X5 Group (Пятерочка). Годовой отчет за 2021 год - часть 20

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT 

KEY CONTROLS AND MITIGATING FACTORS 

Operations 

Interruptions in business processes due to crisis situations and emergencies. 
 
Disruptions of business continuity due to emergencies may lead to a situation 
where core business operations and resources are unavailable.   

Business continuity performance  
 

In 2021, no new significant risk factors were identified.

Sanctions imposed on Russia and other consequences have 
material impact on our IT. A significant number of vendors, 
producers of equipment are freezing their operations or exiting the 
Russian market. This will bring additional challenges for stability 
of our IT infrastructure.

We constantly monitor and control business processes. 

We implement business continuity plans for our key business processes and disaster recovery plans 
for our critical IT systems. 

Also see “X5 Technologies” on pages 106–109.

Inability to implement and develop state-of-the-art IT solutions on a timely basis.  
 
Lack of infrastructure capacity to maintain the required level of service. 
 
 

IT 
 

In 2021, no new significant risk factors were identified.

Sanctions imposed on Russia and other consequences have 
material impact on our IT. A significant number of vendors, 
producers of equipment are freezing their operations or exiting the 
Russian market. This will bring additional challenges for stability 
of our IT infrastructure.

We are developing existing controls to maintain the integrity and efficiency of our IT systems, 
including detailed recovery and contingency plans. This is our key priority.

We manage the capacity of our IT systems in order to ensure that our IT resources are able to meet 
current and future business requirements in a cost-effective manner.

External and internal threats to information security, including cyberattacks, viruses 
and other malicious actions to, for instance, infiltrate our IT systems or damage data.

Cybersecurity 
 

–

We implement all necessary policies and procedures and use all necessary tools, hardware and 
software to ensure the confidentiality, integrity and availability of our information assets.

We strengthened our cyber security team to increase our protection in the current environment.

Also see “X5 Technologies” on pages 106–109.

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

154

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT 

KEY CONTROLS AND MITIGATING FACTORS 

Compliance

The inability to establish and promote a Company-wide culture of integrity and the 
failure to detect or prevent corruption and fraud can lead to a decline in economic 
value and significant reputation damage. 

Fraud and corruption  
 

–

We uphold a zero-tolerance policy for non-compliance with the principles of business ethics, and 
continuously provide personnel with training on prevention of bribery and corruption.

We implement automated and manual controls in business processes, and segregate rights to access 
information systems (SoD).

We require that all employees complete a declaration on conflicts of interest to monitor potential 
conflicts.

Inability to identify, quickly respond to and attempt to modify unfavourable 
proposed changes to applicable laws. 
 
The conclusion of contracts that are unfavourable for the Company and the
failure to comply with or monitor contract terms to protect the Company from 
financial losses.

Legislation and litigation  
 

Risks of state regulation of the retail market in the current 
macroeconomic and political environment remain significant but not 
critical.

Vaccination requirements in different regions put additional pressure 
on the Company but haven’t been critical for the Company.

Our legal team participates in every stage of important business negotiations and analyses business 
terms and conditions to minimise risk. 

Contracts are largely standardised to ensure our rights are consistently and uniformly protected.

We are strongly committed to complying with all applicable laws and regulations.

We have made vaccines widely available in all regions of the Russian Federation to protect the health 
of our personnel and fulfil regulatory requirements. We haven't experienced any material effect on the 
business.

Failure to identify and prevent non-compliance with privacy rules and regulations 
standards, resulting in improper disclosure of confidential customer information.

Data privacy and security  
 

–

We regularly report on the progress of our security and privacy programmes to management and 
oversight committees.

Ongoing monitoring of our processes, which includes assessment and monitoring of risk, continues 
to drive compliance throughout our business.

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

155

The Company’s principal risks

PRINCIPAL RISKS

RISK MOVEMENT 

KEY CONTROLS AND MITIGATING FACTORS 

Reporting and financing

X5 could be affected by common financial risks: 

Financial risks  
 

Increases in interest rates and/or banking fees

Significant volatility of foreign exchange rates

Liquidity risk and credit risk

The increasing volatility of the rouble exchange rate and rising 
interest rates may adversely affect our financial performance. 

We plan and monitor our budget and performance, and introduce changes where needed to achieve 
financial targets.

We monitor repayment schedules for long-term and short-term accounts receivable, and oversee the 
use of short-term lending via available credit lines to manage liquidity.

We manage the effective financing rate as well as undrawn credit limits in banks.

Other principal risks 

Risk of sanctions and credit rating downgrade

Imposition of new sanctions and downgrades in credit ratings

Credit rating downgrades from foreign credit rating agencies 
(S&p, Fitch, Moody’s)

Different countries impose sanctions on particular sectors of the 
Russian economy and companies.

Foreign credit rating agencies downgrade credit ratings

As part of our business continuity process, we develop plans in case of new sanctions and possible 
legal restrictions or requirements for the Russian retail market.

See section bellow with details of our key risks and corresponding management actions.

All climate-related risks 
 
 

Climate change  
 

Climate change has become a widely acknowledged global 
emergency.

We closely monitor changes in international and local climate regulation and stakeholder 
engagement.

In 2021, we developed a decarbonisation plan and road map for all stages of our 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.

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

156

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

157

Risk of sanctions and 
credit rating downgrade 
and corresponding 
Management actions

Information security

On-shelf availability of goods

Payment continuity and financing

Prevention of any disruptions to the supply chain or 
supplier relationships is our key priority. We’re working 
with our key suppliers to ensure the availability of 
social goods.  

Supply chains, especially those for imported goods, are 
facing restrictions. In the short term, we are looking for 
alternative suppliers of domestic goods, and in the 
medium term for alternative supply routes through 
other countries (Turkey, Egypt, Azerbaijan, Armenia, 
etc.). Overall, this is a small fraction of X5’s sales (5.7%), 
and the  assortment of our retail chains will be 
adjusted to the new situation.

X5 is not subject to any sanctions. All correspondent 
banks carry out settlements for X5 in foreign 
currencies. In order to reduce forex risks, X5 is looking 
for options to avoid settlements in USD and EUR and 
make direct settlements in other currencies with major 
importers (Turkey, Egypt, China and etc.).  

In any case, the share of imported goods in X5's 
business is relatively limited, and the bulk of 
settlements are rouble-denominated. 

In terms of our financing needs in roubles, all banks 
are paying in full and on time. X5’s operating cash flow 
is strong enough for us to service and repay our loans. 
In the near future, we expect support from the state 
authorities in terms of offering soft financing to the 
retail sector.

Technological risks

Х5 depends to a certain extent on Western vendors 
and IT companies. Some of these vendors and IT 
companies are freezing their supplies to companies 
under sanctions and to Russian companies. Our IT 
teams have their action plans in place for the near 
term, so we do not expect any material impact on our 
availability to operate. 

We are facing increased cyberattacks. Though X5 is 
not targeted, our infrastructure is suffering additional 
strain. Our Information Security Department knows our 
potential weaknesses and has reallocated resources to 
ensure sufficient security. As of now, we have not met 
with any failures or losses resulting from information 
security risks.

In response to ongoing geopolitical developments, 
X5 set up a special-purpose team to collect all key and 
critical information as well as to propose solutions and 
take immediate decisions, as necessary. The Company 
also created a working group focused on mitigating 
risks, taking strategic decisions and ensuring business 
stability over a period of three to six months. 

Equipment supplies and other
non-commercial procurement

Our Company depends to a certain extent on supplies 
of imported components for our supply chain, IT and 
stores. X5 has built up a stock of spare parts and 
components to ensure business continuity. In the 
mid-term, we are looking for alternatives or substitutes 
among domestic and foreign suppliers.

Human resources

Our security service has deployed additional security 
measures in our stores where the highest threat level is 
expected. 

To the extent our employees may be suffering from 
stress or fear, we strive to mitigate such risks and 
provide adequate support to our staff. The risk of staff 
shortages may increase in certain areas; however, this 
risk is assessed as not critical. 

X5 Group is not subject to any sanctions or restrictions at the moment, and we do not expect any jurisdiction to 
target X5 Group specifically in the future due to the nature of our business. While X5 is likely to encounter challenges 
due to sanctions targeting the financial system and certain imports into Russia, it is expected to be able to maintain 
its work as a going concern. 

Audit

Securities trading

The Group may encounter limitations in its ability 
to engage audit and consultant firms in some 
jurisdictions due to local formal and informal 
restrictions for companies operating in a primarily 
Russian environment.

Trading in X5 securities has been limited in certain 
jurisdictions. For example, the London Stock Exchange 
imposed a suspension of trading in securities 
of a number of companies with operations in Russia, 
including X5, and this suspension currently remains 
in place. There is no assurance that this suspension 
will be lifted, and it is difficult to predict how long this 
suspension may last.

X5's new key risks are in the following areas:

01

On-shelf availability of goods

04

Information security

02

Continuity of payments and financing

05

Equipment supplies and other
non-commercial procurement 

03

Technological risks

06

Human resources 

07

Audit

08

Securities trading

Statement of the Management Board

The Management Board reviewed and analysed 
the strategic, operational, compliance and 
reporting risks to which the Company was 
exposed, as well as the effectiveness of our risk 
management and internal control systems over 
the course of 2021.  

The outcome of this review and analysis has 
been shared with the Audit and Risk Committee 
and the Supervisory Board and has been 
discussed with X5’s external auditor.

The Management Board reviewed the effectiveness 
of X5’s internal risk management and control systems 
based on:

For more information on X5’s risk management 
activities, internal control, risk management systems 
and key risks, see the section “How we manage risk” 
above. The purpose of X5’s risk management and 
internal control systems is to adequately and 
effectively manage the significant risks to which the 
Company is exposed. Such systems can never provide 
absolute assurance as to the realisation of operational 
and strategic business objectives, nor can they prevent 
all misstatements, inaccuracies, errors, fraud and 
non-compliance with legislation, rules and regulations. 
These systems do not provide certainty that the 
Company will achieve its objectives. 

In view of all of the above, the Management Board 
confirms that, to the best of its knowledge, the 
financial statements give a true and fair view of the 
assets, liabilities, financial position and profit or loss 
of the Company and its consolidated subsidiaries, and 
the management report includes a fair review of the 
position on the balance sheet date and of the 
development and performance of the business during 
the financial year together with a description of the 
principal risks and uncertainties that the Company 
faces.

19 MAY 2022 

The Management Board

internal audit reports on reviews performed 
throughout the year; observations and measures to 
address issues were discussed with management 
and the Audit and Risk Committee

a systematic review of scoping, control execution 
and control assessments in the context of the 
internal control strategy 

periodic risk reports provided by the management 
of corporate functions and the main business 
segments

ongoing monitoring of key risk management 
initiatives aimed at mitigating risks and keeping risks 
at an acceptable level

the external auditor’s ongoing reflections on the 
control framework, and the management letter from 
the external auditor with observations and remarks 
regarding internal controls; this letter has been 
discussed with the Audit and Risk Committee and 
the Supervisory Board

Based on the annual evaluation and discussion of X5’s 
risk management and internal control systems and 
identified risk factors, the Management Board confirms 
that, according to the current state of affairs and to the 
best of its knowledge:

X5’s risk management and internal control systems 
provide reasonable assurance that the Company’s 
financial reporting does not contain any material 
inaccuracies

there have been no material failings in the 
effectiveness of X5’s risk management and internal 
control systems 

there are no material risks or uncertainties that could 
reasonably be expected to have a material adverse 
effect on the continuity of X5’s operations in the 
coming 12 months

it is appropriate that the financial reporting is 
prepared on a going concern basis, based on our 
review of the strategic plan, the budget 2022 and 
our estimate of the economic outlook

CORPORATE GOVERNANCE

|

HOW WE MANAGE RISK

158

CORPORATE GOVERNANCE

|

SUPERVISORY AND MANAGEMENT BOARDS

159

Supervisory and Management Boards

Supervisory Board

Peter Demchenkov

CHAIRMAN OF THE SUPERVISORY BOARD, CHAIRMAN OF THE 
NOMINATION AND REMUNERATION COMMITTEE

Peter Demchenkov, a Russian citizen (1973), from 2006 
till October 2021 was CEO of ALIDI, a leading provider 
of distribution and logistics services in Russia. From 
2004 to 2005, he was Development Director of KIT 
Finance (JSC), and from 1997 to 2004, Peter worked 
in Procter & Gamble’s Business Development 
Department in Eastern Europe. Peter graduated from 
the St. Petersburg Polytechnical University with a 
degree in Technical Cybernetics.

Nadia Shouraboura

MEMBER OF THE SUPERVISORY BOARD, CHAIR OF THE 
SUSTAINABLE DEVELOPMENT AND INNOVATION COMMITTEE

Nadia Shouraboura, a US citizen (1970), joined X5 in 
2018. She has extensive experience in development 
of innovative concepts for modern retail, as well as 
technology and data-driven solutions for consumers. 
From 2004 to 2012, Nadia served as Technology Vice 
President for Amazon’s global supply chain and 
fulfilment platforms and was a member of Amazon’s 
management board. Subsequently, she launched her 
own technology consultancy for the retail industry 
globally, aimed at combining the best of the online and 
offline worlds. Nadia is a senior advisor to New 
Mountain Capital and serves as an independent non-
executive director at Ferguson plc, MTS Russia and 
Ocado Group. Nadia holds a degree in Mathematics 
and Computer Science from Moscow State University 
and a PhD in Mathematics from Princeton University.

Marat Atnashev

MEMBER OF THE SUPERVISORY BOARD

Marat Atnashev, a Russian citizen (1977), is the Director 
of Group Portfolio Management at CTF Consultancy 
Limited. He is a member of the Boards of Directors of 
Management Company Rosvodo-kanal, A1 Investment 
Holding S.A., ABH Holdings S.A., Alfa Bank (Russia) and 
AlfaStrakhovanie PLC. From 2016 to 2019, Mr Atnashev 
was Dean of the Skolkovo Moscow School of 
Management. Before that, he worked at EVRAZ plc as 
Vice President, Major Projects, Head of the Iron Ore 
Division; he held the position of Director of the 
Directorate of Major Projects at JSC Gazprom Neft and 
worked at TNK-BP in various positions in supply chain 
management, finance and major project management. 
Mr Atnashev graduated with honours from the Energy 
Department of the State University of Management, 
Moscow, in 1999; in 2003, he received a PhD 
(Candidate) in Economics. Furthermore, he also holds 
an MBA from INSEAD, France (2002). In 2008, he 
graduated from the BP Projects Academy, MIT (USA), 
and in 2016 he received an MPA from the Harvard 
Kennedy School (USA). 

Alexander Tynkovan

MEMBER OF THE SUPERVISORY BOARD

Alexander Tynkovan, a Russian national (1967), is a 
returning member of the Supervisory Board of X5 
Retail Group N.V., having previously served from 2008 
to 2015. He is the founder of M.Video (currently 
M.Video-Eldorado Group), the leading consumer 
electronics and home appliance retailer in the Russian 
Federation. Alexander currently serves as the Chairman 
of M.Video’s Board, focused on digitalisation and 
increasing the company's online presence. He is also a 
non-executive Deputy Chairman of the Board of Fix 
Price Group Ltd., a Russia-based retail chain of 
discount variety value stores. Alexander graduated 
summa cum laude from the Moscow Energy Institute, 
majoring in Aircraft Electric Equipment.

CORPORATE GOVERNANCE

|

SUPERVISORY AND MANAGEMENT BOARDS

160

Igor Shekhterman

X5 CHIEF EXECUTIVE OFFICER, CHAIRMAN
AND MEMBER OF THE MANAGEMENT BOARD

Frank Lhoёst

COMPANY SECRETARY, MEMBER OF THE MANAGEMENT BOARD

Quinten Peer

MEMBER OF THE MANAGEMENT BOARD

Management Board

Igor Shekhterman, a Russian national (1970), has served 
on X5’s Supervisory Board since 2013. He was 
previously the Managing Partner and CEO at 
RosExpert, which he co-founded in 1996 and 
subsequently successfully developed into the Russian 
partner of Korn Ferry International. Igor started his 
career as Finance Manager at the Russian branch of 
Beoluna, the Japanese jewellery producer. Igor holds a 
degree in Economics from the Kaliningrad Technical 
Institute (1992) and degrees in Business Administration 
from the Institut d’Administration des Entreprises 
(France, 1994) and the Danish Management School 
(1995).

Frank Lhoёst, a Dutch national (1962), joined X5 
in 2007, having previously held several positions 
at Intertrust Group. Frank graduated from Leiden 
University in the Netherlands with a degree in Law.

Quinten Peer, a Dutch national (1974), joined X5 
in 2018. Previously, he worked for Gazprom 
in the Netherlands, where he managed Gazprom’s 
50% interest in the Sakhalin-II project. He lived 
in Russia from 2012 to 2016, where he managed 
international business development and the expansion 
of a major capital project as COO for Sakhalin Energy. 
Quinten holds a degree in Law from the University 
of Groningen in the Netherlands.

Supervisory and Management Boards

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

In performing its duties, the Supervisory Board acts 
in accordance with the interests of the Company 
and its affiliated businesses, taking into consideration 
the overall good of the Company and the relevant 
interests of all its stakeholders. In X5’s two-tier 
corporate structure under Dutch law, the Supervisory 
Board is a separate body operating fully 
independently of the Management Board.  

Recognising the value and increasing importance of leveraging different 
points of view from among its members, the Supervisory Board aims for a 
diverse composition in particular areas of relevance for X5. Supervisory 
Board candidates are evaluated against the Board’s profile, existing balance 
of skills, knowledge and experience, and the need for the Board to be 
prepared for disruption and change. Supervisory Board members are 
prompted to be mindful of diversity, inclusiveness and meritocracy 
considerations when examining and nominating Board candidates. While 
the Supervisory Board is currently not balanced with regard to gender, it 
recognises the benefits of gender diversity, and importance is attached to 
achieving this. The Board is conscious of the public debate and regulatory 
developments in this respect, and takes this into account in its succession 
planning, in line with the Group’s Leadership Diversity Policy.     

An overview of the current composition of the Supervisory Board 
and a short biography of each member is presented in the Corporate 
Governance Report on page 159.

X5’s Supervisory Board determines the number of its members. 
The Supervisory Board currently consists of four members, with a majority 
of three independent members. On an ongoing basis, the Supervisory 
Board reviews the profile of its size and composition, taking into account 
the  evolving nature of X5’s business and activities and the desired 
expertise and background of the members of the Supervisory Board. 
The Supervisory Board profile is published on X5’s corporate website.  

At the 2021 Annual General Meeting of Shareholders, Richard Brasher 
and Alexander Tynkovan were appointed as new members of the 
Supervisory Board. Richard Brasher was appointed in view of his proven 
track record and leadership experience in the food retail industry, and his 
strong operational background with functional experience in different 
roles, including store operations, supply chain, category management, 
buying and private label, coupled with the ability to think strategically 
and take a long-term view. Alexander Tynkovan strengthened the 
Supervisory Board in view of his proven track record and leadership 
experience in the Russian retail industry, his in-depth knowledge and 
experience in the fields of digitalisation and e-commerce, and his 
knowledge of X5, having previously served as a member of the 
Company’s Supervisory Board.  

On 12 May 2021, Karl-Heinz Holland resigned as a member of the 
Supervisory Board in view of his new executive responsibilities outside 
the Group. The Supervisory Board expresses its sincere appreciation for 
the strong expertise and support Karl-Heinz provided to the Group.   

Also at the 2021 Annual General Meeting of Shareholders, following their 
nomination in line with the Supervisory Board’s rotation schedule, 
Stephan DuCharme was reappointed for an additional two-year term, and 
Mikhail Fridman was reappointed for an additional three-year term. The 
Board deeply regrets that, following unexpected recent developments, 
Stephan DuCharme and Mikhail Fridman stepped down as of 1 March 
2022, and Richard Brasher, Geoff King and Michael Kuchment stepped 
down as of 4, 11 and 25 March 2022, respectively. The Board thanks each 
of them for their valuable and significant contribution to the Company. 

At the 2022 Annual General Meeting of Shareholders, the terms of  
Nadia Shouraboura will expire in accordance with the Board’s retirement 
and reappointment schedule. Nadia Shouraboura will not be eligible for 
reappointment. 

Report  

of the 

Supervisory 

Board

Composition and profile of the Supervisory Board 

CORPORATE GOVERNANCE

|

REPORT OF THE SUPERVISORY BOARD

161

While retaining overall responsibility, the Supervisory Board assigns certain 
tasks to three committees: the Audit and Risk Committee, the Nomination 
and Remuneration Committee and the Sustainable Development and 
Innovation Committee.    

In September 2021, the Innovation and Technology Committee was 
renamed the Sustainable Development and Innovation Committee 
to strengthen the Supervisory Board’s focus on ESG matters.   

Following their appointments, Richard Brasher became a member of the 
Audit and Risk Committee, and Alexander Tynkovan joined the Sustainable 
Development and Innovation Committee and the Nomination and 
Remuneration Committee.  

In March 2021, the Supervisory Board elected Peter Demchenkov as its 
Chair, succeeding Stephan DuCharme, who had served as Chairman of the 
Supervisory Board since November 2015. Peter had served as Vice 
Chairman of the Supervisory Board since March 2019.        

An overview of the current composition of the Supervisory Board and its 
committees is presented in the Corporate Governance Report.   

 

 

Composition of the committees