David NobleSupervisory Board Director

Boston 29th October , 2003

Introduction

• 1 The Food Retail Market in Russia

• 2 A Brief History of Pyaterochka

• 3 Questions and Answers

2

An Overview of the Russian Food Retail Market in 2003

Overview

AT Kearney Global Retail Development Index

Source: AT Kearney GRDI 2003-( EDS)

Modern retail area per

inhabitant

Number of international

retailers

Weights: 40% 20% 20% 20% 100%

Russia 51 95 76 87 72

Slovak Republic 59 80 59 100 71

China 67 73 41 86 67

Hungary 71 69 53 69 67

India 48 100 94 34 65

Turkey 44 72 76 86 64

Morocco 55 98 88 18 63

Egypt 52 98 88 24 63

Vietnam 49 99 82 17 59

Tunisia 54 85 88 13 59

South Korea 67 44 59 54 58

Chile 56 73 94 10 58

Legend: Risky 0 Saturated 0 Saturated 0 No urgency 0 Don't go 0Safe 100 Not saturated 100 Not saturated 100 Urgency 100 Go 100

Time pressure

GradeCountries Country risk

Current Market saturation

Go Now

Go

4AT Kearney

Institute of Grocery Distribution’s (UK) Market Index

Country Rank % Score Status

China 1 70%

Priority 1 marketsItaly 1 70%

Russia 1 70%

Japan 4 68%

Priority 2 markets

Hungary 5 66%

India 5 66%

United States 5 66%

Poland 8 65%

Canada 9 62%

France 9 62%

United Kingdom 9 62%

Germany 12 61%

Turkey 13 61%

Top 5 European Grocery Markets (2001)

Source: Institute of Grocery Distribution (IGD)

6

Country Grocery Market (€ bn)

Germany 204

France 176

United Kingdom 162

Italy 134

Russia 99

Poland Czech Republic

Hungary Romania Russia

Carrefour 68 9

Ahold 169 225

Metro 45 9 12 12 4

Tesco 63 18 56

Rewe 37 180 150 11

Intermarché 57

Edeka/AVA 43 1

Tengelmann 127 94 139

Auchan 27 4 3

Casino 115

Delhaize 43 12

Lidl 18 30 20

Population (m) 38.7 10.3 10.0 22.4 145.5

Grocery retail market ($bn) 29.0 9.5 7.5 12.1 89.0

Western food retailers in Eastern Europe 7

Source: IGD, M+M Planet Retail

Food retail spending in Moscow by outlet type

Source: Moscow City Hall

8

Supermarkets and hypermarkets12%

Traditional small shops and kiosks

58%

Outdoor markets30%

Major food retailers in Russia

Source: Company data, UFG

9

Chain / Company

Number of stores Gross turnover, $m

2000 2001 2002 2000 2001 2002

Pyaterochka 38 80 135 75 212 501

Perekrestok 28 38 46 156 252 333

Ramstore 9 9 15 125 250 308

Sedmoy Continent 15 22 31 124 201 301

Kopeika 16 23 27 60 116 182

Dixi 23 28 40 20 70 n/a

Bin n/a 26 32 70 100 120

Paterson 4 10 16 12 40 82

Country Market share (%)

Sweden 95%

Norway 86%

Netherlands 83%

Finland 80%

Switzerland 75%

France 66%

Austria 56%

Germany 53%

UK 52%

Hungary 26%

Czech Republic 26%

Slovakia 19%

Poland 11%

Russia 1.1%

Share of top 3 food retailers

Source: ACNielsen, Company estimate for Russia

10

Why international retailers have not come (Yet!)

• shortage of suitable retail properties• the difficulty of getting access to land and necessary

permits• lack of long-term leases• underdeveloped supply infrastructure• huge distances between major urban centers• shortage of qualified retail staff• BUT IKEA , METRO, AUCHAN, AVA/EDEKA have

taken the plunge

Market Summary

• Russia is among the world’s top 10 grocery markets with over $100 bn turnover in 2002

• Share of open markets and small shops is still high

• Domestic food retail chains enjoy strong growth, but share of top 3 retailers is only 1.1%

• Foreign competition is insubstantial

12

Pyaterochka Overview

Pyaterochka: Introduction

• Pyaterochka is the leading grocery chain in Russia by sales and number of stores 162 own stores and 20+ franchised

• Pyaterochka was formed after 1998 financial crisis from two food wholesale operations

• First store opened in February 1999• Positioned as a soft discounter with 3500

products• Average store size 585 sq m• Mostly located in residential districts• EBRD has been a shareholder since 2001

14

New store openings in 1999-2003E: Rapid Growth 15

1721

27

15 11

15 4041

1999 2000 2001 2002 2003E

Openings in Moscow

Openings in St Petersburg

16

Pyaterochka stores in St. Petersburg and Moscow

Pyaterochka Proposition

OUR CUSTOMER STORE CHARACTERISTICS

Low to middle income group Convenient location

Average basket ~ $4.5 Competitive prices

Frequent shoppers Guaranteed quality of products

Majority do not have cars Well-chosen range of products

Live within 1,5 km Always in stock

17

One of Pyaterochka stores in St. Petersburg 18

Inside the store 19

Pyaterochka Phase One Strategy

• Build Pyaterochka brand as fast as possible• Lease all stores rather than buy or build• Increase range from 600 to 3500 SKU’s• Build reputation for low cost quality branded

goods• Concentrate on supply chain issues• Introduce best practices throughout

organisation

20

Pyaterochka Phase Two Strategy

• Continue aggressive roll out strategy

• Buy well located stores

• Build stores when the opportunity arises

• Introduce a number of own label products

• Leverage buying power to keep prices low

• Build consolidated warehouses

• Introduce best of breed IT solutions across the supply chain

• Develop larger format

21

Pyaterochka Critical Success Factors

• Keep it simple– Limited Promotional Activity– No Internet Home Delivery– No Credit and Loyalty Cards

• Every day low prices– Same price in every store in each region

• Well trained employees– Pyaterochka training school 3 week course

• Source products locally– 2000 50% of all products imported– 2003 95% of all products bought locally

• Always in stock– Very high sales per sq m on a range of 3500 products

22

Pyaterochka as a Proxy for Russia - Positives

• Rapid growth in all forms of organised retail • Stock market up by over 50% av for each of

last three years• Increasing interest from Multi Nationals in

setting up local operations • All big 4 accountants present and very busy

(and expensive)• EBRD and IFC very active• Top Law Firms and Investment Banks returning

since 1998 financial crisis

23

Pyaterochka as a Proxy for Russia - Negatives

• St Petersburg and Moscow reasonably easy places to do business- regions less so

• A bit of a bubble again with high real estate prices. Leases still short 5-6 yrs common

• Infrastructure Road & Rail need investment• Little sale/ lease back activity• No 3rd Party Logistics Operators- Do it all

yourself!• Red tape does mean you need a local partner

24

Pyaterochka Key Challenges

• Finding appropriate locations– 2 teams of people in St Pete & Moscow

• Keeping highly trained employees– Continual learning at training school– Above average compensation

• Keeping costs low– Re-investing supplier discounts into lower prices

for customers• Fight competition

– Outdoor markets, other discounters, Western operators

25

Financials and operating data

2000 2001 2002* 2003F

Number of stores 38 80 135 187

Net sales, $m 67.3 190.6 493.2 750.0

EBITDA, $m 3.0 10.7 38.1 58.0

EBITDA margin, % 4.3 5.6 7.7 7.7

* Audited, IAS

26

Key performance measures in 2002:• Inventory turnover: 11 days• Average purchase bill: $4.5• Average daily number of purchases: 296,228• Sales/sq. metre of selling area: $8.986• Long term debt/equity: 0.05 (as of end 2002)

Benchmarking Analysis: European Comparables 27

EBIT ROCE in 2002

69,9%

15,3%

14,4%

13,8%

12,1%

11,9%

11,8%

11,6%

9,4%

Pyaterochka

Metro

Tesco

Carrefour

Delhaize

Casino

Sainsbury

Ahold

Jeronimo Martins

Source: SSSB, Company data (audited IAS)

Continue rapid organic growth of existing format in Moscow & St. Petersburg

Increase purchasing power with suppliers; enhance gross margins and volume

Increase share of owned and purpose built stores to 50/50

Expand into the regions (through franchising)

Develop larger format

Be well positioned to fight eventual competition from other Russian and foreign retailers

Become a strong candidate for an IPO

28Pyaterochka Plans

Conclusion 29

• Growth in consumer spending in Russia will further boost development of all retail chains

• Food retail industry is very fragmented, but entering stage of fast consolidation

• Suppliers need to set up shop in Russia to do business

• Excellent opportunities for western Suppliers prepared to invest in Russia

• Logistics and IT services companies in short supply but translation issues must be tackled

• Own label manufacturers will have massive demand over next 5 years

Contact details 30

Any questions? E mail

David Noble

Supervisory Board Director

Pyaterochka

e-mail: dnoble@e5.ru