X5 Group (Пятерочка). Годовой отчет за 2021 год - часть 19

CORPORATE GOVERNANCE

|

GOVERNANCE STRUCTURE

146

Shareholders and their rights 

General Meeting of Shareholders

Voting rights

X5 Retail Group N.V. is required to hold a General 
Meeting of Shareholders within six months after the 
end of the financial year in order to, among other 
things, adopt the financial statements, decide on any 
proposal concerning profit allocation and discharge 
the members of the Management Board and 
Supervisory Board from their responsibility for the 
performance of their respective duties for the previous 
financial year. 

Extraordinary meetings are held as often as the 
Management Board or the Supervisory Board deems 
necessary. In addition, shareholders and holders of 
global depositary receipts (GDRs) jointly representing 
10% of the outstanding share capital may ask the 
Management Board and the Supervisory Board to hold 
a General Meeting of Shareholders, stating their 
proposed agenda in detail when doing so.  

The powers of the General Meeting of Shareholders 
are specified in the Articles of Association. Apart from 
the decisions taken at the Annual General Meeting of 
Shareholders, the main powers of the General Meeting 
of Shareholders are to appoint (subject to the 
Supervisory Board’s right to make binding 
nominations), suspend and dismiss members of the 
Management Board and Supervisory Board; to appoint 
the external auditor; to adopt amendments to the 
Articles of Association; to issue shares and grant 
subscriptions for shares; to authorise the Management 
Board or the Supervisory Board to issue shares and 
grant subscriptions for shares; to authorise the 
Management Board or the Supervisory Board to 
restrict or exclude pre-emptive rights of shareholders 
upon the issuance of shares; to authorise the 
Management Board to repurchase outstanding shares 
in the Company; to adopt the remuneration policy of 
the Management Board; to determine the 
remuneration of members of the Supervisory Board; 
and to merge, demerge or dissolve the Company.  

The notice for a General Meeting of Shareholders 
needs to be published no later than 42 days prior to 
the day of the meeting. The mandatory record date, 
establishing which shareholders are entitled to attend 
and vote at the General Meeting of Shareholders, is set 
at least 28 days prior to the date of the meeting. 

Shareholders and/or holders of GDRs are entitled to 
propose items for the agenda of the annual General 
Meeting of Shareholders provided that they hold at 
least 3% of the issued share capital. Proposals for 
agenda items for the annual General Meeting of 
Shareholders must be submitted at least 60 days prior 
to the date of the meeting.  

All shareholders and other persons who, pursuant to 
Dutch law or the Articles of Association, are entitled to 
attend and/or vote at a General Meeting of 
Shareholders are entitled to address the General 
Meeting of Shareholders. X5 uses the Bank of New 
York Mellon, the depositary for X5’s GDR facility (the 
“Depositary”), to enable GDR holders to exercise their 
voting rights represented by the shares underlying the 
GDRs. As described in the “Terms and Conditions of 
the Global Depositary Receipts”, holders of GDRs may 
instruct the Depositary with regard to the exercise of 
the voting rights connected to the shares underlying 
their GDRs. Alternatively, upon request of the holders 
of such depositary receipts, the Depositary will grant a 
proxy to such holders who wish to vote in person at a 
General Meeting of Shareholders. Persons who hold a 
written proxy may represent shareholders at a General 
Meeting of Shareholders. The written proxy must be 
duly executed and legalised in accordance with the 
applicable laws and may be submitted electronically.

Each share confers the right to cast one vote at the 
General Meeting of Shareholders. There are no 
restrictions, either under Dutch law or in the Articles of 
Association, on the right of non-residents of the 
Netherlands or foreign owners to hold shares or to 
vote, other than those also imposed on residents of 
the Netherlands. Resolutions of the General Meeting of 
Shareholders are passed by a simple majority of the 
votes cast in a meeting where more than 25% of the 
issued share capital is present or represented. If 25% 
or less of the issued share capital is present or 
represented, a second meeting should be convened 
no later than four weeks following the first meeting. At 
the second meeting, no quorum requirement will apply. 
However, the General Meeting of Shareholders can 
only resolve on (i) a merger or demerger, (ii) the 
authorisation to limit or exclude pre-emptive rights and 
(iii) cancellation of shares with a majority of at least 
two-thirds of the votes cast if less than 50% of the 
issued capital is represented in that meeting.

Reporting on conflicts of interest

A member of the Management Board or Supervisory 
Board is required to immediately report and provide 
all relevant information to the Chairman of the 
Supervisory Board (and to the other members of the 
Management Board if it concerns a member of that 
board) on any conflict of interest, or potential conflict 
of interest, that they may have with the Company and 
that may be of material significance to them or the 
Company.  

If a member of the Supervisory Board or a member of 
the Management Board has a conflict of interest with 
the Company, that member may not participate in the 
discussions or decision-making process on subjects 
or transactions relating to the conflict of interest. 
A decision taken by X5 to enter into a transaction 
involving a conflict of interest with a member of the 
Management Board or a member of the Supervisory 
Board that is of material significance to them or the 
Company requires the approval of the Supervisory 
Board. The Audit and Risk Committee advises the 
Supervisory Board on handling and deciding on 
(potential) conflicts of interest and prepares resolutions 
of the Supervisory Board in relation thereto.  

In 2021, the Supervisory Board approved a new conflict 
of interest protocol to identify and handle conflicts 
of interest involving Supervisory Board members, in 
addition to the existing conflict of interest provisions 
in the Board’s Rules of Procedure. The reason for the 
new protocol is the increased risk of conflicts of 
interest involving Supervisory Board members, as the 
scope of activities of the Group is becoming broader 
while it increasingly operates as an omnichannel 
retailer.   

CORPORATE GOVERNANCE

|

GOVERNANCE STRUCTURE

147

Dividend rights

 Substantial shareholdings 

Securities owned by Board members

Any distribution of profits to shareholders will be 
made after the adoption by the General Meeting 
of Shareholders of the annual accounts of the 
Company from which it appears that such distribution 
is permitted. The Company may only declare profit 
distributions insofar as its net assets exceed the sum 
of its issued share capital plus any legal reserves 
required to be maintained pursuant to Dutch law. 
A loss may only be applied against such reserves 
to the extent permitted by Dutch law. On a proposal 
of the Supervisory Board, the General Meeting of 
Shareholders will determine which part of the profits 
will be added to the reserves and the allocation of the 
remaining profits. 

On a proposal of the Supervisory Board, the General 
Meeting of Shareholders may resolve to pay an 
interim dividend insofar as X5’s net assets exceed the 
sum of its issued share capital and the reserves that 
are required to be maintained pursuant to Dutch law, 
as evidenced by an interim financial statement 
prepared and signed by all the members of the 
Management Board. In addition, on a proposal of the 
Supervisory Board, the General Meeting of 
Shareholders may resolve to make distributions to the 
shareholders out of any reserves that need not be 
maintained pursuant to Dutch law. 

The Company’s dividend policy was approved 
in 2017 and amended in 2020. The Company intends 
to pay a full-year dividend per share that will remain 
stable or grow over time in absolute Russian 
rouble–denominated terms. The dividend payout 
will be based on operating cash flow and a target 
consolidated net debt /adjusted EBITDA  ratio
of below 2.0× as of the end of the year for which the 
dividend is proposed, taking into account 
considerations including but not limited to the 
Company’s growth profile, capital requirements and 
return on capital. Starting in 2020, X5 is committed 
to semi-annual dividend payments. The interim 
dividend will be announced following the release 

Detailed information on the dividend policy and 
dividend history is available on the Company’s website.  

of the third-quarter results.  

¹

²

According to the Disclosure Guidance and 
Transparency Rules, any person or legal entity who, 
directly or indirectly, acquires or disposes of an 
interest in X5’s capital and/or voting rights must 
immediately give written notice to the Company and 
the Financial Conduct Authority (FCA) if the 
acquisition or disposal causes the percentage of 
outstanding capital interest and/or voting rights held 
by that person or legal entity to reach, exceed or fall 
below any of the following thresholds: 5%, 10%, 15%, 
20%, 25%, 30%, 50% or 75%. 

The members of the Management Board and 
Supervisory Board and X5’s other senior 
management are subject to the Company’s Inside 
Information and Dealing Code. This Code contains 
rules of conduct to prevent trading in X5’s GDRs 
of shares or other financial instruments when holding 
inside information or during blackout periods when 
trading is not permitted (for instance, prior to the 
publication of quarterly financial results). The Inside 
Information and Dealing Code can be viewed on 
the Company’s website. 

Under the Inside Information and Dealing Code, 
members of the Management Board and Supervisory 
Board must notify the FCA of X5 securities and 
voting rights at their disposal. These positions can be 
viewed in the FCA’s public register.  

The following table lists the shareholders on record 
on 19 May 2022 in the FCA’s public register that hold 
an interest of 5% or more in the share capital of the 
Company:  

SHAREHOLDER

DATE OF 

DISCLOSURE

³

CAPITAL 

INTEREST

⁴

VOTING

RIGHTS

⁴

CTF Holdings S.A. 

01.01.2021

47.86%

47.86%

The Axon Trust

01.01.2021

11.43%

11.43%

3 Following Brexit, all notifications regarding the Company need to be made to the Financial Conduct Authority in the UK; such notifications were 

made on 1 January 2021.

4 In accordance with the filing requirements, the percentages shown include both direct and indirect capital interests and voting rights. The percentages may 

differ from the actual shareholders’ interests due to the fact that changes within the thresholds mentioned above do not require a notification to the FCA. 
Further details can be obtained at 

. 

www.fca.org.uk

1 Calculated based on the Company’s full-year consolidated financial statements or information in accordance with IFRS 16 as of the end of each reporting 

period as the sum of short-term borrowings and long-term borrowings less cash and cash equivalents.

2 EBITDA shall be adjusted (decreased) by the amount that would have been recognised as operating lease, other store costs, third-party services and other 

expenses payable during the period, but which is not recognised as such under IFRS 16, as well as the amount of the net effect from the decrease in the 
scope of the lease and terminations of lease agreements recognised under IFRS 16. 

CORPORATE GOVERNANCE

|

GOVERNANCE STRUCTURE

148

Repurchase by the Company of its
own shares

Issue of new shares and
pre-emptive rights

Shares in X5 may be issued, and rights to subscribe 
for shares may be granted, pursuant to a resolution 
of the General Meeting of Shareholders or another 
X5 corporate body to which the General Meeting of 
Shareholders has delegated such authority for a time 
not exceeding five years. In 2021, the General Meeting 
of Shareholders approved a delegation of this 
authority to the Supervisory Board relating to the 
issuance and/or granting of rights to acquire up to 
6,789,322 shares (10% of the issued share capital) 
through 12 November 2022. 

Upon the issue of new shares, holders of X5’s shares 
have a pre-emptive right to subscribe for shares in 
proportion to the aggregate amount of their existing 
holdings of X5’s shares. According to the Company’s 
Articles of Association, this pre-emptive right does not 
apply to any issue of shares to employees of X5 or a 
Group company. Pre-emptive rights may be restricted 
or excluded pursuant to a resolution of the General 
Meeting of Shareholders or another X5 corporate body 
to which the General Meeting of Shareholders has 
delegated such authority for a time not exceeding five 
years. The General Meeting of Shareholders has 
delegated the authority to restrict or exclude the 
pre-emptive rights of shareholders upon the issue 
of shares and/or the granting of rights to subscribe 
for shares to the Supervisory Board through 
12 November 2022.   

Articles of Association

Auditor 

Anti-takeover measures and
change-of-control provisions

X5’s Articles of Association contain rules on the 
Company’s organisation and corporate governance. 

Amending the Company’s Articles of Association 
requires a resolution of the General Meeting 
of Shareholders. A proposal to amend the Articles 
of Association, including the text of the proposed 
amendment, must be made available to the holders 
of shares and GDRs for inspection at the offices of X5 
as of the date of the notice convening the meeting  
of the General Meeting of Shareholders until the end 
of the meeting of the General Meeting of Shareholders 
at which the proposed amendment is voted on.   

The current text of the Articles of Association 
is available on the Company’s website.

The General Meeting of Shareholders appoints the 
Company’s external auditor. The Audit and Risk 
Committee makes a recommendation to the 
Supervisory Board with respect to the external auditor 
to be proposed for appointment or reappointment by 
the General Meeting of Shareholders. In addition, the 
Audit and Risk Committee evaluates and, where 
appropriate, recommends the replacement of the 
external auditor. The Audit and Risk Committee also 
pre-approves the fees for audit and permitted 
non-audit services to be performed by the external 
auditor. The Audit and Risk Committee will not approve 
the engagement of an external auditor to render 
non-audit services prohibited by applicable laws and 
regulations or that would compromise the 
independence of the auditor. Specific rules relating to 
non-audit work performed by the external auditor are 
included in X5’s “Rules on External Auditor 
Independence and Selection”. This document 
is available on the Company’s website.  

On 12 May 2021, the General Meeting of Shareholders 
reappointed Ernst & Young Accountants LLP as 
external auditor for the 2021 financial year.    

According to provision 4.2.6 of the Code, the Company 
is required to provide a survey of its actual or potential 
anti-takeover measures and to indicate in what 
circumstances it is expected that they may be issued.  

There are no agreements to which the Company 
is a party and that will automatically come into force 
or be amended or terminated under the condition 
of a change of control over the Company as a result 
of a public offer. However, the contractual conditions 
of most of X5’s important financing agreements and 
notes issued (potentially) entitle the banks and 
noteholders, respectively, to claim early repayment 
of the amounts borrowed by the Company in the 
situation of a change of control over the Company 
(as specified in the respective agreement).  

In 2021, the Management Board was authorised to 
acquire up to 10% of the Company’s shares or GDRs 
thereof. This authorisation is valid through 
12 November 2022. In addition, the Supervisory Board 
resolved that, in case a purchase of shares or 
depositary receipts thereof by X5 would lead to X5 
holding more than 5% of the shares or GDRs thereof, 
the Management Board would require the Supervisory 
Board’s prior approval for such purchase. 

Shares or GDRs thereof held by X5 or a subsidiary may 
not be voted on and are not taken into account for 
determining whether quorum requirements, if any, are 
satisfied.  

In order to fulfil the Company’s obligations under the 
Restricted Stock Unit Plan, the Company from time 
to time acquires GDRs under a restricted buyback 
programme pursuant to an authorisation of the 
General Meeting of Shareholders in accordance with 
Article 9 of the Company’s Articles of Association. 
The Company did not repurchase any GDRs in 2021.  

The Company may acquire fully paid shares, or GDRs 
thereof, in its capital for a consideration only following 
authorisation by the General Meeting of Shareholders 
and subject to certain provisions of Dutch law and 
the Company’s Articles of Association if:

Shareholders’ equity minus the purchase price is not 
less than the sum of X5’s issued and fully paid-in 
capital plus any reserves required to be maintained 
by Dutch law

X5 and its subsidiaries would not, as a result, hold 
shares or GDRs thereof with an aggregate nominal 
value exceeding half of the issued share capital

CORPORATE GOVERNANCE

|

GOVERNANCE STRUCTURE

149

Compliance with the Dutch 
Corporate Governance Code 

In accordance with best practice provisions 2.1.7 and 
2.1.8, at most one Supervisory Board member may 
represent, or be affiliated with, a shareholder who 
directly or indirectly holds more than 10% of the shares 
in the Company. 

Supervisory Board members Mikhail Fridman and 
Marat Atnashev are both affiliated with CTF Holdings 
S.A., which has a capital interest of 47.86% in X5. 
Stephan DuCharme serves as Managing Partner of L1 
Retail, part of the LetterOne investment group, which is 
partially controlled by the ultimate shareholders of CTF 
Holdings S.A. Therefore, Mikhail Fridman, Marat 
Atnashev and Stephan DuCharme are not 
independent in the sense of the Dutch Corporate 
Governance Code .  

X5 believes that the non-independent members of the 
Supervisory Board have in-depth knowledge of the 
geographic market, of business in general and of retail 
specifically, as well as a relevant track record in the 
markets in which X5 operates. This is of particular 
benefit to X5 and its shareholders.  

It is Company policy that a majority of the members 
of the Supervisory Board must be independent at all 
times. A majority of the Supervisory Board, which 
currently consists of four members, qualifies as 
independent within the meaning of the Dutch 
Corporate Governance Code. 

1

X5 applies the relevant principles and best 
practices of the Code in the manner as 
described in this Corporate Governance Report. 
Committed to a corporate governance structure 
that best serves the interests of all stakeholders, 
including shareholders, X5 continues to seek 
ways to improve and enhance its corporate 
governance standards in line with international 
best practices. X5 generally adheres to the 
Code but does not comply with the following 
recommendations:

The Code states: “If the Supervisory Board consists 
of more than four members, it should designate […] 
a Remuneration Committee and a Selection and 
Appointment Committee.” As it is felt that issues 
related to selection, appointment and remuneration 
are interlinked, the Supervisory Board decided that all 
these activities should be dealt with by one 
committee: the Nomination and Remuneration 
Committee. 

The Code prescribes that the remuneration committee 
should not be chaired by the chairman of the 
supervisory board. Currently the chairman of the 
Supervisory Board is also the chairman of the 
combined Nomination and Remuneration Committee, 
which constitutes a deviation from the Code. However,  
it is not uncommon for a Board chair to also chair the 
selection and appointment or nomination committee. 
In view hereof and the fact that the Board safeguards 
its statutory responsibilities in remuneration matters, as 
reflected in the Supervisory Board Rules of Procedure, 
X5 believes that the Chairman, being an independent 
Supervisory Board member, is the right person to chair 
the Nomination and Remuneration Committee. 

Mikhail Fridman is the founder and chairman of the 
Alfa Group Consortium; he was appointed as 
a member of the Supervisory Board in 2006. In 2021, 
he was reappointed for a fifth term, thus exceeding 
the maximum of 12 years prescribed by the Code .  

X5 believes that long-term value creation stands to 
benefit from committed shareholders, and that the 
interests of Supervisory Board members largely 
coincide with those of the Company. Supervisory 
Board members generally perform their duties for 
a prolonged period of time, which fits in well with 
long-term value creation for the Company. 

1

The Code prescribes that Supervisory Board members 
may not be awarded remuneration in the form of 
shares and/or rights to shares. Members of the 
Supervisory Board of the Company are entitled to 
restricted stock units (RSUs). The number of annual 
RSU awards equals 100% of a Supervisory Board 
member’s fixed base fee in the year of the award, 
divided by the average market value of an X5 GDR on 
the relevant award date. RSU awards to members of 
the Supervisory Board are not subject to performance 
criteria. 

X5 acknowledges that the award of shares to 
members of the Supervisory Board constitutes a 
deviation from the Code. However, in order to attract 
and reward experienced individuals with a track record 
that is of specific relevance to the Company, X5 
believes it is necessary to allow members of the 
Supervisory Board to participate in the Company’s 
equity-based remuneration plan. This structure aligns 
the interests of Supervisory Board members with those 
of shareholders and strengthens their commitment to 
and confidence in the future of the Company.  

The equity-based awards to members of the 
Supervisory Board are computed with respect to the 
fixed board fee of each member and are therefore not 
performance-based. X5 believes that the level and 
structure of the remuneration of the Supervisory Board 
members safeguard their independence of judgement 
and thought, and adequately reflect the time spent 
and responsibilities of their role. All equity awards to 
Supervisory Board members are determined by the 
General Meeting of Shareholders.  

Moreover, with a three-year vesting followed by 
a two-year lock-up, the equity award programme 
is in line with the spirit of the Dutch Corporate
Governance Code, which states that shares held 
by Supervisory Board members should be long-term 

2.1.7–
2.1.8

Independence of the Supervisory 
Board and Its Members

2.2.2

Appointment and Reappointment 
Periods of Supervisory Board 
Members

3.3.2

Award of Shares and/or Rights to 
Shares to Members of the 
Supervisory Board

2.3.4

Composition of the Committees

2.3.2

Supervisory Board Committees

1 Mikhail Fridman and Stephan DuCharme resigned from the Supervisory 

Board on 1 March 2022.

investments.  

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

150

How we 

manage risk

The Management Board, supported by the 
Executive Board and the Risk Management 
team, is responsible for designing, implementing 
and operating an adequately functioning risk 
management system for the Company. The aim 
is to ensure that the extent to which the 
Company’s strategic and operational objectives 
are being achieved is understood, that the 
Company’s reporting is reliable and that the 
Company complies with relevant laws and 
regulations. 

Risk management

a comprehensive review of both internal and external risks 
is carried out at least annually    

set up and confirmations of risk appetite 

key risk indicators are reviewed

risks for both our strategic and short-term objectives are assessed

emerging risks are continuously monitored

required risk responses and risk mitigating activities are put 
in place

reporting is accurate and reliable

full compliance with relevant laws and regulations

X5’s risk management activities seek to identify and appropriately 
address any significant threat to the achievement of the Company’s 
strategy and business objectives, its reputation and the continuity of 
its operations. X5’s risk management system enables management 
to identify, assess, prioritise and manage risks on a continuous and 
systematic basis, and covers all businesses and corporate functions 
within X5 Group. Ongoing identification and assessment of risks, 
including new risks arising through an early-warning system of key 
risk indicators, are part of X5’s planning, performance and risk 
management cycles.   

Management teams at all levels of the Group are responsible for 
identifying, managing and monitoring relevant risks. The Risk 
Management team facilitates a Company-wide view of risk-relevant 
issues, helps to develop risk management activities in both business 
and functional divisions and ensures that the Management Board is 
continuously and promptly informed of important risk management 
developments.  

Throughout the year, the Risk Management team reviews X5’s risks 
and develops action plans to mitigate risks and allocate appropriate 
resources for risk mitigation. The results of the risk mitigation actions 
are monitored and reported to the Audit and Risk Committee on a 
quarterly basis. Attention is paid to strengthening the design and 
effectiveness of the risk management and internal control systems, 
ensuring that:

Risk appetite 

X5’s risk appetite is defined by the Management Board and approved by the Supervisory Board, 
and is integrated into the businesses through our strategy, Group policies, procedures, controls 
and budgets. Our appetite for each risk is determined by considering key opportunities and 
potential threats to achieving our strategic objectives and can be categorised as reflected 
in the table below.

X5 applies a “three lines of defence” model to ensure the effectiveness and completeness 
of the Company’s risk management and internal control system:

STRATEGY

In addition, specifically in 2021, the Company was resilient in handling 
the risks associated with the COVID-19 pandemic and demonstrated 
the ability to quickly adapt to changes in the market and its business.

OPERATIONS

COMPLIANCE

REPORTING  
AND FINANCING 

RISK CATEGORY 

case

Risks are 
unacceptable in any 

 despite 

mitigating factors 
and considerable 
potential reward.

Averse  

Potential losses 
from these risks 
should be 
calculated and 
planned in advance, 
provisions should 
be created or 
insurance contracts 
should be in place, 
and necessary 
controls should be 
in effect. 

Minimal 

 

minimal

 

The maximum 
potential impact 
from these risks 
should be lower 
or equal to the 

 return. 

The necessary 
mitigation actions 
and controls should 
prevent losses.

Cautious 

The risk impact 
may exceed the 
potential level 
of return; 
compensating 
factors may partly 
mitigate this 
impact. 

Open 

Averse 

Minimal

Cautious

Open

FIRST LINE 

SECOND LINE

THIRD LINE

Business unit / risk owners

Risk Management, Internal  
Control and Compliance 

Internal Audit

Manage risks on a daily basis and 
provide assurance regarding the 
effectiveness of controls

Steer, monitor and support  
line management in (1) managing 
risks and (2) developing and 
maintaining an adequate 
framework for control and 
compliance 

Conduct audits and test the 
internal control and compliance 
framework for assurance of the 
effectiveness of control

Monitoring and assurance

A key element of our risk management framework 
is monitoring and assurance. We use a comprehensive 
business planning and performance review process 
to monitor the Company’s performance. This process 
covers the adoption of strategy, budgeting and the 
reporting of current and projected results. We assess 
business performance according to both financial and 
non-financial (including sustainability) targets.   

X5’s internal control activities aim to provide 
reasonable assurance as to the accuracy of financial 
information, non-financial disclosures, the Company’s 
compliance with applicable laws and internal policies, 
and the effectiveness of internal processes. Internal 
controls have been defined at the level of operating 
entities and across all functions. Compliance with 
company policies is periodically assessed. The 
Company’s policies, procedures and controls are 
periodically updated to reflect both the Company’s key 
risks and the extent to which the Company is willing 
and able to mitigate them.  

The Internal Audit Department (IAD) is mandated 
to perform reviews of key processes, projects and 
systems across the Group, based on X5’s strategic 
priorities and most significant risk areas. The IAD 
provides independent, objective assurance and 
value-adding advisory services that assist the 
Company in achieving business objectives and 
improving its operations. Based on a systemic 
assessment of the design and effectiveness of the 
Company’s risk management and internal control 
systems, the IAD reports its audit findings to the 
Management Board and the Audit and Risk Committee, 
and makes recommendations to improve the 
effectiveness of the risk management and internal 
control systems and their integration into the 
Company’s business processes.   

Ethics and compliance 

We recognise that ethics and integrity are key 
components in the fulfilment of X5’s sustainable health 
and long-term value creation.  

 

Our Code of Business Conduct and Ethics reflects our 
values and principles, which, together with underlying 
policies and procedures, are promoted and 
implemented across the group through learning and 
training programmes.  

 

Climate change

X5 Group acknowledges the urgency of acting on 
climate change, especially in light of COP26 and the 
latest IPCC report findings. Cognisant of the fact that 
the climate agenda will only become more important 
over time, X5 closely monitors changes in international 
and local climate regulation and stakeholder 
engagement. Likewise, it continues to monitor and 
manage climate-related risks, implementing multiple 
initiatives to achieve carbon neutrality by 2050. 

X5 Group’s management and Management Board are 
responsible for effectively monitoring and managing 
risks and opportunities associated with climate 
change. Thus, in 2021 a climate risk and opportunity 
assessment was conducted following TCFD 
recommendations to test the Group’s resilience and 
business strategy regarding the consequences 
of climate change. 

We recognise that, as the world shifts to a low-carbon 
economy, joining the SBTi and verifying our climate 
targets are steps we must take in order to decarbonise 
and improve X5’s global sustainability profile. In 2021, 
X5 developed a decarbonisation plan and road map 
for all stages of its value chain. We are already sourcing 
sustainable power for some of our distribution centres, 
and we are exploring the feasibility of using solar 
energy for our logistics operations. Among other 
sustainability goals, X5 aims to increase the share 
of renewable energy used in its operations to 30% 
by 2030.  

The Company’s principal risks

X5’s principal risks – those that may impede the 
achievement of X5’s objectives on strategy, operations, 
compliance and reporting – are addressed below. 
It should be noted that there are additional risks which 
management considers immaterial or common 
to companies in the same industry. Risks and 
corresponding management actions following 
sanctions, imposed on Russia, and credit rating 
downgrades by foreign credit rating agencies are 
additionally covered in the section bellow since the 
negative consequences for the Russian economy, 
retail industry and X5 are significant.

Further information on these objectives can be found in the sections 
“Compliance and Business Ethics” on page 120 and “Risk Profile” below

 

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

151

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT 

KEY CONTROLS AND MITIGATING FACTORS 

Strategy

Major changes in the economic environment may challenge the existing business 
strategy or have a material impact on financial performance.   

Market and macroeconomics 
 

Macroeconomic and regulatory factors became increasingly 
important for the food market in 2021, as food supplies, labour and 
other resources became more scarce and caused prices to rise. This 
was partly a result and compounded by the ongoing impact of the 
COVID-19 pandemic.  
Sanctions imposed on Russia will significantly worsen 
macroeconomic environment. Currently it is too early to anticipate all 
the details but in general unemployment and inflation will rise, GDP 
and personal income level will fall. 

We constantly monitor and forecast the economic environment and make adjustments to our strategy 
as needed.

We are developing a hard discounter format (Chizhik) and taking other steps to address the pressure 
on personal income.

Actions taken by competitors or new entrants to the market affect the Company’s 
competitive advantage and performance. 

Competitive environment 
  

During 2021, the rapid growth of hard discounters and specialist 
chains caused additional competitive threats to our businesses.  

The pandemic and continued digitalisation of the economy, with 
an increasing number of omnichannel participants in the retail 
landscape, are driving rapid growth of online services, especially 
in larger cities across Russia.

Sanctions, imposed on Russia, can probably change the competitive 
landscape in retail.

We constantly analyse customer behaviour and adjust our strategy accordingly.

We continue to roll out new concepts and CVPs in our proximity and supermarket formats.

We sustain our lead over traditional and new competitors by creating a digital infrastructure around 
the core business that covers all stages of the customer journey in food and complementary 
categories.

We are developing a new hard discounter format (Chizhik).

Insufficient return from investments in new business lines, and capital costs 
for the development of our retail formats.

Business development investments 
 

–

We adhere to strong investment control procedures. All new business initiatives are subject to pilot 
validation.  

For non-performing stores, we implement action plans to increase their efficiency and profitability.

We decreased our plans for capital expenditure in growth, development and certain digital products 
for 2022 following imposed sanction on Russia and downgrades of credit ratings

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

152

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT 

KEY CONTROLS AND MITIGATING FACTORS 

Operations 

Non-effective and inconsistent operational management may affect X5’s ability 
to provide its customers with an attractive shopping experience.

Retail and customer service  
 

–

We use commercial and research data to assess our performance in meeting customer priorities and 
expectations regarding prices, product range, availability and service.

Every year we assess and where required strengthen regional management teams to ensure our 
stores are well supported across all locations.

Insufficiencies in our retail operations infrastructure and inventory management may 
lead to an inability to maintain effective inventory management and ensure a reliable 
supply of goods for our customers while minimising shrinkage and excessive stock.  

Supply chain 
 

In 2021, many of our suppliers faced a shortage of vehicles for 
deliveries. X5’s active development of services for suppliers kept this 
risk at a medium level.

Sanctions imposed on Russia have material impact on cross border 
supply chains and import of goods, spare parts and etc.

We run comprehensive supply chain operations with a decentralised logistics function, which allows 
our retail formats to effectively manage inventory across the supply chain. 

We strengthened our supply chain in order to fulfil the elevated demand for social goods in February 
2022.

We continue to develop X5’s direct import business to diversify and reduce dependency on local 
distributors and move up the value chain to optimise the balance of demand and supply and shift 
focus from quality control to quality assurance.

We are also optimising operations across the supply chain and constantly reviewing ways to further 
leverage X5 Group’s purchasing power and the scale of its infrastructure.

Also see “Retail infrastructure” on pages 98–116.

Failure to recruit, retain and develop people with the required skills and to instil 
a culture that reflects our values could impact business performance. 
   
Failure to meet the necessary standards to protect the health and safety of 
personnel may impact operations and lead to adverse financial and reputational 
consequences. This risk became imminent as a result of the COVID-19 pandemic.

Human resources 
 

One of the key challenges we faced in 2021 was the increasing 
labour shortage because of the decrease in migration and the 
significant increase in demand for labour from the growing 
construction, retail and e-grocery segments.

New waves of the COVID-19 pandemic made it more important 
to ensure that the necessary quantities of vaccines were available.

Decrease of production, increase of unemployment should increase 
the supply and decrease demand for labour.

We monitor the labour market and regularly assess X5’s employer value proposition to ensure that we 
offer employee benefits in line with the market.

We have a system for employee onboarding, training and development in place, along with a talent 
pool. 

We create a culture that enables us to recruit, retain and promote the best professionals in the 
industry, and to promote an environment that stimulates professional growth, collaboration and 
accountability together with safety and flexibility.

We have made vaccines widely available in all regions of the Russian Federation to protect the health 
of our personnel.

We have a health and safety policy in place to cover workplaces across various functional divisions. 
We are committed to promoting the highest health and safety standards by implementing advanced 
safety technologies and techniques and through ongoing risk monitoring, analysis and mitigation.

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

153