Oliver Wyman Pres

Dictum | Factum
2016 OLIVER WYMAN

IMPACT CASE
Final
Market trends Global Russian grocery retail trends in 2015 stated for retailers the new conditions that
are based on import embargo, real income fall and geopolitical tension
Supermarkets remained the largest channel in value In 2015 Russia faced with economic sanctions and
terms in 2015 and had showed strong growth… political tension that caused the necessity in new
suppliers…
Supermarkets performance
Supermarkets
Others 50% of banned products
+6%
were substituted by
3,84
62% domestic suppliers
3,60 38%
2014 2015
Banned products
Supermarkets overall sales, tn RUB
Convenience stores remained the best performing channel1 Key changes in 2015 on entire food retail market:
within grocery retailers in Russia in 2015 and during the entire
5 year period… Sharp increase in customers’ price sensitivity
Convenience stores’ performance
16,3
15,3
+24% 12,1
Fall in frequency of stores visits
9,6 +159%
7,9
6,3 1 046,3
911,7
730,4
590,9
460,4
359,2
Reduction in basket volume
2010 2011 2012 2013 2014 2015
Sales, bn RUB Number of outlets
1. According to GMID database statistics 2

The figures on LFL-growth, sales grows rate and cost rates demonstrate visible negative trends.
Current situation Analyzing the presented graphs, the perspective directions of the deep and more detail research
can be chosen.
Despite the stability in gross return indexes in After entering new market territory (Chelyabinsk), the
Yekaterinburg and gradual increase in Chelyabinsk… sales growth rate hit a peak and dramatically dropped…
Gross return on store Sales growth rate for Chelyabinsk

12,03 11,90 12,09
11,33 11,43
9,52 9,58
8,89 2011 175%
7,86
5,71
-91%
2014 15%
2011 2012 2013 2014 2015E
Yekaterinburg Chelyabinsk
...the net return is noticeably suffering from high COGS … and the same tendency had persisted for EBITDA
level and increasing expenses on labor and rent margin in this region
Yekaterinburg Chelyabinsk EBITDA margin

1,08%
-133%
0,89%
6,1%
0,76% 0,74% 0,72% 4,8%
0,43% 0,43% 0,22% 0,24%
2,5% 2,5%
-0,21%
2011 2012 2013 2014 2015E 2011 2012 2013 2014 2015E 2011 2012 2013 2014 2015E
Net return on store Return on rent Return on labor
- 2,0%
3
The considerable discrepancy between regional customer laid the foundation of the audience research.
Current situation After the decrease in real income the number of visitors changed the retailer so that traffic gradually
dropped.
The dynamics of income demand The dynamics of price demand

elasticity indexes, % elasticity indexes, %
It can be clearly seen that
customer reaction to income
alteration is considerably varied
between these two regions.
74%
According to the line graph,
customers in Chelyabinsk are
significantly more price-sensitive in
comparison with those in Upper Yekaterinburg
Yekaterinburg
Lower Chelyabinsk
The number of customers leaving -283k Chelyabinsk

after real incomes decrease
Traffic
Chelyabinsk -294k Yekaterinburg

High
Circle area = Yekaterinburg

medium check
Medium
-6,79%
Chelyabinsk
Yekaterinburg
Low
Real income -8,15%
Low Medium High
4
Current situation Infectiveness of particular type of stores goes
together with falling EBITDA for new stores
Light type stores have the biggest CAGR for every New stores show lower performance in terms of
component of costs in spite of this small stores EBITDA in both regions…
demonstrate higher effectiveness…
Light type Small store Light type Small store
-11%
-1 109%
18.45% 12.47% 7.37% 4.19%
6,3 5,6
3,3 Year
18.15% 3.39% 7.03% 4.19%
2014
∆EBITDA1 / ∆number of
Store stores multiplier 2015E
7.03% 1.63% 11.32% 6.81%
costs
-33,3
Inefficiently high number of employees per shift together …and higher expenses on rent, although the introduction
with relatively long working day are taken as a basis for of new types of supermarkets2 allowed to reduce labor
further optimization costs per store
La Vita Competitors Gap ∆rent / ∆number of stores ∆store labor / ∆number of stores
opened multiplier opened multiplier
0,015 +33%
0,020 -4%
Vs
0,010
0,015 -23%
0,005
1 shift 1 shift +78%
0,000 0,000
2012 2013 2014 2015E 2012 2013 2014 2015E
1. EBITDA in mn rubles
2. Such conclusion was derived from the analysis of ∆store labor to ∆number of stores opened and ∆rent to ∆number of stores opened multipliers 5
The existed operational model illustrated weaknesses which can become a basis for
Current operational model further operational reorganization and overall optimization
Bigger stores by SQM have relatively low average Small stores perform noticeably better than stores with
check and EBITDA margin… greater SQM in terms of average transaction time…
8,35%
26,93 +74%
5,55%
16,11
4,06%
2,91% 5,21%
15,53
267
239 238 14,99
218 14,72
3,72
3,86
2,23 4,00 4,08
10,9 12,8
9,6 9,7 -36%
Small Mixed type Large Light type Small Mixed type Large Light type
EBITDA margin Sales Average transaction time (min.)

Average check Average number of transactions per hour
The average daily EBITDA calculated from the sample of 60 stores is negative during all the night working
500000 hours…
Average daily EBITDA, RUB
300000
100000
00:00
01:00
02:00
03:00
04:00
05:00
06:00
07:00
08:00
09:00
10:00
11:00
12:00
13:00
14:00
15:00
16:00
17:00
18:00
19:00
20:00
21:00
22:00
23:00
-100000
-300000
6
Benchmarking Performing better than competitors in quantitative ratios LaVita loses its
positions in qualitative term and has unjustified prices on products
LaVita stores had performed better in 2015 than According to the customers poll, LaVita clients face relatively
on average… higher prices and get poorer freshness of products…
Average sales per one store in 2014, bn RUB Freshness of the food
0,14 LaVita
LaVita х0,83
0,12 0,12 0,12 Enisey
Enisey х1,00
0,10 0,111
х2,1 х2,2
0,06 х1,7 х1,6
х1,3
х1,0 х1,0 х1,0 х1,0 х1,0
Pesso Vyatsky TGM Enisey Others LaVita Price of Price of branded Price of Price of premium Prices on
discount/economy products staple items products promotions and
products special deals
Benchmarking analysis
Despite having greater than average Sales/SQM ratio the productivity of LaVita’s stores is the worst in the market
that can be resulted from unreasonably high number of linear personnel or small amount of transactions…
Sales per SQM, th RUB Transactions/Week, th of transactions Productivity, number of transactions

10,8 10,7 10,3 14,8 12,4
11,1
8,6 10,2 9,6
9,3 10,5 11,4 9,2 10,5
10,1 10,0 11,4
6,0
Enisey Vyatsky Pesso TGM La Vita Enisey Vyatsky Pesso TGM La Vita Enisey Vyatsky Pesso TGM La Vita
7
According to DCF analysis and method of comparable companies,
Current enterprise value large type stores have the biggest EV.
As a possible strategy measure the EV of both particular store type and the whole LaVita business was calculated…
Large supermarket Mixed type supermarket Light type supermarket Small type supermarket
DCF analysis
EV / EBITDA
EV / Sales
EV 0 1 500 0 1 000 1 500 0 100 200 400 500 0 200 600 800
Average EV equals 306 mln rubles1 WACC calculation

Beta 0.7 Using DCF analysis and method of
360 comparable companies (based on
295 278 292 Risk-free rate 1.80%
306 data of Magnit, Lenta and X5 retail
r (equity) 11.12% group) EVs of each type of store were
r (debt) 18.00% calculated. WACC was measured using
Large Mixed Light Small r (market) 15.11% average industry unlevered beta for US
and Western Europe, return of S&P
Part of equity 0.5
Implied multipliers 500 as the return of market portfolio,
Part of debt 0.5 treasury bond YTM as risk-free rate.
15 WACC 12.76%
11.31x
10
6.21x
8.94x
5
4.69x
0 ‘La Vita’ enterprise value = 49,8 bn RUB
EV / EBITDA EV / Sales
1) Valuation was based on the sample of 63 stores
8
In terms of deteriorating macroeconomics conditions it is reasonable to
Strategic options perform self-financing reorganizing structure of underlying business
Reorganization of ineffective light Market position

supermarkets into discounters should
La Vita
HIGH
be focused on the ones having the least
Supermarkets Hypermarkets
number of employees per square meter... ‘La Vita’ discounters represent
the new-concept retailers for daily Enisey
Monthly sales per purchases of the most necessary Gottit
LOW Offer perception

20 square meters, th RUB products. The assortment is La Vita Atfields
much lower than in traditional ‘La Vyatsky
18
Vita’ supermarket but almost all
16 the most popular their brands can La Vita light
reorganization be bought here. TGM Pesso
14
in discounters Minutka
12
Discounters
10
Man hours per
8 square meters LOW Value perception HIGH
per day
6
0,150 0,250 0,350 0,450 0,550
Vs.
The number of SKU in both
Ordinary La Vita light
store concepts
discounter
…Thus, we will avoid high expenditures -54%
for transformation into discounter model. Nevertheless, the product range in ‘La
Vita light’ is wider in comparison with
11% ordinary discounter. That is key factor
of saving market positioning and
Current trading ‘La Vita light’ discounter perception.
area staff trading area staff La Vita La Vita light
9
Strategic options The partial reorganization of existed business model will optimize costs of retailers.
Implementing discounter stores model will let ‘La Vita’ As a result of SKU reduction consignments will increase
to reduce in-store labor costs… twice that will cut down purchasing prices…
There are illustrated two main directions of cost-cutting: Having decreased the total number of SKU it is possible to enlarge
bonuses from sales in 2,3 percentage points for purchases and
labor and assortment. The savings on labor are shown
enhance the batches of goods.
below:
EBITDA margin
10000 13,22%
EBITDA margin
Labor costs Labor costs
in ‘La Vita’ in ‘La Vita 5000
Bonuses Bonuses
light’
Checkout Replenishment
Service Management 0
-2,5
-1,5 The number of cut down SKU Bonuses
-3,5 COGS Operational model of discounters will provide higher

COGS -4,5 EBITDA margin due to
-1,5
-1,5 11,72% 12,13% 12,45%
10,51% 11,20%
9,55%
-4,5
11,3
8,5 7,9
6,4
5,1 6,0
-3 3,5 3,6 4,5
Labor 1,9 2,5
1,4
Central costs
Labor
Rent
-2,00%
Central costs Transport 2016E 2017E 2018E 2019E 2020E 2021E
Rent Shrink Sales COGS EBITDA margin
Transport Other
Shrink  lower number of stuff
Other  shrink reduction1
 assortment constrain
1. Due to reduction in products with low turnover 10

In order to cover all the audience losses we introduced a special strategic model
Strategic options option which means a partial business reorganization.
Such strategy of discounts opening and reorganization It is suggested that new-concept ‘La Vita light’ discounters
will provide sustainable penetration into the new market can be both opened at the new locations or reorganized
segment… from the traditional supermarkets of 600-700 square
meters or 700-800 square meters – the most appropriate
format of ‘local store’.
The number of discounters opening in
Yekaterinburg every year
+15 CapEx of ‘La Vita light’ opening, mln rub
+10
+9 +5
+13
67
52 29,4
37 42 58
28
15
2016 2017 2018 2019 2020 2021

5,15
341,7 148,7
50
The number of discounters opening in Supermarkets reorganized

into discounters
Chelyabinsk every year 31,7
+8
+7 New-opened discounters
+6 0,28
+7
+5 0,47
41
26 33 Track purchases costs
20
8 13 Opening costs on store Distribution center costs
Maintainance costs Opening stores costs
2016 2017 2018 2019 2020 2021
Repair costs Reorganization costs
11
The analysis of strategic directions and their implementation specificity is based on
Strategic options main retailers’ characteristics: location and product prices.
The most appropriate places for future stores both Location as a key targeting instrument
discounters and supermarkets defined according to the
distribution of price per square meter of real estate… The most appropriate income zones for
discounters are those with the lowest square
meter price of the real estate.
Sverdlovsk region Chelyabinsk region
The most suitable for the traditional
supermarkets are higher profitability zones.
Thus, we will except the impact of cannibalization.
Taking into account optimal supermarket location,

there can be found the positive cannibalization
rate, helping to keep in touch with customer
Competitor Competitor
500m
‘La Vita’№1
The most effective
rate of cannibalization
Competitor ‘La Vita’№ 2

500m
The territory of both regions was
divided by the per square meter price
>50 000 ₽ 40 000 ₽ 30 000 ₽ > 20 000 ₽
12
Analyzing the current retail trends, it was revealed that share of private label goods among
Private label the market retail leaders tends to increase, generating larger share in stores revenue.
The retail market average share of Private label implementation steps

private label in total SKU number
amounts to 11%
60% Defining private label
percent of Russians Merchandising and
50 16%
consider private labels to strategy, brand name and
14% promotion
45 14% etc.
40
be the choice of
12%
35 12% 10% people who cannot
9,50% 9% 10%
30 afford to buy branded
25 7% 8%
goods Choosing of goods Delivery and storage of
20 6% categories for production inventory products
15
4%
10
5 2%
0 0% Goods categories for
private label should be Inviting tenders for
chosen in accordance to production / Checking Raw materials purchase
and monitoring
customer price-sensitivity
to certain products.
Private label share out of total SKU number Planned percentage of costs is going to gain a
Total SKU number, th
decreasing pattern after product introduction…
Private label share (%) Pricing strategy for 18%
private label goods
15%
-30%
11% 10%
5,40% 5,90%
4,70% 5,10%
Planned percentage 4,10% 5%
of private label ‘La
Vita Everyday’ in
total SKU number
Ordinary Private 2015 2016 2017 2018 2019
products label Marketing Logistics
Rent Shrinkage
Supply chain Sales growth (%)
Private label SKU number growth (%)
*Nielsen 13
Touching upon operational improvements, it is essential to reorganize all spheres of
Operational model optimization retail functioning. The operational expenditures structure should be reconsidered
mostly in case of labor and its constant activities.
The main optimization initiative is cashier number per hour Resulted from shifts optimization it will become
reduction possible to save approximately 1.2 mln RUB per
68 602 man 11 319 330 RUB month from one store…
hours per  Including labor 1,75
month taxes 1,11 1,16
0,64
According to reorganization, it is possible to serve efficiently all
the customers reallocating cashiers’ business more evenly…
60,00 Previous rate Planned rate Light Mixed Large
50,00 of cashier of cashier
Savings on labor per month per store, mln
40,00
overload 40,00 overload
30,00 30,00 All the suggested changes could be

20,00 20,00 realized in total degree only in case of
strict transaction time standardization
10,00 10,00
(45-50 operations per minute)
0,00 0,00
Certain optimization
measures
Example: The reduction assumes working shifts rescheduling…
Store #1122 The claimed integral number of employees per hour
The cashier has to work without turns
1 1 1 1 1 1 1 1 1 1 2 3 4 4 4 4 4 4 5 5 4 3 2 1
8 hours 8 hours 8 hours Height of the equipment has to be

convenient
Shift allocation
9 hours 4 hours
8 hours = shift time 9 hours Keys of devices have to be large to

9 hours = standard shift bottleneck operate quickly
9 hours
+ additional bonuses
4 hours = part-time shift 4 hours During the rush hours, approximately
from 17:00 till 21:00, cashiers should
10:00:00
11:00:00
12:00:00
13:00:00
14:00:00
15:00:00
16:00:00
17:00:00
18:00:00
19:00:00
20:00:00
21:00:00
22:00:00
23:00:00
work without chairs

0:00:00
1:00:00
2:00:00
3:00:00
4:00:00
5:00:00
6:00:00
7:00:00
8:00:00
9:00:00
http://www.retail.ru/articles/41026/ 14
Designing the new operational model, a few initiatives were suggested.
Optimization initiatives They concern night working hours of some stores and transaction automation
Mixed type store on average have the biggest Total number of cashiers is counted on the basis of shift allocation.
negative EBIDTA in night working hours… Thus, we should include some additional hours in order to make a normal
shift. The undivided part of transactions can be switched to automatized
+38% cashboxes as it is shown… Solution: automatized cashboxes
733 727
40,00 Overpayment Working hours
459 531
Additional cashier
30,00
207
Shifts
20,00
Small Light Mixed Large 10,00
0,00
Inefficient mixed type store night working

hours reduction will bring La Vita 1 mln RUB
increase in EBITDA per year on average… This solution will
support long-run
22% of total transactions
1,15 1,12 1,11
could be covered by
1,01 1,03 1,00 1,03
1,07 cost reduction automatized cashboxes
0,93
0,86 1,00 strategy and will
0,68 allow to increase 1 consultant per
0,10 customer traffic each store is needed to
0,06 0,08 0,08
per store help customers in case of
-0,043 problems with cashbox
-0,05 -0,01 -0,01
-0,18 -0,14 -0,14 usage
-0,26 Store number
5 years payback period (PP)
1 159
1 083
1 143
1 122
1 081
1 111
1 105
1 087
1 025
1 032
1 069
6 years discounted payback

EBITDA at night, mln RUB period (DPP)
Result from working hours reduction, mln RUB
15
The considerably high training costs in the majority of the cases are determined by high
Personnel development employees turnover. Thus, human resources management of ‘La Vita’ should be reconsidered
in personnel motivation and development.
Management KPIs CEO

Management motivation
Rewarding system for managers
CFO Head of Head of Head of MD of

purchase marketing sales Chelyabinsk Fixed Flexible
Management
EBITDA Margin part + part

Purchasing LFL traffic→ max Revenue → EBITDA → max
→ max
Valuation price → min Frequency of max Chelyabinsk stores
Check items → Average sales→ max
accuracy → max transactions per
max one person → check → max Average check in
COGS → min max Gross return Chelyabinsk
Net return on on store → → max Personal KPI ‘La Vita”
store max (Monthly) effectiveness
(Annually)
Personnel development
Personnel turnover reduction is the key way to Such reduction is based on rewarding system reconsidering which
save over 60% expenses spending for finding is the main factor of linear employee motivation. The decision is
new employees and trainings combination of fixed and flexible part of wage in proportion of 50/50.
Changing recruitment Training Monitoring

Personnel KPIs procedure program and control
Internal control Delivery staff Production staff Cashiers Trading staff Technical staff
Personnel
Number of stolen Shrinkage got on Revenue from in-store Revenue per cashier Number of revealed Time spend on repairing or
products → min each stage of production sales → → max cases of the discrepancy solving technical problems
delivery → min max in price tags → min → min
Number of Financial costs of The percentage of in- Number of served Number of overdue Number of happened
spoilt/broken lost and broken store produced customers/ products on shelves → technical problems per
products in store → products → min products on average transactions → max min day/week/month → min
min Delivery postpones check → max Number of scanned Items per sale or value of Time spend on reaction on
→ min products within shift average check → max technical problem → min
→ max
16
Reorganization of shifts, working hours schedule partial mixed type stores closing together with
Result assessment entering new segment (LaVita Light discounters) will help LaVita to complete its operational model
reorganization and penetrate the new market segment
Reorganization of operational model in pattern with the Shifts optimization, automatized cash box introduction
new market segment penetration will enlarge ‘La Vita” and partial store closing in night time will reduce SG&A
EBITDA Margin by approximately 1.8pp… and increase store Enterprise value… 370
+3%
Automatized 11
cashboxes setting Discounters

0,16 pp opening
+4%
307
0,40 pp 12
360
292
283
292 4 295
6,31%
+1,77pp EBITDA
278
margin
0,74 pp Small Light Mixed Large
Labor 0,47 pp Increase in EV due to implementing operational changes
optimization Night working hours EV
reduction
In absolute term ‘La Vita’s’ EBITDA will increase by over Due to the implemented strategic options the
15% (without organic growth) ... enterprise value will increase…
96 35 1 437
158
178
+48%
970 49,8bn RUB 51,2bn RUB
LaVita EV LaVita EV in 2016F
in 2015 (without organic
2015 Discounters Labor Night Automatized 2016F growth)
opening optimization working cashboxes
hours setting
reduction
17
Implementation plan Proposed strategy implies 6 years of realization.
Initiatives 2016 2017 2018 2019 2020 2021

Implementation timeline
model optimization
Shifts reallocation
Internal business-
Results of optimization:
Partial stores closing at night working hours
EBITDA (mln): 1 437 (+48%)
EBITDA margin: 6,31% (+1,77 pp.)
Personnel number reduction
Automatized cashboxes setting 56,3 mln
Reorganization of existed stores into

29,5 mln
discounters
Partial turning into
Results of new market penetration by 2020:

discounter model
Expansion of the distribution center and 180,4 mln Sales (bln): 33,7 (+76%)
transportation procurement Number of stores: 257 (+56%)
SKU reduction
Trading area staff reduction
New discount stores opening 341,7 mln
Defining private label strategy / categories of

Results of Private label development by
produced goods
development
2020:
Private label
Contracting and building relationships with

94,9 mln Sales of PL: 1 730 mln
supplier
PL SKU number: 1 690
Supply chain development 129,2 mln PL share in revenue: 12,7 %
Private label marketing and merchandising 234,7 mln
Costs
Duration
18
Appendix title
Appendix title Page number
CAGR comparison and delta comparison in different kinds of stores 21
Counted indexes of costs and profitability 21
Valuation 22-25
Assortment reduction for discounter-model of stores 26
The total number of new-opened and reorganized stored into discounters according to strategic 27
options
Cost items of supermarket and discounter stores 27
Expected results in revenue, traffic and etc. in ‘La Vita light’ discounters 27
Expected P&L after implementing reconsidered strategy 28
Operational changes (Example: Store #1122 analysis) 29
20
Appendix
CAGR comparison and delta comparison in different kinds of stores
CAGR comparison Delta comparison
Type of costs Type of costs
Large Standard (mixed) Standard (light) Small Large Standard (mixed) Standard (light) Small
Store cost, % revenue 8,45% 7,65% 11,32% 6,81% Store cost, % revenue 7,60% 7,58% 9,30% 6,34%
Rent 18,46% 6,60% 18,45% 12,47% Rent -13,61% 7,34% -13,59% 14,29%
Transport 7,79% 5,76% 18,15% 3,39% Transport 3,67% 3,70% 17,99% 0,00%
Other Opex 47,44% 47,45% 47,43% 41,42% Other Opex 38,23% 38,27% 38,25% 33,33%
Shrink 6,28% 7,04% 7,03% 1,63% Shrink 7,66% 3,70% 3,69% 0,00%
Labor 6,32% 5,31% 7,37% 4,19% Labor 5,67% 6,19% 5,49% 3,13%
Counted indexes of costs and profitability

2011 2012 2013 2014 2015E 2011 2012 2013 2014 2015E
Sales 8,9 10,2 12 14,4 16,8 0,4 1,1 1,6 2 2,3
Sales growth rate, % 15% 18% 20% 17% 175% 45% 25% 15%
Total COGS -6,7 -7,6 -9 -10,7 -12,6 -0,3 -0,9 -1,3 -1,6 -1,8
COGS growth rate, % 13% 18% 19% 18% -98% 200% 44% 23% 13%
Total COGS, % -74,6% -74,6% -74,8% -74,5% -74,7% -77,6% -78,2% -77,7% -78,8% -79,1%
Other income 0,1 0,1 0,2 0,2 0,2 0,1 0,1 0,1 0,1 0,1
Gross profit 2,4 2,7 3,2 3,8 4,5 0,1 0,3 0,5 0,5 0,6
Gross margin, % 26,5% 26,4% 26,3% 26,4% 26,2% 32,1% 26,6% 26,4% 25,2% 25,0%
Labor -1,2 -1,4 -1,7 -2,1 -2,5 -0,1 -0,2 -0,2 -0,3 -0,3
Labor growth, % 17% 21% 24% 19% 100% 0% 50% 0%
Non-store Labor -0,27 -0,27 -0,32 -0,43 -0,52 -0,06 -0,08 -0,02 -0,07 -0,03
Non-store Labor growth, % -2% 19% 34% 20% 35% -78% 298% -53%
Sales / rent 44,50 34,00 30,00 28,80 24,00 13,33 22,00 14,55 14,29 12,78
Sales / store labor 9,62 9,01 8,70 8,62 8,47 9,62 9,09 8,77 8,70 8,62
Store Labor -0,93 -1,13 -1,38 -1,67 -1,98 -0,04 -0,12 -0,18 -0,23 -0,27
Store Labor growth, % 22% 22% 21% 19% 191% 51% 26% 16%
Total number of stores 74 90 105 121 139 7 14 18 21 24
Stores opening 16 15 16 18 7 4 3 3
Sales / nuber of stores (return on store) 0,120 0,113 0,114 0,119 0,121 0,057 0,079 0,089 0,095 0,096
Return on store growth rate, % -5,77% 0,84% 4,13% 1,56% 37,50% 13,13% 7,14% 0,62%
EBITDA / number of stores (net return on store) 0,0108 0,0089 0,0076 0,0074 0,0072 0,0043 0,0043 0,0022 0,0024 -0,0021
Net return on store growth rate, % -17,78% -14,29% -2,38% -3,28% 0,00% -48,15% 7,14% -187,50%
Delta rent / delta store labor 0,4840 0,4036 0,3444 0,6410 0,2519 0,9772 0,6303 1,0870
Delta non-store Labor / delta stores opening -0,0004 0,0035 0,0069 0,0049 0,0029 -0,0154 0,0175 -0,0123
Delta sales / store opening 0,0812 0,1200 0,1500 0,1333 0,1000 0,1250 0,1333 0,1000
Delta EBITDA / store opening 0,0000 0,0000 0,0063 0,0056 0,0043 -0,0050 0,0033 -0,0333
Delta store Labor / delta stores opening 0,0129 0,0165 0,0182 0,0173 0,0113 0,0154 0,0159 0,0123
Delta rent / delta stores opening -0,0063 -0,0067 -0,0063 -0,0111 -0,0029 -0,0150 -0,0100 -0,0133
Labor, % -13,4% -14,0% -14,3% -14,3% -14,5% -13,0% -13,5% -13,8% -13,9% -14,0%
Store Labor, % -10,4% -11,1% -11,5% -11,6% -11,8% -10,4% -11,0% -11,4% -11,5% -11,6%
Rent -0,2 -0,3 -0,4 -0,5 -0,7 -0,03 -0,05 -0,11 -0,14 -0,18
Other -0,1 -0,2 -0,3 -0,3 -0,4 -0,02 -0,05 -0,06 -0,05 -0,13
EBITDA 0,8 0,8 0,8 0,9 1 0,03 0,06 0,04 0,05 -0,05
EBITDA margin, % 9,0% 7,8% 6,3% 6,4% 5,6% 6,1% 4,8% 2,5% 2,5% -2,0%
21
Appendix
Valuation
Magnit P&L (to find ratios) Valuation (Light type)
2011 2012 2013 2014 2015E
2011 2012 2013 2014
Sales 99,9 105,9 108 113,8 118
Sales 335699,95 448 661,13 579 694,00 342 625,72
EBITDA 9,8 8,6 7,8 8,1 7
Cash 17 205,34 12 452,61 5 931,13
NWC 2,6 2,8 2,8 3,0 3,1
Inventory 29 144,38 41 025,62 56 095,41
∆NWC 0,2 0,1 0,2 0,1
Account payable 33 566,29 42 920,57 48 170,71
Dep/Am 3,0 3,2 3,2 3,4 3,5
NWC 13 316,13 11 141,68 14 487,36 17384,83 CapEx 11,6 11,9 12,5 13,0
NWC % 3,97% 2,48% 2,50% 0,05 FCF 15,8 15,5 16,1 15,6
NWC growth rate, % -0,16 0,30 0,20 Terminal Value 198,7
Accounts receivable 532,7 584,02 631,53 Enterprise Value 214,4
t corp 20,00%
NWC % (la Vita) 2,61%
CapEx / Sales 11%
Valuation (Small store)
Amortization rate 3%
2011 2012 2013 2014 2015E
Sales 63,9 67,8 69,1 72,8 75,5
Valuation (Large store) EBITDA 8,5 8,3 8,1 8,4 7,8
NWC 1,7 1,8 1,8 1,9 2,0
2011 2012 2013 2014 2015E
∆NWC 0,1 0,0 0,1 0,1
Sales 186,4 197,7 201,6 212,4 220,2
Dep/Am 1,9 2,0 2,1 2,2 2,3
EBITDA 11,2 10,4 9,8 9,5 7,6
CapEx 7,5 7,6 8,0 8,3
NWC 4,9 5,2 5,3 5,5 5,7 FCF 12,4 12,4 12,9 12,7
∆NWC 0,3 0,1 0,3 0,2 Terminal Value 160,9
Dep/Am 5,6 5,9 6,0 6,4 6,6 Enterprise Value 173,6
CapEx 21,7 22,2 23,4 24,2
FCF 25,0 25,1 25,6 24,8
Terminal Value 315,3
Enterprise Value (normal) 340,1
Avarage EV
Type of supermarket EV
Valuation (Mixed type)
Large 539,3
2011 2012 2013 2014 2015E
Mixed 370,4
Sales 139,8 148,3 151,2 159,3 165,2
Light 309,8
EBITDA 3,3 3,5 2,3 1,6 0,9
Small store 221,9
NWC 3,6 3,9 3,9 4,2 4,3
∆NWC 0,2 0,1 0,2 0,2
Dep/Am 4,2 4,4 4,5 4,8 5,0
CapEx 16,3 16,6 17,5 18,2
FCF 15,3 14,8 14,8 14,8
Terminal Value 187,7
Enterprise Value 202,5
22
Appendix
Valuation
WACC calculation Industry betas (grocery retail) Comparable EV, mio

EBITDA Sales EV/EBITDA EV/Sales
company RUB
Beta 0,7 East Europe 0,69 Magnit 15987,00 1461,33 2944,20 10,94 5,43
Risk-free rate 1,80% US 0,77 Lenta 3889,00 343,85 626,25 11,31 6,21
к (equity) 11,12%
X5 6049,00 676,62 1289,14 8,94 4,69
к (debt) 8,20% Echange rate Average 10,40 5,44
r (market - S&P500) 15,11% 2013 2014
Equity/(Debt+Equity) 0,5 31,85 58,00
Debt/(Debt+Equity) 0,5
WACC 8,84%
Growth rate 1,5%
Initial value of stores by type Initial value of stores by type

Store type Store type
Small Light Mixed Large Small Light Mixed Large
Sales, th 115,4 116,0 130,4 153,7 Sales, th 115,4 116,0 130,4 153,7
EBITDA 9,6 6,4 3,8 6,2 EBITDA 9,6 7,3 6,1 8,3
EBITDA initial 9,6 6,4 3,8 6,2
Automatized cashbox, mln Optimized 0,2 0,2 0,3
Store closing in night time 1,0
Labor reduction, mln Optimized 0,6 1,1 1,7
Comparable
EV, mio RUB EBITDA Sales EV/EBITDA EV/Sales Hour cashier wages (including labor taxes)
company
Magnit 15987,00 1461,33 2944,20 10,94 5,43 Yekaterinburg, RUB Chelyabinsk, RUB
Lenta 3889,00 343,85 626,25 11,31 6,21 137,8 129,6
X5 6049,00 676,62 1289,14 8,94 4,69
Average 10,40 5,44
23
Appendix
Valuation
Initial value of stores by type (adjusted by new data) Initial value of stores by type (adjusted by new data)
Large store Large store
Bottom boundary Enterprise Value Bottom boundary Enterprise Value
EV, mio
EBITDA Sales EV/EBITDA EV/Sales EV, mio RUB EBITDA Sales EV/EBITDA EV/Sales
RUB
6,2 153,7 8,94 4,69 8,3 153,7 8,94 4,69
Using EV/EBITDA 55,75 Using EV/EBITDA 74,11
Using EV/Sales 721,41 Using EV/Sales 721,41
Mid Enterprise Value Mid Enterprise Value
EV, mio
RUB
6,2 153,7 10,40 5,44 8,3 153,7 10,40 5,44
Using EV/EBITDA 64,83 450,91 Using EV/EBITDA 86,19 461,59
Upper boundary Enterprise Value Upper boundary Enterprise Value
EV, mio
RUB
6,2 153,7 11,31 6,21 8,3 153,7 11,31 6,21
Mixed type store Mixed type store

EV, mio
RUB
3,8 130,4 8,94 4,69 6,1 130,4 8,94 4,69
EV, mio EBITDA, mio Sales, mio
Sales, mio RUB EV/EBITDA EV/Sales EV, mio RUB EBITDA, mio RUB EV/EBITDA EV/Sales
RUB RUB RUB
3,8 130,4 10,40 5,44 6,1 130,4 10,40 5,44
RUB RUB RUB
3,8 130,4 11,31 6,21 6,1 130,4 11,31 6,21
24
Appendix
Valuation
Light type Light type
EV, mio
RUB
6,4 116,0 8,94 4,69 7,3 116,0 8,94 4,69
RUB RUB RUB
6,4 116,0 10,40 5,44 7,3 116,0 10,40 5,44
RUB RUB RUB
6,4 116,0 11,31 6,21 7,3 116,0 11,31 6,21
Small store Small store

EV, mio
RUB
9,6 115,4 8,94 4,69 9,6 115,4 8,94 4,69
RUB RUB RUB
9,6 115,4 10,40 5,44 9,6 115,4 10,40 5,44
RUB RUB RUB
9,6 115,4 11,31 6,21 9,6 115,4 11,31 6,21
25
Appendix
Assortment reduction for discounter-model of stores
Assortment 13000
Assortment reduction 1000 2000 3000 4000 5000 6000 7000 8000
Assortment reduction % 7,69% 15,38% 23,08% 30,77% 38,46% 46,15% 53,85% 61,54%
Consignments increase 4,08% 8,91% 14,70% 21,78% 30,63% 42,00% 57,17% 78,40%
Bonuses increase % 7% 15% 25% 36% 51% 70% 96% 131%
Bonuses/COGS 10,88% 11,19% 11,52% 11,88% 12,28% 12,72% 13,21% 13,75%
Delta (expected bonuses/actual

0,28% 0,58% 0,92% 1,28% 1,68% 2,11% 2,60% 3,14%
bonuses) in comprising with COGS
Bonuses 1,8 1,9 2,0 2,2 2,48 2,8 3,2 3,8
Sales 19,9 20,8 21,9 23,3 24,9 27,1 30,0 34,1
Bonuses/sales 8,83% 9,07% 9,34% 9,64% 9,96% 10,32% 10,71% 11,15%
Delta (expected bonuses/actual

0,23% 0,47% 0,74% 1,04% 1,36% 1,72% 2,11% 2,55%
bonuses) in comprising with Sales
Average elasticity
1,67
(∆Bonuses%/∆COGS%)
26
Appendix
Cost items of supermarket and discounter stores
The total number of new-opened and reorganized stored Cost items La Vita La Vita light
into discounters according to strategic options Sales 100 100
COGS -81,1 -81
Cumulative numbers of opened stores
Expansion Bonuses 8,6 10,32
2016 2017 2018 2019 2020 2021 Labor -14,5 -8
Ekaterinburg 15 28 37 42 52 67 Checkout -2,5 -1,5
Average check 626 671 720 772 828 888 Replenishment -4,5 -3,5
Chelyabinsk 8 13 20 26 33 41
Service -4,5 -1,5
Average check 572 608 646 686 729 774
Management -3 -1,5
Reorganization New stores opening Central costs -8,56 -10,7
Rent -4,71 -3,7
Transport -0,8 -2,0
Shrink -2 -2,0
Expected results in revenue, traffic and etc. in ‘La Vita light’ Other -1,05 -3,0
discounters EBITDA margin 4,44 12,6
Expected results for Discount market

La Vita light 2016 2017 2018 2019 2020 2021
Traffic Ekb. 13 068 23 887 31 117 35 046 42 723 53 806
Revenue/store 84 133 408 88 355 470 93 414 194 99 399 784 104 961 705 110 027 542
Total revenue (Ekb) 1 262 001 116 2 473 953 160 3 456 325 167 4 174 790 933 5 458 008 684 7 371 845 302
Traffic Chel. 6 803 10 964 16 677 21 471 26 949 33 063

Revenue/store 75 034 321 79 065 323 83 048 821 87 384 024 91 808 302 96 317 486
Total revenue (Chel) 600 274 564 1 027 849 205 1 660 976 419 2 271 984 626 3 029 673 963 3 949 016 937
27
Appendix
Expected P&L after implementing reconsidered strategy
P&L (FORECAST) 2016 2017 2018 2019 2020 2021

Sales 20,6 23,1 26,1 29,3 33,7 39,0
Sales SM 18,2 19,0 20,2 22,0 24,3 26,5
Sales DIS 1,9 3,5 5,1 6,4 8,5 11,3
Total COGS (SM+DIS) -15,0 -16,6 -18,5 -20,6 -23,6 -27,1
COGS -16,2 -18,2 -20,5 -22,9 -26,4 -30,5
Transportation cost -0,2 -0,2 -0,3 -0,3 -0,4 -0,4
Shrink -0,4 -0,4 -0,5 -0,6 -0,7 -0,8
Bonuses 1,8 2,2 2,7 3,2 3,8 4,5
Total COGS, % -72,68% -71,78% -71,00% -70,43% -69,96% -69,55%
COGS, % -78,55% -78,43% -78,34% -78,29% -78,22% -78,15%
Transportation cost, % -0,89% -0,96% -1,01% -1,04% -1,08% -1,13%
Shrink, % -1,94% -1,94% -1,94% -1,94% -1,94% -1,94%
Bonuses, % 8,71% 9,55% 10,30% 10,84% 11,28% 11,66%
Other income 0,35 0,38 0,41 0,44 0,47 0,5
Gross profit 6,0 6,9 8,0 9,1 10,6 12,4
Labor -2,8 -3,0 -3,3 -3,7 -4,2 -4,8
Labor/sales % -13,49% -13,09% -12,80% -12,65% -12,44% -12,19%
Rent -0,9 -1,0 -1,1 -1,3 -1,5 -1,7
Rent/sales% -4,48% -4,42% -4,38% -4,35% -4,32% -4,28%
Other -0,2 -0,3 -0,4 -0,4 -0,5 -0,6
Other/sales % 1,52% 1,67% 1,79% 1,85% 1,93% -1,58%
Marketing -0,6 -0,7 -0,8 -0,9 -1,0 -1,1
Marketing/sales % -2,91% -2,91% -2,91% -2,91% -2,91% -2,91%
EBITDA 1,4 1,9 2,4 2,8 3,5 4,2
EBITDA margin % 6,94% 8,12% 9,08% 9,71% 10,25% 10,76%
28
Appendix
Store number #1122
Operational changes Cashiers number per day 7,5 7,5 7,5 6,9 6,9 6,9 6,9 6,9 8,3 8,3 7,2 5,3 3,9 3,9
Integer cashiers numver per day 8 8 8 7 7 7 7 7 9 9 8 6 4 4
Example: Sales per week 2 424
Store #1122 Sales per day, % 1,9% 3,0% 4,8% 6,4% 7,5% 7,1% 7,6% 7,9% 8,2% 8,9% 9,3% 8,6% 6,2% 5,1%
analysis Sales per day, th RUB 6,65 10,33 16,68 22,06 25,99 24,72 26,36 27,24 28,43 30,95 32,33 29,94 21,34 17,80
Sales per cashier, th RUB 0,89 1,38 2,22 3,20 3,77 3,58 3,82 3,95 3,43 3,73 4,49 5,65 5,47 4,56
Weekdays
Average check 0,238
Average check adjusted by daily overload 0,14 0,14 0,14 0,14 0,21 0,21 0,21 0,24 0,29 0,33 0,36 0,33 0,31 0,26
Not-adjusted number of people coming by hours 46,54 72,24 116,71 154,36 121,23 115,31 122,95 114,33 99,44 92,80 90,47 89,77 68,90 67,91
Not-Adjusted number of people coming by hours 0,03 0,05 0,09 0,11 0,09 0,09 0,09 0,08 0,07 0,07 0,07 0,07 0,05 0,05
Adjusted number of people coming by hours 49,88 77,41 125,07 165,42 129,91 123,57 131,75 122,52 106,56 99,45 96,94 96,20 73,84 72,77
The number of people served by one cashier 6,65 10,32 16,68 23,97 18,83 17,91 19,09 17,76 12,84 11,98 13,46 18,15 18,93 18,66
The claimed number of cashiers per hour (not
1,25 1,94 3,13 4,14 3,25 3,09 3,29 3,06 2,66 2,49 2,42 2,41 1,85 1,82
adjusted)
The claimed number of cashiers per hour (adjusted by
1,31 2,04 3,29 4,35 3,42 3,25 3,47 3,22 2,80 2,62 2,55 2,53 1,94 1,91
coefficiency of work overload)
Intergral number 2 3 4 5 4 4 4 4 3 3 3 3 2 2
Weekend
Average check 0,238
Average check adjusted by daily overload 0,14 0,17 0,19 0,19 0,21 0,24 0,26 0,26 0,26 0,29 0,31 0,31 0,26 0,24
Not-adjusted number of people coming by hours 46,54 61,92 87,53 115,77 121,23 103,78 100,59 103,94 108,48 108,27 104,38 96,68 81,43 74,70
Not-Adjusted number of people coming by hours 0,03 0,05 0,06 0,09 0,09 0,08 0,07 0,08 0,08 0,08 0,08 0,07 0,06 0,06
Adjusted number of people coming by hours 49,88 66,35 93,80 124,06 129,91 111,21 107,80 111,38 116,25 116,02 111,86 103,60 87,26 80,04
The number of people served by one cashier for
6,65 8,85 12,51 17,98 18,83 16,12 15,62 16,14 14,01 13,98 15,54 19,55 22,37 20,52
weekends
The claimed number of cashiers per hour (not
1,25 1,66 2,35 3,10 3,25 2,78 2,69 2,78 2,91 2,90 2,80 2,59 2,18 2,00
adjusted)
The claimed number of cashiers per hour (adjusted by
1,31 1,75 2,47 3,26 3,42 2,93 2,84 2,93 3,06 3,05 2,94 2,73 2,30 2,11
coefficiency of work overload)
Intergral number 2 2 3 4 4 3 3 3 4 4 3 3 3 3
Opportunity on staff reduction or need for new

53,57
cashiers (using integer numbers)
Opportunity on staff reduction or need for new
55,65
cashiers (using float numbers)
Transactions per day (not-adjustedl) 1 356
Transactions per week 10175
Transactions per day (adjusted) 1 454
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2016 OLIVER WYMAN

1. According to GMID database statistics 2

Gross return on store Sales growth rate for Chelyabinsk

Yekaterinburg Chelyabinsk EBITDA margin

The dynamics of income demand The dynamics of price demand

The number of customers leaving -283k Chelyabinsk

Chelyabinsk -294k Yekaterinburg

Circle area = Yekaterinburg

Real income -8,15%

Low Medium High

EBITDA margin Sales Average transaction time (min.)

х1,0 х1,0 х1,0 х1,0 х1,0

Sales per SQM, th RUB Transactions/Week, th of transactions Productivity, number of transactions

Average EV equals 306 mln rubles1 WACC calculation

Reorganization of ineffective light Market position

LOW Offer perception

-3,5 COGS Operational model of discounters will provide higher

1. Due to reduction in products with low turnover 10

2016 2017 2018 2019 2020 2021

The number of discounters opening in Supermarkets reorganized

Taking into account optimal supermarket location,

Competitor ‘La Vita’№ 2

>50 000 ₽ 40 000 ₽ 30 000 ₽ > 20 000 ₽

The retail market average share of Private label implementation steps

30,00 30,00 All the suggested changes could be

8 hours 8 hours 8 hours Height of the equipment has to be

8 hours = shift time 9 hours Keys of devices have to be large to

work without chairs

Small Light Mixed Large 10,00

Inefficient mixed type store night working

6 years discounted payback

Management KPIs CEO

CFO Head of Head of Head of MD of

EBITDA Margin part + part

Changing recruitment Training Monitoring

cashboxes setting Discounters

Initiatives 2016 2017 2018 2019 2020 2021

Automatized cashboxes setting 56,3 mln

Reorganization of existed stores into

Results of new market penetration by 2020:

Trading area staff reduction

New discount stores opening 341,7 mln

Defining private label strategy / categories of

Contracting and building relationships with

Private label marketing and merchandising 234,7 mln

Appendix title Page number

CAGR comparison and delta comparison in different kinds of stores 21

Counted indexes of costs and profitability 21

Assortment reduction for discounter-model of stores 26

Cost items of supermarket and discounter stores 27

Expected P&L after implementing reconsidered strategy 28

Operational changes (Example: Store #1122 analysis) 29

Counted indexes of costs and profitability

WACC calculation Industry betas (grocery retail) Comparable EV, mio

Initial value of stores by type Initial value of stores by type

Mixed type store Mixed type store

Small store Small store

Assortment reduction for discounter-model of stores

Bonuses increase % 7% 15% 25% 36% 51% 70% 96% 131%

Bonuses/COGS 10,88% 11,19% 11,52% 11,88% 12,28% 12,72% 13,21% 13,75%

Delta (expected bonuses/actual

Bonuses 1,8 1,9 2,0 2,2 2,48 2,8 3,2 3,8

Sales 19,9 20,8 21,9 23,3 24,9 27,1 30,0 34,1