3.4

Notes to the company financial statements

General

The Company was incorporated as a limited liability Company under the laws of The Netherlands on 13 August 1975 and has its statutory seat in Amsterdam. The Company is publicly owned. The principal activity of the Company is to act as the listed holding company for retail chains operating mainly in Russia. The number at Chamber of Commerce is 33143036.

Basis of presentation

The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the Netherlands, in accordance with Part 9 of Book 2 of the Dutch Civil Code (art 362.8).

Accounting principles

Unless stated otherwise below, the accounting principles applied for the Company accounts are similar to those used in the IFRS Consolidated Financial Statements (refer to Note 2.1 to the Consolidated Financial Statements). The consolidated accounts of companies publicly listed in the European Union must be prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB and adopted by the European Commission.

As the Company mainly exploits Russian grocery stores in four formats (proximity stores, supermarket, hypermarket and convenience stores), the functional currency of the Company is the Russian Rouble as this is the currency of its primarily business environment and reflects the economic reality. Unless stated otherwise all amounts are in millions of Russian Rouble (“RUB”).

Investments in group companies

Investments in group companies are entities (including intermediate subsidiaries and special purpose entities) over which the Company has control, because the Company (i) has power to direct relevant activities of the investees that significantly affect their returns, (ii) has exposure, or rights, to variable returns from its involvement with the investees, and (iii) has the ability to use its power over the investees to affect the amount of investor’s returns. Group companies are recognised from the date on which control is transferred to the Company or its intermediate holding entities. They are derecognised from the date that control ceases.

The Company applies the acquisition method to account for acquiring group companies, consistent with the approach identified in the consolidated financial statements. Investments in group companies are presented in accordance with the net asset value method. When an acquisition of an investment in a group company is achieved in stages, any previously held equity interest is remeasured to fair value on the date of acquisition. The measurement against the book value is accounted for in the statement of profit and loss.

When the Company ceases to have control over a group company, any retained interest is remeasured to its fair value, with the change in carrying amount to be accounted for in the statement of profit or loss. When parts of investments in group companies are bought or sold, and such transaction does not result in the loss of control, the difference between the consideration paid or received and the carrying amount of the net assets acquired or sold, is directly recognised in equity.

When the Company’s share of losses in an investment in a group company equals or exceeds its interest in the investment (including separately presented goodwill or any other unsecured non-current receivables being part of the net investment), the Company does not recognise any further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the investment. In such case the Company will recognise a provision.

Amounts due from group companies

Amounts due from group companies are stated initially at fair value and subsequently at amortised cost. Amortised cost is determined using the effective interest rate.

To avoid the difference between equity in the Consolidated and the Company’s Financial Statements any expected credit losses on intercompany receivables recognised in the Company’s statement of Profit and Loss are eliminated (reversed) through the respective intercompany receivable account.

Financial guarantee

For financial guarantee contracts, IFRS 9 retains the same definition and initial recognition requirements as IAS 39 but introduces different subsequent measurement requirements. On subsequent measurement financial guarantees contacts are measured at the ‘higher of’: The expected credit losses allowance as defined above, and the amount initially recognised (i.e. fair value) less any cumulative amount of income amortisation recognised.

For intercompany financial guarantees issued by the Company, the expected default is not significant and therefore the financial guarantees are not recognised.

Shareholders’ Equity

Issued and paid up share capital, which is denominated in Euro, is restated into Russian Rouble (“RUB”) at the official exchange rate of the Central Bank of the Russian Federation as at reporting date in accordance with section 373 sub 5 of book 2 of the Dutch Civil Code. The difference is settled in the other reserves.

A complete list of group companies has been disclosed in the consolidated financial statements (refer to Note 6 of the consolidated financial statements).

The total amount of the loans provided to group companies was RUB 7,433 (2017: RUB 7,321) and it approximated the fair value. The loans have not been secured.

Share capital issued

As at 31 December 2018 the Group had 190,000,000 authorised ordinary shares (31 December 2017: 190,000,000) of which 67,890,099 ordinary shares were outstanding (31 December 2017: 67,886,748) and 3,119 ordinary shares held as treasury stock (31 December 2017: 6,470). The nominal par value of each ordinary share is EUR 1.

The acquisition price of the shares purchased was charged against other reserves. Other reserves as at 31 December 2018 included translation reserve of RUB 2,937 (2017: RUB 2,217) and legal reserves of RUB 1,344 (2017: RUB 517).

Statutory profit appropriation

Dividends approved for distribution at the General Meeting in May 2018 have been paid in the amount of RUB 21,590 during the year ended 31 December 2018 (RUB 318.00 per share).

The Supervisory Board proposed to the General Meeting to distribute in 2019 current year profit in the amount of RUB 25,000 (368.23 RUB per ordinary share) to shareholders.

The loan payable to Trade House PEREKRIOSTOK JSC denominated in RUB/USD/EUR. RUB facility amounted to 16,570 (2017: RUB 15,628), USD 21.8 million (2017: USD 21.4 million) and EUR 9.9 million (2017: EUR 4.5 million).

In May 2018, X5 Retail Group NV closed a refinancing of its financial indebtedness with the credit facility from Sberbank. The size of the facility is RUB 21,900 of debt, non – revolving, that bears a fixed interest with the maturity of June 2021.

X5 Retail Group N.V. operates equity settled share based compensation plan in the form of its Restricted Stock Unit Plan.

The Restricted Stock Unit Plan consists of performance based awards and awards subject to the employment condition only. For employees of the Company an expense is recorded in the profit and loss account.

The receivable or expense is accounted for at the fair value determined in accordance with the policy on share-based payments as included in the consolidated financial statements, including the related liability for cash settled plans or as equity increase for equity settled plans (Note 28).

The following is included in the entity’s accounts for the Restricted Stock Unit Plan:

In accordance with the Dutch legislation article 2:382a the total audit fees related to the accounting organisation Ernst & Young Accountants LLP amounted to RUB 16 (2017: RUB 12).

The theoretical and effective tax rates are reconciled as follows:

No deferred tax asset has been recognised due to uncertainty of future taxable income to offset the current tax losses.

Deferred income tax

Deferred tax liabilities and the deferred tax charge in the company statement of profit or loss were attributable to the following items for the year ended 31 December 2018:

Deferred tax liabilities and the deferred tax charge in the company statement of profit or loss were attributable to the following items for the year ended 31 December 2017:

The Company estimates that part of temporary difference related to investments in subsidiaries will be reversed in the foreseeable future and therefore accrued related deferred tax liability.

The Company estimated unrecognised potential deferred tax assets in respect of unused tax loss carry forwards of RUB 1,320 (2017: RUB 794). Unused tax losses are available for carry forward for a period not less than four years (for 2017 – five years).

The number of persons having a contract with the Company is five: one of them has a services contract, and four of them have a contract of employment. One of them was posted outside of the Netherlands. For the remuneration of past and present members of the Management Board, please refer to Note 27 Staff Cost in the consolidated financial statements, which is deemed incorporated and repeated herein by reference. Incurred wages, salaries and related social security charges in relation to the other three employees comprise RUB 12 (2017: RUB 9).

Guarantees are irrevocable assurances that the Company will make payments in the event that another party cannot meet its obligations. The Company had the following guarantees issued under obligations of its group companies:

The guarantees issued matures as follows:

Refer to Note 8 of the consolidated financial statements; all group companies are also considered related parties.

Statutory director’s compensation

The Company has a Management Board and a Supervisory Board. The total remuneration of all board members as well as key management is disclosed in Note 27 and Note 28 of the Consolidated Financial Statements.

Loans to group companies

For loans issued to and interest income from the group companies refer to Note 37.

Loan from group company

For loan received from and interest expenses to the group company refer to Note 39.

There were no significant events after the reporting date.