X 5 RETAIL GROUP STRATEGY March 15 2007

X 5 RETAIL GROUP STRATEGY March 15, 2007 p.

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Table of Contents: 1. 2. 3. 4. 5. 6. 7. Russian Food Retail Market Company Expansion Strategy Format Strategy Integration Support Functions (Strategy of Logistic, IT, HR) Conclusions p. 4 p. 8 p. 16 p. 20 p. 27 p. 31 p. 36 p.

Russian Food Retail Market p.

Russian Food Retail Market (overview) Main characteristics: attractive, large, with high potential of growth, unsaturated, with low competition, with short period of advantages to catch Official Russian Food Retail market (2006) – USD 146 bln Total Russian Food Retail Market (2006) – USD 233 bln (incl. “grey” part) Share of modern formats – 15% (of total market) Share of Top 10 in modern retail chains – 53% (of total market) Share of X 5 Retail Group on the market – 1. 7% (of total market) Key Russian food retail operators Place in TOP 10 Company Revenue 2006, USD excl VAT Market share, % 1 3485 22% 2 Metro 2544 16% 3 Magnit 2504 16% 4 Auchan 2016 12% 5 Dixi 1080 7% 6 Lenta 1060 7% 7 Kopeyka 980 6% 8 Seventh Continent 958 6% 9 Victoria 900 6% 10 Source of info: FSGS, analysts, media reports X 5 Retail Group Ramstore 635 4% 16162 100% Total TOP 10 p.

Forecast of Russian Retail Market Growth $bln, incl VAT 2006 year 2011 year v Official Russian food retail market $146 bln. $281 bln. v Estimated share of «grey» market 37% 30% v Total Russian food retail market v Share of modern formats in total Russian food retail market TOP 10 modern food retail chains (share) v $233 bln. $405 bln. 15% 35% $18. 4 bln. (53%) $106 bln. (75%) • Forecasted annual average growth rate for 5 year period of Total Russian food retail market is 12% per year. • Average growth rate of top-10 in 5 year period is expected at a level of 42 %. Source of info: FSGS, analysts, media reports p.

Perspectives of Modern Formats in Russian Retail Trade Perspectives of retail formats, (bln. $) bln. Change of the format structure in modern retail trade, (%) trade, 405 * TRRM 2006 г. Share of modern trade (of total Russian market) 2% R 1 CAG * TRRM 15% 2011 г. 35% 233 CAGR of the formats: Hypermarket – 39% Discounter – 33% Supermarket – 20% * - Total Russian Retail Market The main formats in Russia are discounters, supermarkets, hypermarkets. It’s expected that the fastest growing market segments in 5 -year period will be hypermarkets and discounters (CAGR respectively 39% and 33%). Source of info: analysts and media reports p.

Company p.

History Key milestones 1995 1998 2002 Perekriostok chain 20 supermarkets founded by Alfa opened Group Consortium 1 st DC acquired 1 st Perekriostok A. Rogachev and A. Girda founded Pyaterochka chain 16 stores opened in St. Petersburg 1999 2003 Pyaterochka enters to Moscow market Templeton hypermarket opened Investment Regional expansion foundation buys start 7. 7% of Perekriostok stock 75 supermarkets opened SPAR Middle Volga chain acquired Pyaterochka franchise operations start Private Label The largest DC development opened in Northprogram start West Russia 2002 2001 2003 2004 2005 2006 « 365» chain Ukraine market acquired in Yaroslavl’ entry via 4 Kiev Gastronomy stores chain production started acquisition 90 supermarkets opened 100 th store opened Ukraine & Kazakhstan markets entry 2004 Merger of Pyaterochka and Perekriostok IPO at LSE 18 St. Petersburg and 25 Moscow Kopeyka stores acquisition 2005 Pyaterochka & Perekriostok chains development in 2003 -2007 F period 2003 -2007 F PEREKRIOSTOK CAGR (03 -06): 38% th. m 2 PYATEROCHKA th. m 2 CAGR (03 -06): 32% p.

X 5 Retail Group Today X 5 Retail Group – is the leader of the Russian Food Retail Market v. Net sales – USD 3. 485 bln v. Number of company own managed stores – 619 v. Net selling space – 466, 000 sq. m. v. Geography of operations – Russia (9 regional offices), Ukraine, Kazakhstan (franchising stores) v. Number of customers in 2006 – 445, 871, 769. p.

X 5 Retail Group Today 2006: Total Retail Sales by the Regions (mln. $, VAT excl. ) Moscow North-West Nizhny Novgorod Samara South Tatarstan Ural Ukraine Centr. - Chernozemny Pskov Veliky Novgorod Cherepovez Tver’ Vologda Yaroslavl Smolensk MOSCOW Kostroma Kaluga Bryansk Vladimir Orel Kursk 1’ 924 1’ 124 158 78 70 49 35 27 20 TOTAL: St. Petersburg 2006: Share of Retail Sales by the Regions (%) 3485 Ivanovo Kirov Tula Ryazan Lipetsk Arzamas Belgorod Yoshkar-Ola Cheboksary Saransk Voronezh Tambov Kazan Penza Perm Izhevsk Ulyanovsk Ekaterinburg Toglyatty Saratov Ufa Samara Chelyabinsk Rostov-na-Donu Total Stores including Ukraine: - 619 Volgograd Novorossiysk Orenburg Krasnodar Sochi Stavropol Elista Astrakhan Tyumen Perekriostok stores - 47 (excl. 4 Pyaterochka stores - 25 Combined: Moscow: Perekriostok - 100 Pyaterochka - 222 stores in Ukraine) St. Petersburg: Perekriostok - 17 Pyaterochka - 204 p.

New Mission, Vision and Value NEW MISSION: «We are improving the quality of your life» VISION: «Leadership. Always. » VALUES: • Respecting individuality • Servicing customer needs • Striving for excellence p.

Corporate Rules • Be proud of your company. Trust in it • We are one team. Trust and support each other • Employees of the company are its key value • Be purposeful, energized, emotional and enjoy what you do • Our opportunities are defined by our objectives • Defining your priorities, focus on result • We do what adds value to our customers only • To stay competitive we must be the best in cost efficiency • Learn from your competitors, to be more efficient and successful than they are • We are socially responsible company p.

Strategic objectives Building-up platform for further growth v The two key objectives for 2006 – start of integration and uninterrupted fast growth – were being met successfully v In 2007 X 5 plans to finalize the integration process and build up a solid multi-format platform for further growth v The Group’s long-term strategy is focused on investments into multiformat growth and upgrading its technological competitive advantages in logistics, IT, HR and other key support functions The key strategic objectives of X 5 going forward v v v Maintain the leadership position on the Russian market Play role of the market consolidator in Russia Ensure highest return on shareholders capital in the sector p.

2007 key objectives and projections Key objectives 2007: Cap. Ex Projections (mln. $, VAT excl. ) TOTAL at least 700 New stores 2007 450 2007: New DCs opening (th. sq. m) q add at least 150’ 000 sq. m. of net selling space q expand supermarket chain across all regions of the European part of Russia qexpand discounter chain in Moscow area, enter Samara and Nizhny Novgorod regions Rented 44. 0 Owned 19. 3 TOTAL: 63. 3 q develop hypermarket format, with the aim of massive roll-out starting from 2009 p.

Expansion Strategy p.

Focus on Russia and Ukraine «Х 5» RUSSIA is the PRIMARY course for expansion for now target regions for expansion UKRAINE expansion strategy will be finalised announced during 2007 X 5 p.

Focus on the most attractive regions X 5 Retail Group will grow both organically and by means of M&A 3 -rd priority 1 -st priority 2 -nd priority Zone № 1 – European part and Urals Zone № 2 – Siberian regions Zone № 3 – Other regions of Russia In its 5 -year strategy, X 5 Retail Group concentrates on the regions of the European part of Russia, which have the highest density of population and represent the largest part (84%) of food retail market. Source of info: analysts and media reports * Concentration of population, territory and market volume by Russian regions in 2005 Geographical zone Population Share (>100 th. people) % Area (mln. m 2) Share % Market volume mln. $ Share % European part and Urals 53 000 75% 2. 8 16% 100 84% Siberia 7 300 10% 2. 7 16% 14 400 12% Other regions 10 000 15% 11. 5 68% 4 800 4% Total (towns With population more than 100 th. ): 70 300 (50%) 100% 17. 1 100% 120 000 100% Total (all population): 142 000 * - official data p.

M&A Strategy Main objective for M&A is to provide sustainable growth of X 5 shareholder value (price per share) through acquisition on financially attractive terms of strategically located and growing retail chains to enable Company’s strategy for long-term market leadership and to obtain access to new retail technologies and market segments European part and Urals Regions with the own stores of X 5 as at the end of 2006 year Regions of western Siberia There are no own stores as at the end of 2006 Purchasing of retail chains with trade areas, suitable for organization of discounter, supermarket and hypermarket formats and attractive for investments Creation of joint ventures or purchase of shares in the leading companies on the local market (organization of self dependent growth centers under X 5 control with out withdrawing of operating resources of X 5) Other regions of Russia No own stores are planed to be opened on this territory during 5 years Selling of franchising contracts and possible creation of JVs to pass under X 5 control in a longer term perspective p.

Format Strategy p.

Format Strategy To increase market penetration and maintain high growth rates, X 5 Retail Group focuses on MULTI-FORMAT STRATEGY: Soft Discounters Hypermarket Supermarkets p.

Soft Discounters 2006 As of 31 December 2006 X 5 Retail Group operated 451 own discounter stores, with total net selling space of 257, 000 sq. m. , and net sales of 1, 973 bln. USD Value Proposition Next to customers apartments Low prices Balanced assortment Guaranteed quality of goods Format Concept Trade area (average) Assortment (average) Non-food Price - 600 м² - 3500 SKUs - 10% - EDLP Future Format Development Focus on efficiency Increase % of centralized deliveries Investment into price High speed of opening (multiple centers of growth) Optimization of assortment Advertising and Promo activities Loyalty programs Increase share of fresh food Increase contribution of Private Labels p.

Supermarkets 2006 As of 31 December 2006, X 5 Retail Group operated 168 supermarkets stores, with total net selling space of 209, 000 sq. m, and net sales of 1. 512 bln USD Value Proposition Perekriostok is the best in fresh fruits and vegetables, own bakery products, meat and fish products Good location: close to customers apartments or «on their way home» . Easy access, convenient parking. Saving customers’ time Format Concept Trade area Assortment Price Quality Environment Non-food - 800, 1200, 1600, 4000 sq. m. - 15 000 – 25 000 SKUs - high/low - high - friendly, welcoming - 20 -30% Future Format Development Accent on effectiveness Increase % of centralized deliveries Rationalization of assortment Increase participation in fresh up to 60% Increase contribution of Private Labels Focus on standardization Increase efficiency of ratio between trade and total areas p.

Hypermarkets – New Format for the Company v The segment of hypermarkets is expected to be the most attractive and fast growing in the next five years v Among international operators only and the market, which gives huge room for growth are represented in v Consumer profile: a customer gives a premium to the format (everything under one roof) v The hypermarkets can provide the necessary speed of growth and increase the purchasing power p.

Hypermarket • Hypermarkets will allow to maintain high growth rates, increase market share and purchasing power • This format has high turnover and efficient low-cost operations, uses a smart pricing strategy (high/low) to create a low-price image • Supported by highly disciplined commercial and operational policy based on negative working capital Trade area 5. 000, 7. 000, 10. 000 sq. m Assortment 40, 000 -60, 000 SKUs Price: When I shop in Frank I do a cheap shopping Atmosphere: I’ll find a happy (friendly) atmosphere Promotions-Campaigns: I’m always surprised. I’ll get a good deal Staff: The people is friendly, willing to help, they know the business and what they are talking about Assortment: They did the best selection for me. I can cover almost all my needs p.

Drivers for Hypermarket format development v Building up platform for massive roll-out of hypermarkets starting from 2009 v land bank in process of creation (over 20 land plots secured, other 60 in progress) v X 5 plans to open around 70 hypermarkets organically over next 5 -7 years v Focus on Development projects - building own bigger trade centers in priority regions v Karusel chain acquisition v option excersisable from January 1, 2008 v ca. 25 hypermarkets by the beginning of 2008 v the potential acquisition fits well into X 5 format strategy p.

Integration p.

Integration objectives • Integrate “Perekriostok” and “Pyaterochka” chains: that means • Implement the best practices from both companies • Find and implement synergies to increase operating profit and reduce expenses • Create organizational structure and business processes (including multiformat regional offices) to support high growth rate of the company • Create mechanism to integrate all companies from future M&A deals to support our growth and consolidation of the sector p.

Priorities of Integration People Purchasing SYNERGIES Commercial • Cross compare • Retroactive application • Scale Negotiation • Franchising Scale negotiations Non-commercial purchasing Finance Non-commercial Headcount Cross compare suppliers information Negotiate scale (Discount Credit) Central Head Office Regional Structure Stores IT Logistics Support • Logistics consolidation and delivery centralization p.

New Management Team Following the merger v a new international management team composed of professionals with extensive and successful experience in major Russian companies and leading international retail chains was built up that means • Lev Khasis, CEO, former Chairman of Perekrestok Supervisory Board, over 10 years in retail business, Ph. D in Retail Economics, Chairman of Russian Retail Association • Vitaliy Podolskiy, CFO, MBA from the University of Chicago, over 10 years of finance experience with leading investment banks and multinationals • Antonio Melo, COO, around 20 years of experience in retail with Makro • Pawel Musial, CCO, 10 year experience in retail with Tesco, Hit and Perekrestok • Dariush Bator, Perekrestok GM, over 10 years of experiense in retail with Tesco and Perekrestok • Andrei Gusev, M&A Director, MBA from the University of Pensylvania, over 5 years of M&A activity with Alfa-Group • Yuri Kobaladze, Corporate Affairs Director, probably Russia’s best professional in this area • Yulia Anokhina, HR Director, over 10 years in HR with leading Russian (YUKOS) and international companies (Bristol-Myers Squibb, Reemtsma) p.

Support Functions - Logistic Strategy - IT - HR p.

2006 Logistic operations and objectives Locations – DCs in Moscow and St Petersburg Level of centralization – 50% for discounters; 25% for supermarkets DCs total area – 69’ 000 sq. m. (excl. 3 PL operators): - Rented area – 6’ 000 sq. m. - Owned area – 63’ 000 sq. m. Strategic objective of X 5 Retail Group • to build uniform logistic infrastructure (DC network with transportation fleet) to support operations in all formats Target level of centralization: - 85% for discounters - 75% for supermarkets and hypermarkets DC types: - Regional DC (FMCG and Fresh) - National DC (SMCG, strategic goods: import & private label) - Both DC types will be company managed p.

X 5 DCs Locations in European Russia Pskov - National DC location St. Petersburg Planned total area of national and regional DC’s in 2011 about 600’ 000 - 700’ 000 sq. m. Veliki Novgorod Cherepovets Tver’ Smolensk Vologda Yaroslavl Kostroma Moscow Vladimir Kaluga Bryansk Ivanovo Tula Orel Kursk Kirov Ryazan Yoshkar-Ola Cheboksary Lipetsk Belgorod Nizhni Novgorod Saransk Tambov Penza Voronezh Perm Izhevsk Kazan Ekaterinburg Ulyanovsk Saratov Togliatti Tyumen Samara Rostov-na-Donu Ufa Chelyabinsk Volgograd Orenburg Novorossiysk Krasnodar Sochi Stavropol Astrakhan p.

IT Mission and Goals Increase IT costs efficiency as % of turnover Provide X 5 with competitive advantages through stability, development and innovations Support company expansion with IT capabilities Provide stability & support for company operations optimization Build effective processoriented IT organization Build professional united team Future IT landscape Stores Integration Bus Competitor Chain Access Control Management SC planning and execution Customer Management LDAP Decision Support System Category Management Merchandising Data warehouse Financial Management HR Management New IT Platform Implementation p.

Human Resources Strategy The main asset are the employees The main priorities of HR • Create a uniform corporate culture • Build efficient system of recruiting, training and retaining employees to support high growth • Increase staff efficiency, improve productivity and decrease staff turnover p.

Conclusions p.

KEY TAKE-OUTS v X 5 Retail Group has corporate 5 -year strategic plan in Russia* and objectives, supported by its Supervisory Board and key shareholders, new core management team in place and access to necessary resources; v X 5 Retail Group’s key long-term objective is to maintain and reinforce its position as the leading Russian chain in each format and market in which it operates, to provide our shareholders with superior return on investment in the industry; v X 5 Retail Group is a multi-format chain, with primary focus on three core retail formats, namely discounters, supermarkets and hypermarkets; v X 5 has been and intend to remain the consolidator of the fragmented Russian retail market : v X 5 Retail Group plans to grow both organically and by M&A v Organic growth will remain the primary growth engine, with X 5 Development and “green filed” construction as fast-growing area of its expansion especially in hypermarkets v X 5 will actively develop JVs and partnerships with other market players such as developers, financial institutions, suppliers and other partners to promote growth and new products and services to its consumers v X 5 key internal priorities will be: v Completion of integration of two organizations, development of “know-how” and organizational platform for a fast and efficient integration of retail companies v Creation of own SCM chain, including of DCs network and transport fleet to ensure unparallel and sustainable competitive advantage v Implementation of “best-in-class” IT system to support efficiently growing business needs, including SCM, CRM and IMS v Become an Employer of Choice, by building HR processes of recruiting, training and retaining employees to support growing demand of employees on each level * X 5 strategy in Ukraine will be finalised announced during 2007 p.