Operational and financial perfomance review

In 2011 M.video stores were visited by more than 136 million people: in our estimate, 21% out of them made a purchase. Average transaction amount exceeded 5,000 rubles (including VAT).

The total growth in sales of 29.7% was achieved due to the average basket increase by of 10.7% and number of transactions of 19%. The number of transactions increase was due to both higher like-for-like (LFL) purchases and new store openings.

The LFL sales totaled 10% in 2011. The LFL sales efficiency (sales per Full Time Equivalent employee, or FTE) increased by 7.7; In 30% of our stores sales efficiency exceeded one million rubles per FTE in 2011. Moreover in the successful holiday season of December 2011 our sales efficiency hit the record high 1.5 million rubles per FTE.

The Employee Turnover % in 2011 reached the lowest level since 2008. In November and December the Employee Turnover was at its lowest level of 3.7% and 2.9% accordingly.

The management team identifies customer satisfaction as the key to continuing the Company’s success. In 2011 one of our priority tasks was further development of “My Client – My Responsibility” (MCMR) strategy the outcome of which was opening of 150 Service Zones in 48 cities.

Within the bound of these zones (branded as “M.Service”) various services are provided to customers, such as product check, software installation, diagnostics, etc. The Service Zones helped customers who want to understand how to use their purchase and for those who would like to upgrade software or move their personal data from one device to the new one they purchased. In addition we launched home installation services to provide a professional beginning to end service for all our customers.

As the result of professional diagnostics run by dedicated Service Zone specialists the number of product returns decreased by 21% versus the previous year throughout the network. Customer claims were 29 % lower than the previous year proving that MCMR was not only accepted but correctly adopted across the business. Our store directors and sales staff were taking accountability and treating customers as they expect to be treated following the Company’s widely promoted motto “We do care”.

In August 2011 was the launch of the new store concept for the 2,000 square meter stores. The new concept is designed around simplification of the store design while showcasing the latest technologies and promoting our brand. Our first new concept store was in Moscow. This store enjoyed a significant increase in traffic and sales and customers reactions were favorable. In October – November new concept store were opened in St. Petersburg, Ufa and Samara with trading in line with our expectations. We will continue to roll this concept out to our new and reconstructed stores.

Our customer satisfaction index rose and people showed loyalty to our company for their Consumer Electronics purchases.

In 2011 we viewed a very encouraging trend for the future development of M.video: our 10% LFL store sales were accompanied by substantial growth of M.video Internet business. We saw a record 90% increase in Moscow online sales while growing our stores revenue in the city.

In line with those results which were achieved in of the key markets we developed a new strategy which we called an Omni-Channel approach. Omni-Channel provides a unique opportunity for our customers to receive the same service level whatever way – on-line or store – they choose to shop. We are one brand name – M.video - to serve our customers’ demand. We’re committed to growing our business in this perspective Omni-Channel mode to continue delivering strong results.