CFA_IRC_MGNT

Introducing the leader

National Research UniversityHigher School of Economics

Prepared by:Sergey Stepanov

Vladimir SeleznevVyacheslav KabaevSofya Kondratyeva

Vitaly Pentegov

| 2

DISCLOSURES:

Ownership and material conflicts of interest:The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or publication of this report. Receipt of compensation:Compensation of the author(s) of this report is not based on investment banking revenue.Position as a officer or director:The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.Market making:The author(s) does not act as a market maker in the subject company’s securities.Disclaimer:The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA Association (Russia), CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.

CFA Institute Research Challenge

Business Description

Macroeconomic Environment

Competitive Positioning

Financial Analysis

Valuation

Investment Risks

Investment Summary

Appendix

Contents

3 Higher School of Economics 2016

0

2000

4000

6000

8000

10000

12000

Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Strong business with temporary volatile stock

4 Higher School of Economics 2016Sources: Bloomberg, Thomson Reuters, team estimates

Recommendationfor MGNT:ME

HOLD

Target Price: RUB 12,001

Upside: 16%

Investment Highlights

#1 retail chain in Russia by market cap, number of stores, revenue and earnings

Profitable, cash flow generating company

Successfully developing in difficult macroeconomic environment

12,001

Dec-16

RU

B p

er s

ha

re

10,320

MGNT:ME – ticket for Magnit local shares trading on the Moscow Stock Exchange (MOEX)

MGNT:LI – ticket for Magnit GDRs trading on the London Stock Exchange (LSE)

Sources: Thomson Reuters, MOEX, LSE, Company data, team estimates

Inclusion in indexes provides additional demand from passive investors 2

in MICEX & RTS

in MSCI Russia8%

6%

Weights in indexes**

The highest share of foreign investments among Russian stocks

One of the most attractive company in Russia’s stock universe

5

Market capitalization

Closing Price

Target Price

52-week High/Low

ADTV (3M),shares

Std Dev (1M)

SharesOutstanding

Free-float

EV/EBITDA

P/E

Market Profile*

RUB 10,320

RUB 12,944/9,251

153,862

94.6 mln

RUB 1 trn

25.9%

18.2x

10.8x

* as of 8th of April 2016

MOEX LSE (GDRs)

29.9%

USD 19 bln

USD 39

USD 30/62

177,086

22.1x

11.7x

RUB 12,001 USD 36

1 Share=5 GDRs

Higher School of Economics 2016

** MICEX – RUB index including 50 most liquid Russian companies, RTS – USD index

22.2% 43.0%

1

Magnit GDRs are trading at a premium to the local shares3

Due to lower liquidity on MOEX in comparison with LSE

0

20

40

60

MGNT:LI MGNT**

USD

$6 average premium through 2009-2015

MGNT**– implied price for Magnit GDRs, calculated as local share price divided by 5 and converted into USD

NorthCaucasian

South

Volga

Siberia

Central

Ural

NorthWest

2,361

#1 food retail chain in Russia

Sources: Bloomberg, Company data

Cities & Towns

7 FederalDistricts

Convenience Stores

Hypermarkets

Magnit Family

Drogerie stores(Cosmetics)

9,594

219

155

2,121

12,089 RetailStores

74%

17%

5%

4%

948804

270 253163

Magnit X5 Dixy Lenta O'key

4.4

3.3

0.9 0.90.6

Magnit X5 Lenta O'Key Dixy

Revenues of top 5 retailers in 2015

Selling space in 2015 (mln sq.m.)Number of stores Revenue share

(RUB bln)

Profitability

6

10%

15%

12%

18%


Sources: Company data

5,882 Trucks

1.29 mln sq.m.

The biggest fleet in Europe

Centralization Degree

90% for

Convenience Stores

73% for

Hypermarkets

Warehouse Space

596 SKUs

11%

Distribution Centers34

Share of Revenue in 2015

Private Label

Logistic system

Private Label & Own production

Own Production

83 ha

Biggest greenhouse in Eastern Europe

37%Coverage ofMagnit’s sales of vegetables

The most developed logistic system in Russia with efficient centralization strategy1

Private label of Magnit covers significant share of revenue2

Success based on efficient vertical integration


The main shareholder of the company is the CEO maintaining strong corporate governance1

Board of directors serves shareholders’ interests 2

London

Stock Exchange

29.9%

Moscow

Stock Exchange

Sergey Galitskiy, CEO

Minority investors

Free-float

25.9%

55.8%

{

35.1%

9.1%

One of the most attractive company in Russia’s stock universe

8

April, 2006

April, 2008

IPO on RTS & MICEXAttracted RUB 9,5 bln,

SPO on LSEAttracted USD 480 mln

11 members

5 Executive Directors

6 Non-Executive Directors (3 independent) International experience

Effective risk-management

Strong ethics SergeyGalitskiy,CEO

MagnitPJSC

“Russian leaders in corporate governance.”

“TOP-1000 Russian managers”

“CEO of the year”

“Company with the best corporate governance” 3 HR and Remuneration Committee

3 Audit Committee

Higher School of Economics 2016Sources: Company data, Thomson Reuters, Forbes, Kommersant

1.3% 0.6% -3.7% -1.5% 1.0%

6.5%

11.4%12.9%

8.6%7.0%

2013 2014 2015 2016F 2017F

Real GDP growth CPI

High correlation of real wages with retail turnover ensures retail rebound when macroeconomic condition improves

As a result we see leap in prices and recession1

3

7-Apr-1612-Apr-14

$107 $41

₽69₽34

2Fall in oil prices led to ruble depreciation and budget cut

31-Dec-16

$40-50

₽60-66

RUB/USD*

Brent, brl.

Sources: Tomson Reuters, Federal State Statistics Service, team estimates

Exchange quotes and Brent prices dynamics

Historical changes in retail sales and real wages

-13%

-8%

-3%

2%

7%

12%

Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Mar-15 Aug-15 Jan-16

Retail Sales, y/y, % Real Wages, y/y, %

2%Forecast of y/y real wages growth since 2017

92%Correlation between real wages & retail sales

Turbulent macroeconomic environment affects retail


* CFA Institute notation for foreign exchange quotes

88%

84%

78%

72%

68%

64%

62%

52%

41%

Germany

US

Japan

Poland

Russia (2020)

China

Russia (2015)

Brazil

Turkey

72% 68%

46% 42%30%

20%12%

Germany CzechRepublic

Poland US Russia (2020) Russia Turkey

Consolidation is the ongoing trend 3

Sources: Euromonitor, Federal State Statistics Service, team estimates

Modern retail penetration will increase1 2 Small urban areas are the future growth driver

18%

62%

28%

77%

9%

30%

0%

20%

40%

60%

80%

2004 2006 2008 2010 2012 2014

Overall RussiaBig cities (>1mn)Small towns (<100k)

4 Regulation changes are manageable

- From 10% to 3%

Decreasing rebates

Shortening payables periods, days:

- Perishable goods: from 10 to 5

- More than 1 month storage life: from 30 to 20

- Other: from 45 to 35

Modern retail penetration by country Evolution of modern retail penetration

Market share of top 5 retailers

Room for modern retail growth still exists


21%

14%

6%12%

22%

Magnit Dixy Lenta X5 Retail Group O'key

Selling space expansion is the main source of revenue growth for Magnit

1 Magnit is the leader in the segment 2 Convenience format grows most rapidly2

2 4

11.6%14.5%

23.8%

Supermarkets Hypermarkets Convenience Stores

Sources: Euromonitor, Company data

3 Magnit targets small towns due to low competition

Market shares of Russian peers in 2015 Industry sales by channel: 2010-2015 CAGR

Selling space dynamics: 2010-2015 CAGR

Revenue dynamics: 2010-2015 CAGR

26% 26% 23%

15%12%

Magnit Dixy Lenta X5 Retail Group O'key

65% 35%

Location of stores by area type

Magnit is the leader in the low cost segment

11

Magnit7%

X56%

Dixy2%

Lenta2%

O'key1%

Other82%


Towns(population <500k)

Cities(population

>500k)

-7.1%

-3.8%

-0.7%

2.0% 2.0%

1 Magnit underperforms in LFL indicators

Sources: Infoline, Company data

3 Magnit’s logistics is essential for cost reduction and expansion

Avoiding drawbacks of ruble depreciation

Independence from suppliers

90%

7

5,882

34

MagnitDixy

X5

O’Key

Lenta

Like-for-Like traffic change in the industry (2015)

Current difficulties are alleviated by competitive advantages

12

<1 day

Drogerie (cosmetics) format is an opportunity222

Own production helps to cope with instabilities 4

1.5% of sales generated by produced vegetables

50 bln RUB

to be invested within 5 years

154% CAGRof revenues through

2011-2015

1.5 RUB trnmarket size

9.6%

15.0%

11.6%

18.1%

Convenience stores

Hypermarkets

Magnit Family

Cosmetics stores

EBITDA margin by formats in 2015


Share of direct supplies

Time between order and delivery

Federal Districts

Trucks

Distribution centers

10.9% 11.2%

7.2%6.5%

4.8%6.0%

4.1%

2.2%1.4%

0.2%

Magnit Lenta X5 O'Key Dixy

8.2%

10.9%12.2%

3.7%

6.0%7.3%

2011 2015 2020FEBITDA margin Net margin

Sources: Company data, team estimates

Magnit’s margins dynamics

EBITDA and Net Income margins in 2015 (comparison with local peers)

Magnit has sound margins with potential to grow

13

Vertical integration

Strong bargaining power with suppliers

Highly profitable Cosmetic stores

Private label development


-0.5

0.0

0.5

1.0

1.5

-50

0

50

100

150

2011 2012 2013 2014 2015E 2016F 2017F 2018F 2019F 2020F

FCFF, RUB bln (lhs) Net debt / EBITDA (rhs)

Increasing shareholders’ return

2


Large revenues with decelerating growth1

0

600

1200

1800

2400

2013 2014 2015E 2016F 2017F 2018F 2019F 2020F

Growing cash flows3

x

x

x

x

x

Revenue dynamics (RUB bln)

0.4%

3.3%

12.2%

8%

63%

50%

0%

20%

40%

60%

0%

4%

8%

12%

2011 2014 2020FDividend yield (lhs) Payout ratio (rhs)

-

7,000

14,000

21,000

28,000

2011 2012 2013 2014 2015E 2016F 2017F 2018F 2019F 2020F

Selling space expansion (‘000 sq.m.)

In the long-run growth of selling space will also slow down

The company is turning into a cash cow

4


Sources: Company data, Bloomberg, team estimates

DCF provides sound economic basis for Magnit valuation

15

Target price of RUB 12,001 doesn’t indicate significant upside as well as downside

Lack of direct peers in Russia due to Magnit’s unique

developed business model and strong corporate governance

Target Price: RUB 12,001

Upside: 16%

Total Upside*: 18.1%

* Including:Annualized HPR andforecasted dividend yield

DCF ValuationRecommendation is

based 100% on Intrinsic Value

3,306 8,243EV/EBITDA 2016F

5,341P/E 2016F 8,749

9,801 15,620DCF

5,250 10,875PEG 2016F

9,251 12,37152 Week range

4,000 8,000 12,000 16,000

Current priceRUB 10,320

Target priceRUB 12,001

No reliable peers

Lack of international peers due to different economic

environment and the competitive landscape

Relative valuation

underestimates target price

Football field valuation graph (RUB)


-5.0E-06

4.5E-05

9.5E-05

1.5E-04

2.0E-04

2.5E-04

Despite huge CapEx, FCFF is significant and will grow further

Sources: Company data, Bloomberg, Damodaran, team estimates

WACC Calculation

Target capital structureDebt-to-Total Capitalization 0.10Equity-to-Total Capitalization 0.90

Cost of DebtCost of Debt 10.7%Effective Tax Rate 23.1%After-tax Cost of Debt 8.2%

Cost of Equity in RUBCost of Equity 17.5%

WACC in RUB (forecast period) 16.6%WACC in RUB (terminal period) 14.6%21

41

62

91

123

2016F 2017F 2018F 2019F 2020F

Terminal Period GrowthInflation in the long-run 5.3%Real GDP sustainable growth 1.1%

Growth rate 6.4%

Monte Carlo simulation confirms HOLD recommendation

FCFF dynamics (RUB bln)

Inputs to simulation

1. Revenue growth rate

2. EBITDA margin

6. Terminal growth3. CapEx

4. dNWC

5. WACC

Simulation statisticsMean RUB 12,095Std Dev RUB 1,6845th percentile RUB 9,405Median RUB 12,02895th percentile RUB 14,962

DCF valuation based on the moderately conservative assumptions

10,000 simulations

1

2


19% 41%40%

RUB 10,320 RUB 12,126Current price +17.5% Required Return

Sources: team estimates

New limiting amendments to the Trade Law

low

med

ium

hig

h

low medium high

Further fall in real wages

Price war

Reaching the market share limit of 25%

Impact

Pro

bab

ility

Magnit faces mainly macroeconomic and regulatory risks

Stress Test


Price war

Increase in non-core operations

Lowering efficiency due to significant

increase in non-core operations

Negative impact on margins due to:-lowering operational efficiency-lower than expected economies of scale

Target price range: RUB 9 820 – 11 245

Ticket Sales Net Income CapEx

Further fall in real wages


Ticket &Traffic Sales Net Income CapEx


Risk Matrix

Sources: team estimates, Thomson Reuters

HOLD

Pros Cons

Profitable cash-generating company

Strong corporate governance

High stock market volatility

Country risks:- Economic sanctions- Poor macroeconomic environment

Liquid stock, which is included in several

indices (MSCI Russia and MICEX & RTS)

Exchange rate fluctuations (high impact for GDRs)

Great business but difficult market result in Hold


Current Price Target Price:

RUB 10 320

Upside:

RUB 12 001 16%

APPENDIX MENU

II. Business Overview:• Geographical Coverage & Logistics• Store formats description

Convenience | HypermarketMagnit Family | Drogerie

• Suppliers & Import• Private Label & Employees • Funding story ,Free-float & Shareholders• Company’s organization structure(2)• Board of directors

III. Macro & Competitive• Indicators of peer companies• LFL indicators by format• Revenue split, average checks and locations• Sales growth and food CPI• Economic growth by sector 2003-2013 • Dynamics of food and non-food retail growth • Brent prices versus USD/RUB exchange rate

I. Financial Statements:• Income statement• Balance sheet• Cash flow statement

IV. Financial Analysis• Key financial ratios• Working capital• Depreciation and amortization• DuPont analysis• Cost of sales and SG&A structure and dynamics• Bonds repayment

National Research UniversityHigher School of Economics

V. Valuation• Discounted Cash Flow Analysis• Cost of Equity and WACC• Enterprise Value and Implied Share Price• Trading Multiples Analysis• Trading Multiples Analysis (Local shares)• Trading Multiples Analysis (GDRs)• Peer Group Analysis (Russian retailers)• Peer Group Analysis (International retailers)• Revenue Calculations (Marginal Revenue)• Revenue Calculations (L-f-L forecasting)• Revenue Calculations (Regression Analysis)• Revenue Analysis

VI. Stock Analysis• Stock Correlation• Spread• GDRs return & RUB devaluation

APPENDIX

Financial Statements

Business Overview Appendix

Industry Analysis Appendix

Financial Analysis Appendix

Valuation Appendix

National Research University

Higher School of Economics

in RUB mln Historical Income Statement Projected Income Statement

Period Ending December 31 2011 2012 2013 2014 2015E 2016F 2017F 2018F 2019F 2020F

Revenue

Retail Revenue 335 700 448 661 579 695 763 527 947 801 1 135 605 1 337 271 1 561 825 1 793 345 2 040 752

y/y revenue growth, % 42.1% 33.6% 29.2% 31.7% 24.1% 19.8% 17.8% 16.8% 14.8% 13.8%

Cost of sales

Cost of goods sold (237 872) (308 662) (388 112) (510 150) (635 027) (777 889) (909 345) (1 054 232) (1 192 574) (1 336 692)

Transportation expenses (11 319) (13 975) (17 592) (20 730) (25 733) (31 797) (38 781) (46 855) (55 594) (65 304)

Less due to inventory shortage (4 845) (6 972) (8 718) (12 067) (14 410) (17 266) (20 332) (23 746) (27 266) (31 027)

Total Cost of sales (254 036) (329 609) (414 423) (542 947) (675 170) (826 952) (968 457) (1 124 833) (1 275 434) (1 433 024)

COGS as a % of revenue 75.7% 73.5% 71.5% 71.1% 71.2% 72.8% 72.4% 72.0% 71.1% 70.2%

Gross profit 81 663 119 052 165 272 220 581 272 631 308 653 368 814 436 993 517 911 607 728

Gross profit margin, % 24.3% 26.5% 28.5% 28.9% 28.8% 27.2% 27.6% 28.0% 28.9% 29.8%

Operating expenses

Selling expense (2 132) (2 479) (3 406) (6 262) (7 773) (9 313) (11 367) (13 276) (16 140) (18 367)

Selling as a % of revenue 0.6% 0.6% 0.6% 0.8% 0.8% 0.8% 0.9% 0.9% 0.9% 0.9%

General & Administrative expenses (41 448) (53 949) (75 196) (96 624) (123 000) (141 265) (161 661) (184 674) (207 043) (229 596)

G&A as % of revenue 15.8% 15.7% 17.0% 16.8% 13.0% 12.4% 12.1% 11.8% 11.5% 11.3%

Rent and utilities (11 742) (16 350) (23 129) (31 284) (40 970) (51 787) (64 338) (79 275) (96 032) (115 291)

Rent as % of revenue 3.5% 3.6% 4.0% 4.1% 4.3% 4.6% 4.8% 5.1% 5.4% 5.6%

Total Operating expense (55 322) (72 777) (101 730) (134 170) (171 743) (202 366) (237 366) (277 224) (319 215) (363 254)

OpEx as % of revenue 16.5% 16.2% 17.5% 17.6% 18.1% 17.8% 17.8% 17.8% 17.8% 17.8%

Other income, net 1 227 990 1 530 2 313 2 871 2 271 2 675 3 124 3 587 4 082

Other income, net as % of revenue 0.4% 0.2% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2%

Foreign exchange gain(loss) 39 116 (351) (2 814) 0 - - - - -

EBITDA 27 608 47 381 64 721 85 910 103 759 108 558 134 123 162 892 202 282 248 556

EBITDA margin (%) 8.2% 10.6% 11.2% 11.3% 10.9% 9.6% 10.0% 10.4% 11.3% 12.2%

Depreciation and amortization (7 983) (11 270) (14 184) (17 610) (20 081) (24 768) (29 595) (34 567) (39 688) (44 963)

EBIT 19 624 36 111 50 537 68 300 83 678 83 790 104 528 128 326 162 595 203 593

EBIT margin (%) 6% 8% 9% 9% 9% 7% 8% 8% 9% 10%

Investment income 286 258 187 372 - - - - - -

Interest

Interest expense (loans) (2 124) (2 923) (2 771) (5 125) (8 004) (8 981) (9 583) (9 409) (8 135) (6 786)

Interest expense (bonds) (1 503) (1 478) (2 553) (1 906) (1 870) (5 293) (4 100) (2 935) (2 330) (2 330)

Interest expense (Finance Leases) (58) (12) (0) 0 0 0.0 0.0 0.0 0.0 0.0

Cost of qualifying asset 265 357 355 385 366 368.4 373.0 369.0 370.2 370.7

Net interest expense (3 420) (4 055) (4 969) (6 646) (9 508) (13 905) (13 310) (11 975) (10 095) (8 745)

EBT 16 490 32 313 45 754 62 027 74 169 69 886 91 218 116 351 152 499 194 848

EBT margin (%) 5% 7% 8% 8% 8% 6% 7% 7% 9% 10%

Income tax expense (4 186) (7 196) (10 134) (14 341) (17 148) (16 158) (21 090) (26 901) (35 258) (45 049)

Tax rate (%) 25% 22% 22% 23% 23% 23% 23% 23% 23% 23%

Net Income 12 304 25 117 35 620 47 686 57 021 53 728 70 128 89 450 117 241 149 799

Net income margin (%) 4% 6% 6% 6% 6% 5% 5% 6% 7% 7%

Earnings per share (EPS) 137.90 265.62 376.69 504.29 603.01 568.18 741.62 945.95 1239.85 1584.15

Average common shares outstanding, '000 89 220 94 561 94 561 94 561 94 561 94561 94561 94561 94561 94561


Appendix 1: Income statement




Assets

Non-current assets

Property, plant and equipment, net 122 874 158 753 195 158 232 969 277 888 321 370 362 072 399 912 434 803 466 656

Investment property 0 329 325 600 600 600 600 600 600 600

Land lease rights 2 543 2 908 3 259 3 074 3 228 3 389 3 559 3 737 3 924 4 120

Intangible assets 285 523 740 905 1 356 1 885 2 281 2 760 3 339 4 040

Goodwill 0 0 1 367 1 367 1 367 1 367 1 367 1 367 1 367 1 367

Long-term financial assets 406 189 70 97 97 97 97 97 97 97

Total non-current assets 126 108 162 701 200 921 239 013 284 536 328 708 369 976 408 473 444 130 476 881

Current assets:

Inventories 29 144 41 026 56 095 81 476 89 078 110 609 131 294 149 614 167 614 181 277

Trades and other receivables 533 584 632 813 897 1 400 1 502 1 626 1 671 1 901

Advances paid 1 800 2 677 3 171 4 849 5 365 6 427 7 568 8 838 10 148 11 547

Prepaid expenses 380 182 252 243 329 388 390 456 437 498

Taxes receivable 39 29 28 69 0 0 0 0 0 0

Short-term financial assets 172 877 1 151 475 475 475 475 475 475 475

Income tax receivables 0 0 0 132 0 0 0 0 0 0

Cash and cash equivalents 17 205 12 453 5 931 17 692 18 075 10 072 12 994 16 719 20 232 36 147

Total current assets 49 274 57 827 67 260 105 749 114 219 129 371 154 223 177 728 200 576 231 845

Total assets 175 382 220 528 268 181 344 761 398 755 458 080 524 200 586 201 644 706 708 726

Equity and Liabilities

Equity attributable to equity holders of the parent

Share capital 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.0

Share premium 41 440 41 595 42 024 42 399 42 399 42 399 42 399 42 399 42398.776 42398.776

Treasury shares (145) (551) (123) (500) 0 0 0 0 0 0

Retained earnings 37 289 58 190 84 261 101 752 129 695 155 485 187 744 227 102 276 343 336 263

Total equity attributable to equity holders of parent 78 584 99 236 126 162 143 652 172 095 197 885 230 144 269 502 318 743 378 662

Non-controlling interest 111 0 0 0 0 0 0 0 0 0

Toatal equity 78 696 99 236 126 162 143 652 172 095 197 885 230 144 269 502 318 743 378 662

Non-current liabilities

Long-term borrowings and loans 45 850 38 247 37 442 44 410 52 000 54 600 56 238 62 340 59 843 50 745

Long-term obligations under finance leases 13 0 290 202 0 0 0 0 0 0

Deferred tax liability 4 155 6 159 8 173 10 416 10 720 11 022 11 137 11 268 11 412 11 568

Total non-current liabilities 50 018 44 406 45 904 55 028 62 720 65 622 67 375 73 608 71 255 62 313

Current liabilities

Trade and other payables 33 566 42 921 48 171 66 795 70 292 86 547 103 214 118 647 132 785 141 339

Accrued expenses 3 946 5 021 6 612 8 185 11 622 14 249 16 713 18 988 21 864 24 184

Taxes payable 2 467 3 731 4 629 5 386 6 145 7 242 8 353 9 521 10 703 11 942

Dividends payable 1 1 0 14 372 14 540 13 969 18 935 25 046 34 000 44 940

Income tax payable 501 91 295 0 0 0 0 0 0 0

Short-term advances received 0 0 88 88 0 0 0 0 0 0

Short-term obligations under finance leases 187 12 0 0 0 0 0 0 0 0

Short-term borrowings and loans 6 000 25 110 36 320 51 257 61 340 72 567 79 467 70 890 55 356 45 346

Total current liabilities 46 668 76 887 96 115 146 082 163 939 194 573 226 681 243 091 254 708 267 751

Total liabilities 96 686 121 293 142 018 201 110 226 659 260 195 294 056 316 699 325 963 330 064

Total liabilities & equity 175 382 220 528 268 181 344 761 398 755 458 080 524 200 586 201 644 706 708 726

Appendix 2: Balance sheet

Sources: Company data, team estimates 22 Higher School of Economics 2016



Cash flows from operating activities

Profit before income tax 16 490 32 313 45 754 62 027 74 169 69 886 91 218 116 351 152 499 194 848

Adjustments for: 0 0 0 0.2 0.2 0.2 0.2 0.1 0.1

Depreciation 7 822 11 025 13 890 17 264 20 081.3 24 767.8 29 594.8 34 566.8 39 687.8 44 962.5

Amortization 158 244 294 345 515.3 716.2 866.6 1 048.6 1 268.9 1 535.3

Finance costs 3 420 4 055 4 969 6 646 9 508 13 905 13 310 11 975 10 095 8 745

Investment income (286) (258) (187) (372) 0 0 0 0 0 0

Loss from disposal of property, plant and equipment 199 21 211 436 0 0 0 0 0 0

Loss from disposal of investment property 0 0 0 0 0 0 0 0 0 0

Revaluation of investment property 0 (100) 3 (275) 0 0 0 0 0 0

Bad debt provision (19) 123 71 113 140.5 168.4 198.3 231.6 265.9 302.6

Foreign exchange loss (39) (116) 351 2 814 0 0 0 0 0 0

Gain on disposal of subsidiary (478) 0 0 0 0 0 0 0 0 0

Working capital changes 5 984 (896) (8 163) (9 330) (437) (3 178) (1 687) (904) (1 138) (3 241)Cash generated from operations 33 252 46 413 57 195 79 669 103 978 106 265 133 501 163 269 202 679 247 153

Income tax paid (1 433) (5 601) (8 021) (12 525) (17 148) (16 158) (21 090) (26 901) (35 258) (45 049)

Interest paid 232 (4 378) (4 759) (6 807) (9 508) (13 905) (13 310) (11 975) (10 095) (8 745)

Interest received (3 474) 236 209 375 0 0 0 0 0

Net cash (used in)/generated from operating activities 28 576 36 670 44 624 60 711 77 321 76 203 99 100 124 393 157 325 193 358

Cash flows from investing activities

Purchase of property, plant and equipment (48 691) (47 310) (50 051) (55 712) (65 000.0) (68 250.0) (70 297.5) (72 406.4) (74 578.6) (76 816.0)

Purchase of ownership in a single asset entity (940) 0 0 0 0 0 0 0 0 0

Purchase of investment property 0 (395) 0 0 0 0 0 0 0 0

Purchase of intangible assets (222) (463) (442) (461) (1 044) (1 112) (1 346) (1 628) (1 970) (2 384)

Purchase of land lease rights (1 287) (506) (719) (224) (154) (161) (169) (178) (187) (196)

Proceeds from disposal of subsidiary 0 (111) 227 96 0 0 0 0 0 0

Proceeds from sale of property, plant and equipment 125 148 647 556 0 0 0 0 0 0

Proceeds from sale of land lease rights 293 864 0 4 0 0 0 0 0 0

Acquisition of subsidiaries 0 0 (1 717) 0 0 0 0 0 0 0

Loans provided (11 053) (6 142) (6 419) (19 659) 0 0 0 0 0 0

Loans repaid 11 410 5 676 6 241 20 304 0 0 0 0 0 0

Net cash used in investing activities (50 366) (48 241) (52 232) (55 094) (66 198) (69 523) (71 813) (74 213) (76 736) (79 396)

(21 790) (11 570) (7 608) 5 617 11 123 6 679 27 288 50 181 80 590 113 962

Cash flows from financing activities

Dividends paid (999) (4 216) (9 545) (15 825) (28 912) (28 510) (32 904) (43 981) (59 046) (78 939)

Shares issuance / (repurchase) 14 806 (250) 856 (2) 500 0 0 0 0 0

Cash Flow Avaliable for Debt Repayment (7 982) (16 036) (16 297) (10 210) (17 289) (21 830) (5 616) 6 200 21 544 35 023

Long-term debt issuance / (repayment) 0 (7 603) (805) 7 034 7 590 2 600 1 638 6 102 (2 497) (9 098)

Short-term debt issuance / (repayment) 21 750 19 074 10 593 14 937 10 083 11 227 6 900 (8 577) (15 534) (10 010)

Repayment of obligations under finance leases (604) (188) (13) (1) 0 0 0 0 0 0

Net cash from financing activities 34 953 6 818 1 087 6 143 (10 739) (14 683) (24 366) (46 456) (77 077) (98 047)

Net increase (decrease) in cash and cash equivalents 13 163 (4 753) (6 521) 11 760 384 (8 003) 2 922 3 725 3 513 15 915

Cash at the beginning of the year 4 042 17 205 12 453 5 931 17 691 18 075 10 072 12 994 16 719 20 232

Cash at the end of the year 17 206 12 453 5 931 17 691 18 075 10 072 12 994 16 719 20 232 36 147

Appendix 3: Cash flow statement




APPENDIX





Valuation Appendix

No share

<10%

10%-15%

15%-20%

>20%

Magnit’s market

share by regions

Appendix 4: Market share by regions


Start: wholesale trading 1994-1998

• Sergey Galitskiy founded the company selling household

products

• Tander LLC became one of the leaders in distributing

cosmetics and household products in Russia

• Plan for retail expansion was created

1998-2001 Entering retail market

• The first retail store in Krasnodar

• Experiments with store formats

• Stores are combined in retail chain

Intensive growth

• 1500 stores at the end of 2005

• IFRS, strong financial control and motivation labor

system implementation

2001-2005

Appendix 5: Magnit’s History 1/2

Sources: Company data 26 Higher School of Economics 2016

2006-2009 IPO, SPO, Multiformat stores

• Russian retail leader by traffic

• IPO in 2006, SPO in 2008 and 2009

• Start of hypermarkets construction

• First non-executive director

• 3228 stores at the end of 2009

Firm position in retail sector

• First Drogerie store “Magnit Cosmetic”

• Market expansion: Ural and Siberia regions

• SPO in 2011 – $475 mln. attracted

• Value of stock traded at LSE is more than $21 bln.

• Start of vegetables cultivation

2010-2012

TODAY Magnit today

• Magnit is Russia's largest retail company in Russia

by market share, revenues, employees, earnings,

market capitalization, geographic coverage,

customers served operating 12089 retail stores in

over 2361 cities, supported by 33 distribution

centres and over 5882 trucks

Appendix 6: Magnit’s History 2/2

Sources: Company data 27 Higher School of Economics 2016

North

Caucasian

1 2

7

43

5

6

South

Volga

Siberia

Central

Ural

North

West

2,361 Cities

& Towns

7Federal

Regions

Convenience

Stores

Hypermarkets

Magnit Family

Drogerie Stores

Distribution

Centers (DCs)

9594

219

155

2121

33

1

2587 1648

336353936

2877

866

37 62 61

518 444 593

9 8 8

14 7 30 8

30 42 4911 6 9 8

205 85 200 76

2 1 3 2

12,089 Retail

Stores

5,882 Trucks

1,292 ‘000 m²

Centralization Ratio, %

Convenience Stores

From DC – 90

From supplier - 10

Hypermarkets

From DC – 73

From supplier - 27

Warehousing Space

2 3 4 5 6 7

Geographical Coverage

Logistics System

366

669

366

1428

2396

3101

3763Central

Volga

Southern

Urals

North Caucasus

North West

Siberia

Warehousing Space

4,414 ‘000 m²Selling Space

Appendix 7: Geographical coverage & Logistics

Sources: Company data, as of December 31, 2015 28 Higher School of Economics 2016

Convenience Stores

455 sq.m.Total

325 sq.m.Selling Space

89% Food

11% Non-food

25% Owned

75% Leased

Format Description Key Operational Statistics OpeningSize of the Store Average Ticket Payback

Store Ownership Structure

Sales Mix

Traffic

tickets/sq.m./day

Sales Density

sales/sq.m./year

LFL 12M2015 –12M2014,%

244,01P=$4,00

245 306P=$4 024

8,14 AverageTicket, RUB

-0,79 Traffic

7,29 Sales

2,8

3 years

If Leased

If Owned

Cost of New Store

per sq.m. of Total Space, ‘000 RUB

Time to Maturity

6 months

4-6 years

Owned 35 - 105

Leased 10 - 19

Number of SKUs

3 500

Appendix 8: Store formats description 1/4

29 Higher School of Economics 2016Sources: Company data, as of December 31, 2015

Hypermarket

80% Food

20% Non-food

75% Owned

25% Leased

Size of the Store Average Ticket


Sales Mix

Traffic

tickets/sq.m./day

Sales Density

sales/sq.m./year

LFL 12M2015 – 12M2014,%

614,3P=$10,1

272 278P=$4 467

1,2

6 615 sq.m.Total

2 918 sq.m.Selling Space


-3,80 Traffic

1,51 Sales

Payback

6-9 years

Cost of New Store


Owned 56-98

Leased 31-41

8-15 months

Time to Maturity

S: up to 3 000M: 3 000-6 000L: over 6 000

Number of SKUs

15 500 – 25 200

Format Description Key Operational Statistics Opening



Magnit Family

2 161 sq.m.Total

1 098 sq.m.Selling Space

85% Food

15% Non-food

36% Owned

64% Leased



Sales Mix

Traffic

tickets/sq.m./day

Sales Density

sales/sq.m./year

LFL 12M2015 – 12M2014,%

446,9P=$7,3

349 703P=$5 737

2,0

6-9 years

Cost of New Store


Owned 71-112

Leased 31-54

8-15 months


-3,55 Traffic

0,62 Sales

Time to Maturity

Number of SKUs

8 800



Drogerie Stores

298 sq.m.Total

229 sq.m.Selling Space

100% Non-food

13% Owned

87% Leased



Sales Mix

Traffic

tickets/sq.m./day

Sales Density

sales/sq.m./year

LFL 12M2015 – 12M2014,%

287,6P=$4,7

114 924P=$1 885


5,62 Traffic

19,61 Sales

1,0

3 years

If Leased

If Owned

Cost of New Store


Time to Maturity

6 months

Owned 20-70

Leased 9-16

4-6 years

Number of SKUs

1 500



9%

Suppliers

Import

International

Direct import 757 Open

Contracts

5 800Domestic Suppliers

4 600Local Suppliers

1 200Federal Suppliers

Appendix 12: Suppliers & Import


Employees

265 982 Employees

29 636AverageMonthlySalary* 5% Wage Rate

Increase*P=

194 723In-storePersonnel

40 369People Engagedin Distribution

19 108People in RegionalBranches

9 342People Employedby Head Office

1000 employees

2 440Other

Private Label

% Shareof Revenue596

PLSKUs 84% Food

Items11

Appendix 13: Private Label & Employees


New Stores

New Stores

900-950ConvenienceStores 80

Hyper-markets 1 200

DrogerieStores

Annual number of expected and actual store openings

250 250 400-6

394

1041

2013 2014 2015Expected Actual

1100 1350 12001154 1144 1181

60 50 5035 29 27

Hypermarkets

Drogerie stores

Convenience storesCentralization Ratio, %

90

10

92

8

Convenience Stores

FY2015 Future Targets

73

27

80

20

Hypermarkets

Delivered from DC

Delivered from supplier

Delivered from DC

Delivered from supplier

Appendix 14: Plans for 2016


(Ownership interest = 100% for every company)

CJSC

“Tander”LLC

“BestTorg”

LLC

“Tander-Magnit”

LLC

“TK Zelenaya

Liniya”

LLC

“MagnitEnergo”

LLC

“Star”

LLC

“Tandem”

LLC

“Alkotrading”

LLC

“ITM”

LLC

“Logistica

Alternativa”

LLC

“Retail Import“

“TD-holding”

company

limited

LLC

“Selta”

Magnit PJSC

Import operations

Retail

Maintenance, infrastructure

Supply

Magnit’s organization structure

Appendix 15: Organization structure 1/2


(Ownership interest = 100% for every company)Magnit’s organization structure |

MAGNITENERGO LLC

Founded in February, 2012.

Electric power supplier for Magnit

TANDER CJSC

Food retail and wholesale

BESTTORG LLC

Food retail in the city of Moscow and

еhe Moscow region

RETAIL IMPORT LLC

Import operations

SELTA LLC

Transportation services for Magnit

TK ZELENAYA LINIYA LLC

Greenhouse complex. Production of own

vegetables.

TANDEM LLC

Rent operations for magnit.

TD-HOLDING LTD.

Founded in 1998. Production and

processing of food for Magnit

TANDER-MAGNIT LLC

Food retail in the Moscow region

ITM LLC

IT operations for Magnit

LOGISTICA ALTERNATIVA LLC

Import operations

STAR LLC

Assets holder, maintenance services for

Magnit

ALKOTRADING LLC

Other operations, retail.

NPF MAGNIT LLC

Founded in 1995.

Non-government pension fund.

Appendix 16: Organization structure 2/2


Sergey Galitskiy, CEO – 35.1%

Aberdeen Asset Managers Ltd. – 1.6%

OppenheimerFunds, Inc. – 5%

Lavreno Ltd.– 8.0%

Free-float – 55.8%

Magnit’s Shareholder Structure Other investors

April, 2006 April, 2008 October, 2009 December, 2011IPO on RTS & MICEX+ $368 mln

SPO on LSE+ $480 mln

SPO on LSE, RTS & MICEX + $370 mln

SPO on LSE, RTS & MICEX + $475 mln

1common

share= 5 GDRs

LSE - LondonStock Exchange

MICEX - MoscowStock Exchange

Free float, %

February, 2015 & 2016

Investment history

Investor Share

Vladimir Gordeychuk 2.76%

JPMorgan Asset Management UK Ltd. 1.14%

NBIM 1.01%

Aberdeen Asset Managers (Asia) Ltd. 0.8%

APG Asset Management 0.62%

Swedbank Robur Founder AB 0.34%

29.9%

25.9%

Appendix 17: Funding story, free-float & shareholders

38 Higher School of Economics 2016Sources: Company data, Forbes, Kommersant, Thomson Reuters

Mr. Galitskiy sold 1% of Magnit and planned to do it annually

Other minority investors– 1.1%

Rachel

Dark

CONSULT

ANTDate of birth: 14.08.1967

Education: higher - 1992 - Kuban State

University - Economics.

Positions held in the last five years:

1) 04.2004 – present day -PJSC “Magnit” -

member of the Board of Directors;

2) 04.2006 – present day - PJSC “Magnit” -

CEO;

3) Period: 08.2009 – 10.2014 - NP “FC

“Krasnodar” - President;

4) Period: 07.2010 – present day - PJSC

“Magnit” - Chairman of the Management

board;

5) Period: 10.2014 - present day - LLC

“Football Club “Krasnodar” President.

38.6659 % (as of 31.12.2015)*.

38.6659 % (as of 31.12.2015)**.

Sergey

Galitskiy

Khachatur

Pombukhchan

Date of birth: 16.03.1974.

Education: higher - 1996 - Kuban State

University -Applied Mathematics; 2000 -

All-Russian Distance Institute of Finance

and Economics, Economics.


1) 06.2008 – 05.2012 LLC “Magnit

Finance” - CEO;

2) 06.2008 – 06.2010 PJSC “Magnit” -

Member of the BOD;

3) 07.2008 – present day - JSC “Tander” -

Chief Financial Officer;

4) 07.2008 – present day PJSC “Magnit” -

Chief Financial Officer;

5) 06.2010 – present day PJSC “Magnit” -

Chairman of the BOD.

Date of birth: 02.01.1964

Education: higher – 1990 - Tajik

State University n.a. Lenin -

Chemistry and Biology.

Positions held in the last five

years:

1) 08.2008– present day

JSC "Tander« - Business

Director (Head Office);

2) 10.2012 – present day

PJSC "Magnit« Member of the

Management Board;

0.001058% (as of 31.12.2015)

0.001058% (as of 31.12.2015)

Marina

Ivanova

11 Members5 Executive Directors

including the Chairman (Mr.

Pobukhchan, CFO)

6 Non-Executive

Directors, including 3

independent ones

Appendix 18: Board of directors 1/3

39 Higher School of Economics 2016Sources: Company data

Alexander

Barsukov

Ilya

Sattarov


Education: higher - 1998 -

Rostov Law Institute of Ministry

of Internal

Affairs of the Russian Federation

with a degree in Law.

Positions held in the last five

years:

1) 07.2008 – 12.2012

Organization: JSC “Tander”

Position: Hypermarkets Sales

Director;10


PJSC “Magnit” - Member of the

Management Board;

3) 12.2012 - present day

JSC “Tander” - Director of

Hypermarkets Sales

Department;

0.000888% (as of 31.12.2015).

0.000888% (as of 31.12.2015).


Education: higher – 1998 - Kuban State

University, Economics.


1) 07.2007 – 12.2010

Organization: Commercial Joint- Stock Bank

“Societe Generale Vostok Bank”, JSC - CEO

(JSC “SGVB” Krasnodar Branch);

2) Period: 12.2010 – 01.2011

JSC “Tander” - Director for Assets

Acquisition and Management (Head Office);

3) 02.2011 – 07.2011

JSC “Tander” - Director for Transport;


JSC “Tander” - Deputy CEO for Logistics

(Head Office);


PJSC “Magnit"

Member of the Management Board.

0.002957% (as of 31.12.2015).

0.002957% (as of 31.12.2015).

Date of birth: 12.01.1969.

Education: higher -1993 - Kuban

State University - Economics.

Positions held the last five

years:

1) 12.2003 – present day.

PJSC “Magnit” - First Deputy

CEO;

2) 06.2008 – present day.

PJSC “Magnit” - Member of the

Board;


JSC “Tander” - Deputy Chief

Executive Officer in Charge of

Development.

0.215686 % (as of 31.12.2015).

0.215686 % (as of 31.12.2015).

Andrey

Arutyunyan



Alexey

Pshenichniy

Alexander

Zayonts


Education: higher – 1990 -

Krasnodar State Institute of

Physical Culture - Teaching

and Organization of culture

and health activity and

tourism;

MBA - 2004 - the Government

of the Russian Federation;


years:


Bazis LLC, Director;


Yunior LLC – Director;


Sports goods chain Visshaya

LIGA LLC - Director;


Sport Plyus LLC – Director;


PJSC “Magnit”

Member of the Board of

Directors.


Education: higher – Moscow

Institute of Chemical

Engineering n.a. D.I.

Mendeleev - Chemical

process engineering.


years:


Domashniy Interier LLC -

General Director;

2) 12.2009 – 09.2013

Obiedinennye resursy LLC -

Member of the Board of

Directors;


PJSC "Magnit“ - Member of

the Board of Directors;


EDELWEISS LLC - General

Director.


Education: Ph.D. - 1998 - Saint Petersburg

University of Economics and Finance,

Economics


1) 05.2009– 24.01.2013

CJSC “VTB Capital” - Managing Director,

Head of the Consumer Sector and Retail,

Investment Banking on Global Markets

Department;


PJSC "Magnit“ - Member of the Board of

Director;


CJSC "VTB Capital“ - Head of the

Consumer Sector, Retail and Real Estate,

Corporate and Investment Department;


OJSC "Bank VTB“ - Head of the Trade,

Consumer Goods, Agro and

Pharmaceutical Industries Business Unit of

Market Sector Clients Service Department

– Senior Vice-President;

Alexey

Makhnev

Aslan

Schkhach-

emukov


Education: higher – 1987 -

Krasnodar Polytechnic

Institute of the Order of the

Red Banner of Labor,

Industrial Engineering.

Positions held in the last

five years:

1) 10.2007 – 03.2012

JSC “Tander” - Deputy

General Director;


PJSC ”Magnit” - Member

of the Board of Directors;

3) 03.2012 – present day -

JSC “Tander” - Deputy

CEO for Economic

Security and

Organizational Issues.

0.009165% (as of

31.12.2015).

0.009165% (as of

31.12.2015).





APPENDIX





Valuation Appendix

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2010 2011 2012 2013 2014 2015

Magnit X5 Retail Group Dixy O'key Lenta

Selling space dynamics (‘000 m2))

CAGR (2010-2015)

Lenta 22%

Magnit 21%

X5 Retail Group 14%

O'key 13%

Dixy 6%

0

100

200

300

400

500

600

700

800

900

1000

2010 2011 2012 2013 2014 2015

Magnit X5 Retail Group Dixy O'key Lenta

Revenue dynamics (RUB bln)

CAGR (2010-2015)

Magnit 26%

Dixy 26%

Lenta 23%

X5 Retail Group 15%

O'key 12%

Appendix 21: Key indicators of peer companies


Revenue split by format in 2015 (RUB bln)

701596

219

207

77

18245146

130

33714

40

MagnitX5DixyLentaO'key

Drogerie

Supermarkets

Hypermarkets

Convenience stores

Format Magnit X5 Dixy Lenta O’key

Convenience 225 328 323 n/a n/a

Supermarkets 419 485 416 596 511

Hypermarkets 588 645 616 1241 970

Average tickets in 2015 (RUB)

Appendix 22: Revenue split, average checks and location


X5 Magnit Dixy Lenta

Central FD 17 10 5 2

Northwestern FD 2 2

Southern FD 2 8

North Caucasian FD 1

Volga FD 5 10

Ural FD 5 2 1

Siberian FD 5 1 1

Far Eastern FD

Total 34 34 6 5

Location of distribution centers as of 25.01.2016Retail turnover by Federal District

34.2%

9.0%

9.1%5.1%

18.4%

9.2%

10.2%

4.0% 0.7% Central Federal District

Northwestern Federal District

Southern Federal District

North Caucasian Federal District

Volga Federal District

Ural federal district

Siberian Federal District

Far Eastern Federal District

Magnit X5 Dixy

Average check Traffic Revenue Average

checkTraffic Revenue

Average

checkTraffic Revenue

2013

Convenience stores 5% -2% 4% 4% -4% 0% 7% -2% 5%

Hypermarkets 2% 3% 4% 1% 3% 3% 2% 0% 2%

Supermarkets 5% 7% 13% 2% -2% 0% 4% -2% 2%

Drogerie 4% 11% 15%

2014

Convenience stores 10% 4% 14% 12% 2% 13% 11% 2% 14%

Hypermarkets 8% 6% 14% 5% -2% 5% 7% -4% 3%

Supermarkets 9% 9% 19% 5% -3% 2% 5% 1% 6%

Drogerie 4% 36% 41%

2015

Convenience stores 8% 1% 7% 14% 4% 18% 13% 0% 13%

Hypermarkets 6% -4% 2% 8% 3% 11% 7% -4% 3%

Supermarkets 4% -4% 1% 12% -5% 7% 3% 3% 6%

Drogerie 13% 6% 20%

Appendix 23: LFL indicators by format


20%

42%

23%

15%

Modern retail (top five)

Modern retail (excluding top five)

Kiosks and open markets

Traditional retail

Modern retail penetration vs traditional formats Available retail space per capita (m2 per 1,000 people)

1,450

1,230

1,150

1,100

1,020

690

Germany

France

UK

Spain

Italy

Russia

Appendix 24: Modern retail penetration and space

46 Higher School of Economics 2016Sources: Euromonitor

0%

5%

10%

15%

20%

25%

30%

35%

Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15

Mo

nth

ly s

ales

gro

wth

(y/y

)

Russian food retail Food CPI X5, MGNT,LNTA, DIXY Avge

Appendix 25: Sales growth and food CPI

47 Higher School of Economics 2016Sources: Company data, Federal State Statistics Service

Economic growth by sector 2003-13 (gross value added), annualized

0.1%

0.5%

0.8%

1.2%

1.3%

1.4%

2.2%

2.3%

2.4%

2.7%

3.1%

3.3%

4.0%

4.0%

4.6%

4.7%

6.0%

6.9%

9.5%

14.7%

Machinery

Government

Utilities

Consumer discretionary

Healthcare

Agriculture

Tradables

Oil and Gas

Transport

Metals and mining

Consumer Staples

Consumer services

Business survices

Total GDP

Non-tradables

Chemicals

Retail

Constructions and real estate

Telecoms

Financials

Appendix 26: Economic growth by sector 2003-2013

48 Higher School of Economics 2016Sources: Federal State Statistics Service

-30%

-10%

10%

30%

Apr 98 Feb 05 Dec 01 Oct 03 Aug 05 Jun 07 Apr 09 Feb 11 Dec 12 Oct 14

Real food retail growth, y/y Real non-food retail growth, y/y

Appendix 27: Dynamics of food and non-food retail growth


20

25

30

35

40

45

50

55

60

65

700

20

40

60

80

100

120

140

Jan 11 Nov 11 Sep 12 Jul 13 May 14 Mar 15

Brent USD/RUB (inverted)

Appendix 28: Brent prices versus USD/RUB exchange rate


APPENDIX



APPENDIX





Valuation Appendix

2011 2012 2013 2014 2015E 2016F 2017F 2018F 2019F 2020FProfitability ratios

Gross margin 24.3% 26.5% 28.5% 28.9% 28.8% 27.2% 27.6% 28.0% 28.9% 29.8%

EBITDAR margin 11.7% 14.2% 15.2% 15.3% 14.2% 12.3% 12.4% 12.4% 13.0% 13.7%

EBITDA margin 8.2% 10.6% 11.2% 11.3% 10.9% 9.6% 10.0% 10.4% 11.3% 12.2%

EBIT margin 5.8% 8.0% 8.7% 8.9% 8.8% 7.4% 7.8% 8.2% 9.1% 10.0%

Net margin 3.7% 5.6% 6.1% 6.2% 6.0% 4.7% 5.2% 5.7% 6.5% 7.3%ROE 18.8% 28.3% 31.6% 35.3% 36.1% 29.0% 32.8% 35.8% 39.9% 43.0%

ROA 8.5% 12.7% 14.6% 15.6% 15.3% 12.5% 14.3% 16.1% 19.0% 22.1%

ROCE 18.9% 26.5% 32.0% 36.8% 38.6% 33.6% 37.3% 40.1% 44.4% 49.0%

Liquidity Ratios

Current ratio 1.06 0.75 0.70 0.72 0.70 0.66 0.68 0.73 0.79 0.87

Quick ratio 0.38 0.18 0.08 0.13 0.12 0.06 0.07 0.08 0.09 0.14

Cash ratio 0.37 0.17 0.07 0.12 0.11 0.05 0.06 0.07 0.08 0.14

Investment Ratios

Capex/ Revenue 14.5% 10.5% 8.6% 7.3% 6.9% 6.0% 5.3% 4.6% 4.2% 3.8%

Capex/D&A 6.10 4.20 3.53 3.16 3.16 2.68 2.31 2.03 1.82 1.65

Solvency Ratios

Debt to Total Capital Ratio 29.7% 28.7% 27.6% 27.8% 28.4% 27.8% 25.9% 22.7% 17.9% 13.6%

Long Term Debt Ratio 26.2% 17.3% 14.1% 12.9% 13.0% 11.9% 10.7% 10.6% 9.3% 7.2%

Long Term Debt to Total Debt 88.1% 60.4% 51.0% 46.5% 45.9% 42.9% 41.4% 46.8% 51.9% 52.8%

D/E 66.1% 63.9% 58.7% 66.7% 65.9% 64.3% 59.0% 49.4% 36.1% 25.4%

Net Debt/Equity 44.3% 51.3% 54.0% 54.4% 55.4% 59.2% 53.3% 43.2% 29.8% 15.8%

Interest Coverage Ratio 5.74 8.90 10.17 10.28 8.80 6.03 7.85 10.72 16.11 23.28

Net Debt/EBITDA 1.26 1.07 1.05 0.91 0.92 1.08 0.91 0.72 0.47 0.24

Efficiency Ratios

Total assets turnover 2.33 2.27 2.37 2.49 2.55 2.65 2.72 2.81 2.91 3.02

Fixed assets turnover 2.66 2.76 2.89 3.19 3.33 3.45 3.61 3.82 4.04 4.28

Receivables Turnover 579 804 954 1057 1109 989 922 999 1088 1143

Average receivables collection period 0.63 0.45 0.38 0.35 0.33 0.37 0.40 0.37 0.34 0.32

Inventory Turnover 9.7 8.8 8.0 7.4 7.4 7.8 7.5 7.5 7.5 7.7

Average inventory processing period 37.79 41.49 45.67 49.21 49.02 46.85 48.55 48.63 48.55 47.63

Trade Payables Turnover 8.6 8.4 8.9 9.3 9.4 10.2 9.8 9.7 9.6 9.9

Payables payment period 42.44 43.55 41.23 39.18 38.93 35.80 37.24 37.75 37.90 37.05Cash conversion cycle -4.02 -1.60 4.82 10.38 10.41 11.41 11.71 11.24 10.98 10.91

Earnings per share

EPS 137.90 265.62 376.69 504.29 603.00 568.17 741.59 945.91 1239.78 1584.05

DPS 11.20 44.59 100.94 319.34 320.00 301.50 348.18 465.10 624.40 834.81

Dividend payout ratio 8% 17% 27% 63% 53% 53% 47% 49% 50% 53%

Appendix 30: Key financial ratios

52 Higher School of Economics 2016Sources: Company data, team estimates

in RUB mln Historical Projected


Current assets

Trades and other receivables 533 584 632 813 897 1 400 1 502 1 626 1 671 1 901

Days receivable 0.58 0.45 0.38 0.35 0.35 0.45 0.41 0.38 0.34 0.34

Inventories 29 144 41 026 56 095 81 476 89 078 110 609 131 294 149 614 167 614 181 277

Inventory turnover days 33.0 41.5 45.7 49.2 51.2 51.9 52.7 51.8 51.3 49.5

Prepaid expenses 380 182 252 243 329 388 390 456 437 498

Days prepaid expenses 1.8 1.0 0.9 0.7 0.6 0.6 0.5 0.5 0.5

Advances paid

Third party suppliers 1 092 1 901 2 236 3 114 3 865 4 631 5 454 6 369 7 314 8 322

as % of Revenue 0.3% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4% 0.4%

For custioms duties 652 719 882 1 537 1 422 1 703 2 006 2 343 2 690 3 061

as % of Revenue 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2% 0.2%

Advances to employees 50 55 53 60 75 89 105 123 141 160

as % of Revenue 0.02% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01% 0.01%

To related party suppliers 6 3 1 139 3 3 3 3 3 3

Total advances paid 1 800 2 677 3 171 4 849 5 365 6 427 7 568 8 838 10 148 11 547

Total advances paid as % of Revenue 0.5% 0.6% 0.5% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6% 0.6%

Total current assets 31 857 44 469 60 150 87 381 95 668 118 825 140 754 160 534 179 869 195 223

Current liabilities

Trade and other payables 33 566 42 921 48 171 66 795 70 292 86 547 103 214 118 647 132 785 141 339

Days payable 42.3 40.1 38.6 38.0 38.2 38.9 38.5 38.0 36.0

Accrued expenses 3 946 5 021 6 612 8 185 11 622 14 249 16 713 18 988 21 864 24 184

Days payable 29.0 27.0 26.2 24.7 25.7 25.7 25.0 25.0 24.3

Taxes payable 2 467 3 731 4 629 5 386 6 145 7 242 8 353 9 521 10 703 11 942

Total current liabilities 39 979.9 51 672.9 59 411.8 80 365.5 88 058.7 108 037.1 128 279.7 147 155.4 165 352.3 177 465.5

Total operating working capital -8 122.8 -7 204.1 738.3 7 015.2 7 609.7 10 787.4 12 474.8 13 378.5 14 516.9 17 757.7

Change in total operating working capital 919 7 942 6 277 594 3 178 1 687 904 1 138 3 241

Appendix 31: Working capital




Property, plant & equipment (beg. of year) 232 968.8

Capital expenditures (beg. of year) 68 250.0 70 297.5 72 406.4 74 578.6 76 816.0 79 120.5

Book (GAAP) depreciation

Useful Life

PP&E Years 15.00

CAPEX Years 15

Depreciation

Existing PP&E 15 531.3 15 531.3 15 531.3 15 531.3 15 531.3 15 531.3

2015E CAPEX 4 550.0 4 550.0 4 550.0 4 550.0 4 550.0 4 550.0

2016F CAPEX 4 686.5 4 686.5 4 686.5 4 686.5 4 686.5

2017F CAPEX 4 827.1 4 827.1 4 827.1 4 827.1

2018F CAPEX 4 971.9 4 971.9 4 971.9

2019F CAPEX 5 121.1 5 121.1

2020F CAPEX 5 274.7

Total book depreciation 7 822.2 11 025.5 13 890.5 17 264.2 20 081.3 24 767.8 29 594.8 34 566.8 39 687.8 44 962.5

Amortization 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00

% of Intengible assets 55% 47% 40% 38% 35% 34% 32% 31% 30% 29%

Amortization 157.7 244.2 293.9 345.5 515.3 716.2 866.6 1 048.6 1 268.9 1 535.3

Appendix 32: Depreciation and amortization


Net income (RUB bn)

25.12 35.62 47.69

57.02 53.73 70.13

89.45 117.24 149.80

EBIT (RUB bn)

36.11 50.54 68.30

83.68 83.79 104.53

128.33 162.59 203.59

EBT / EBIT

89% 91% 91%

89% 84% 88%

91% 94% 96%

Net Income / EBT

78% 78% 77%

77% 77% 77%

77% 77% 77%

ROE

28.3% 31.6% 35.3%

36.1% 29.0% 32.8%

35.8% 39.9% 43.0%

Legend

2012 2013 2014

2015E 2016F 2017F

2018F 2019F 2020F

ROA

12.7% 14.6% 15.6%

15.3% 12.5% 14.3%

16.1% 19.0% 22.1%

Assets/Equity

2.23 2.17 2.27

2.35 2.32 2.29

2.22 2.09 1.94

Profit margin

5.6% 6.1% 6.2%

6.0% 4.7% 5.2%

5.7% 6.5% 7.3%

Sales/Assets

2.27 2.37 2.49

2.55 2.65 2.72

2.81 2.91 3.02

Appendix 33: DuPont analysis


Cost of goods sold94%

Transportation expenses

3%

Labor cost1%

Less due to inventory shortage

2%

Cost of sales breakdown (2014)

64%

68%

72%

76%

80%

0

500

1000

1500

2000

2011 2012 2013 2014 2015E 2016F 2017F 2018F 2019F 2020F

Cost of sales, RUB bln Cost of sales, % of Revenue (rhs)

0%

7%

14%

21%

0

100

200

300

2011 2012 2013 2014 2015E 2016F 2017F 2018F 2019F 2020F

SG&A, RUB bln SG&A, % of Revenue (rhs)

Labor cost3% Rent

expenses2%

Labor taxes15%

Amortization54%

Other expenses

26%

SG&A breakdown (2014)

Cost of sales dynamics (2011-2020F) SG&A dynamics (2011-2020F)

Appendix 34: Cost of sales and SG&A structure and dynamics


RUB mln 2015E 2016F 2017F 2018F 2019F 2020F

Магнит, 01

Coupon Payment 425 213

Principal 5 000

Магнит, 02

Coupon Payment 303 605 605 303

Principal 5 000

Магнит, 03

Coupon Payment 303 605 605 303

Principal 5 000

Магнит, БО-001Р-01

Coupon Payment 1 120 560

Principal 10 000

Магнит, БО-08


Principal 5 000



Principal 5 000


Coupon Payment 1 160 1 160 1 160 1 160 1 160

Principal 10 000

Bond 8 1 170 1 170 1 170 1 170 1 170


Principal

Total Coupon Payments 1 870 5 293 4 100 2 935 2 330 2 330

Bond Principal Payments 15 000 10 000 10 000 20 000

Appendix 34: Bonds repayment

57 Higher School of Economics 2016Sources: Bloomberg, team estimates



APPENDIX





Valuation Appendix

Sources: Company data, Bloomberg, team estimates 59 Higher School of Economics 2016

Discounted Cash Flow(mln RUB, ending period December 31)

Historical Period CAGR Forecasted Period CAGR

2011 2012 2013 2014 ('11-'14) 2015E 2016 2017 2018 2019 2020 ('15-'20)

Sales 335,699.9 448,661.1 579,694.9 763,527.3 31.5% 947,801.0 1,135,604.6 1,337,271.4 1,561,825.1 1,793,344.9 2,040,751.7 15.8%

% growth 42.1% 33.6% 29.2% 31.7% 24.1% 19.8% 17.8% 16.8% 14.8% 13.8%

EBITDA 27,607.6 47,380.5 64,721.2 85,909.7 46.0% 103,759.1 108,558.2 134,123.1 162,892.3 202,282.3 248,555.6 23.0%

% margin 8.2% 10.6% 11.2% 11.3% 10.9% 9.6% 10.0% 10.4% 11.3% 12.2%

Depreciation & Amortization 7,983.4 11,269.7 14,184.3 17,609.7 20,081.3 24,767.8 29,594.8 34,566.8 39,687.8 44,962.5

EBIT 19,624.2 36,110.9 50,536.9 68,300.0 51.5% 83,677.8 83,790.4 104,528.3 128,325.5 162,594.5 203,593.1 24.9%

% margin 5.8% 8.0% 8.7% 8.9% 8.8% 7.4% 7.8% 8.2% 9.1% 10.0%

Taxes 4,186.5 7,195.8 10,133.7 14,340.7 17,148.2 16,157.8 21,089.8 26,900.6 35,258.2 45,049.3

EBIT*(1-Tax) 15,437.7 28,915.1 40,403.2 53,959.3 51.8% 66,529.7 67,632.6 83,438.5 101,424.9 127,336.3 158,543.8 23.7%

Plus: Depreciation & Amortization 7,983.4 11,269.7 14,184.3 17,609.7 20,081.3 24,767.8 29,594.8 34,566.8 39,687.8 44,962.5

Less: Capital Expenditures - 48,691.3 - 47,309.8 - 50,051.2 - 55,711.8 - 65,000.0 - 68,250.0 - 70,297.5 - 72,406.4 - 74,578.6 - 76,816.0

Less: Inc./Dec. in Net Working Capital - 3,177.7 - 1,687.3 - 903.8 - 1,138.4 - 3,240.8

20,972.7 41,048.5 62,681.5 91,307.1 123,449.6

Free Cash Flow to the Firm (FCFF)

WACC (Forecast Peiod) 16.60%

WACC (Terminal Peiod) 14.60%

Discount Period (Mid-Year Convention) 0.5 1.5 2.5 3.5

Discount Factor 0.93 0.79 0.68 0.58

Present Value of Free Cash Flow 34,564.0 46,983.7 60,000.6 70,326.7

Appendix 35: Discounted Cash Flow Analysis (1/3)

Sources: Company data, Bloomberg, A. Damodaran, team estimates 60 Higher School of Economics 2016


Maturity date 24.06.2028Face value, USD 1,000Close price on valuation date, USD 1,054.28Coupon annual rate, % 12.75Number of coupons per year 2Number of coupons remaining 24Russia-12Yr Eurobond yield to maturity, % 6.475

US risk-free rate, % 2.03%US ERP, % 6.00%Levered beta (US peers) 1.04Unlevered beta (US peers) 0.76Magnit D 0.10Magnit E 0.89Re-levered beta (Magnit D/E) 0.82CoE, USD 6.98%CDS spread, % as of 20/01/2016 4.44Inflation, Russia 8%Inflation, USA 2%CoE, RUB 17.53%

10.00

10.10

10.20

10.30

10.40

10.50

10.60

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29

0

1

2

3

4

5

6

7

8

9

0 5 10 15 20 25 30

USD denominated 12-Yr Government Eurobond

Risk-free rate: US 10-Yr T-bond yield [Source: U.S. Department of treasury]Beta: US Food retail beta (Lev./ Unlev.) including 17 companies [Source: A. Damodaran]MRP: US market risk premium [Source: A. Damodaran]

CAPM (US market + Country risk premium)

Ret

urn

, %

Maturity, Y

Ret

urn

, %Maturity, Y

Russian Government Bonds return curve

Russian Government Eurobonds return curve

Sources: Company data, Bloomberg, team estimates 61 Higher School of Economics 2016

Implied Equity Value and Share Price

Cumulative Present Value of FCF 211,874.5

Terminal Value 1,021,656.6

Enterprise Value 1,234,104.1

Less: Total Debt 127,167.0

Plus: Cash and Cash Equivalent 27,272.4

Implied Equity Value 1,134,809.5

Shares Outstaning 94,561.0

Implied Share Price Value 12,000.8

Terminal Period GrowthInflation 5.3%Real GDP growth 1.1%Growth rate 6.4%

Share price sensitivity analysisWACC Terminal Growth Rate

#DIV/0! 4.4% 5.4% 6.4% 7.4% 8.4%12.6% 11,798 13,386 15,486 18,394 22,68713.6% 10,645 11,899 13,501 15,620 18,55414.6% 9,719 10,736 12,001 13,617 15,75515.6% 8,958 9,801 10,826 12,102 13,73316.6% 8,322 9,032 9,882 10,917 12,204


All else being equal, price level is crucial for consumers:

Appendix 45: Business model differes Magnit from other local retailers


The real difference is on the operational level and strategy:

In Russian consumers’ eyes, Magnit and its closest competitors do not differ from each other representing typical grocery store

221 222

Quality control of products on the shelf

Delivery WarehouseStores

Own logistics reduces delivery costs and delays

High level of centralization and stores servings

Key parts of Magnit’s business model:223

Unique developed business model is what really differ Magnit from local peers by:

In-House innovative logistic

Organic growth strategy at the core of the business

Advanced merchandising at stores

Overall control by developed IT system

Unique ability of fast expand in distant areas with lower level of competition

10.1x

11.7x

7.0x

3.8x

6.6x

6.2x

0.0x 5.0x 10.0x

Magnit’s premium over peers is justified

Sources: Company data, Bloomberg, team estimates

Trading multiples analysis1

Magnit is trading with premium regarding to:

18.7x

22.1x

13.6x

9.3x

12.7x

13.0x

0.0x 10.0x 20.0x

Magnit (local shares)

Magnit (GDR)

Lenta

Dixy Group

X5 Retail Group

O'Key Group

7.6x

8.9x

7.3x

3.0x

4.1x

4.4x

0.0x 5.0x

0.9x

1.1x

0.4x

0.2x

0.4x

0.7x

0.0x 0.5x 1.0x

P/E 2016F EV/EBITDA 2016F EV/EBITDAR 2016F PEG 2016F

Expectations of further dividends growth

Strong corporate governance

High FCFF growth


13.0x 6.6x 4.4x 0.4x

Unique developed business model

CompanyCurrent price,

RUBMcap, RUB bln

P/E EV/EBITDA EV/EBITDAR

2015E 2016E 2015E 2016E 2015E 2016E

Magnit (local shares) 10,655 1,006 17.66x 18.74x 10.52x 10.06x 8.05x 7.63x

Russian peers

Lenta 19.60x 13.56x 9.19x 7.33x 9.16x 7.33x

Dixy Group nmf. 9.29x 5.23x 3.83x 3.45x 2.95x

X5 Retail Group 20.10x 12.66x 8.42x 6.57x 5.05x 4.07x

O'Key Group 14.55x 13.02x 6.35x 6.21x 4.55x 4.45x

Russian peers, median 19.60x 12.84x 7.39x 6.39x 4.80x 4.26x

Magnit premium / (discounts) -10% 46% 42% 58% 68% 79%

Magnit (local shares) upside 2015E 2016E 2015E 2016E 2015E 2016E

11% -32% -30% -37% -40% -44%

Magnit (local shares) target price 2015E 2016E 2015E 2016E 2015E 2016E

11,829.6 7,298.6 7,479.7 6,765.0 6,348.6 5,942.7

Weights 0% 50% 0% 50% 0% 0%

Target price, RUB 7,032

Current price, RUB 10,655

Downside -34%

Appendix 36: Trading Multiples Analysis (local shares)


CompanyCurrent

price, USDMcap, USD mln

P/E EV/EBITDA EV/EBITDAR

2015E 2016E 2015E 2016E 2015E 2016E

Magnit (GDR) 33.3 15 738 20.78x 22.05x 12.24x 11.70x 9.36x 8.88x

Russian peers

Lenta 19.60x 13.56x 9.19x 7.33x 9.16x 7.33x

Dixy Group nmf. 9.29x 5.23x 3.83x 3.45x 2.95x

X5 Retail Group 20.10x 12.66x 8.42x 6.57x 5.05x 4.07x

O'Key Group 14.55x 13.02x 6.35x 6.21x 4.55x 4.45x

Russian peers, median 19.60x 12.84x 7.39x 6.39x 4.80x 4.26x

Magnit premium / (discounts) 6% 72% 66% 83% 95% 109%

Magnit (GDR) upside 2015E 2016E 2015E 2016E 2015E 2016E

-6% -42% -40% -45% -49% -52%

Magnit (GDR) target price 2015E 2016E 2015E 2016E 2015E 2016E

10,053.1 6,202.5 6,431.8 5,817.3 5,459.2 5,110.1

Weights 0% 50% 0% 50% 0% 0%

Target price, USD 16.0

Current price, USD 33.3

Downside -52%

Appendix 37: Trading Multiples Analysis (GDRs)


CompanyP/E EV/EBITDA EV/EBITDAR FCF yield Dividend yield PEG

2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E

Magnit (local shares) 17.7x 18.7x 10.5x 10.1x 8.1x 7.6x 1.4% 2.9% 4.7% 4.6% 0.9x 0.9x

Magnit (GDR) 20.8x 22.1x 12.2x 11.7x 9.4x 8.9x 1.2% 2.5% 3.7% 3.6% 1.0x 1.1x

Lenta 19.6x 13.6x 9.2x 7.3x 9.2x 7.3x -8.7% -7.4% 0.0% 0.0% 0.5x 0.4x

Dixy Group nmf. 9.3x 5.2x 3.8x 3.4x 3.0x -5.5% -1.9% 0.0% 0.0% nmf. 0.2x

X5 Retail Group 20.1x 12.7x 8.4x 6.6x 5.0x 4.1x -5.5% 1.9% 0.0% 0.0% 0.8x 0.4x

O'Key Group 14.6x 13.0x 6.4x 6.2x 4.5x 4.4x -0.2% 1.8% 3.5% 4.7% 1.5x 0.7x

Peers median 19.6x 12.8x 7.4x 6.4x 4.8x 4.3x -5.5% 0.0% 0.0% 0.0% 0.8x 0.4x

Trading multiples

Key financials (2014)

CompanyCurrent market

capitalization (RUB bln)Sales (RUB bln) EBITDA margin Net profit margin ROA ROE CapEx / Sales

Net debt / EBITDA

Magnit (local shares) 1006.9 763.5 11.3% 6.2% 15.6% 35.3% 7.3% 0.91x

Lenta 202.6 194.0 11.0% 4.6% 7.9% 53.0% 17.5% 2.80x

Dixy Group 34.4 229.0 7.1% 2.0% 5.3% 17.0% 3.5% 1.50x

X5 Retail Group 357.7 633.9 7.2% 2.0% 3.9% 15.1% 4.8% 2.30x

O'Key Group 32.4 152.0 7.4% 3.4% 6.9% 22.9% 12.2% 2.30x

Peers median 118.5 211.5 7.3% 2.7% 6.1% 20.0% 8.5% 2.30x

Appendix 38: Peer Group Analysis (Russian retailers)


CompanyMarket

capitalization (USD bln)

P/E EV/EBITDA FCF yield Dividend yield PEG

2015E 2016E 2015E 2016E 2015E 2016E 2015E 2016E 2016E

Magnit (local shares) 13.4 17.7x 18.7x 10.5x 10.1x 1.4% 2.9% 4.7% 4.6% 0.9xMagnit (GDR) 15.7 20.8x 22.1x 12.2x 11.7x 1.2% 2.5% 3.7% 3.6% 1.1x

South AfricaShoprite 4.4 16.9x 15.7x 8.3x 7.4x 3.7% 5.8% 3.0% 3.2% 1.4xSpar 1.9 18.8x 16.5x 11.9x 10.5x 5.7% 7.1% 3.8% 3.9% 1.4xPick 'n Pay 1.9 29.2x 23.3x 12.4x 10.4x 2.2% 3.5% 2.3% 2.9% 0.9xMassmart 1.3 17.5x 13.7x 7.6x 6.2x 2.4% 4.5% 3.5% 4.5% 0.6xClicks 1.3 21.4x 18.8x 12.5x 11.1x 3.4% 4.9% 2.9% 3.2% 1.5x

South Africa peers median 1.9 18.8x 16.5x 11.9x 10.4x 3.4% 4.9% 3.0% 3.2% 1.4x

TurkeyBIM 5.0 26.1x 24.5x 17.2x 15.5x 2.1% 3.1% 2.7% 2.9% 1.2xMigros Ticaret 0.9 na 24.9x 8.1x 7.1x -0.1% 6.4% N/A N/A 0.6xTurkey peers median 3.0 26.1 24.7 12.6 11.3 0.0 0.0 0.0 0.0 0.9

PolandEurocash 1.7 33.9x 24.6x 15.8x 13.0x 7.0% 4.7% 1.6% 2.0% 1.3x

USAKroger 37.5 18.7x 19.3x 8.9x 7.8x 3.1% 3.9% 1.1% 1.0% 1.8xWhole Foods Market 10.2 18.0x 19.2x 8.1x 7.4x 2.6% 2.5% 1.8% 1.7% 2.0xSysco 22.5 23.4x 22.5x 14.0x 10.2x 2.9% 4.5% 3.1% 3.1% 2.2xUSA peers median 22.50 18.7x 19.3x 8.9x 7.8x 2.9% 3.9% 1.8% 1.7% 2.0x

Appendix 39: Peer Group Analysis (International retailers)


Actuals Estimates

2011A 2012A 2013A 2014A 2015E 2016F 2017F 2018F 2019F 2020F1 Marginal revenue method

Stores gain YoY, net 5 6 7 8 9 10 11 12 13 14

Convenience stores 1 004 1 040 1 154 1 144 1 250 900 1 000 1 000 950 900 dRev/dStores 75 74 75 111 99 80 85 85 85 85

Hypermarkets 40 36 35 29 29 30 25 20 20 20 dRev/dStores 560 812 879 1 154 756 950 1 090 1 210 1 210 1 300

Family stores 2 17 26 51 58 51 45 40 40 40 dRev/dStores 446 285 236 155 351 382 220 255 285 285

Drogerie 208 482 - 6 394 1 041 1 200 1 150 1 100 1 000 1 000 dRev/dStores 4 10 - 1 023 20 20 16 21 21 22 23

New stores, total 1 254 1 575 1 209 1 618 2 378 2 181 2 220 2 160 2 010 1 960 Number of stores, eop

Convenience stores 5 006 6 046 7 200 8 344 9 594 10 494 11 494 12 494 13 444 14 344 Rev per store 57 60 63 69 73 74 75 75 76 77

Hypermarkets 90 126 161 190 219 249 274 294 314 334 Rev per store 513 599 659 735 738 749 764 780 804 834

Family stores 3 20 46 97 155 206 251 291 331 371 Rev per store 266 155 232 263 296 317 300 294 293 292

Drogerie 210 692 686 1 080 2 121 3 321 4 471 5 571 6 571 7 571

Rev per store 4 8 17 18 19 18 19 19 20 20

Total selling space, sq. m.

Convenience stores 1 637 830 1 977 456 2 312 198 2 673 310 3 119 489 3 412 124 3 737 274 4 062 424 4 371 317 4 663 952

Hypermarkets 278 445 387 616 482 877 559 089 639 042 726 582 799 532 857 892 916 252 974 612

Family stores 3 798 24 357 53 262 109 071 170 035 225 982 275 347 319 227 363 107 406 987

Drogerie 50 091 159 827 163 040 249 166 484 649 758 849 1 021 624 1 272 974 1 501 474 1 729 974

Total selling space, sq. m. 1 970 164 2 549 256 3 011 377 3 590 636 4 413 215 5 123 537 5 833 777 6 512 517 7 152 149 7 775 524

Total selling space, sq. m. – Company’ projection 4 345 090 5 235 090 6 015 090 6 775 090 7 515 090 7 587 090

Appendix 40: Revenue Calculations (Marginal Revenue)

68 Higher School of Economics 2016Sources: Company, Bloomberg, team estimates

Actuals Estimates

2011A 2012A 2013A 2014A 2015E 2016F 2017F 2018F 2019F 2020F1 9 10 11 12 13 14

Total revenue per type, mln RUB

Convenience stores

Revenue by old/new add. Rev method 287 732 364 236 450 801 577 776 701 275 814 184 947 475 1 094 664 1 252 956 1 422 815

Revenue growth, % 35.52% 26.59% 23.77% 28.17% 21.4% 16.1% 16.4% 15.5% 14.5% 14%

Like-for-like growth, % 11.6% 5.3% 3.7% 13.9% 7.3% 7.3% 7.3% 7.3% 7.3% 7.3%

Like-for-like growth, mln RUB 24 606.9 15 105.9 13 476.7 62 436.0 42 119.9 51 093.4 59 798.4 69 361.1 79 919.4 91 155.9

Revenue growth contributed by new stores, % 23.93% 21.34% 20.07% 14.32% 14.1% 8.8% 9.0% 8.2% 7.2% 6.3%

Revenue growth contributed by new stores, mln RUB 50 813.3 61 398.7 73 088.3 64 538.3 81 379.3 61 815.7 73 492.0 77 828.1 78 372.87 78 702.86

Revenue growth contributed by new stores per 1 new store 50.61 59.04 63.33 56.41 65.10 68.68 73.49 77.83 82.50 87.45

Average Additional Revenue per 1 new store 51.54 54.82 61.19 59.87 60.76 66.89 71.09 75.66 80.16 84.97

Revenue per 1 new store growth, % -4% 17% 7% -11% 15% 6% 7% 6% 6% 6%

Additional Revenue per 1 old store 6.15 3.02 2.23 8.67 5.05 5.33 5.70 6.03 6.40 6.78

Revenue estimation from the Regression model 701 275 773 275 858 275 943 275 1 024 025 1 100 525

Average Revenue 701 275 793 730 902 875 1 018 969 1 138 490 1 261 670

2

Hypermarkets

Revenue by old/new add. Rev method 46 185 75 419 106 176 139 655 161 579 186 436 209 393 229 291 252 487 278 693

Revenue growth, % 94.1% 63.3% 40.8% 31.5% 15.7% 15% 12% 10% 10% 10%

Like-for-like growth, % 6.7% 5.4% 4.6% 14.1% 1.5% 2% 2% 2% 3% 3%

Like-for-like growth, mln RUB 1 582 2 476 3 477 14 918 2 109 3 232 3 674 3 562 5 880 7 850

Revenue growth contributed by new stores, % 87.5% 57.9% 36.2% 17.5% 14.2% 13% 10% 8% 8% 7%

Revenue growth contributed by new stores, mln RUB 20 811 26 758 27 280 18 562 19 815 21 625 19 283 16 336 17 316 18 355

Average Additional Revenue per 1 new store 520 743 779 640 683 721 771 817 866 918

Revenue per 1 new store growth, % 56% 43% 5% -18% 7% 6% 7% 6% 6% 6%

Additional Revenue per 1 old store 32 28 28 93 11 15 15 13 20 25

L-f-L Revenue per 1 old store, mln RUB 507 541 626 752 746 791 846 897 951 1008

Revenue by marginal rev method 161 579 190 079 213 686 233 593 253 491 278 487

Average Revenue 161 579 188 257 211 539 231 442 252 989 278 590

Appendix 41: Revenue Calculations (L-f-L Forecasting)


Actuals Estimates

2011A 2012A 2013A 2014A 2015E 2016F 2017F 2018F 2019F 2020F3

Family storesRevenue 798 3 099 10 678 25 534 44 825.3 61 062 78 350 95 250 114 390 135 484 Revenue growth, % 288% 245% 139% 76% 36% 28% 22% 20% 18%Like-for-like growth, % 7.4% 8.9% 0.6% 0.0% 0.0% 0.0% 0.0% 0.0%Like-for-like growth, mln RUB 230 947 158 9 14 15 17 20 Revenue growth contributed by new stores, % 237% 130% 75% 36% 28% 22% 20% 18%Revenue growth contributed by new stores, mln RUB 7 350 13 909 19 133 17 749 16 758 15 774 16 721 17 724 Average Additional Revenue per 1 new store 282.7 272.7 329.9 348.0 372.4 394.4 418.0 443.1Revenue per 1 new store growth, % 11.5 20.6 1.6 6% 7% 6% 6% 6%Revenue per 1 old store 166 253 265 279 299 317 336 356Revenue by marginal rev method 52% 45 899 65 399 75 299 85 499 96 899 108 299 Average Revenue 45 362 63 230 76 825 90 374 105 645 121 892

4DrogerieRevenue 893 5 733 11 873 19 757 40 122 81 856 150 622 156 715 178 722 191 722 Revenue by marginal rev method 74 124 141 130 143 968 164 985 183 188 Average Revenue 77 990 145 841 150 341 171 853 187 455 Revenue growth, % 542% 107% 66% 103% 94% 87% 75% 70% 65%

5

Wholesale 93 175 166 806 200

Appendix 41: Revenue Calculations (L-f-L Forecasting)


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Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecSeasonal indices

0.84 0.86 0.96 0.94 0.98 0.98 1.03 1.02 0.97 1.02 1.03 1.35

_cons -8450.21 1359.707 -6.21 0.000 -11142.8 -5757.62

season 660.0675 19.50382 33.84 0.000 621.4446 698.6904

sales Coef. Std. Err. t P>|t| [95% Conf. Interval]

Total 6.9198e+10 119 581497205 Root MSE = 7400.9

Adj R-squared = 0.9058

Residual 6.4633e+09 118 54773646.9 R-squared = 0.9066

Model 6.2735e+10 1 6.2735e+10 Prob > F = 0.0000

F( 1, 118) = 1145.35

Source SS df MS Number of obs = 120

. reg sales season

We applied linear regression model to forecast Magnit revenue. We use resultsfrom regression as sanity check to the main approach of revenue forecast.Regression was applied for three different scenarios. We tended to use Neutralscenario in our forecasting purposes.

Obtained seasonality coefficients tended to stay relatively stable through theperiod 2007-2015E.

The linear regression equation from the model estimation:

𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑖 = 𝛼 + 𝛽 ∗ 𝑝𝑒𝑟𝑖𝑜𝑑𝑖

With seasonality adjustments:

𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑎𝑑𝑗𝑢𝑠𝑡𝑒𝑑 = 𝛼 + 𝛽 ∗ 𝑝𝑒𝑟𝑖𝑜𝑑𝑖 ∗ 𝑠𝑒𝑠𝑜𝑛𝑎𝑙𝑖𝑡𝑦 𝑖𝑛𝑑𝑖𝑐𝑒𝑠.

Regression outputs

Appendix 43: Revenue Calculations (Regression Analysis)

71 Higher School of Economics 2016Sources: Company, team estimates

Appendix 44: Revenue Analysis

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Revenue, USD mln (lhs) Revenue, RUB bln (rhs)

USD nominated

RUB nominated

Revenue nominated, RUB vs USD Revenue dynamics and Ordinary Shares track record

Appendix 44: Revenue analysis

72 Higher School of Economics 2016Sources: Company data, Bloomberg, team estimates

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Nominal revenue and revenue growth dynamics

Appendix 44: Revenue AnalysisAppendix 45: Stock correlation analysis

73 Higher School of Economics 2016Sources: Moscow Stock Exchange, team estimates

MGNT MCX SBR GAZP GMKN ROSN SNGS LKOH NVTK VTBR TATN CHMF ALRS URKA

MGNT 1

MCX 0.64 1

SBR 0.38 0.71 1

GAZP 0.51 0.87 0.63 1

GMKN 0.28 0.54 0.16 0.38 1

ROSN 0.38 0.74 0.52 0.70 0.35 1

SNGS 0.41 0.68 0.45 0.54 0.35 0.59 1

LKOH 0.43 0.78 0.42 0.65 0.47 0.65 0.55 1

NVTK 0.47 0.75 0.44 0.62 0.42 0.50 0.43 0.54 1

VTBR 0.25 0.54 0.49 0.49 0.18 0.37 0.33 0.36 0.34 1

TATN 0.35 0.66 0.41 0.54 0.40 0.58 0.58 0.62 0.48 0.27 1

CHMF 0.25 0.49 0.24 0.38 0.39 0.24 0.26 0.35 0.46 0.26 0.29 1

ALRS 0.16 0.31 0.09 0.25 0.18 0.23 0.26 0.25 0.29 0.22 0.19 0.23 1

URKA 0.27 0.45 0.25 0.36 0.31 0.32 0.28 0.32 0.32 0.16 0.39 0.19 0.11 1

Average correlation of MGNT:ME with Russian Blue-chip stocks is 0.35Correlation of MGNT:ME with Russian broad market index MICEX is 0.64

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Appendix 44: Revenue AnalysisAppendix 46: Stock spread between shares and GDRs

74 Higher School of Economics 2016Sources: Moscow Stock Exchange, team estimates

Table 1: Correlation matrix and volatility

MGNT:ME MGNT:LI MGNT**

MGNT:ME 1

MGNT:LI 0.853 1

MGNT** 0.804 0.989 1

MGNT:ME MGNT:LI MGNT** USDRUB

2.43% 3.02% 2.66% 1.28%

27.5

23

33.2

23.1

46.3

33.8

MGNT:LI MGNT:ME

Last 30 Days Last 12 Months Last 3 Years

Table 2: Average value traded, $mn

Exhibit 1: Spread between MGNT:LI and MGNT**, USD

We consider MGNT** as an implied price for GDR (MGNT:LI)

Appendix 44: Revenue AnalysisAppendix 47: GDRs return suffers from RUB devaluation

75 Higher School of Economics 2016Sources: Moscow Stock Exchange

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Documents

CFA_IRC_MGNT