftheMoscowstores chain. ty ofJSC“TheSeventhContinent”thetotalamountshares the Company with theassistanceofJSC“BankFinservice”,approximately everytenthsecuri- tional tooltoincreasetheloyaltyofcustomers.Sincelaunch this program, not onlytoincreasedemandforCompanyshares,butalsodeliver anaddi- trade. ThismutualprojectofSeventhContinentandFinserviceBank isdesigned an opportunitytobecomeshareholdersofRussia'sleadingoperatorretail launched in2006.ThisprojectprovidesallcustomersofSeventhContinentwith continued itsWe Work for You -We EarnTogether project,whichwasfirst Within thescopeofcooperationwithJSC“BankFinservice”Companyhas expand therangeofadditionalservicesprovidedinstoreschain. exchange currency,andallofwhichcorrespondstotheCompany'sstrategy withdraw cash,payformobilecommunicationandInternetservices, the helpoftheseterminalscustomersSeventhContinentcanrepayloans, than 150self-serviceFinserviceterminals,whichoperateona24-hourbasis.With and “NASHHypermarket” stores.Inaddition, customers haveaccesstomore ating throughoutdifferentregions,within“TheSeventhContinent-Supermarket” At thepresentmomentmorethan125officesofBankaresuccessfully oper- project morethan400,000co-brandcardshavebeenissued. of theCompanybringingaccesstonewregionalmarkets. Sincethelaunchof Distribution ofjointcardsattractednewcustomersandraisedpublicawareness “Sobinbank” wasfirstimplementedIn-StoreBankingprojectinRussia. vides retailbankingservicestothecustomers).ThisjointprogramwithJSC 51% and49%respectivelyinthechartercapitalofJSC“BankFinservice”(pro- JSC “TheSeventhContinent”and“Sobinbank”boughtsharesinaratioof ed ajointdiscount-bonusco-brandcardsproject.Withinthescopeofproject In 2006JSC“TheSeventhContinent”incooperationwith“Sobinbank”start- automobile creditandmortgages. range ofbankingservicesthroughouttheyear:fromsmallconsumerloansto ing beenlaunchedin2006.CustomersofSeventhContinentstoresusedawide In 2007theIn-StoreBankingprojectcontinueditssuccessfulprogress,afterhav- tion hasbeenalwayshighlyvaluedbyregular,loyalcustomersofthechain. fume stores,jewelryshops,andmore.Providingadditionalservicesallinoneloca- dry cleaners,pharmacies,photolabs,giftandflowershops,cosmeticsper- rankings whenrequestedbythetopsearchengines. services providedamongInternetusers,theservice'swebsiteis in thehighest of 2007amountedto44%thetotalnumberorders.Withplans advancethe most popularamongvisitors.ThenumberofordersovertheInternet bytheend site usesaclassifierofproductswiththeallocationblockscontent thatare simple interface,user-friendlynavigation,andproductsearchsystem. Theweb The websiteoftheOrderandDeliveryserviceisdistinguishedbyits logicaland division ofMoscowandtheregionbyarea,onaterritorial basis. orders arefulfilledinSeventhContinentstoresaccordancewiththeconditional leading creditcardpaymentsystems.Inordertoensurepromptdeliveryofgoods, legal entities.Paymentmaybecarriedoutwithcashorbanktransfer,usingthe Moscow andtheregion.Theserviceisavailableforbothindividuals payment. Deliveryofgoodsiscarriedouttohomes,offices,orevendachasin the customerorcall-centeroperator)tomomentoftheirdeliveryand seconds accuracy)thewholecycleofprocessingordersfromtheirplacement(by employees ofSeventhContinenttosupportandmonitorinrealtime(withup5 an on-linestoreandorderprocessingcenter(call-center).Thesystemallows The serviceutilizesaunifiedinformationsystemautomatedretailsales,including 80%. tomers (over4yearssincethefirstorderwasplaced)approximately of regularcustomers.Thepercentageorders,placedbypermanentcus- operating efficiencyoftheserviceandhavehelpedtoincreasenumber among theservice'stargetaudience.Thesechangeshaveimproved ing anexclusive andcompetitiveselection,whichwouldbemostpopular es, providingamorecomfortableenvironmentforplacingorders,andform- Order andDeliveryserviceforthepurposeofoptimizingbusinessprocess- In 2007aseriesofstructuralandpersonnelchangesweremadeinthe age purchaseamountedto19%andtotaled126U.S.dollars. (12 millionU.S.dollarsin2006).Comparedwith2006thegrowthofaver- 100,000 ordersandbroughtinrevenuesamountingto13millionU.S.dollars service hasbecomeincreasinglypopular.In2007thedeliveredover ing brandrecognition,includingontheInternet.However,withtime,this sary. Initially,theservicewascreatedasanimageprojectaimedatincreas- guaranteed highservicestandards,andhasjustcelebrateditsfifthanniver- Seventh Continentwascreatedtomeetthedemandforqualityproductsand Established in2002forbusycustomers,OrderandDeliveryServiceof Service Order andDelivery RESULTS OF2007 49 SEVENTH CONTINENT 50 SEVENTH CONTINENT ANNUAL REPORT/2007 commerce. advanced informationsystems,andgreaterdevelopmentintheareaofon-line expanding itsspectrumofservices,theselectionproducts,utilizing In thefuture,servicewillevolvetowardsgreaterloyaltyofcustomersby counts aregrantedonsubsequentorders. ed adiscountof10%.Thereiscumulativesystem:witheachneworderdis- places anorderoneweekbeforeandafterhisorherbirthdayisgrant- For regularcustomerstheserviceoffersadiscountprogram:anybuyer,who ordering ispublishedquarterly. other collections.Anillustratedcataloguewitharangeofgoodsavailablefor During theholidaysOrderandDeliveryserviceoffersspecialgiftbaskets and To increasetheloyaltyofcustomers,specialpriceandthematiceventsareheld. through theserviceexceeds 12,000. demands ofthetargetaudience.Thetotalnumberproductsavailabletoorder the storesofchain,andiscompiledtakingintoaccountspecifics The selectionofproductsofferedon-lineiscomparabletotherangeprovidedin during deliveries. ments. Thisallowstotake intoaccounttemperature issuesandneighboringgoods vehicles, whichareprovidedwithbuilt-inthermo-fridgesandspecialcompart- of theOrderandDeliveryservice.Theservice'scarfleetisequippedwithmodern Maintaining thefreshnessofproductsisonegreatestchallengesallunits the industry. effective workofemployees,allinordertoobtaincompetitiveadvantages in mation andinfrastructuresolutionsaimedatreducingcosts ensuringthe system isuptothechallenge,Companyplansin2008introduce infor- The Companydoesnotstopthere,andinordertoensurethatits information ects wereimplemented. system ofCentralDataStoragewasintroduced,andnumerousotherIT-proj- al subsystemfortheloyaltyprogrambasedonco-brandcards,inaddition,a WEPOS platform,andtogetherwithJSC“BankFinservice”createdafunction- In 2007SeventhContinentdevelopedafront-officesolution,basedonthe channels, butalsobackupsatellitechannelsaswell. inter-regional telecommunicationsinfrastructureusesnotonlyground-based A highspeedcorporatenetworkisusedtotransmitdata,voiceandvideo.The number ofpersonalcomputers,providingsignificantincreasesinspeed. stores toautomatetransactions,whichaccountformorethan30%ofthetotal is fullyprotectedfromunauthorizedaccess.Mobileterminalsareusedinthe ronment systemfromSAPBusinessOne.TheCompany'sinformation Company's “NASHHypermarket” storesuseafully-integratedinformationenvi- SQL andcustomizedsoftwarepackagesfromtopRussiandevelopers.The using theCompany'sownsoftware,developedonbaseofMS.NETandMS of theprocessescentralofficeandstoremanagementisimplemented op andretainthebestindicatorsforprofitabilityinindustry.Theautomation ing advancedinformationtechnologies,andthesehelptheCompanytodevel- Seventh Continentusesacentralizedapproachtomanagingandimplement- experiences morecomfortable. allow employeestoworkmoreefficientlyandmake ourcustomers'shopping task isgiventotheapplicationofadvancedinformationtechnologies,which ucts andthehighestqualityofservices.Muchcreditforperformancethis the widestpossiblerangeofprod- pany isthatofofferingcustomers The mainobjectiveoftheCom- IT SEVENTH CONTINENTUSESACENTRALIZEDAPPROACH TO MANAG- ING ANDIMPLEMENTINGADVANCED INFORMATION TECHNOLOGIES, AND THESEHELPTHECOMPANY TO DEVELOPANDRETAIN THE BEST INDICATORS FORPROFITABILITY INTHEINDUSTRY RESULTS OF2007 51 SEVENTH CONTINENT

coupon ratewasdeterminedatthetenderandconstitutes7.8% perannum, vided and2putoptions.Couponprofitispaidtimesayear, while the1-6 ties is1,820days(5years).Underissuethepaymentof10coupons ispro- nal valueofonebondbeing1,000rubles.Theperiodcirculation ofsecuri- 00462 -Hfrom26.12.2006)amountingto7,000millionrubles,with thenomi- issue ofJSC“TheSeventhContinent”wascarriedout,series02 (GRN4-02- ment ofbondissue.OnJune21,2007theplacementafive-year bond The largestfinancialprojectoftheCompanyin2007wascertainlyplace- debt financingandhashadahighreputationamonglendinginstitutions. market forattractingcapital.TheCompanyeffectivelyusedthepossibilityof In 2007SeventhContinentcontinuedtodevelopitsactivitiesinthefinancial activities: supermarkets andhypermarkets. Company, primarilytoensuretheorganicgrowthincoreformatsofits U.S. dollars.Theattractedfundsweredirectedtothedevelopmentof ary publicofferinghasenabledtheCompanytoattractmorethan238million share, andunderpreferenceright723,546shareswerebought.Thesecond- ondary publicofferingofshares(SPO)thepriceamountedto629.5rublesper ing theamountofchartercapitalthatisinfreefloatupto25.2%.At thesec- the amountof10,408,603unitsonRTSStockExchange, therebyincreas- April 12,2006theCompanyconductedanadditionalplacementofsharesin Seventh Continentmadethenextstepinmarket ofpublicoffering.On talization oftheCompanywasaround650millionU.S.dollars.In2006 The priceoftheplacementamountedto275rublespershare,andcapi- which amountedtoapproximately 13%ofthechartercapitalCompany. 8,415,573 ordinarysharesinthenewissueonRTSStockExchange, (IPO) onthestockmarket. November12,2004-SeventhContinentplaced nies thathavesuccessfullyimplementedaninitialpublicofferingofitsshares JSC “TheSeventhContinent”isoneofthefewdomesticfoodretailcompa- and Investors Information forShareholders INFORMATION FORSHAREHOLDERSANDINVESTORS 53 SEVENTH CONTINENT 54 BANKS APPLICATIONS CAME FROMFOREIGNINVESTMENTCOMPANIES AND FILLED, TOTALING MORETHAN9,200MILLIONRUBLES,AND45%OF SUBSCRIPTION. DURINGTHEAUCTION, 150APPLICATIONS WERE PLACEMENT WAS HELDONTHEMICEXSTOCK EXCHANGEBY OPEN ISSUE ISPLACED INFULLWITHHIGHDEMANDBY INVESTORS. SEVENTH CONTINENT ANNUAL REPORT/2007 of parttheloan,amountingto58.2millionU.S.dollars.OnSeptember 27, On September27,2006JSC“TheSeventhContinent”exercised arepayment of 2years.Thetermsthereceivedloanassumedarate7.25% perannum. of 90millionU.S.dollarsfromDresdnerBankAG's LondonBranchforaperiod In September2005JSC“TheSeventhContinent”receivedaloanin theamount resources ondebtmarkets inthefuture. Company andallowstheutilizationofopportunitiesforattracting financial Even withthisprojectsthefinancialleverageiscompletelycomfortablefor able borrower. for accessingvariousfinancinginstrumentsandaffirmitsreputationofareli- Projects ofsuchlevelandmagnitudeexpandthepossibilitiesCompany of theloaninterestrateisestablishedas6-monthLIBOR+1.5%. period andagraceontherepaymentofmaindebt.Underterms lion U.S.dollars,foraperiodof3years.Thecreditprovides6-monthinterest Sea Trade andDevelopmentBankinAugustof2007theamount36mil- Another projectofattractingfinancialresourceswastheloanfromBlack projects foropeningnewhypermarkets. program for2007and2008,inparticular,thefinancingrealizationof obtained intheplacementarebeingusedtofundCompany'sinvestment The Companyappreciatestheresultsofconductedbondissue.funds level of7.8%perannum. from investorsweresatisfied,andtherateoffirstcouponwassetat investment companiesandbanks.Asaresultofthetender,113applications more than9,200millionrubles,and45%ofapplicationscamefromforeign open subscription.Duringtheauction,150applicationswerefilled,totaling demand byinvestors.PlacementwasheldontheMICEXStockExchange by Issue isplacedinfullwithhigh 23.06.2009 and24.06.2010. nominal valuewereassignedfor options atapriceof100%the determined bytheissuer.Put and therateof7-10couponsis an increaseof19%. average receiptamountedto14.1U.S.dollars(includingVAT), representing 10.4% overthatof2006andamountedto100,1millionpeople, andthe In 2007thenumberofbuyersinstoresCompanyincreased by well asownproduction. labels productsunderthebrand“NASHProduct”,“SedmoiContinent”,as the directionCompanyincreasessalesofnon-foodproducts,private aimed atincreasingsalesofhighmarginproductsandservices.Enhancing food itemsandotherincomeoftheCompanyistargetfocusactivity gin forfoodretail.Itshouldbenotedthattheincreaseinrevenuesfromnon- share ofsalesnon-fooditemsalsoincreased,whichhaveahighermar- amounted to5.6%.Withthedevelopmentofhypermarket division,the share oftheotherrevenues,includingmarketing andincomefromrent, 79.5%, theshareofrevenuesfromnon-fooditemswas14.9%,while The bulkoftherevenuesCompanywasformedbyfoodproducts- greatly comparedwiththeratein2006(13%). gross tradingrevenuesoftheCompanyexceeded 20%,havingincreased of activedevelopmentinthisnewarea,thesharehypermarkets inthe In 2007theCompanyopenedanewhypermarket inChelyabinsk.Asaresult number in2007by4newstores. At theendof2007Companywasoperating127stores,increasing that store salesthosewhichhadbeenoperatingformorethan2years. revenues wasachievedthroughorganicgrowthandbyincreasingsame and increasedbyalmost33%overthoseof2006.Thedynamicgrowth revenues oftheCompanyin2007amountedto1,272.9millionU.S.dollars In accordancewithInternationalFinancialReportingStandards(IFRS),the lion U.S.dollars. London Branch,totaling31.8mil- the loanfromDresdnerBankAG's repayment oftheremainingpart 2007 theCompanyconducteda IN ACCORDANCE WITHINTERNATIONAL FINANCIALREPORTINGSTAN- DARDS (IFRS),THEREVENUESOFCOMPANY IN2007AMOUNTED TO 1,272.9MILLIONU.S.DOLLARSAND INCREASED BY ALMOST33% INFORMATION FORSHAREHOLDERSANDINVESTORS OVER THOSEOF2006 55 SEVENTH CONTINENT 56 SEVENTH CONTINENT ANNUAL REPORT/2007 assets reached1,403millionU.S.dollarsandincreasedby89% overthose In 2007theCompanysignificantlygrewinitsassets.At theendof2007total rate ofitstop-linerevenues. result, theCompany'sgrowthratesofnetprofithaveexceeded thegrowth the useofinternalreservestoimproveCompany'sefficiency. Asa These highratesofprofitabilitytheCompanyhavebeenachieved through exceeded 17.4%. for investors.At theendof2007Company'sreturnonequity (ROE) of 7.1%in2006.Highestprofitabilityprovidesthebestreturnoninvestments it oftheCompanyamountedto7.8%andimprovedcomparedresults 47% comparedwithlastyear(67.6millionU.S.dollarsin2006).Thenetprof- Net profitfor2007amountedto99.2millionU.S.dollarsandincreasedby For theresultsofyear,Companyachievedhighlevelsprofitability. indicator oftheCompanyoverpastyearincreasedby36%. gin onEBITDAreached11.4%comparedwith11.2%in2006.The EBITDA. TheEBITDAindicatortotaled145.1millionU.S.dollarsandthemar- Company, asreflectedbyhighprofitabilityindicatorsonoperatingprofitand 2007 onceagainwasayearofimprovedoperatingefficiencythe tively). decreased incomparisonwith2005and2006(23.6%22.6%,respec- expenses oftheCompanyinrelationtorevenueamounted22.3%and cost management,themainshareofsellinggeneralandadministrative key operationsandincreaseproductivity.Asaresultofnumerouseventson In 2007theCompanycontinueditseffortstoimproveeffectivenessof Company. even withanincreasingproportionofsalesfromthehypermarkets ofthe enabled theCompanytoimproveitsgrossprofitabilityindicatorin2007, effective workwithsuppliersandimprovedsupplymanagementhave The grossmarginin2006was31.1%.Itshouldbenotedthatbothmore lars andincreasedby33.6%.Themarginongrossprofitwas31.3%. The grossprofitoftheCompanyin2007amountedto398.2millionU.S.dol- most effectiveuseoftheCompany'sfunds. management practicesoveritsentirerangeofproducts.Thisallowsthe improvement ofconditionsforprocurementfromsuppliers,whileimproving The Companystrivestoimproveworkingcapitalmanagement,seeking Continent -SevenSteps”,“NASHHypermarket”, “NASHProduct”. “The SeventhContinent”,Continent-FiveStars”, the Company.To date,SeventhContinentownsthefollowingtrademarks: The assetsofJSC“TheSeventhContinent”includethetrademarksusedby foundation forthefuturegrowthofCompany. the directresultofactiveinvestmentsanddevelopment,createsastrong and increasedby81%.Growthinthenon-currentassetsofCompanyis of 2006.Indoingso,non-currentassetsamountedto912millionU.S.dollars INFORMATION FORSHAREHOLDERSANDINVESTORS

57 SEVENTH CONTINENT 58 SEVENTH CONTINENT ANNUAL REPORT/2007 REVENUE DYNAMICS (mln.USD) USD mln. 1250 1000 1500 500 750 250 507,7 2004 712,0 2005 40% 957,7 2006 34% 1272,0 33% 2007 growth, % GROSS PROFITDYNAMICS (mln.USD) USD mln. 450,0 150,0 225,0 375,0 300,0 75,0 31,1% 158,0 2004 32,2% 229,0 2005 31,1% 298,0 2006 INFORMATION FORSHAREHOLDERSANDINVESTORS 31,3% 398,0 2007 of revenues as % 59 SEVENTH CONTINENT 60 SEVENTH CONTINENT ANNUAL REPORT/2007 OPERATIONAL EXPENSEDYNAMICS (mln.USD) USD mln. 100,0 150,0 250,0 200,0 50,0 300,0 24,1% 2004 123,0 23,6% 168,0 2005 22,6% 216,0 2006 22,3% 283,0 2007 of revenues as % EBITDA DYNAMICS (mln.USD) USD mln. 150,0 180,0 120,0 60,0 90,0 30,0 8,4% 2004 42,8 10,5% 2005 74,7 11,2% 106,8 2006 INFORMATION FORSHAREHOLDERSANDINVESTORS 11,4% 145,1 2007 of revenues as %

61 SEVENTH CONTINENT 62 SEVENTH CONTINENT ANNUAL REPORT/2007 NET INCOMEDYNAMICS (mln.USD) USD mln. 150,0 125,0 100,0 75,0 25,0 50,0 2004 27,3 5,4% 6,6% 47,1 2005 7,1% 2006 67,6 7,8% 2007 99,2 of revenues as % TOTAL ASSETS DYNAMICS (mln.USD) USD mln. 1800,0 1500,0 1200,0 900,0 300,0 600,0 214,8 2004 75% 2005 375,5 2006 741,1 97% INFORMATION FORSHAREHOLDERSANDINVESTORS 1403,0 89% 2007 growth, % 63 SEVENTH CONTINENT 64 SEVENTH CONTINENT ANNUAL REPORT/2007 SAME STORE REVENUEDYNAMICS 2007(USD) 15,0% 18,0% 12,0% 9,0% 6,0% 3,0% Five Stars 16,3 Supermarkets 18,3 Hypermarkets 18,0 SAME STORE REVENUEDYNAMICS 2007(RR) 12,0% 18,0% 15,0% 6,0% 3,0% 9,0% Five Stars 9,3 Supermarkets 11,1 INFORMATION FORSHAREHOLDERSANDINVESTORS Hypermarkets 11,0

65 SEVENTH CONTINENT

Jointdevelopmentprojectswithexistingandnewstrategicpartners - Dynamicorganicgrowth,the successfulintegrationofotherretail - Active regionalmulti-formatexpansion - Developmentofitshypermarket storesinMoscowandregionalmarkets - Strengtheningleadingpositions intheMoscowsupermarket arena,includ- - The Companywillcontinueitsoutlinedstrategytoincreasemarket shareby: development projects. 250 millionU.S.dollarsfornewacquisitionsandtheimplementationofcurrent The totalinvestmentsin2008amountto320-330millionU.S.dollars,including the Company'soperatingactivities. optimize themanagementofrealestateassets,andimproveefficiency will increaseassets,take awayanyrisksofpossibleincreasesinrentalprices, ects includethetransferofpropertyintopossessionCompany,which leading developers.Mostoftheconcludedagreementsondevelopmentproj- with itslong-termstrategicpartners,suchasGC“TASHIR”, aswellwithother will continueitsparticipationinnewandongoingdevelopmentprojectsboth quent establishmentofachainstores,operatinginallformats.TheCompany including, viaintroducingnewhypermarkets asaspringboardforthesubse- across themanyregionsofRussia.Regionalexpansionwillbeimplemented, ing itsleadingpositionsintheMoscowmarket andmulti-formatdevelopment its identifiedstrategicpriorities.TheplansoftheCompanyincludestrengthen- Seventh Continentplanstocontinueitsactivedevelopmentwithinthescopeof Plans andPerspectives chains, andsoundinvestments ing throughthedevelopmentofitspremiumclassstores PLANS ANDPERSPECTIVES 67 SEVENTH CONTINENT 68 SEVENTH CONTINENT ANNUAL REPORT/2007 Discountprogramsandspecialcampaigns - Theprincipleofprovidingintegratedservice - Guaranteeingthequalityofgoods, optimumprices,andhighstandardsof - conducted onthebasisof: The developmentofloyaltyprogramsbytheCompanyforitscustomerswillbe Perfectionoflogisticsprocesses - Launchoftheup-to-dateinformation technologysystems - Increasingtheefficiencyofprocurementandworkwithsuppliers - Centralizationofmanagement - Introductionofmodern technologiesofoptimizingbusinessprocesses - Expenditurecontrol - optimization ofkey businessprocessesthroughthefollowingmethods: The Companywillalsocontinueworkforincreasingoperationalefficiencyand Constantprogressinraisingthelevelsofcustomerservice - SignificantexpansionoftheCompany'sadditionalservicesspectrum - Usingmodernmarketing instrumentsandtechnologies - Increasingshareofnon-fooditems,privatelabelsproducts - Optimizingassortmentmatrix - on anannualbasisincreaseinsalespersquaremeterby: The Companyintendstocontinuethepolicyofincreasingprofitability,reaching service es, andcustomerservice. advantages -awiderangeofproducts,aswellhighqualitygoods,servic- sion ofthechain,improvingprofitabilityandmaintainingstrongcompetitive The Companyplanstoremaincommitteditspoliciesforsustainedexpan- Openingnewsupermarkets inMoscowandtheregion, - StrengtheningtheCompany'sleadingpositionsinMoscow market, - spective, include: The plansforthedevelopmentofsupermarket division,inthemid-termper- Increasing,inthemid-termperspective,totalnumberofstoresby - Openingofnewhypermarkets throughouttheregionsofRussian - spective, include: The plansforthedevelopmentofhypermarket division,inthemid-termper- Kolomna, Yaroslavl andmanyothercities Lobna, DomodedovoandLyubertsi,Kaliningrad,Serpuhov,Perm, including throughthedevelopmentofitspremiumclassstores more than30-40%ayear,onlyviaopeningnewhypermarkets Federation Egorevsk, PLANS ANDPERSPECTIVES 69 SEVENTH CONTINENT

Auditor's Report Independent statement. ance whethertheconsolidatedfinancialstatementsarefreefrom material mis- ethical requirementsandplanperformtheaudittoobtainreasonable assur- International StandardsonAuditing.Thosestandardsrequirethatwe complywith ments basedonouraudit.We conductedourauditinaccordancewith Our responsibilityistoexpressanopinionontheseconsolidatedfinancialstate- Auditor's Responsibility accounting estimatesthatarereasonableinthecircumstances. or error;selectingandapplyingappropriateaccountingpolicies;making financial statementsthatarefreefrommaterialmisstatement,whetherduetofraud internal controlrelevanttothepreparationandfairpresentationofconsolidated Standards. Thisresponsibilityincludes:designing,implementingandmaintaining solidated financialstatementsinaccordancewithInternationalFinancialReporting Management isresponsibleforthepreparationandfairpresentationofthesecon- fortheFinancialStatements Management's Responsibility accounting policiesandotherexplanatorynotes. cash flowstatementfortheyearthenended,andasummaryofsignificant loss statement,consolidatedstatementofchangesinequityand dated balancesheetasatDecember31,2007,andtheconsolidatedprofit Seventh Continentanditssubsidiaries(theGroup),whichcomprisetheconsoli- We haveauditedtheaccompanyingconsolidatedfinancialstatements ofJSC To theShareholdersofJSCSeventhContinent INDEPENDENT AUDITORS REPORT 71 SEVENTH CONTINENT ANNUAL REPORT / 2007

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The proce- dures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presenta- tion of the consolidated financial statements in order to design audit proce- dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial state- ments.

We believe that the audit evidence we have obtained is sufficient and appro- priate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all mate- rial respects, the financial position of the Group as at December 31, 2007, and its financial performance and its cash flows for the year then ended in accor- dance with International Financial Reporting Standards.

Partner Irina B. Smirnova

March 15, 2008

BDO Unicon Inc. 125, Warshavskoye shosse, Moscow, Russian Federation SEVENTH CONTINENT

72 INDEPENDENT AUDITORS REPORT

CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2007 (RUB'000 unless otherwise stated)

December 31, 2007 December 31, 2006

ASSETS

Non-current assets

Property, plant and equipment 12 716 192 6 168 485 Goodwill 176 433 176 433 Long-term loans and loans issued 2 434 232 812 652

Long-term prepayments and other non-current receivables 6 851 938 6 064 240 Other non-current assets 158 462 30 704 Deferred tax asset 48 482 31 213 Total non-current assets 22 385 739 13 283 727 Current assets

Inventory 2 476 286 2 100 986 Short-term receivables and prepayments 1 137 012 1 396 195 Short-term loans and loans issued 2 728 424 499 855 Short-term financial investments 4 259 914 884 760 Cash and cash equivalents 1 450 320 1 348 500 Total current assets 12 051 956 6 230 296 Total assets 34 437 695 19 514 023 SEVENTH CONTINENT

73 ANNUAL REPORT / 2007

December 31, 2007 December 31, 2006

LIABILITIES AND EQUITY

Equity

Share capital 102 169 102 169

Share premium 8 972 256 8 972 256

Fair value reserve (2 050) -

Retained earnings 6 021 960 3 860 650

Translation loss (22 138) (42)

Total parent company shareholders funds 15 072 197 12 935 033 Minority interest 669 518 651 498 Total equity 15 741 715 13 586 531 Non-current liabilities

Long-term loans, borrowings and other attracted funds 10 419 061 406 514 Other long-term liability 26 855 - Deferred tax liability 715 319 25 673 Total non-current liabilities 11 161 235 432 187 SEVENTH CONTINENT

74 INDEPENDENT AUDITORS REPORT

December 31, 2007 December 31, 2006

Current liabilities

Trade payables 4 788 412 3 753 594 Taxes payable 391 065 294 180 Short-term loans, borrowings and other attracted funds 1 544 192 927 429 Other accounts payable 811 076 520 102

Total current liabilities 7 534 745 5 495 305 Total liabilities 18 695 980 5 927 492

Total liabilities and equity 34 437 695 19 514 023

CONSOLIDATED PROFIT AND LOSS STATEMENT FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2007 (RUB'000 unless otherwise stated)

31 декабря 2007 г. 31 декабря 2006 г.

Sales 32 558 001 26 034 263 Cost of goods sold (22 374 212) (17 935 311) Gross profit 10 183 789 8 098 952

General, selling and distribution expenses (7 246 165) (5 872 234) SEVENTH CONTINENT

75 ANNUAL REPORT / 2007

December 31, 2007 December 31, 2006

Other operating expenses, net (30 272) (22 917)

Operating income and financial income from banking activities 2 105 109 406 482 Operating expense and financial expense from banking activities (2 110 492) (398 515) Operating income 2 901 969 2 211 768

Interest income from non-banking activities 460 154 403 076 Interest expense from non-banking activities (363 602) (149 900)

Other non-operating income from non-banking activities, net 406 961 46 734

Profit before taxation 3 405 481 2 511 676

Income tax expense (851 151) (674 817) Profit after taxation 2 554 330 1 836 859

Minority interest (18 020) 1 293 Net profit 2 536 310 1 838 152

Earnings per share (expressed in Russian roubles per share) - basic 34,04 25,49 SEVENTH CONTINENT

76 INDEPENDENT AUDITORS REPORT

CONSOLIDATED STATEMENT OF CASH FLOWS OR THE TWELVE MONTHS ENDED DECEMBER 31, 2007 (RUB'000 unless otherwise stated)

2007 2006

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation and minority interest 3 405 481 2 511 676

Adjustments for:

Change in provision for impairment of receivables and receivable write-off 954 480 116 228 Fixed and intangible assets depreciation 876 114 714 213 Interest expenses 424 279 149 900 Loss on disposal of property, plant and equipment 17 703 19 334 Interest income (859 978) (457 756)

Derecognition of accounts payable (606 467) (96 299) Gain on resale of securities (436 431) (175 756) Excess recognized of the acquirer's share in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of the business combination (399 042)- Exchange difference (18 724) (43 865) Other non-cash items 12 909 4 174 Operating cash flows before working capital changes 3 370 324 2 741 975

Increase in accounts receivable and prepayments (204 404) (103 304) SEVENTH CONTINENT

77 ANNUAL REPORT / 2007

2007 2006

Decrease in long-term prepayments and other non-current receivables 1 702 1 865 579 Increase in accounts payable and accruals 1 261 395 890 144 Increase in other payables 278 078 139 781 Increase in inventory (375 301) (435 805) Increase in taxes payable 77 584 68 315

Cash generated from operations 4 409 378 5 166 685

Income taxes paid (874 696) (520 467) Interest paid (417 214) (186 458) Interest received 601 612 127 575

Net cash generated from operating activities 3 719 080 4 587 335

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of subsidiaries, net cash outflow (105 975) (4 732 311) Cash obtained upon subsidiary's acquisition 11 048 - Purchase of property, plant and equipment and intangible assets (6 359 811) (4 294 523) Proceeds from sale of property, plant and equipment 458 938 Purchase of securities and other financial assets (19 250 948) (8 528 454) Proceeds from sale of securities 18 883 937 8 519 655 Increase in loans given (3 888 397) (579 783) SEVENTH CONTINENT

78 INDEPENDENT AUDITORS REPORT

2007 2006

Bank deposits (8 872 065) (700 000) Bank deposits withdrawal 6 205 000 - Dividends received 387 - Cash flows from other investing activities - 27

Net cash used in investing activities (13 376 366) (10 314 451)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of ordinary shares, net - 6 595 458 Expense to purchase its own shares (1 357 733) - Income from the sale of own shares purchased 1 358 769 - Dividends paid (375 000) (150 000) Payments of costs incurred related to initial public offering - (12 059) Bonded loan 6 983 330 - Proceeds from borrowings 10 577 207 2 686 418 Repayment of borrowings (7 413 038) (3 790 929)

Net cash generated from financing activities 9 773 535 5 328 888 Net increase (decrease) in cash and cash equivalents 116 249 (398 228)

Cash and cash equivalents at the beginning of the year 1 348 500 1 886 902 Effect of exchange rate changes on cash and cash equivalents (14 429) (140 174) Cash and cash equivalents at the end of the year 1 450 320 1 348 500 SEVENTH CONTINENT

79

Company Management Chief Accountant Officer Galina IgorevnaNikulina Chief FinancialOfficer Aleksandr PetrovichRusnak Chief CommercialOfficer Nataliya VladimirovnaSlepenkova Head ofDevelopmentDepartment Marianna AnatolievnaZhuravleva Chief SecurityandGeneralIssuesOfficer Viktor Vasiliievich Goncharov Chief DeputyOfficer Stepan Vasiliievich Kovalchuk Chief Executive Officer Galina IgorevnaIlyashenko Chairman oftheBoardDirectors Vladimir AlekseeivichKarnaukhov Chief InformationalOfficer Andrei VladimirovichPachikin Head oftheHumanresourceDepartment Marina DmitrievnaEfremova Head oftheLegalDepartment Natalya Nikolaevna Epifanova and Operation Chief Executive Officerof7K-Development Yuriy IvanovichChalov Head ofPurchaseandDistributionDepartment Vladimir Valentinovich Samarov Head ofMarketing Department Nadezhda Yurievna Zezyulina Head ofOperationsserviceDepartment Oksana Yurievna Chepikova and InternalcontrolDepartment Head ofFinancialplanning Elena VitalievnaNedel'kina COMPANY MANAGEMENT 81 SEVENTH CONTINENT

March6,2008-managersofSeventhContinentwereannouncedwinners - March6,2008-“TheSeventh Continent-Supermarket” storewas - February27,2008-“NASH Hypermarket” storewasopened,andislocat- - February7,2008-“NASHHypermarket” storeopensintheRIOshopping - February6,2008-anotherpremium class“TheSeventhContinent- - January31,2008-JSC"The SeventhContinent"conductedaninterest - January11,2008-“TheSeventh Continent-Supermarket” storewas - January9,2008-byadecree ofthePresidentRussianFederation - Since January1,2008theCompanyhasseenfollowingchanges: Events After theReportingDate Structural Department-2007competitions. of theannualMoscowManagerYear -2007andBest Managerofthe opened inKaliningrad. south ofMoscow. ed intheOblakamodernshoppingandentertainmentcomplex, enced, strategicpartnerGC“TASHIR”. center inYaroslavl, amoderncenterbuiltinconjunction withtheexperi- Gastronomy” storewasopenedinthehistoriccenterofMoscow. amount ofpaymentoninterestamountedto1.23millionU.S.dollars. payment onitsloanfromtheBlackSeaTrade andDevelopmentBank.The opened inZelenograd. awards fortheircourageandheroism. (sponsored byJSC“TheSeventhContinent”)wereawardedwithstate Vladimir Putin,theparticipantsofHighLatitudeDeepArcticExpedition EVENTS AFTERTHEREPORTINGDATE 83 SEVENTH CONTINENT 84 SEVENTH CONTINENT ANNUAL REPORT/2007 May30,2008JSC“TheSeventh Continent”becomesthewinnerof - May15,2008onemore“The SeventhContinent-Gastronomy”storewas - April22,2008-thePresident-Hotelheldaceremonytoawardpartici- - April15,2008-atthesixthIT-Leader ceremonyJSC“TheSeventh - April8,2008anew“TheSeventh Continent-Nextdoor”wasopenedin - March27,2008-JSC“TheSeventhContinent”announcedtheopeningof - March19,2008-followingthedecisionofDirectorateMICEX - Golden Chains-2008inthecategoryforsupermarkets. opened inthehistoriccenterofMoscow. Manager oftheYear -2007competitions. recognized asabsolutewinners,bybothMoscow,andtheRussian Structural Department-2007competitions.EmployeesoftheCompanyare pants oftheRussianManagerYear -2007andBestManagerofthe Contribution totheDevelopmentofInformationTechnologies inRussia. Continent” isawardedwithaspecialprizeinthecategoryforOutstanding Moscow. with numerousgalleriesoftheworld'sknowntrademarks. Perm, wheretheCompany's“NASHHypermarket” storeislocatedalong its retailcenternamedChocolate-theCompany'sfirstcomplexin “The SeventhContinent”wereincludedintheAlistingwithafirstdegree. Stock Exchange, non-convertiblebondsfortheholdersofseries02JSC 2 7