GUM-Skating rinк on Red Square

Transcription

1 ANNUAL REPORT 2013

2 GUM-Skating rinк on Red Square

3 CONTENTS MANAGING DIRECTOR S MESSAGE TO THE SHAREHOLDERS...45 BOARD OF DIRECTORS OF JSC TRADING HOUSE GUM...46 CORPORATE EXECUTIVE BODY (EXECUTIVE BOARD) OF JSC TRADING HOUSE GUM SOLE EXECUTIVE BODY BRIEF INFORMATION ON MEMBERS OF JSC TRADING HOUSE GUM S BOARD OF DIRECTORS...48 BRIEF INFORMATION ON MEMBERS OF JSC TRADING HOUSE GUM S CORPORATE EXECUTIVE BODY (EXECUTIVE BOARD)...50 POSITION OF JSC TRADING HOUSE GUM IN THE INDUSTRY...53 PERFORMANCE OF JSC TRADING HOUSE GUM IN PROPOSALS TO DISTRIBUTE JSC TRADING HOUSE GUM S NET PROFIT REALIZED IN KEY RISK FACTORS RELATED TO JSC TRADING HOUSE GUM S BUSINESS...60 JSC TRADING HOUSE GUM S CODE OF CORPORATE CONDUCT...63 JOINT-STOCK CAPITAL OF JSC TRADING HOUSE GUM...63 DIVIDENDS...63 RTS (RUSSIAN TRADING SYSTEM) STOCK EXCHANGE DATA ON JSC TRADING HOUSE GUM S SHARES TRADING IN BOOK-KEEPING REPORT OF JSC TRADING HOUSE GUM AS OF, REVIEW COMMITTEE S REPORT ON JSC TRADING HOUSE GUM S PERFORMANCE IN AUDITOR S REPORT ON JSC TRADING HOUSE GUM S ACCOUNTING RECORDS OF

4 Fountain. Ice cream day at GUM 44

5 MANAGING DIRECTOR S MESSAGE TO THE SHAREHOLDERS We continue creating more comfortable conditions for our visitors. During the reporting period, the conditioning system of the building was reconstructed; the stairs, the balcony handrails and the gallery lighting were renewed. So, we aspire to create pleasant conditions for our visitors corresponding to the standards of high-end shopping mall. We should keep in mind that Trading House GUM is located in the center of a dynamically developing metropolis. Last year the city authorities started the intensive construction and development of pedestrian areas in the Central Administrative District. This directly affected GUM as well. Nikolskaya street adjacent to our trading center became a pedestrian one, which made the difficult situation with transport availability and car parking even harder. Some management and financial solutions were made to minimize the effect of this factor. Dear shareholders! Let us congratulate you on the 120th anniversary of the Trading House GUM that we celebrated last year. Within the celebration of the anniversary, large-scale events were held. All GUM partners, our customers and a lot of people residing in and visiting the capital of Russia took part in them. Among the most memorable events we would like to note the colorful Flower Carpet in Red Square, the wonderful ice cream fest at the height of summer, the historic Christian Dior show. Almost each partner of our Trading House released a limited edition of products dedicated to the anniversary that could be purchased in the shops operating in GUM. Our visitors could see these products at the exhibition dedicated to the 120th anniversary and held inside GUM. Along with the celebration of the anniversary, GUM also organized another large project opening of the Olympic store with an area of more than 1,000 square meters on the threshold of the Winter Olympics in Sochi. This store offered not only sportswear and accessories, but also licensed souvenir products highly popular among sports fans. We continued opening new stores and expanding the range of products during last year. Thus, we opened such footwear stores as Sergio Rossi and Giuseppe Zanotti, Red Valentino and Brooks Brothers were added to our apparel shops, the list of jewelry and watch boutiques was expanded with Tissot brand, the range of accessories was extended by opening the «GUM handbags» shop. The GUM Skating rink project, that had already become a tradition, was implemented in the reporting year as well and, as usual, it was very popular with Muscovites and those who visit the capital. Moreover, for the first time in the modern Russian history the Christmas GUM Fair was held in Red Square where anyone could purchase New Year s presents, souvenirs and also handicraft products. To increase the loyalty of our customers, in 2013 we launched a special loyalty program. Customers, participating in it, could get special services and an additional discount both in our own shops and in the shops of our tenants. To attract a wide audience, GUM conducted various exhibitions and events in the reporting year. The following events attracted a lot of interest: the exhibition of historical costumes from Aleksander Vasilyev s collection, the retrospective exhibition of GAZ automobiles, the exhibition of the Winter Olympic Torches from the collection of Monaco s Head Prince Albert II. During the anniversary year a lot of work was done to renew the attractive appearance of GUM, recreate the gallery lighting of the atriums on the ground and first floors, to improve its technical equipment and provide greater comfort for its visitors. To sum it up, we would like to note that the strong competition in the field and the unfavorable factors in the economy on the whole make us use our entire potential in order to strengthen the leading position of the JSC Trading House GUM among the premium shopping centers. Teymuraz Guguberidze Managing Director of the JSC Trading House GUM 45

6 BOARD OF DIRECTORS OF JSC TRADING HOUSE GUM ELECTED BY THE GENERAL SHAREHOLDERS MEETING OF JSC TRADING HOUSE GUM ON MAY 25 th, 2013 LAST NAME, FIRST NAME, PATRONYMIC POSITION SHARE IN THE ISSUER S AUTHORIZED CAPITAL VECHKANOV Vyacheslav Leonidovich President, Chairman of the Board of Directors of JSC TRADING HOUSE GUM Share in the Issuer s authorized capital: 0.002% GUGUBERIDZE Teymuraz Vladimirovich Managing Director, Chairman of the Management Board of JSC TRADING HOUSE GUM Share in the Issuer s authorized capital: no share GNATYUK Andrey Klimentievich President of IMA GROUP SLC Share in the Issuer s authorized capital: no share KARAKHANYAN Samvel Gurgenovich President of Barshchevsky & Partners Moscow Bar Share in the Issuer s authorized capital: no share KIRPICHEVA Ludmila Mikhailovna Director of the Fund of the Pushkin State Museum of Fine Arts Share in the Issuer s authorized capital: no share MALYSHEV Nikolai Nikolaevich Director of the Sports Programs Directorate of Channel One OJSC Share in the Issuer s authorized capital: no share SKVORTSOV Alexey Yuvenalievich Director of the Financial Department of JSC TRADING HOUSE GUM Share in the Issuer s authorized capital: % 46

7 CORPORATE EXECUTIVE BODY (EXECUTIVE BOARD) OF JSC TRADING HOUSE GUM ELECTED BY THE BOARD OF DIRECTORS OF JSC TRADING HOUSE GUM ON AUGUST 10 th, 2012 LAST NAME, FIRST NAME, PATRONYMIC POSITION SHARE IN THE ISSUER S REGISTERED CAPITAL RUSAKOV Alexey Sergeevich Director of the Law Department of JSC TRADING HOUSE GUM Share in the Issuer s authorized capital: no share SERGEEV Vladimir Nikolaevich SOKOLNIKOV Dmitry Lvovich SHPITONOV Igor Mikhailovich Director of the Commercial Department of JSC TRADING HOUSE GUM Share in the Issuer s authorized capital: no share Director of the Real Estate Department of JSC TRADING HOUSE GUM Share in the Issuer s authorized capital: no share Director of the Administrative Department of JSC TRADING HOUSE GUM Share in the Issuer s authorized capital: no share In addition, according to Article 69 of Paragraph 1 of the Federal Law «On Joint Stock Companies», a person, who exercises the functions of the Sole Executive Body, shall also exercise the functions of the Chairman of the Collective Executive Body (the Management Board). The functions of the Chairman of the Management Board of JSC Trading House GUM are exercised by Guguberidze Teymuraz Vladimirovich. The functions of the Sole Executive Body are exercised by the managing company Univermag CJSC. At present, the Managing Director Guguberidze Teymuraz Vladimirovich is the representative of the managing company Univermag CJSC to JSC Trading House GUM. SOLE EXECUTIVE BODY The functions of the sole executive body are delegated to the managing company Univermag CJSC. Location: 3, Red Square, Moscow, Mail address: 3, Red Square, Moscow,

8 BRIEF INFORMATION ON MEMBERS OF JSC TRADING HOUSE GUM S BOARD OF DIRECTORS CHAIRMAN: VECHKANOV Vyacheslav Leonidovich Year of Birth: 1947 Education: Higher Moscow Financial Institute 1970 Academy of National Economy under the Council of Ministers of the USSR 1985 Positions held during the last 5 years: Period of Employment: 2004 till present Organization: JSC TRADING HOUSE GUM Position: President, Chairman of the Board of Directors Period of Employment: Organization: the Board of Trustees of the Fund of the Pushkin State Museum of Fine Arts Field of Work: all-round support for development of the Pushkin State Museum of Fine Arts Position: member of the Board of Trustees Period of Employment: 2008 till present Organization: Special-Purpose Capital Formation Fund of the Pushkin State Museum of Fine Arts Field of Work: special-purpose capital formation with the intention of using its earnings toward all-round support for development of the Pushkin State Museum of Fine Arts Position: Director Period of Employment: 2010 till present Organization: Executive Committee of the Board of Trustees of the Pushkin State Museum of Fine Arts Field of Work: all-round support for development of the Pushkin State Museum of Fine Arts Position: Chairman Period of Employment: 2010 till present Organization: the Board of Trustees of the Pushkin State Museum of Fine Arts Field of Work: all-round support for development of the Pushkin State Museum of Fine Arts Position: member of the Board of Trustees Period of Employment: 2012 till present Organization: Fund of the Pushkin State Museum of Fine Arts Field of Work: all-round support for development of the Pushkin State Museum of Fine Arts Position: member of the Fund Council GNATYUK Andrey Klimentyevich Year of Birth: 1961 Education: Higher Moscow Printing Institute 1983 Positions held during the last 5 years: Period of Employment: 2003 till present Organization: IMA Group SLC Field of Work: advertising Position: President Period of Employment: 2005 till present Organization: JSC TRADING HOUSE GUM GUGUBERIDZE Teymuraz Vladimirovich Year of Birth: 1973 Education: Higher Abkhazian State University 1992, Tbilisi Humanities & Economics Institute 1998 Positions held during the last 5 years: Period of Employment: 2004 till present Organization: JSC TRADING HOUSE GUM Position: Managing Director, Chairman of the Management Board, member of the Board of Directors Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Field of Work: commerce and management counselling Position: Director Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Representative Office Field of Work: commerce and management counselling Position: Commercial Director, Managing Director Period of Employment: 2006 till present Organization: East & West Group of Companies CJSC Field of Work: holding company management Period of Employment: 2008 till present Organization: Bosco Sporting Goods LLC Position: President, member of the Board of Directors Period of Employment: 2008 till present Organization: BoscoNeva LLC Position: Chairman of the Board of Directors Period of Employment: Organization: Fund of the Pushkin State Museum of Fine Arts Field of Work: all-round support for development of the Pushkin State Museum of Fine Arts Position: member of the Fund Council Period of Employment: 2008 till present Organization: Special-Purpose Capital Formation Fund of the Pushkin State Museum of Fine Arts Field of Work: special-purpose capital formation with the intention of using its earnings toward all-round support for development of the Pushkin State Museum of Fine Arts Position: Chairman of the Fund Council Period of Employment: 2008 till present Organization: Univermag CJSC Field of Work: commerce and management counselling Position: Chief Executive Officer Period of Employment: 2010 till present Organization: BOSCO Riviera LLC Period of Employment: 2012 till present Organization: BOSCO Managing Company LLC Field of Work: holding company management Position: Chief Executive Officer Period of Employment: 2012 till present Organization: Moscow Chamber of Commerce and Industry Field of Work: entrepreneurship development support Position: member of the Management Board Period of Employment: 2013 till present Organization: BoscoVolga LLC Position: Chairman of the Board of Directors Period of Employment: 2013 till present Organization: BoscoUral LLC Field of Work: retail Position: Chairman of the Board of Directors Period of Employment: 2013 till present Organization: Logic Trade LLC Position: Chairman of the Board of Directors KARAKHANYAN Samvel Gurgenovich Year of Birth: 1960 Education: Higher LLD, Yerevan Polytechnic Institute 48

9 1982, Moscow Law Academy 1994 Positions held during the last 5 years: Period of Employment: 2003 till present Organization: Barshchevsky & Partners Moscow Bar Field of Work: advocacy Position: President Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Field of Work: commerce and management counselling Position: Director Period of Employment: 2004 till present Organization: JSC TRADING HOUSE GUM Period of Employment: 2006 till present Organization: East & West Group of Companies CJSC Field of Work: holding company management KIRPICHEVA Lyudmila Mikhaylovna Year of Birth: 1961 Education: Higher Correspondence Soviet Trade Institute 1984 Positions held during the last 5 years: Period of Employment: 2008 till present Organization: Fund of the Pushkin State Museum of Fine Arts Field of Work: all-round support for development of the Pushkin State Museum of Fine Arts Position: Director Period of Employment: 2008 till present Organization: Special-Purpose Capital Formation Fund of the Pushkin State Museum of Fine Arts Field of Work: special-purpose capital formation with the intention of using its earnings toward all-round support for development of the Pushkin State Museum of Fine Arts Position: Deputy Director, member of the Fund Council Period of Employment: 2008 till present Organization: Executive Committee of the Board of Trustees of the Pushkin State Museum of Fine Arts Field of Work: ensuring the intended and efficient use of extra-budgetary resources Position: member of the Executive Committee Period of Employment: 2009 till present Organization: JSC TRADING HOUSE GUM MALYSHEV Nikolay Nikolayevich Year of Birth: 1938 Education: Higher Moscow Aviation Institute 1963, Moscow Oriental Languages Institute 1970 Positions held during the last 5 years: Period of Employment: 1995 till present Organization: Channel One OJSC TV company Field of Work: TV Position: Director of the Sports Programs Directorate Period of Employment: 2005 till present Organization: JSC TRADING HOUSE GUM SKVORTSOV Aleksey Yuvenalyevich Year of Birth: 1968 Education: Higher Moscow Engineering and Physics Institute 1993, MIRBIS Moscow International Higher Business School 2003 Positions held during the last 5 years: Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Representative Office Field of Work: commerce and management counselling Position: Head of the Representative Office Period of Employment: 2004 till present Organization: JSC TRADING HOUSE GUM Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Field of Work: commerce and management counselling Position: Director Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Representative Office Field of Work: commerce and management counselling Position: Chief Financial Officer Period of Employment: 2007 till present Organization: BOSCO Managing Company LLC Field of Work: holding company management Position: Chief Financial Officer Period of Employment: Organization: BOSCO Managing Company LLC Field of Work: holding company management Position: Member of the Management Board Period of Employment: Organization: Bosco Restaurant LLC Field of Work: public catering services Period of Employment: Organization: Bosco Administration & Maintenance LLC Field of Work: non-housing property use management Period of Employment: Organization: Bosco Finance LLC Field of Work: accounting Period of Employment: 2008 till present Organization: Univermag CJSC Field of Work: commerce and management counselling Position: Executive Director Period of Employment: Organization: BoscoUral LLC Field of Work: retail Period of Employment: Organization: Bosco Sporting Goods LLC Period of Employment: Organization: BOSCO Riviera LLC Period of Employment: 2010 till present Organization: GUMPROJECT CJSC Field of Work: investment Position: Chief Executive Officer Period of Employment: Organization: Bosco Finance LLC Field of Work: accounting Position: Chief Executive Officer Period of Employment: 2013 till present Organization: Bosco Clinic LLC Field of Work: healthcare Position: Chairman of the Board of Directors Period of Employment: 2013 till present Organization: Bosco Pharmacy LLC Field of Work: retail of pharmaceutical goods Position: Chairman of the Board of Directors Period of Employment: 2013 till present Organization: Logic Trade LLC 49

10 BRIEF INFORMATION ON MEMBERS OF JSC TRADING HOUSE GUM S CORPORATE EXECUTIVE BODY (EXECUTIVE BOARD) GUGUBERIDZE Teymuraz Vladimirovich Year of Birth: 1973 Education: Higher Abkhazian State University 1992, Tbilisi Humanities & Economics Institute 1998 Positions held during the last 5 years: Period of Employment: 2004 till present Organization: JSC TRADING HOUSE GUM Position: Managing Director, Chairman of the Management Board, member of the Board of Directors Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Field of Work: commerce and management counselling Position: Director Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Representative Office Field of Work: commerce and management counselling Position: Commercial Director, Managing Director Period of Employment: 2006 till present Organization: East & West Group of Companies CJSC Field of Work: holding company management Period of Employment: 2008 till present Organization: Bosco Sporting Goods LLC Position: President, member of the Board of Directors Period of Employment: 2008 till present Organization: BoscoNeva LLC Position: Chairman of the Board of Directors Period of Employment: Organization: Fund of the Pushkin State Museum of Fine Arts Field of Work: all-round support for development of the Pushkin State Museum of Fine Arts Position: member of the Fund Council Period of Employment: 2008 till present Organization: Special-Purpose Capital Formation Fund of the Pushkin State Museum of Fine Arts Field of Work: special-purpose capital formation with the intention of using its earnings toward all-round support for development of the Pushkin State Museum of Fine Arts Position: Chairman of the Fund Council Period of Employment: 2008 till present Organization: Univermag CJSC Field of Work: commerce and management counselling Position: Chief Executive Officer Period of Employment: 2010 till present Organization: BOSCO Riviera LLC Position: Chairman of the Board of Directors Period of Employment: 2012 till present Organization: BOSCO Managing Company LLC Field of Work: holding company management Position: Chief Executive Officer Period of Employment: 2012 till present Organization: Moscow Chamber of Commerce and Industry Field of Work: entrepreneurship development support Position: member of the Management Board Period of Employment: 2013 till present Organization: BoscoVolga LLC Position: Chairman of the Board of Directors Period of Employment: 2013 till present Organization: BoscoUral LLC Field of Work: retail Position: Chairman of the Board of Directors Period of Employment: 2013 till present Organization: Logic Trade LLC Position: Chairman of the Board of Directors RUSAKOV Aleksey Sergeyevich Year of Birth: 1976 Education: Higher Moscow Economics and Law Academy 1999 Positions held during the last 5 years: Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Representative Office Field of Work: commerce and management counselling Position: Director of the Law Department Period of Employment: 2003 till present Organization: JSC TRADING HOUSE GUM Position: member of the Management Board Period of Employment: Organization: Registronics CJSC Field of Work: joint-stock companies register maintenance Period of Employment: 2008 till present Organization: Special-Purpose Capital Formation Fund of the Pushkin State Museum of Fine Arts Field of Work: special-purpose capital formation with the intention of using its earnings toward all-round support for development of the Pushkin State Museum of Fine Arts Position: member of the Fund Council Period of Employment: 2008 till present Organization: Univermag CJSC Field of Work: commerce and management counselling Position: Executive Director Period of Employment: Organization: Bosco Sporting Goods LLC Position: Assistant to President Period of Employment: Organization: Bosco Sporting Goods LLC Position: Vice-President Period of Employment: 2013 till present Organization: Bosco Sporting Goods LLC Period of Employment: 2013 till present Organization: Bosco Stores LLC Period of Employment: 2013 till present Organization: BoscoNeva LLC Period of Employment: 2013 till present Organization: BoscoVolga LLC Period of Employment: 2013 till present Organization: BOSCO Riviera LLC 50

11 Period of Employment: 2013 till present Organization: BoscoUral LLC Field of Work: retail SOKOLNIKOV Dmitriy Lvovich Year of Birth: 1964 Education: Higher Moscow Institute of Road Traffic 1987 Moscow State Law Academy 2000 Positions held during the last 5 years: Period of Employment: Organization: JSC TRADING HOUSE GUM Position: Head of the Non Specialized Asset Management Department Period of Employment: 2006 till present Organization: JSC TRADING HOUSE GUM Position: member of the Management Board Period of Employment: 2008 till present Organization: Univermag CJSC Field of Work: commerce and management counselling Position: Executive Director SERGEEV Vladimir Nikolayevich Year of Birth: 1958 Education: Higher Moscow Power Engineering Institute 1981 Moscow State Pedagogical Institute of Foreign Languages 1986 Positions held during the last 5 years: Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Representative Office Field of Work: commerce and management counselling Position: Director of the Commercial Department Period of Employment: 2006 till present Organization: JSC TRADING HOUSE GUM Position: Member of the Management Board Period of Employment: 2011 till present Organization: Univermag CJSC Field of Work: commerce and management counselling Position: Executive Director SHPITONOV Igor Mikhaylovich Year of Birth: 1957 Education: Higher Moscow Power Engineering Institute 1980 Positions held during the last 5 years: Period of Employment: 2004 till present Organization: JSC TRADING HOUSE GUM Position: Member of the Management Board Period of Employment: Organization: ATLAS PROJECT MANAGEMENT LIMITED Representative Office Field of Work: commerce and management counselling Position: Director of the Administrative Department Period of Employment: 2008 till present Organization: Univermag CJSC Field of Work: commerce and management counselling Position: Executive Director Period of Employment: 2010 till present Organization: East & West Group of Companies CJSC Field of Work: holding company management Position: Administrative Director 51

12 GUM. Demonstration hall 52

13 POSITION OF THE JSC TRADING HOUSE GUM IN THE INDUSTRY Russia s economic growth rate slowed down in The gross domestic product increased by 1.3% as compared to 2012, which is 2.7 percentage points lower than the similar indicator for the previous period. The retail turnover growth rate also decreased from 6.3% in 2012 to 3.8% during the reporting period. The retail trade in Moscow totaled 4.0 trillion rubles in 2013, or increased by 3.5% as compared to 2012, which is lower than the overall growth rate in the country. The ratio of food products in the structure of the retail trade equaled 51.1%, the nonfood products equaled 48.9%. 13 shopping centers with the total area of 371 thousand square meters were opened in Moscow during the year, which is 35% greater than same indicator for the previous one. The tendency towards opening centers in districts and microdistricts is prevailing on the market. There was no property with gross leasable area of more than 40 thousand square meters set to work during 2013 in the central part of Moscow. The total supply of shopping space in high-end shopping centers in Moscow equaled 3,913 thousand square meters, while the overall amount of shopping space is about 325 square meters per 1,000 citizens. The Moscow Department of the Consumer Market and Services predicts that Moscow will reach the European level of shopping space per capita in About 200 shopping establishments will be opened annually to reach the level. According to Cushman & Wakefield Company, the lease rates remained stable during 2013 in Moscow shopping malls. At the same time, the lease terms continued to increase: three-year lease agreements spread wider and wider. Retailers offering luxury products continued to pay special attention to streets adjacent to Okhotny Ryad, Tver skaya and Kuznetsky Most streets. Single lease agreements were made regarding pre mises in Sloleshnikov Lane and Petrovka Street in The analysis of shopping premises on the most passable shopping streets in the center of the city showed that the most popular categories of tenants are food services (cafes, restaurants) and apparel and footwear stores that take 29% and 21% of all premises located in these streets, respectively. Opening pedestrian streets in the center of the city was a considerable event in According to analysts, they have great potential from the shopping point of view and retailers showed a huge interest in pedestrian areas. Another initiative of Moscow government paid parking lots in the center of the city will also contribute to shifting the premium retailers and food services interest to new geographical segments of the market. The Garden Ring and adjacent streets can become a new hub of activity. Slower growth rates of the Russian economy, changes in the ruble exchange rate regarding the main currencies, increased competition changed the following tendencies in the retail development: The customer demand considerably decreased in the fourth quarter of The main factors that influenced the reduction in the consumer demand were: A shift in the pattern of household expenses: from consumption to saving. Regarding the pattern of using money, the population of Moscow tends to buy more currency (8.6% in 2013 as compared to 6% in 2012 in the overall structure of consumption) and to save more (16.8% in 2013 and 14% in 2012). A high debt load carried by citizens. According to information from the Central Bank and collectors, Russian debtors were 25% of their aggregate income in arrears as of the end of 2013, which slowed down the growth rates of consumer loans. Consumer activity failed to live up to expectations in a whole range of key segments of sales and services in Restaurant owners, brewing companies, apparel retailers and even online retailers noticed stagnation or lower demand. The leading manufacturers of luxury products also encountered slower sales. However, according to expert estimates, the sales in the premium sector will grow by more than 10% within the next few years. Russian consumers tend to take their finances more rationally. The optimization of expenses has already led to the amount of impulse purchases decreased by 8% as compared to the previous year. The attitude of Russian citizens to shopping is gradually changing. While shopping used to be viewed upon as entertainment as well, now this process is becoming a necessity. Buyers spend less and less time in shops in order to look through new products, try them on, find a better price. Instead, they more and more often come to purchase a particular product. The number of people who go shopping for the sake of entertainment has decreased by 18% as compared to the previous year. In the situation when the consumer demand is getting lower, many retailers try to attract buyers by extending the range of their products, introducing new lines of clothes, orienting towards new target groups and even changing the format of their shops like, for instance, the Spanish retailer «Mango» that announced the launch of their new line of women s clothes Mango Premium. Food retailers increase the share of products under their own brands. Currently, the share of such products in the range and revenue of Russian retailers is lower than in European countries. However, the chain stores intensively promote their products. Every fourth shopping center in Moscow needs redevelopment. Most objects needing redevelopment are «firstwave» shopping centers that became obsolete in a natural 53

14 course of events or as a result of «external» circumstances: changes in the status of the microdistrict due to the demolition of old residential housing and building of business-class residential housing, the emergence of a strong competing object, the improvement of the transportation availability due to road reconstruction, changes in the cluster or even megacluster borders due to new interchanges, bridges, etc. In order to attract buyers, shopping centers pay even more attention to the active development of the leisure component in the structure of their objects. For instance, the «Tashir» group of companies started to implement projects involving the construction of exotic zoos in the «RIO» shopping and leisure center in Dmitrovskoye Highway in Moscow and in the «RIO» shopping and leisure center in Saint Petersburg. Also, the «Crocus Group» company plans to build an oceanarium with 12.5 thousand square meters next to the «Vegas» shopping and leisure center. The market «decentralization» is in progress. In 2013, the share of shopping facilities commissioned «beyond the Moscow Automobile Ring Road» constituted 27% of the total amount of new offers. Facilities beyond the Moscow Automobile Ring Road will already constitute 40% in the structure of new offers in 2014 (first of all, due to opening Vegas Crocus City (111,400 square meters of GLA), the «Vesna» shopping and leisure center (56,000 square meters of GLA), the RIO shopping and leisure center in Kiyevskoye Highway (45,000 square meters of GLA). Retailers tend to be less eager to go to the main shopping streets of Moscow. Nevertheless, it may be later leveled by the fact that pedestrian areas are being actively constructed and developed in Moscow. As to the entry of large foreign retailers into the Russian market, this process will go on as gradually as before. Some foreign retailers decided to enter the market on their own in 2013: the Gucci and Tommy Hilfiger companies introduced direct management in their retail single-brand chain boutiques in Russia, the Tiffany & Co jewelry house did the same by opening the «anchor» boutique in the Trading House GUM. Retailers tend to continue giving up «image» shops now objects are chosen primarily depending on the predicted indicators of visitors and planned profitability. As before, tenants prefer large and successful shopping centers. On the whole, the fashion retail market was characterized by slower growth rates in 2013, which is related to the unstable economic situation and increased competition. 54

15 PERFORMANCE OF JSC TRADING HOUSE GUM IN 2013 The anniversary 120th year of the Upper Trading Rows (nowadays known as GUM) became a considerable milestone for our joint-stock company. A lot was done during the reporting period for the successful implementation of the planned projects and, first of all, the grand memorable anniversary celebration. Throughout the entire year we kept working on opening new interesting branded outlets representing world fashion industry. New boutiques were opened in the footwear gallery. The new «Sergio Rossi» outlet on the second floor of GUM presents its own bright and colorful spring/summer collection. The design of original models and the variety of the new female footwear collection will touch the deepest feelings of the lovers of a creative approach. The Giuseppe Zanotti footwear outlet was opened at the beginning of the spring. It has a wide circle of fans worldwide both among show business celebrities and among those people who prefer individuality in their images. Designer Giuseppe Zanotti skillfully combines his fantasies with reality in the footwear. RED Valentino apparel shop opened in GUM in 2013 and presented its new spring/summer collection, widening thus the available clothes range. The RED Valentino style mixes the epochs and trends making it possible to experiment, create daring images and emphasize them with the cutting-edge fashion accessories. Our customers demanded and awaited this brand for a long time. Fans were glad to know the famous American Brooks Brothers brand finally opened in spring. The event was celebrated by a fashion show at BOSCOSFASHIONWEEK in the GUM s Demo Hall where the spring and summer collection was presented along with the limited one. The first shop opened in Russia on the ground floor of GUM welcomes its customers with soft light, the smell of fresh wood, trophy cups on the shelves and apparel that won the love of almost all American presidents due to its elitist style, neatness and comfort. The accessory range has been widened due to the opened Tissot store. The concept of the Tissot boutique comes as a whole with the splendid interior of GUM. The design of the shop emphasizes the main values of the brand while its exclusive and simultaneously restrained design expresses the harmonic combination of traditions and innovations. It presents a wide range of watches from pocket watches and classic makes to the latest samples of the modern Tissot T-Touch collection. The «GUM Bags and Luggage» multibrand store opened on the third floor of GUM at the beginning of summer pleased our customers. The new store presents the latest collections of world brands Samsonite, Сromia, Guess, Joop!, Versace Jeans, Delsey, Bric s and others renowned for their innovations, technologies and design in creating products for travel, handbags and accessories. We should particularly note the opening of the Main Olympic Shop in GUM in the area of more than 1000 square meters in the run-up to the Winter Olympics This milestone event increased the degree of celebration events in GUM. The two stories of the Olympic Shop in GUM offer the entire range of all the necessary things for supporting the Russian team and engaging in recreational activities. Bright and rich color combinations and the recognizable symbols of the upcoming Olympics attracted a lot of people who wanted to buy sports gear and accessories for the upcoming events. T-shirts and hoodies, sweaters and cardigans, hats and jackets, tracksuit, duck down jackets, warm footwear and gloves with fingers in different colors from the official licensed Sochi 2014 collection inspire and unite buyers as belonging to a remarkable all-country event. Besides the sports gear, the Olympic shop has the entire range of licensed products with the symbols of Sochi 2014: mascot toys, original pens and notebooks, badges and keychains, magnets and calendars and much more. Every customer can find here presents to his liking and budget. Before the Olympics the Trading House GUM went beyond the historical borders of its unique location and implemented the project of simultaneously opening a whole chain of Olympic shops operating during the events of the Sochi Olympics. The first Olympic shop was opened in the heart of the city of Sochi exactly 100 days before the opening day of the sports events. The area of 500 square meters offered the entire range of licensed apparel, footwear and souvenir products with the Olympic symbols. The walls completely paneled with mirrors allow the shop to look different every day reflecting changes in weather and smiles of Olympic fans rushing to get memorable souvenirs. The front is covered with a patchwork quilt pattern that became the main visual image of the Games in Sochi. More than 20 Olympic shops are scheduled to be opened before the sports events start. Besides that, during the reporting period we continued to work in the field of our own sales where we achieved the following results. The stable work of the «Optician» shop is confirmed by the turnover of the shop increased by 17% as compared to the previous year. Conducting of advertising events, opening of the famous brands installations directly affects the growth in sales. For instance, the presentation of the «Ray Ban» installation increased the sales of this brand by 60%. The increased demand for luxury products is maintained with the following leaders: Chanel, Tiffani, Giorgio Armani, Prada, Chopard and others. The same situation was detected in the Dyson appliances outlet where the store turnover increased by more than 16% as compared to the previous year, which can be explained by a more flexible approach to the price and product policy, as well as by making subject exhibitions and conducting active advertising events. 55

16 The «Imperial Porcelain Factory» store where the turnover annually increases by 20 to 30% has been developing intensively. Thus, the company yield from 1 square meter increased by 21% and reached 5161 US dollars in Events aimed at increasing the level of customers satisfaction and visitors number were carried out throughout the year in the store. Opening the «GUM Service in Ilyinka» made it possible to widen available services for visitors offering them to enjoy the most comfortable conditions in men s and women s halls with shower cubicles, toilets convenient for children and people with disabilities. The turnover tends to continue growing in the field of public catering services. To fulfill its obligations, the food production facility constantly controls the renewal of the range of products and the introduction of new seasonal dishes into the menu, conducts special events, actively participates in city events and GUM projects, such as «The Spasskaya Tower», New Year s Fair on Red Square, organizes banquets, buffet dinners and children s holidays. Positive economic indicators prove that our visitors have highly evaluated the quality of the offered services, the turnover increased by 15% in 2013 as compared to the previous year with the number of cash register receipts increased by 7% and the average purchase sum increased by 6.2%. In order to raise the customer loyalty, we have launched a special privileges program for our clients in Joining this program, our clients can get an extra discount on specific goods in the stores of our own trading and in the tenants stores as well. The commercial activity of our company was supported by large-scale advertising events. The high level of competition in the premium shopping segment makes JSC Trading House GUM both actively use reliable and proven methods for attracting customers and find new creative and marketing solutions in order to make the shopping center more attractive from the customers point of view. In 2013, the main stress in the advertising activity of the Trading House was laid on anniversary celebrations due to the 120th anniversary of the Upper Trading Rows that made it possible to focus public attention on rich historical and cultural traditions of GUM and strengthen its positive image as a shopping center for the entire family. The Flower Carpet on Red Square, the Day of GUM s ice cream became milestone events in the summer life of the capital and were mentioned in mass media multiple times. The announcement of these events beforehand ensured a high number of visitors: people arrived to GUM particularly for the occasions even from other cities. The grandiose Dior fashion show dedicated to the 120th anniversary of GUM became a significant event in the cultural life of Moscow. A mirror pavilion that circled the space of Red Square was built particularly for the occasion: show visitors found themselves in its mirror twin after they left GUM. The most pleasant moment at any birthday party is presents. It is what breaks the everyday routine and makes our memories come true. Time accumulated in regular things turned into a story that GUM s friends and partners made up for it. There were special clothes, shoes, perfumery and even a vehicle prepared for the main department store of the country for its anniversary. And they were not just significant things with GUM logo on them. The perfumery, watch, shoes, T-shirts, bags, bicycle and even a car were designed especially for the favorite store. And the autumn exhibition of unique limited congratulation collections from GUM s partners clearly showed it. The holiday spirit was maintained by the festive presentations of congratulatory products throughout the entire autumn of 2013: La Perla apparel set, «120th GUM Anniversary» series of pens from the Italian company Montegrappa, the limited collection of exclusive «anniversary» watches Vacheron Constantin, Place Rouge fragrance created especially for GUM by the Guerlain House s Chief Perfumer Thierry Wasser, and Ciel de GUM fragrance («The sky of GUM») by the Francis Kurkdjian House. Its creator, famous perfumer Francis Kurkdjian, came to Moscow particularly to aromatize the legendary GUM fountain just for one evening. The olfactive performance was accompanied by a light show, festive cake and Dmitry Malikov s concert. The anniversary festivities started in summer and ended with a large open-air celebration on the 1st of December. On that day, the GUM skating rink that had become a significant symbol of the capital was opened for the eighth time, as well as the New Year s Fair for the first time. There were skomorokhs, pancakes, exclusive artisanal handicraft products, a carousel and a large slide in the form of a congratulatory cake. Among the guests of the festivities there were famous actors, musicians, sportsmen with their families (Kseniya Alfyorova and Egor Beroyev, Aleksey Nemov with his wife Galina, Tatyana Tarasova with her grandson, Alyona Babenko, Inna Churikova and Gleb Panfilov, Oleg Menshikov with his wife Anastasiya) and regular customers of the Trading House. All these events directly or indirectly contributed to the consumer opinion about GUM as a shop offering not only high-quality luxury products but also the high level of exclusive services and entertainments and to position GUM as a shopping center for the entire family working according to the following effective algorithm: shopping food entertainment shopping. Another way to position GUM as a premium product retailer was to combine advertising with the cultural and educational activity. The advantageous location of the shop in the historical center of Moscow together with the spacious pedestrian passageways inside the shopping center make it possible to use it as a successful exhibition site. The JSC Trading House GUM has been successfully using this type of activity in its work as a separate trend for a long time. In 2013, the rows of the shopping center were used to stage several dozens of various exhibitions among which we would like to single out, first of all, the expositions of GUM partner brands oriented towards the customers with the high level of purchasing capacity. The April exhibition in the 1st passage of GUM showed the limited editions of products from the two legendary brands: Europe s first porcelain manufactory MEISSEN (Germany) and the oldest glasswork manufacturer the MOSER company 56

17 (Czech Republic). Most of the exhibits presented at the exhibition were produced in one copy only and have a large auction and collection value. The Brooks Brothers and Chereshnevy Les Open-Art Festival presented the exhibition called «The Great Gatsby» in May. Brook Brothers created more than 500 outfits for the leading, supporting and group male roles in this film. They were based on the models of clothes from the 1920s found in the Brooks Brothers archives. People could buy their modern interpretations in the first and only Brooks Brothers shop in Russia opened in the third passage of GUM in April. Historical porcelain works of art from the Spanish brand Lladro were shown in GUM at September exhibition illustrating the development of the brand starting from the 1950s of the last century and till now. Also, the GUM passages hosted the traditional exhibitions of the famous leaders in the jewelry and watch industry presented in Sublime by BOSCO shop: Baume & Mercier, Rado, Carrera y Carrera, Longines, Jaeger-LeCoultre. Taking into account the quality of the event and the number of mentions in the mass media, we should note the advertising event that took place in GUM on the 23rd of April. The Porsche company celebrated the 50th anniversary of one of its most popular model Porsche 911. All makes of the legendary model drove right through the passages of GUM at the Porsche Night show. At the same time, the guests of the evening could make themselves comfortable on the second floor of the gallery and watch how the car has changed throughout its history. Along with the celebration of the iconic model there was a premiere within the Porsche Night! The Porsche Company presented its new sports model Porsche Cayman. In the course of the 2013 advertising campaign, both external (information sound clips on the leading broadcasting stations, information and advertising materials in the press) and internal advertising media (flags and banners located along all passages of GUM, advertising on escalators) proved to be effective. These media were of the navigating and informational character as thus GUM visitors found out about new collections, sales and other events. This type of advertising combining attractive design, clarity and image simplicity makes every person passing by its target. On the one hand, advertising options available in-store brought a direct financial return, on the other hand, it increased the profit of leaseholders, which positively affected their financial relations with the JSC Trading House GUM. Another success in the advertising experience of GUM was participating in a large fashion event Fashion s Night Out (the 4th of September, 2013). Everything around told of its approach: stickers on the doors of participating shops, colored twinkle lights, display platforms from perfume and cosmetic brands and fashion expositions placed in the 1st passages. Starting from make-up artists, hairdressers and manicurists have been already inviting GUM guests to «get some style» in anticipation of the fashion night that had a lot of surprises in store for buyers: the presentation of a new premium La Perla fragrance called Just Precious, all kinds of designer accessories released especially for the 120th anniversary of GUM, new products in the Sublime by BOSCO shop and Sochi souvenirs in the Main Olympic Shop. This event was aimed at strengthening of the leading positions of GUM in its field and working for long-term perspectives: contributing to the opinion of GUM as a store that offers high-end products and versatile services. Within its advertising activity, the JSC Trading House GUM also paid considerable attention to the cultural and educational ends that were not related to advertising of particular products and brands but contributed to the positive image of the shopping center as a whole, to positioning GUM as an interesting and modern cultural site of the capital. Thus, in February the passages of GUM hosted the «Polar World» exhibition of the worldwide known nature photographer Thorsten Milse. In March we held «Welcome to the Celestial Empire!» exposition that got the guests of GUM familiar with the pearls of Chinese architecture and unique natural objects preserved on the territory of the Celestial Empire. November showed the historical retrospective exhibition of GAZ automobiles the exposition of which included the first make of a Soviet GAZ car, the unique race GAZ GL 1 and other rarity cars. In December there was an exhibition of historical clothing from the personal collection of the fashion historian and famous television host Aleksander Vasilyev. About 300 specially prepared mannequins showed today s GUM buyers what those who made purchases in Red Square 10, 20, 50, 80 and even 120 years ago looked like. This trend of advertising activity not only allows to preserve the constant purchasing audience of the shopping center but also contributes to attracting new customers. The positive image of the Main Shopping Center of the country is made up of many factors. One of them is the successful seasonal decoration of the space, shops and outlets that can contribute to the positive emotions of the customers that come to GUM not only to make purchases but also to feel the atmosphere. In spring the GUM was decorated with colorful triangles, cylinders and spheres floating in the air and lining the floor. They turned the galleries of GUM into avantgarde art space like a 3D picture; juicy fruit was responsible for the positive emotions in summer; historical artefacts referencing to the time when the Upper Trading Rows were opened did it in autumn; in winter the fountain looked like frozen, colorful twinkle lights, New Year s designer trees decorated by the partners of GUM and live music performed by a band of Ded Morozes (Father Frosts). Thus, all advertising events that took place in 2013 defined the implementation of the approved strategy of turning GUM into a unique high-end shopping facility combining the rich historical and cultural traditions with exclusive offers and modern approach to selling premium products. Taking into account the strategies of the joint-stock company and also the Anniversary of the Upper Trading Rows, restoration works in the Main Building of GUM in Red Square were performed during the reporting year. In 2013, million rubles were invested in the major repairs and restoration of the GUM building. About 3,700 square meters of shopping area was updated with the full set of restoration works. 57

18 In order to prepare the main building to the anniversary, 12 staircases were repaired and decorated, 2,500 square meters of wrought balcony parapets on the 2nd and 3rd floors were repaired, more than 3.3 thousand running meters of oak handrails on balconies and stairs were replaced, 560 sconce luminaires were installed in order to provide light for atriums on the 1st and 2nd floors, etc. A lot of work was done in order to maintain the utility lines in order to provide the comfortable conditions and safety to consumers and employees being inside the building in Red Square. The total expenses on the maintenance of the utility lines in buildings (including utility expenses) totaled 336 million rubles in The anniversary festivities were reflected in the corporate policy of the joint-stock company as well. Various events related to the 120th anniversary of the Upper Trading Rows were held during the reporting year. 230 company employees took part in the winter and summer athletic events called «120 years of moving forward!» They belonged to various categories, ages and had been working in GUM for various periods of time. 120th anniversary of GUM was celebrated by its employees in a solemn meeting during which the tradition of giving distinction signs to employees who worked for the company for more than 25 years was started. The «Best Employee of the Year» contest has been traditionally carried out together with the corporate celebration of the New Year. This year there was an increase in the number of nominations there are 42 of them now. Correspondingly, more employees managed to participate in this contest. The winners were granted certificates, silver badges with the inscription «Best Employee 2013» and got a bonus in the amount of two basic payments. The nominees of the contest did not go unnoticed. They received a letter of gratitude from the top management and a one-time bonus in the amount of one basic payment. The nonmonetary forms of incentives for nominees elected by quarters also became more diversified: certificates to the «Festival» cafe, to the Gastronome cafe and also invitations to the GUM skating rink. This contest is one of the most effective incentives for our employees to achieve high professional results. In the second half of 2013, the Pobeda Gallery and wellknown photographer Anastasiya Khoroshilova implemented the photo project «The City of GUM» dedicated to the 120th anniversary of GUM. The photo album is dedicated to people who devoted the most part of their lives to GUM and also to dynasties who continue working in our joint-stock company. Along with the moral incentives, a lot of attention was paid to material incentives to increase the efficiency of employees by encouraging the staff by means of using the new conditions of complex and individual rewards. If necessary, the basic payment was revised and the size of payment offered on the market for the same positions was taken into account. It was increased for 329 employees within the year, which constitutes more than one third of the total number of employees. The system of bonuses was considered separately for each department and the most efficient was chosen. The new system was implemented or the existing one was refined within the shortest period of time. At the same time, changes in the financial and economic, organizational and production indicators were taken into account. All that made it possible to increase the turnover of the JSC Trading House GUM by 12% and reduce the number of employees in the joint-stock company by 9.6% during the reporting year. The increase in expenses on the major repairs of the building, on the payments to employees, the increase in the lease payments for the building and the land could not keep the commercial and management expenses on the level of the year They increased by 315 million rubles. Expenses on advertising considerably increased due to the celebration of GUM s 120th anniversary. As a result, the net profit totaled million rubles in For the last several years JSC Trading House GUM shows a stable increase in its economic activities, which proves the considered policy of the company s management and makes it possible to make an optimistic outlook for the future NET PROFIT (MILLION RUBLES)

19 The current liquidity ratio on the 31st of December, 2013 equaled 4.2. The indicator increased by 11.41%. The liquidity ratio gives the general estimate of asset liquidity showing how many rubles of the current assets are accounted for one ruble of the current liabilities. Normal limit (WCR>1) means that cash and upcoming proceeds from operating activities will cover current CURRENT LIQUIDITY RATIO debts. The lower limit is conditioned by the requirement for current assets availability in the amount sufficient to repay at least short-term liabilities; otherwise, the company will be under the threat of bankruptcy. Actual data for 2013 demonstrate that the amount of cash and upcoming proceeds from operating activities will be sufficient to fully cover current liabilities. 0,6 0,4 0, «Asset Turnover Ratio» is a financial indicator evidencing the efficient use of all available resources by the company regardless of the sources of its attraction. This ratio demonstrates how many times a year the full cycle of production and turnaround ASSET TURNOVER RATIO resulting in the corresponding effect in the form of profit is performed. This indicator increased by 1.79% and equaled 0.57 in the reporting period. RETURN ON EQUITY As of the end of 2013, this indicator totaled The indicator decreased by 23.11% as compared to The «Return on equity» indicator shows how much of the net profit is returned for 1 ruble from the equity of the company, i.e. it makes it possible to determine how efficiently the equity of the company is used. The final indicator proves the high efficiency of using the material, human and monetary resources. PROPOSALS TO DISTRIBUTE JSC TRADING HOUSE GUM S NET PROFIT REALIZED IN 2013 Undistributed profit of 2013 is planned to allocate for the joint-stock company development, for charity and social services development in ALLOCATION RUR MLN. Joint-stock company s development 539 Social services development 23 Charity 40 TOTAL:

20 KEY RISK FACTORS RELATED TO JSC TRADING HOUSE GUM S BUSINESS POLITICAL RISKS After essential political and economical reforms pursued in the 1990s Russia settled down to a course of democracy and market economy. The process of political and economical development is still in progress, which makes Russia s political system vulnerable to civil disorders, discontent and disturbances among certain social and ethnic groups of population. Considerable political instability may cause an adverse impact on the market value of shares of JSC Trading House GUM. Continued terrorist activity that increases and spreads in the regions may trigger hardening of coercive practices aimed to stop the violence, and imposing state of emergency in particular regions of the Russian Federation. Terrorist activity and counter measures may impair development of the Russian business, in general, and efficient operation of JSC Trading House GUM, in particular. JSC Trading House GUM places high emphasis on inherent security and conducts business insurance policy against risks of terrorism. Such risks as strikes and imposing of state of emergency are extremely unlikely for the region where JSC Trading House GUM conducts its business and is registered as a tax payer. Risks related to possible military conflicts are rather low and cannot materially impair operation of JSC Trading House GUM. Social situation in Russia may be currently estimated as relatively stable. ECONOMIC RISKS Decrease of inflation rate is one of the Russian Government s priorities in the economic sphere. it holds out a hope of restraining escalation of costs. Numerous financial problems, connected with mounting of the international tension that is: introducing of political and economic sanctions, decreasing of import volume and prices for subsoil resources, outflow of the international investments, and sensitivity to risks associated with investments into developing countries may adversely affect Russian economy. Besides, imposing of sanctions may influence the banking sphere that will entail problems with banking transactions. On the other side, relations of the Russian banks and their clients are regulated by the provisions of the Russian legislation. That is why imposing of sanctions on the part of other countries cannot directly influence on the possibility of using of monetary funds on the Russian accounts. Key economic risks, due to their global character, are beyond the issuer s control. JSC Trading House GUM enjoys the definite level of financial stability to deal with the short-term negative economic changes in the country. In the event of substantial political or economic instability in Russia or in the region, JSC Trading House GUM will take anti-crisis measures to mobilize business and minimize negative effect of political or economic situation in the country or in the region. EXCHANGE-RATE CHANGE RISKS It should be noted that substantial fluctuations of foreign currency exchange rate may influence Russia s economy in general, and, consequently, have an impact on JSC Trading House GUM in an indirect way. Ruble exchange rate is regulated by the Central Bank of Russia that operates in accordance with main trends of development of country s economic policy. Ruble exchange rate will depend upon several main factors: further development of the situation in the world, dynamics of US dollar and Euro on the global market, global price trend for Russian exports and Central Bank s policies. Further tension of the international situation may lead to a dramatic decline of Ruble exchange rate and as the result to prices increase. This factor will adversely affect the purchasing capacity of people. GUM is subject to currency risks since some portion of goods marketed by JSC Trading House GUM is imported and most of the lease contracts are concluded in foreign currencies. Sharp fluctuations of foreign currency exchange rate may have a negative impact on sales turnover and expenditure level. For foreign currency hedging JSC Trading House GUM fixes the minimal rate of currency rates in lease contracts that let receive incomes not lower than target figures. INFLATIONARY RISKS In view of financial results, the impact of inflation factor on JSC Trading House GUM is varied. On the one hand, acceleration of price growth is, as a rule, less unfavorable to JSC Trading House GUM, which is mainly engaged in marketing of light industry products and letting out sales premises, than to the companies with continuous production cycle. Besides, growth of inflation rate may result in increase in consumer price for goods and services delivered by JSC Trading House GUM. On the other hand, acceleration of price growth may lead to increase in GUM s expenditures (against rising prices for energy resources, transportation and products purchasing prices), slow down the rate of stocks/assets turnover and cause low profitability indices and profit decline. In the event of negative change in foreign currency exchange rate and interest rate and in case of inflation growth, the issuer intends conducting a stringent cost cutting policy alongside with the following measures: Revision of financing procedures for the existing and newly opened projects; Optimization of cost-based components, reduction of operational expenditures; Revision of investments program. 60