X5 Retail Regulatory News (FIVE)

26 Nov 2007 07:27

X5 Retail Group N.V.26 November 2007 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN X5 RETAIL GrouP N.V. REPORTS 53%* TOP LINE GROWTH in Q3 2007 Amsterdam, 26 November 2007 - X5 Retail Group N.V., Russia's largest foodretailer in terms of sales (LSE ticker: "FIVE"), published today its unauditedIFRS results for the quarter and nine months ended 30 September 2007 based onmanagement accounts. Q3 2007 Highlights 9M 2007 Highlights• Q3 Net Sales surged 53% year-on-year to USD 1,270 • 9M Net Sales surged 50% year-on-year to USD 3,618 mln; mln; • Q3 Gross Profit grew by 54% year-on-year to USD • 9M Gross Profit grew by 53% year-on-year to USD 330 mln, Gross Margin totaled 25.9%; 946 mln, Gross Margin totaled 26.2%; • Q3 EBITDA reached USD 99 mln, a year-on-year • 9M EBITDA reached USD 311 mln, a year-on-year increase of 85%; increase of 78%; • Q3 Net Profit grew by 22% year-on-year to USD 13 • 9M Net Profit grew by 50% year-on-year to USD 54 mln. mln. "We are pleased to report all time high sales growth of 53%, which reflects ourunrivalled leadership in all segments and regions of X5 operations.Like-for-like sales as well as new store performance were very strong despiteseasonal effects of the third quarter - the toughest quarter for modern foodretail. We have invested a lot of effort to retain customers by running acountry-wide promo in September, which proved to be a great success butpressured margins. However, our focus on improvement of purchasing terms,upgrade of logistics capacity and optimization of business processes, combinedwith strong sales momentum, shall enable X5 to meet its aggressive growth andprofitability targets for the full year", Lev Khasis, X5 Retail Group CEO, commented. He added: "As we are preparing for record-high Christmas and New-Year sales, we decided topostpone several store openings until early 2008. This decision will enable usto concentrate on operational performance of existing stores, minimize storeopening costs and ensure higher quality of the openings. Thus, we expect toopen approximately 140,000 sq. m. in 2007, but keep our full-year sales targetunchanged." * 2006 figures are reported on pro-forma basis, not including Merkado results P&L Highlights USD mln Q3 2007 Q3 2006 % change, 9M 2007 9M 2006 % change, y-o-y y-o-yNet Sales, incl. 1,270.1 830.5 52.9% 3,617.7 2,411.4 50.0% Retail 1,261.0 821.1 53.6% 3,592.4 2,385.8 50.6%Gross Profit 329.5 213.9 54.0% 946.3 618.3 53.0% Gross Margin, % 25.9% 25.8% 26.2% 25.6%EBITDA before ESOP* 113.0 74.8 51.1% 346.7 237.2 46.2% EBITDA Margin before 8.9% 9.0% 9.6% 9.8% ESOP, %EBITDA 99.1 53.5 85.2% 311.1 175.2 77.6% EBITDA Margin, % 7.8% 6.4% 8.6% 7.3%EBIT 58.0 35.3 64.3% 194.8 109.1 78.6% EBIT Margin, % 4.6% 4.3% 5.4% 4.5%Net Profit 13.2 10.8 22.2% 54.2 36.1 50.1% Net margin, % 1.0% 1.3% 1.5% 1.5% Retail Sales Performance Net Retail Sales, Q3 2007 Q3 2006 % change, 9M 2007 9M 2006 % change,USD mln y-o-y y-o-yHypermarkets 93.6 57.0 64.2% 260.8 163.4 59.6%Supermarkets 461.9 298.2 54.9% 1,326.6 856.0 55.0%Soft Discounters 705.5 465.9 51.4% 2,005.0 1,366.5 46.7%Total Net Retail Sales 1,261.0 821.1 53.6% 3,592.4 2,385.8 50.6% Total net retail sales for the third quarter increased by 54% in USD terms toUSD 1,261 mln, translating into a 51% increase year-on-year in the first ninemonths of 2007 to USD 3,592 mln. Impressive retail sales surge is explainedprimarily by success of X5 promotional campaign in soft discounters across thecountry dedicated to Pyaterochka's 8th anniversary and aimed at keeping positivetraffic in what is traditionally the weakest quarter of the year. Despiteseasonal pressures, hypermarkets and supermarkets also performed well, both interms of LFL and new stores, reinforcing the overall positive sales growthtrend. * ESOP - Employee Stock Option Program Gross* Retail Sales Analysis by Format Q3 2007 9M 2007Gross Retail Sales LFL**, % Expansion, Total change %, LFL, % Expansion, % Total change %, % excl. FX excl. FXHypermarkets 17% 39% 56% 15% 36% 51%Supermarkets 21% 26% 47% 18% 28% 46%Soft Discounters 20% 23% 43% 17% 21% 37%Total Gross Retail Sales 20% 25% 45% 17% 24% 41% For the third quarter 2007, LFL sales surged 20% in RUR terms - a healthy mix ofgrowth in traffic (up 8%) and basket (up 12%) across formats and regions.Expansion brought additional 25% in terms of growth. As a result, nine monthsLFL sales increased by 17% in RUR terms with traffic growing by 9% and basket -by 8%, while 24% came from expansion. Hypermarkets For the third quarter 2007, hypermarkets sales surged 56%, excluding FX effect,as a result of 17% increase in LFL sales (strong performance of our hypermarketin Samara) and 39% contributed by five new stores opened after 30 September2006. For the first nine months, gross sales in the hypermarket formatincreased by 51% (LFL sales up 15%, new stores sales up 36%). Supermarkets For the third quarter 2007, supermarkets sales grew by 47%, excluding FX effect,as a result of 21% surge in LFL sales and 26% coming from expansion. Thestrongest LFL growth in the supermarket format was reported in Moscow (up 26%),which is explained by further strengthening of Perekrestok competitive positionsin its home market (supermarket traffic in Moscow posted very strong growth of13% in the third quarter). For the first nine months, gross sales in thesupermarket format increased by 46% (LFL sales up 18%, new stores sales up 28%). Soft Discounters In the third quarter 2007 soft discounters sales grew by 43%, excluding FXeffect, as a result of 20% surge in LFL sales and 23% coming from expansion.The strongest LFL growth in the soft discounter format was reported in theregions (up 48%) due to outstanding performance of stores in Chelyabinsk andYekaterinburg. These supreme growth rates demonstrate the efficiency of oursuper promo campaign dedicated to the 8th anniversary of Pyaterochka. * In this section all sales dynamics analysis is based on RUR-denominatedgross sales (including VAT, excluding FX). Net sales RUR dynamics mayimmaterially differ due to effective VAT rate. ** In line with international practice, LFL (like-for-like)performance represents growth in sales of LFL stores during the reporting periodover the same period a year ago. LFL stores are defined as stores that haveoperated for at least twelve full months preceding the reporting date. Theirsales are included in LFL calculation starting from the first day of the monthfollowing the month of the store opening. LFL sales are calculated on the basisof traffic and basket amounts of relevant stores in the period under review,therefore LFL sales are gross, i.e. include VAT. LFL sales are reported inRussian RUR unadjusted for inflation. As of 30 September 2007, 8 hypermarkets,124 supermarkets and 441 discounters were included in LFL sales calculation. We are pleased to report that for the third quarter in a row, X5 softdiscounters reported positive traffic in St. Petersburg (up 1% in Q3, 2% in Q2and 1% in Q1), which reflects success of X5's efforts to maintain and reinforceits market share in the most competitive food retail market in Russia. For thefirst nine months 2007, gross sales in the soft discounter format increased by37% (LFL sales up 17%, new stores sales up 21%). Average Ticket and Number of Customers USD Q3 2007 Q3 2006 % change, 9M 2007 9M 2006 % change, y-o-y y-o-yX5 Average Ticket, USD 9.5 8.2 15.9% 9.4 8.4 11.9% Hypermarkets 15.5 14.3 8.4% 15.3 14.7 4.1% Supermarkets 11.6 10.1 14.9% 11.5 10.5 9.5% Soft Discounters 8.2 7.0 17.1% 8.1 7.1 14.1%X5 # of Customers, mln 150.7 116.0 29.9% 433.5 329.8 31.4% Hypermarkets 6.9 4.6 50.0% 19.6 12.7 54.3% Supermarkets 45.4 33.7 34.7% 131.2 93.0 41.1% Soft Discounters 98.4 77.7 26.6% 282.8 224.0 26.3% Gross Profit For the third quarter 2007, gross profit increased by 54% to USD 330 mln,translating into a 53% year-on-year growth to USD 946 mln for the first ninemonths. Third quarter gross margin totaled 25.9%, while nine months grossmargin reached 26.2%. Some pressure on the gross margin in the third quarter is typical for urban foodretailers as there is more competition from open markets in fresh segment.Moreover, it's vacations period which negatively affects both basket (averageconsumer spending on food falls) and traffic. Nationwide Pyaterocka promotioncampaign aimed at maintaining high traffic rates also depressed the margin. Selling, General and Administrative Expenses (SG&A) For the third quarter 2007, SG&A totaled USD 288 mln - an increase of 52%year-on-year. For the first nine months 2007, SG&A increased by 48% over thesame period a year ago to USD 799 mln mainly due to growth in staff costs andhigher lease expenses. Staff Costs For the third quarter 2007, staff costs, including ESOP, increased by 43%compared to the same period of last year. Net of ESOP costs, which in 2006included one-off restructuring expense of the previous ESOP, Q3 2007 staff costsgrew by 65% on the back of continuing wage inflation and extensive hiring toprepare for store opening season in the fourth quarter. Third quarter 2007 ESOPcosts amounted to USD 14 mln, which represents proportionally accrued expensesrelated to the first and the second tranches of ESOP. For the first nine months2007, total staff costs grew by 38% year-on-year (61% net of ESOP) Lease Expenses For the first nine months 2007, lease expenses increased by 47% on the back ofrent inflation. As a large proportion of the Group's stores are owned, thisreduces its exposure to the growth in rent prices. Non-Operating Gains and Losses USD mln Q3 2007 Q3 2006 % change, 9M 2007 9M 2006 % change, y-o-y y-o-yEBIT 58.0 35.3 64.3% 194.8 109.1 78.6% Finance costs (net) (46.3) (15.5) 198.7% (100.3) (42.5) 136.0% Net FX gain /(loss) 2.3 4.1 -43.9% 12.2 7.3 67.1%Profit before tax 14.0 23.9 -41.4% 106.7 73.9 44.4% Income tax expense (0.9) (13.1) -93.1% (52.5) (37.8) 38.9%Net Profit 13.2 10.8 22.2% 54.2 36.1 50.1% In the third quarter 2007 X5 Retail Group focused on restructuring of itsobligations to streamline its debt portfolio and reduce future interestpayments. These efforts enabled the Company to significantly reduce its runningcost of debt - effective interest rate decreased to 6.7% p.a. At the same time,in the third quarter of 2007 the Group recognized a one-off debt restructuringexpense of USD 23 mln. Ruble Bonds Restructuring In July 2007 X5 Retail Group issued a 7 -year bond (with a call optionexercisable in 3 years) with an interest of 7.6% p.a. and the notional amount ofRUR 9 bln. This issue replaced three outstanding bonds previously issued byPyaterochka and Perekrestok in the total amount of RUR 6 bln with an averageinterest rate of 9.55%. This move not only enabled X5 to reduce its interestrate exposure, but also significantly improved transparency of the Group's debtstructure. Syndicated Loan Refinancing In June 2007 the Group replaced its outstanding USD 800 mln syndicated loanbearing interest of LIBOR + 2.25% p.a. with a new one in the amount of USD 1 blnbearing interest of LIBOR + 0.75% p.a. In addition to reducing its interestexposure, the new loan gave the Company increased financial flexibility due to asimpler covenants structure. At the end of the third quarter 2007 net outstanding debt of the Group totaledUSD 1.48 bln. FX Gain/(Loss) X5 Retail Group employs hedging strategy to minimize its foreign exchange andinterest rate exposure. Thus, in July 2007 it entered into arrangements tohedge both FX and interest rate risks on its USD 1 bln syndicated loan.Interest rate hedge resulted in interest savings of approximately USD 0.5 mln asof 30 September 2007. On the other hand, as turmoil in the US financial marketsled to significant USD depreciation against EUR and RUR, FX gains on the dollardenominated syndicated loan were off-set by mark-to-market result on the hedgingfacility. The Company plans to continue to apply hedging policy aimed atminimizing its FX and interest rates exposure. Recent Events In October 2007 X5 Retail Group announced acquisition of Korzinka - the largestand fast growing retail chain in the Lipetsk region. The company's expectedsales are US$190 million excluding VAT for 2007. X5 Group will acquire 22stores in total, of which 15 will be integrated into the Group's discounterformat, 6 into the supermarket format and one store will be added to thehypermarket network. The total area of Korzinka outlets is 38,007 sq.m., ofwhich 12,352 sq. m. are owned, while average length of lease agreements for theremaining space is 10 years (including the hypermarket). The net selling spacerepresented by the outlets is 19,966 sq. m. 2007 Store Opening Guidance The Company has revised its full year 2007 guidance on store openings from150,000 sq.m. to approximately 140,000 sq. m., which reflects our decision tofocus on operational performance of existing stores and ensure high Christmasand New-Year sales, rather than pushing openings in December 2007. Unbalancedstore opening at the very year-end affects performance of existing stores,generates extra costs, and does not guarantee the required quality of theopenings. As usual, we will provide our 2008 store opening guidance in January2008. The stores that are technically ready to be opened after mid-December2007 but become operational in early 2008 will be reported separately. *** X5 Retail Group N.V. will host a conference call to discuss its third quarterand first nine months 2007 financial results today, November 26, 2007, at 5pmMoscow time/2pm London time/9am NY time. The call will be hosted by Lev Khasis,X5 Retail Group CEO, Evgeny Kornilov, the Group Deputy CFO, and Anna Kareva, IRDirector. Appendices: 1. Interim Income Statement for the three and nine months ended 30 September 2007 and 2006 *** Note to Editors: X5 Retail Group N.V. is Russia's largest food retailer in terms of sales. As of30 September 2007, the Group had 573 company-managed soft discount storeslocated in Moscow (256), St. Petersburg (234) and other Russian areas (83), 163company managed supermarkets across Central Russia and Ukraine, including 101stores in Moscow (Moscow region and Yaroslavl region), and 13 company managedhypermarkets. As of 30 September 2007, X5's franchisees operated 627 stores across Russia andKazakhstan. Pyaterochka and Perekrestok have merged their operations as of 18 May 2006 tocreate the clear leader in the Russian food retail market. Forward looking statements: This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identifiedby the fact that they do not only relate to historical or current events.Forward-looking statements often use words such as" anticipate", "target", "expect", "estimate", "intend", "expected", "plan", "goal" believe", or otherwords of similar meaning. By their nature, forward-looking statements involve risk and uncertainty becausethey relate to future events and circumstances, a number of which are beyond X5Retail Group N.V.'s control. As a result, actual future results may differmaterially from the plans, goals and expectations set out in theseforward-looking statements. Any forward-looking statements made by or on behalf of X5 Retail Group N.V.speak only as at the date of this announcement. Save as required by anyapplicable laws or regulations, X5 Retail Group N.V. undertakes no obligationpublicly to release the results of any revisions to any forward-lookingstatements in this document that may occur due to any change in its expectationsor to reflect events or circumstances after the date of this document. For further details please contact Anna Kareva Alexandra GalimovaIR Director Head of PR DepartmentTel.: +7 (495) 980-2729, ext. 22 162 Tel.: +7 (495) 950-5577e-mail: anna.kareva@x5.ru e-mail: alexandra.galimova@x5.ru Appendix I INTERIM INCOME STATEMENT FOR THE THREE AND NINE MONTHS ENDED 30 SEPTEMBER 2007 AND 2006* (expressed in thousands of US Dollars, unless otherwise stated) Three months ended Nine months ended 30 Sep 2007 30 Sep 2006 30 Sep 2007 30 Sep 2006Revenue 1,270,140 830,544 3,617,741 2,411,390 Cost of sales (940,632) (616,629) (2,671,468) (1,793,056)Gross Profit 329,507 213,915 946,272 618,334 Selling, general and administrative expenses (288,220) (189,277) (799,519) (540,004) Lease/sublease and other income 16,710 10,660 48,046 30,735Operating Profit 57,997 35,298 194,800 109,065 Finance costs (net) (46,283) (15,493) (100,304) (42,483) Net FX gain/(loss) 2,291 4,124 12,238 7,296Profit before tax 14,005 23,930 106,733 73,878 Income tax expense (851) (13,120) (52,530) (37,765)Profit for the period 13,154 10,809 54,204 36,113 * 2006 figures are reported on pro-forma basis, not including Merkado results -------------------------- This information is provided by RNS The company news service from the London Stock Exchange