X5 Retail Group. Годовой отчет за 2022 год (на английском)

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

PLANET

Metrics

The Group has been measuring GHG emissions in accordance with the Corporate
Accounting and Reporting Standard of the GHG Protocol since 2019. The 2022 GHG
emissions calculation results and a full description of the calculation methodology
will be published in our 2022 Sustainability Report.

When developing the decarbonisation pathway, X5 established a feasible internal
carbon price to support its strategic decision-making. The internal methodology and
quantitative estimates are still contingent on continuous regulatory changes,
therefore the instrument is still under review.

X5 Group has also established climate-related KPIs for management to motivate the
implementation of the 30x30 agenda. KPIs include the LTI programme, which has a
10% decarbonisation target by 2023 vs a 2019 baseline. Other sustainability metrics
rank among the KPIs, such as an increase in the share of recycled packaging and
waste management initiatives that are crucial for decreasing Scope 3 emissions.
Overall, climate-related KPIs hold a 5% weighting among management’s KPIs.

In December 2020, X5 Group announced its commitment to the Science Based
Targets initiative (SBTi). While we have significantly advanced our understanding of
the specific measures needed to reach the objectives set, the Group’s efforts in
submitting its GHG emission reduction targets was limited due to unforeseen
circumstances, with formal recognition by the SBTi coalition remaining as the last
step. X5’s GHG reduction targets are based on the methodology and requirements
of the initiative and include considerations of achieving net zero by 2050.

Additional information on X5’s other environmental initiatives will be provided in our
2022 Sustainability Report.

Despite the challenges of 2022, our efforts to follow the trajectory of the Company’s
30x30 agenda continued:

In 2022, an innovative track was launched as a tool for discovering new cutting-
edge projects, including those in alternative refrigerant solutions, amid a better
recognition of the importance of harnessing greener and climate-friendly
refrigeration options. Hence, the Group started researching alternative non-ozone-
depleting refrigerant solutions, which culminated in a piloting air conditioners that
use water as a cooling agent at a Pyaterochka distribution centre. Furthermore,
building on the success of last year’s project to install a transcritical CO₂
refrigeration system at a Company distribution centre, in 2022, X5 started
exploring the potential and strategy for scaling this technology. Most notably, X5
conducted a comprehensive financial assessment of the cost of transitioning to
alternative refrigeration equipment, covering the majority of distribution centres,
which aids in planning and budgeting;

Decarbonisation and energy efficiency considerations have been incorporated
into the technical building requirements for new Chizhik distribution centres. From
2022 onwards, project plans will require consideration of a number of climate-
related issues, including optimising the operation of energy-intensive equipment
and exploring more environmentally friendly technologies (e.g. CO₂ refrigerants).
Furthermore, X5 has developed a WRS accounting form for monthly monitoring of
freon levels and plans to launch it in 2023. These ambitions translated to updates
in standard agreements with contractors who service refrigeration equipment –
under the new conditions, contractors must send us data on the amount of freon
refilled each month. This initiative will allow us to track and manage the
environmental impact of our business units and curb their future GHG emissions,
where possible.

Plans for 2023

In 2023, Pyaterochka and Perekrestok will continue deploying the Smart Store
system while upgrading existing stores and increasing control over heat and
electricity consumption.

We plan to install a pilot supply ventilation system at Perekrestok stores, with air
coolers that use water as the refrigerant instead of Freon.

Pyaterochka keeps scaling up its solar panel project and is now preparing for a pilot:
one of the stores will have solar panels installed on its windows to help reduce
electricity consumption.

Turning to waste management, Pyaterochka and Perekrestok will expand their
projects to send products that needed to be wasted early to farms.

Perekrestok will participate in recycling projects (composting and fertilisation) and
government-sponsored recycling programmes, as well as nationwide online bidding
with eco-industrial parks.

Pyaterochka is going to set up composters for food waste disposal.

In 2023, Pyaterochka and Perekrestok aim to establish a food sharing scheme,
encompassing four Perekrestok distribution centres.

To promote responsible consumption, Perekrestok is going to further roll out its
brush and battery drop-off points in partnership with GP, as well as to raise the
number of recycling kiosks for PET bottles and aluminium cans in its stores.

The Company will further ramp up renewable energy use across its operations and
work with partners to reduce indirect non-energy GHG emissions (Scope 3).

For more information on our environmental activities, achievements and plans for
2023, see our 2022 Sustainability Report.

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

PLANET

Health

100

STRATEGIC GOALS

THROUGH 2030

The quality of our products

To ensure all the products offered by its retail chains are of the
highest quality, X5 Group works with its suppliers to closely monitor
compliance with product safety and quality criteria.

All X5 stores have a clear set of rules and regulations in place
regarding product quality and safety. Our quality control framework
pivots around both supplier audits and monitoring, along with
checking products on shelves.

To ensure that all products are safe for people’s health and the
environment and meet retail standards and customer requirements,
we use a hazard analysis and critical control points (HACCP)-based
approach.

The recent turn to a healthy lifestyle is a major market-wide trend. More and
more consumers are increasingly paying much more attention to tailored
nutrition, founded on natural, superior-quality products with clear ingredients
and origins, as well as organic and functional food and gluten-free and
sugar-free products.

X5 is doing its best to satisfy this customer need by constantly widening its
range of fresh, organic and farm-to-table products. We are promoting our
Green Line brand and healthy aisles in Perekrestok stores, which have
several hundred healthy food SKUs for sale.

Products for health-conscious customers

STRATEGIC GOALS

FOR 2023

Increase the share of fresh produce, fruits
and vegetables in our assortment to 44%
at Pyaterochka and to 50% at Perekrestok

Continue to develop the product quality
control system

Increase the share of customers who
believe that X5’s retail chains help them
lead a healthy lifestyle

Expand the range of products for a
healthy lifestyle

1 Our healthy product range includes gluten-free, sugar-free, organic, farm-grown, naturally

sourced, high-protein, low-calorie, and vegan products.

Develop principles and practices for
monitoring suppliers’ responsible
sourcing of goods

Expand our range of products for a
healthy lifestyle

Our sustainability strategy promotes a healthy
lifestyle as part of our value propositions by
increasing the share of healthy products and

highlighting healthy products at stores.

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

HEALTH

101

Key projects

Plans for 2023

In 2023, Perekrestok plans to scale up Farm.

Pyaterochka will develop and launch a comprehensive
healthy eating programme and continue introducing
healthy food labelling and health signs on price tags.

Among other plans is an on-site lab to test goods and
detect quality defects on the spot. This project will
automate the laboratory testing process, cut costs and
expand the study area to meet the chain’s growing needs.

To encourage healthy eating habits among children,
Pyaterochka will run two pilot healthy cooking lessons at
schools.

Chizhik will expand its supplier engagement efforts and
implement the Corrective Action Plan based on the
recommendations of a previous audit for production
compliance with X5 checklist requirements.

Perekrestok expanded its Green Line
product range by 148 items. These
encompassed healthy products like gluten-
free bread, milk alternatives, healthy sweets,
and more.

Over ten Green Line SKUs are certiﬁed

organic.

PRODUCTS FOR

A BALANCED DIET

Perekrestok, in partnership with its health
product suppliers, held three wellness
festivals in 2022, where shoppers could buy
healthy products and win prizes. Over
100,000 people took part in the festivals,
which had a total reach of over 20 million
people.

HEALTH AND

WELLNESS FESTIVALS

In late 2022, we piloted the Farm category.
Eight Perekrestok stores in Moscow opened
farm aisles with products such as cottage
cheese, dairy products and meat.

FARM

Perekrestok, Bite and Epica held the
nationwide Champion Marathon: people all
over Russia had the opportunity to take up

running or working out under special ﬁtness

programmes developed by professional

trainers. The grand ﬁnale was a marathon for

500 people held in Moscow on 28 August.
This project won Perekrestok an award for
Best PR Campaign for Corporate Sports and

Healthy Lifestyle.

CHAMPION

MARATHON

Pyaterochka’s healthy lifestyle awareness-
raising campaign (in collaboration with
Rospotrebnadzor and the Federal Research
Centre of Nutrition, Biotechnology and Food
Safety) promoted healthy lifestyles and

eating habits on our social media.

HEALTHY LIFESTYLE

AWARENESS CAMPAIGN

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

HEALTH

Employees

102

Become the leading food retailer
in rankings of Russian employers

Create a safe, healthy workspace
for all employees

Maintain our #1 position among
food retailers in rankings of Russian
employers

Ensure the introduction of an
appropriate standard for a safe,
healthy workspace for all employees

An employee engagement rate

STRATEGIC GOALS

FOR 2023

STRATEGIC GOALS

THROUGH 2030

2022 performance highlights

In 2022, we focused our efforts on securing business stability and
strong growth. By gearing up for internal and external change,
supporting the team and introducing management innovations, X5’s
HR team helped the Company to cope successfully with challenges,
remain sustainable and be a reliable partner for customers, suppliers
and employees throughout the whole year.

Our ﬁrst half of the year was dedicated to maintaining business

stability and we concentrated on bolstering our market position in

the second half. Cost efﬁciency, team performance and cross-

functional cooperation cut through all our efforts to transform the
overall management model at X5 Group, in particular at Pyaterochka
and Perekrestok.

Thanks to systematic work to improve working conditions, evolve
career opportunities, create new jobs, and respect people and their
needs, X5 has upheld its reputation as a stable and dependable
employer in the Russian market. Employee turnover stands at 33.4%,
which is 2.6 p.p. below the 2021 level.

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EMPLOYEES

103

Key highlights

HR management

One of our priorities for 2022 was to
maintain the ability of the team and the
Company to operate amid a turbulent

external environment.

The HR management model across our retail chains and
business units mirrors our approach to managing the
organisation as a portfolio of independent businesses
composing, and contributing to, the whole Group.

Single centres of excellence in key HR areas develop
common approaches and cross-format programmes,
methodologies, and implementation rules at the unit level.
Each retail chain and major business unit of the Group,
including X5 Technologies, X5 Digital, X5 Business Support,
and others, has a dedicated HR function to recruit and
onboard talent while managing and organising operations.

Support for new or smaller business units is based on the HR
Business Partner model. Strategic HR management takes

place at chain head ofﬁces, where key HR agendas also take

shape. Regional units are responsible for the full spectrum of
HR operations required in their jurisdictions and comply with
international and local norms and standards.

This unlocks a tailored approach to each category of
employees within the broader team, all while fostering an
environment that facilitates people’s growth and better
performance.

For more information on changes in the management
system, see the Employees section of our 2022 Sustainability
Report.

We continued our efforts to transform X5’s
governance model, which emphasises
collegial bodies, the role of each business in
the Group, and improving centralised

functions and services.

Partnership is becoming a core pillar for
interacting within X5 and supporting
synergies. It is why we are striving to
transform our governance model Group-
wide, including at X5’s retail chains; boost

interaction between X5’s ofﬁces, stores and

assets; and make our organisational

structure ﬂatter; etc.

We launched transformation of the
organisational structure of the Pyaterochka
retail chain, to base it, among other things,
on a partnership culture. Our system is built
around store operations, with everyone

around helping stores deliver results.

For more information on the Company’s performance and activities, see the

Employees section of our 2022 Sustainability Report.

Code of Business Conduct and Ethics

People of different ages, professions and ethnic
backgrounds come to X5 and work well together. To deliver
on its commitment to equal opportunities, the Company
strives to comply with all requirements and standards around
disability employment. As we advance on our continuous
improvement journey, we engage employees in creating a
comfortable environment for all people in society, which is

reﬂected in our Code of Business Conduct and Ethics.

The Code of Business Conduct and Ethics deﬁnes standards

of conduct that employees should observe in interactions
with customers, suppliers and colleagues, and also lays out
basic principles that guide our business practices.

The Code applies to all employees regardless of their
position or role, and they are informed of its content through
regular interactive training.

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EMPLOYEES

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Our values guide our work and decision making, help
us understand each other better and communicate
more effectively.

X5’s four values were developed in 2018. Each value

is deﬁned through behavioural indicators.

Our values are reﬂected in the Company’s HR-related

business processes.

Values

Behavioural indicators

Honesty and
integrity

We abide by our agreements

We give our co-workers reliable information in full

We have zero tolerance for corruption

Respect

We show respect when we are involved in discussions, solving problems or providing

feedback

We take into account the interests, opinions and feelings of our colleagues when

making decisions and when interacting with one another

We help our colleagues, going beyond the scope of our responsibilities if necessary

Desire for

achievement

We set ambitious, stretching goals

We take responsibility for our actions and do not shift blame onto others

We commend our co-workers for their achievements and allow them to make
mistakes

Customer-

centric

approach

We look for solutions that meet the customer’s needs

In any situation we put ourselves in the position of the customer

We build long-term relationships with customers

X5’s corporate values

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

EMPLOYEES

Feedback

X5 Group has developed an effective system for gathering
feedback, both from subordinates to managers and from
employees to the Company, whether anonymously or not.

The Company promotes and encourages honest feedback
from employees on any matters relating to their employment
or work at the Company, including corporate culture, values
and ethics. We foster an open information space with a single
intranet portal where users can post news and leave
comments. As part of this initiative, we organise regular town

halls with senior executives and ﬁreside chats, enabling

employees to ask questions and get answers.

There is also an ethics hotline available to all employees.

The Company works to ensure that employees can feel
comfortable giving feedback: reports can be made
anonymously, information received via the hotline is kept

conﬁdential, and whistleblowers are protected from

retaliation, discrimination and other potential consequences.

In 2022, we launched a regular Company-wide eNPS
measurement that will take place every six months as part of
the Your Voice engagement survey. All units communicate
survey results to employees for the whole unit and for each
function/area/department, write up action plans for
underperforming areas and work on improving performance.

For more information on feedback initiatives, see the

Employees section of our 2022 Sustainability Report.

X5 Group’s intranet portal won the
second prize in the HR Tech Product of
the Year category.

HR Tech Award’s Digital
Pyramid 2022

We created an internal service that combines the
functions of a messaging app, a social network,
a knowledge portal, an employee’s personal

account, a beneﬁts system, and a gift store.

HR Galaxy Awards 2022:
X5 Group (Perekrestok retail
chain) came second in the
Digital Leader category

105

Corporate culture

X5 Group is a modern, multicultural Company that

sets industry standards and shapes best practice in
business conduct, teamwork and community care.
The Company’s assets are united by a common
strategy and purpose, mission, values, and leadership
and engagement practices. Partnership is a core
pillar. Together we are building a long-term successful
business that is adaptable to change –
a permanent market leader with an open partner
environment where every asset and employee knows
their value and can showcase their contribution to

the Company.

The year of 2022 saw the launch of our X5 Support
programme for business continuity. It combines
communication tools, workshops with psychologists,
Q&A for employees, regular executive statements as
well as support measures, such as a mental health
hotline, additional insurance programmes for X5 staff

in border regions, etc.

X5 Group placed second in the
Corporate Social Responsibility

category.

HR Galaxy Awards 2022

STRATEGIC REPORT

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EMPLOYEES

106

Motivation and fair compensation

X5 Group operates a remuneration and incentive
system with common corporate rules that takes into

consideration the speciﬁcs of each of our retail
formats, digital businesses and rapidly developing
assets. As part of our policy on equal opportunities, we
strive to always treat our employees equally, offering
fair remuneration for their labour in accordance with
their qualiﬁcations and skills, the time and effort spent
at work, the difﬁculty of their role, and the quantity and
quality of their work. Company-wide principles and

approaches towards personnel rewards are outlined in
X5’s Policy on Remuneration.

All X5 business units constantly monitor the wage
market for line personnel to ensure that X5 remains
competitive. In 2022, the average wage across the
Company increased by 11%.

In 2022, the Company set two rounds of semi-annual
targets. For the ﬁrst half of the year, two Company-wide
KPIs were set for all employees: ensuring business
continuity and OPEX/CAPEX optimisation. For the
second half of the year, ﬁve Company-wide KPIs were
set, each with an equal weight of 20%: X5’s market
share, Pyaterochka’s LFL performance (gap vs peer),
X5’s EBITDA margin, X5’s CAPEX as a percentage of
revenue, and X5’s NPS.

As part of our social measures to support employees, we
offer ﬁnancial assistance and discounts in the Company’s
stores and on partners’ goods, ﬂexible work schedules,
including hybrid work arrangements, COVID-19 vaccinations
and annual ﬂu vaccinations for targeted employees,
reimbursement of mobile internet costs, gym memberships,
life and health insurance, and other beneﬁts.

Employer brand, recruitment and onboarding

One of the key objectives of X5’s HR function is to support the
Company’s growth and development by promptly and fully meeting
its needs for new talent across all regions of operation. To do this, all
X5 units make consistent efforts to enhance their attractiveness as
employers. In 2022, the Company hired 145,099 new employees.

Also in 2022, X5 updated its employee value proposition. Each unit
can build on X5’s Group-wide beneﬁts to attract candidates in line
with the unit’s needs and taking into account speciﬁc target

audiences.

In 2023, we will focus on developing programmes aimed at
enhancing the Company’s appeal to young people. Each unit within
the Company undertakes its own efforts in this area, selecting
educational institutions that match its proﬁle and ﬁt with business
needs. Several units offer internships and vacancies for young
specialists, while university students are involved in solving business
cases and are welcome to bring to X5 their ideas and projects for the

retail industry.

For more information on recruitment and onboarding activities and
initiatives, see the Employee section of our 2022 Sustainability

Report.

Training and development

A major beneﬁt that X5 Group employees enjoy is a
wide range of opportunities for professional
development and career growth. Our employees can
develop within their units as well as at other Company
assets. We welcome internal mobility and strive to

create an environment where everyone can develop

their skills and competencies, and gain knowledge
and experience.

As part of annual performance appraisals, each X5
employee undergoes a comprehensive evaluation of
their performance, including against KPIs and X5’s
capabilities and values. We build a funnel of talent
and high-potential employees and draw up employee
development plans based on the appraisals.

A system of HR committees enables us to identify
succession pool candidates for key positions and
determine areas for growth for incumbent managers
on an annual basis. This uniform approach ensures a
talent pool at all levels of management and supports
the sustainable management of the Company in the
long term.

Our training system is constantly evolving to become
more technology-driven and better adapted to the
needs of speciﬁc groups of employees. The system is
also adapted to the pace of change in the Company

and in employee demands.

In 2022, X5 consolidated all its existing training programmes
into its X5 Shelf online corporate university / development
portal, which we are developing as an education marketplace.
The portal currently features more than 900 pieces of
content, with over 30,000 employees registered and over
5,500 unique users visiting the portal every month. In 2023,
we will continue shifting existing training and development
processes to the Shelf portal. Our plans include launching
cross-format training programmes, namely Management
Culture at X5, Partnership Culture at X5 and Developing
Leadership Potential.

For details on the Company’s motivation and compensation
measures and initiatives, see the Employees section of our
2022 Sustainability Report.

The Nature of Code or IT Camp for
Developers project won ﬁrst place in
the DevRel of the Year category. The
X5 Tech School of Team Leaders
project won second place in the
Best Training Programme category.

HR Galaxy Awards

X5’s Speak Up School placed second
in the Best B2B Training/Education
Project category. The Nature of Code
or IT Camp for Developers project

placed second in the Best Employer

Brand Project category.

bema!

Third place in the Education category for
X5’s Speak Up School; a special prize for
the Most Original Initiative to Promote and
Build the Employer Brand for X5’s Speak
Up School.

Silver Mercury

project won an ABPMP Russia

Community Award. The

is an

annual contest of projects to enhance performance
through business process management methods
and technologies, run by the ABPMP Russian
Chapter and supported by the IT cluster of the
Skolkovo Foundation and the Analytical Centre of

the Russian Government.

X5’s Personal Account project to automate HR

processes won a

at the national

Best HR Departments contest in the Digital Leader
category.

BPM Project of the Year

X5 Group’s Creating a Shared Services Centre for
HR Operations

Crystal Pyramid

STRATEGIC REPORT

SUSTAINABLE DEVELOPMENT

EMPLOYEES

Occupational health and safety

Launching the Shelf corporate university and
onboarding retail staff

Create a single recruitment system, elevate the
succession and talent pool programme, and scale

up the Partner Director programme

Update the onboarding programme for all X5

employees

Launch new projects for young people

Proceed with the centralisation of HR services
under X5 Business Support and move to a service

model

Continue the transformation of governance and
culture models, including by updating values and
work practices to foster a culture of partnership
and high-quality interaction between businesses

and to support X5’s ambitious plans

Plans for 2023

The year of 2023 will usher in a further revamp of the
Company’s management models and corporate
culture, including updating our operating principles,
to contribute to a partnership culture and fruitful
cooperation between businesses, all while achieving
our ambitious goals.

X5’s HR function will continue to support change and
growth ambitions under the new development
strategy for each priority as a valued partner. The
focus will remain on delivering better operations, cost

efﬁciency, and internal processes by digitising and

automating key services, development and training
with an emphasis on leadership skills and
competencies.

Key 2023 OHS goals:

Learn more on how we are developing human capital
and safeguarding employee rights and safety in X5
Group’s 2022 Sustainability Report.

HR plans for 2023:

At-work health and safety is one of the most controversial and hot-button matters for a healthy
workforce, as the average employee spends eight hours a day at work.

Our approach

In occupational health and safety (OHS), we aim to identify and build a sustainable safety culture. The Company has adopted an
Occupational Health and Safety Policy. Being a responsible employer, X5 guarantees every employee is entitled to a comfortable

working environment in line with state regulations. In this regard, we adhere to the following principles:

The Company’s Occupational Health and Safety
Management System (OHSMS) is OHSAS 18001-compliant
and can be applied at all management levels. It helps to
rapidly identify potential dangers, take remedial actions to
bring working conditions up to the required standards and
make prudent management decisions.

In X5’s business unit, which numbers over 50 full-time
employees, an OHS specialist is a must (as per the Russian
Labour Code).

In 2022, we updated a number of documents regulating
occupational safety.

The OHSMS applies to all X5 employees. In line with X5’s
Occupational Health and Safety Policy, we urge employees
to develop the OHSMS and consult them on it if requested.

Being a safety leader: all employees are involved in
maintaining and improving the Company’s OHS, while all-

level managers lead by example.

Identifying threats and managing risks: we take action on
threats, assess OHS risks and analyse incident causes to

prevent them.

Ensuring safe working conditions: the Company’s
equipment and workplaces comply with applicable national

OHS standards.

Upskilling: the Company aligns employee qualiﬁcations
with their duties and veriﬁes knowledge according to up-
to-date OHS requirements.

Investing in people: we reward employees for OHS
compliance and encourage them to voice their ideas and

suggestions for OHS management system improvements.

Promoting a safe working environment for suppliers and
contractors: we establish uniform OHS requirements for
our staff and contractor employees working on the

Company’s premises and/or for the Company’s beneﬁt.

Launch electronic checklists for internal audits
(WRS2 system) – aligning and analysing violations

for prompt decisions on better working conditions

Transition in-house health and safety training from
text-based courses to a live, engaging format
(using actual photos and videos showing the

speciﬁc equipment use)

Move some retail chains / business units to a
service OHS model, which will formalise
occupational safety processes and reduce labour

costs, ensuring quality of service

Automate personal protective equipment (PPE)

distribution

Automate health and safety training, use EDS in

training protocols

Automate the review of OHSMS results

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EMPLOYEES

Letter from the Chair

of the Supervisory Board

CORPORATE GOVERNANCE

LETTER FROM THE CHAIR OF THE SUPERVISORY BOARD

109

Looking back on my second year as Chair of the
Supervisory Board, I am immensely proud of, and
grateful to, all the employees at X5. The complexity
of the challenges that society faced in another
turbulent year – with macroeconomic conditions
deteriorating from late February 2022 and a new
wave of sanctions that resulted in restrictions on
businesses – required a new level of teamwork and
focus from all employees at our Company.

The Supervisory Board remained connected, deeply
focused and carried out stringent oversight of the
Company’s contingency planning and the impact
on X5’s corporate structure and operational activity
in order to ensure business continuity in the interest
of all of our stakeholders, including our employees,
customers and shareholders.

We maintained our commitment to X5’s long-term
strategy, which aims to strengthen our existing
businesses while growing our digital capabilities and
omnichannel presence.

The Company continued to grow in 2022, and
I am proud to say that through the strength of our
operations and our customer-focused approach,
we maintained profitability margins in line with our
strategic targets.

Meanwhile, as mentioned above, the Supervisory
Board is conscious of the challenging and changing
circumstances the Company is facing, as well as the
impact of those circumstances on X5’s corporate
structure. These include the suspended trading of
Company shares on the London Stock Exchange, as
well as new regulatory restrictions to the payment of
dividends in the Company’s operating environment.
While there is a diverse set of issues to be resolved,
we are constantly reviewing potential solutions to
improve our corporate structure in the long-term
sustainable interest of the Company, its shareholders
and all other stakeholders. That being said, in view of
the current market conditions, ongoing regulatory
constraints, and consistent with last year’s profit
allocation, we will recommend to X5’s General
Meeting of shareholders not to distribute a dividend
for 2022.

As a key strategic priority under these circumstances,
the Supervisory Board extensively reviewed the
operational performance of our key retail banners –
Pyaterochka and Perekrestok – as well as measures
and initiatives to strengthen their position in key
regions of operation by adapting our CVP, driving
organic growth and building strategic partnerships.
The Supervisory Board closely monitored the
development of Chizhik, X5’s hard discounter format.
Encouraged by Chizhik’s strong performance, the
Board fully supports management in its strategic
objective to operate more than 4,000 Chizhik stores
by 2025. Meanwhile, driven by the clear shift in
consumer preference towards online shopping,
X5’s digital businesses continued to gain momentum,
resulting in a 46.6% net sales growth year-on-year.
By the end of the year, more than 4,400 stores and
44 dark stores in 64 regions of Russia offered
express delivery.

Dear Reader,

CORPORATE GOVERNANCE

LETTER FROM THE CHAIR OF THE SUPERVISORY BOARD

110

ESG matters are increasingly important to us, as well as
to all our stakeholders. Across the Supervisory Board and the
entire Company, there is a growing awareness of the role that
all our businesses must play in society. The Supervisory
Board spent considerable time evaluating and discussing the
Company’s sustainability strategy and is fully supportive of
the decisions that management has made. X5 is committed
to pursuing ESG leadership in all of its business activities and
continues to contribute to the transition to a low-carbon
economy. Our shift to more sustainable business practices is
an ongoing process guided by our sustainability strategy and
long-term targets. Despite the rapidly changing environment,
emerging challenges and the steady growth of the
Company’s businesses, I am proud to say that X5 is on track
with its sustainability strategy goals.

As a Supervisory Board, we maintained a strong focus on
management development and succession planning. We
are working hard with the Executive Board to identify and
develop the talent we need to ensure that we have qualified
successors in both middle and senior management to deliver
continued growth and meet market demand for our existing
and new retail concepts. At the same time, the Supervisory
Board focuses on stability within X5’s leadership team,
particularly in the face of fierce competition and an increased
shortage of qualified executives. I am particularly pleased
that we could strengthen our Management Board with the
appointment of Ekaterina Lobacheva as President, and also
announce the Supervisory Board's recommendation to
extend Igor Shekhterman’s term as CEO for another two
years starting in 2023. We are confident that the continuity of
X5’s leadership in the current volatile environment will benefit
the Company and all its stakeholders.

My role as Chair is to maintain high standards of corporate
governance and ensure that the Supervisory Board is
properly equipped to discharge its duties, as well as
spending sufficient time on key areas that support our
strategic priorities. Our corporate governance framework
clearly defines responsibilities and ensures that the Group
has the right systems and controls in place to enable the
Supervisory Board and its committees to oversee the
business effectively, offering challenges to the status
quo where necessary.

That being said, 2022 was another year of significant change
in the composition of the Supervisory Board: as described
in the Supervisory Board Report, most of my fellow
Supervisory Board members had to step down following the
geopolitical turbulence in the beginning of the year.
My profound gratitude goes out to each of these highly
valued individuals who contributed so much to X5’s
impressive growth over so many years. While I sincerely regret
their resignation and the external circumstances that led to
this, I am pleased to say that we were able to close the year
with a new team of highly qualified new Supervisory Board
members, all of whom are introduced in this report on pages
127–128 I look forward to working with this team to support
the Company and its leadership during these times of
profound change and to capitalise on the opportunities
presented by evolving trends in our markets. To that end, the
Supervisory Board unanimously supports the focus on the
strategic priorities that will enable X5 to build on its unique
strengths and to stay competitive, accelerate growth and
generate free cash flow. Further details on our strategic
priorities can be found on page 28.

Our approach to doing business and the performance of
all employees across the Group are of vital importance to
the Supervisory Board. We recognise that culture plays a
fundamental role in delivering on our strategic priorities, and
the Supervisory Board is ultimately responsible for ensuring
that our activities reflect the culture we wish to instill to drive
the right behaviours among all our staff members and
stakeholders.

One of my goals as Chair is to build a culture where we fully
understand our stakeholders and what matters most to
them – whether customers, employees, suppliers,
shareholders or our communities – and then act on these
insights by driving change and innovating to meet their
needs. Within the Supervisory Board, there is a clear
emphasis on setting the right tone from the top and leading
by example.

As we look ahead to 2023, the current volatile environment
remains a challenge in our markets and will bring continued
uncertainty. However, I believe that our commitment to
delivering on X5’s strategic objectives will guide and support
our teams in all areas of the business, as we live our shared
values and help our customers to eat healthy, save time and
live better.

In conclusion, I would like to extend a word of thanks to the
Executive Board and all X5 employees, whose hard work and
resilience enabled the Company once again to fulfil its vital
role in society during this challenging year.

On behalf of the Supervisory Board,

Letter from the Chair of the Supervisory Board

Peter Demchenkov

СHAIRMAN OF THE SUPERVISORY BOARD

31 May 2023

1 Fedor Ovchinnikov stepped down as member of the Supervisory Board on 8 March 2023.

Corporate

Governance Report

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

111

Governance structure

Since 2022

www.x5.ru

X5 Retail Group N.V. is a public limited liability company
incorporated under the laws of the Netherlands, with
global depositary receipts listed on the London Stock
Exchange.

The Company is required to comply with, among other
regulations, the Dutch Corporate Governance Code
(the “Code”). The full text of the Code can be viewed on
X5’s website at

In accordance with the Code, a broad outline of the
Company’s corporate governance structure is
presented in this section, including any deviations from
the Code’s principles and best practices. X5 aspires to
high standards of corporate governance and is
committed to a corporate governance structure that
best supports its business, meets the needs of its
stakeholders and complies with applicable rules and
regulations.

, the United States, the European Union, the

United Kingdom, and other countries have imposed
wide-ranging economic sanctions and trade
restrictions, which have had an effect on the corporate

governance of X5 and are reﬂected in this report.

1 In light of unprecedented market conditions and in order to maintain

orderly markets, the London Stock Exchange suspended the admission to
trading of X5 global depository receipts as of 3 March 2022.

The Company has a two-tier board structure, comprising a Management Board and a Supervisory Board. The Management Board and the Supervisory Board are

independent of one another and are accountable to the General Meeting of Shareholders. The overview below shows the governance structure of X5.

GENERAL MEETING

OF SHAREHOLDERS

SUPERVISORY BOARD

MANAGEMENT BOARD

EXECUTIVE BOARD

AUDIT AND RISK

COMMITTEE

NOMINATION AND REMUNERATION

COMMITTEE

Chizhik

Digital

businesses

Perekrestok

Pyaterochka

Security

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

112

Management Board

Supervisory Board

Composition and reappointment schedule of the Management Board

Composition and reappointment schedule of the Supervisory Board

The Management Board has ultimate responsibility for the
overall management of the Company and oversees all
corporate governance activities. It is accountable for the
Company’s pursuit and achievement of corporate goals and
objectives, its strategies and policies. The Management
Board is responsible for complying with all relevant laws and
regulations, for managing the risks associated with the

Company’s activities and for ﬁnancing and external

communication.

When managing X5’s general affairs and its day-to-day
operations, the Management Board is supported by the

Executive Board, which was established to serve as a

leadership team for the Company’s operating subsidiaries in
Russia in order to best support X5’s strategy and businesses
at the local level.

The current members of the statutory Management Board

and the Executive Board (the broader management team that
handles day-to-day strategic, operational and ﬁnancial issues),

including their biographies, can be found on pages 31
and 129.

The Supervisory Board is responsible for supervising and
advising the Management Board and overseeing the general
course of affairs, strategy and operational performance of X5

and its businesses. It ensures that external experience and

knowledge are embedded in the Company’s operations.
When performing its duties, the Supervisory Board takes into
account the relevant interests of the Company and all its
stakeholders, and, to that end, considers all appropriate

interests associated with the Company and its afﬁliated

businesses, including corporate responsibility issues that are
relevant to the Company. Major business decisions require the
approval of the Supervisory Board. The Supervisory Board is
responsible for monitoring and assessing its own
performance.

The Supervisory Board determines its number of members.

X5’s Supervisory Board currently consists of siх members, with

a majority of four independent members. The current
members, including their biographies, can be found
on pages 127–128.

The Supervisory Board has prepared a proﬁle of its size and

composition, taking account of the nature of the Company’s

business and its activities and the desired expertise and

background of the members of the Supervisory Board. The

Supervisory Board evaluates its proﬁle and composition

annually. Due to the new composition of the Supervisory
Board, a relatively light assessment was conducted in 2022.
For further details, please refer to the Supervisory Board
Report on pages 130–136.

Starting in 2020, the Supervisory Board resolved to reduce

the term of (re-)appointment for Supervisory Board members
to a maximum of three years, to promote agility and diversity
and to create more ﬂexibility in view of rapidly changing skill

requirements at the Supervisory Board level. The total term of

ofﬁce may not exceed 12 years. The Supervisory Board has

prepared a retirement and reappointment schedule to, as far
as possible, prevent simultaneous reappointments. The

Supervisory Board’s proﬁle and rotation plan can be viewed

on the Company’s website.

Name

Year

of birth

Year of first

appointment

End of current term

of appointment

Igor Shekhterman

1970

2015

2023

Frank Lhoёst

1962

2007

2023

Quinten Peer

1974

2019

2023

Ekaterina Lobacheva

1982

2022

2025

Name

Year

of birth

Year of first

appointment

End of current term

of appointment

Peter Demchenkov (Chair)

1973

2015

2023

Olga Vysotskaya

1961

2022

2025

Vadim Zingman

1970

2022

2025

Dmitry Alekseev

1974

2022

2025

Vassilis Stavrou

1970

2022

2025

Leonid Afendikov

1978

2022

2025

1 Olga Vysotskaya and Vadim

Zingman were appointed on
30 June 2022.

2 Dmitry Alekseev, Vassilis

Stavrou and Leonid
Afendikov were appointed
on 30 November 2022.

The Supervisory Board currently has two standing committees: the Audit
and Risk Committee and the Nomination and Remuneration Committee.
The members of each committee are appointed by the Supervisory Board
from among its members. Each committee has a charter describing its
role and responsibilities and the manner in which it discharges its duties
and reports to the full Supervisory Board. These charters are included in
the Rules of Procedure of the Supervisory Board, which can be viewed on
X5’s website. As of 16 March 2022, the duties and responsibilities of the
Sustainable Development and Innovation Committee were included in the
remit of the full Supervisory Board.

Committees of the

Supervisory Board

The Audit and Risk Committee assists the Supervisory Board in

overseeing the integrity of X5’s ﬁnancial statements, system of
internal business controls and risk management, ﬁnancing and
ﬁnance-related strategies, taxation, the Company’s compliance
with legal and regulatory requirements, as well as the qualiﬁcations,
performance and independence of the external auditor and the

performance of the internal audit function. Furthermore, the Audit
and Risk Committee advises the Supervisory Board on handling

and deciding on reported (potential) conﬂicts of interest and/or

related party transactions involving members of the Supervisory
Board or members of the Management Board.

Audit and Risk Committee

The Supervisory Board operates a Leadership Diversity Policy that
aims for a diverse composition of both the Management Board and
the Supervisory Board in particular areas of relevance for X5. This

includes diversity of experience, nationality and background.

Appointments to the Management Board and the Supervisory Board

are evaluated against the candidate’s proﬁle; the existing balance of
skills, knowledge and experience on the respective board; and the

need for the relevant board to be prepared for disruption and
change. Management Board and Supervisory Board members are
prompted to be mindful of diversity, inclusiveness and meritocracy

when examining and proposing nominations to the Management

Board and the Supervisory Board. In the selection and appointment
of new Management Board or Supervisory Board members, the
Supervisory Board will consider a diverse range of candidates. This

will also include diversity of gender and age so that, when the ﬁnal
appointment is made, the Supervisory Board can be conﬁdent that

the most effective candidate has been selected.

Each year, the Supervisory Board conducts an evaluation of its
performance and the performance of the Management Board. In this

context, the Supervisory Board gives careful consideration to its own

diversity, as well as to diversity on the Management Board, for them
to be effective in performing their roles.

On 1 January 2022, the Gender Diversity Act came into force in the
Netherlands. The law introduced a requirement to set ambitious
gender balance targets for management boards and senior
management of large listed Dutch companies and a plan which
outlines the actions needed in order to meet these gender diversity
targets. The Gender Diversity Act also calls for companies to report
to the Dutch Social and Economic Council (Sociaal Economische
Raad) with regard to diversity.

While the Management and Supervisory Boards are currently not

gender balanced, the Executive Board meets the one-third gender

balance target. X5 recognises the importance of diversity, including
gender, at all levels of the Group and has a very strong track record

of developing a critical executive layer of female business leaders.
Across all of the Group’s operations, speciﬁc diversity targets are

taken into account in recruitment, talent development,
appointments, retention of employees, mentoring and coaching
programmes, succession planning, training, and development.

Diversity

The Nomination and Remuneration Committee recommends the
remuneration policy for the Management Board to be adopted by
the General Meeting of Shareholders, prepares proposals for the
Supervisory Board for remuneration of the individual members of
the Management Board in line with the remuneration policy and
advises the Management Board on the level and structure of
compensation for other senior personnel. The Nomination and
Remuneration Committee also advises in respect of the selection
and appointment of members of the Supervisory Board, the

Management Board and the Executive Board.

Nomination and Remuneration
Committee

CORPORATE GOVERNANCE

GOVERNANCE STRUCTURE

113

Name

Audit and Risk
Committee

Nomination and
Remuneration Committee

Peter Demchenkov

Member

Chair

Olga Vysotskaya

Chair

Vadim Zingman

Dmitry Alekseev

Vassilis Stavrou

Member

Leonid Afendikov

Member

COMPOSITION OF THE SUPERVISORY BOARD COMMITTEES

X5 Retail Group. Годовой отчет за 2022 год (на английском) - часть 7