X5 Retail Regulatory News (FIVE)

6 Mar 2009 10:09



X5 RETAIL GrouP's full year 2008 EBITDA to exceed TARGET;

Goodwill IMPAIRMANT CHARGE expected in Q4 2008;

2009 Sales Growth Guidance REITERATED

Amsterdam, 6 March 2008 - X5 Retail Group N.V., Russia's largest retailer in terms of sales (LSE ticker: "FIVE"), expects to report above-target EBITDA for the full year 2008, provides preliminary details on an anticipated fourth quarter 2008 goodwill impairment charge and comments on 2009 trends and outlook. The Company will report its Q1 2009 trading update on 9 April 2009 and audited full year & fourth quarter 2008 financial results on 14 April 2009. 

2008 performance update (based on unaudited numbers): 

In 2008 the Company successfully delivered on all of its promises:

X5 expects to report full year 2008 pro-forma* EBITDA margin, a key measure of profitability, of approximately 9%, beating the Company's 8.4 - 8.6% target for the year. EBITDA outperformance was driven by strong top-line growth coupled with efficient cost control measures and focused execution of the Karusel hypermarket chain integration program, helped by lower ESOP costs. 

The Company expects full year 2008 gross margin to be within the expected range of 25.5-25.9%.

On 20 January 2009 X5 Retail Group reported 2008 pro forma net retail sales of USD 8.8 billion, a 45% increase in U.S. dollar terms over 2007 (41% year-on-year growth in rubles), and like-for-like sales growth of 22% (in ruble terms) - both exceeding full year targets.

Anticipated 2008 goodwill impairment charge: 

With the recent substantial weakening of the global equity markets and increased cost of capital, X5 anticipates it will record a non-cash goodwill impairment charge in the fourth quarter of 2008. Based on the preliminary results of the goodwill impairment test in accordance with IAS 36, the impairment charge is expected to be in the range of USD 2 billion to USD 2.5 billion (out of the total goodwill amount on the Company's balance sheet of USD 2.7 billion as of 31 December 2008 at year-end FX rate). Over 80% of this amount is related to goodwill created as a result of merger between Perekrestok and Pyaterochka in 2006, which, under IFRS 3, was treated as a reverse acquisition**.

The impairment charge is a non-cash item, which will not affect X5's EBITDA, adjusted EBIT*** or its adjusted net income***, i.e. the key metrics that the Company uses to evaluate its financial performance. The charge reflects change in the Company's stock price, but does not impact the strategic value of X5's assets and is not indicative of the Company's ability to generate cash flow. The write-down of goodwill also has no impact on bank credit arrangements or bonds.

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*  Including acquired Karusel stores from 1 January 2008.

** Over 80% of the Company's goodwill was created as a result of the merger between Pyaterochka and Perekrestok in 2006, which was treated as a reverse acquisition (IFRS 3). In accordance with reverse acquisition accounting, goodwill amounted not to the actual price paid for Pyaterochka less fair value of its identifiable net assets, but to the total market capitalization of Pyaterochka at that time less fair value of its identifiable net assets, i.e. was several times larger than under regular acquisition accounting. Recent weakening in the Company's stock price was a technical trigger for this goodwill impairment.

***  Adjusted EBIT and adjusted net income are defined as EBIT/net income before special non-cash items.

Update on 2009 trends and outlook: 

X5 Retail Group reiterates its guidance for 2009 net sales growth of above 25% in ruble terms on a pro-forma basis. Due to the increased volatility of macro-economic drivers that have a direct impact on consumer behaviour and the average purchase size, in particular, inflationary trends and the economic situation in the Russian regions, X5 believes that at the moment it is prudent to update its 2009 outlook without a specific LFL sales growth target.

In the changing market environment when consumers become increasingly focused on price, which is especially evident in the regions, we believe it is critical to ensure affordability of products on our shelves. Thus, in 2009 we will continue to implement our pricing policy with continued gross margin investment in our customer value proposition in order to enhance X5's advantage over competition and drive customer traffic. At the same time, the Company will further reinforce its cost controls and pursue every opportunity to compensate for gross margin investment through increased operational efficiencies and savings at the SG&A level.

We confirm our intention to invest not more than RUR 14 billion as capital expenditure during the year. Our approach towards CapEx remains very conservative: first, we focus on projects with the highest returns and shortest paybacks. Second, our CapEx is largely discretionary and the Company has the flexibility and is committed to adjusting its expansion plans in response to the situation in the financial markets.

Forward looking statements:

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by 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 other words of similar meaning.

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, a number of which are beyond X5 Retail Group N.V.'s control. As a result, actual future results may differ materially from the plans, goals and expectations set out in these forward-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 any applicable laws or regulations, X5 Retail Group N.V. undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this document that may occur due to any change in its expectations or to reflect events or circumstances after the date of this document.

Note to Editors:

X5 Retail Group

X5 Retail Group N.V. is Russia's largest retailer in terms of sales. The Company was created as a result of a merger between Pyaterochka (soft discounter chain) and Perekrestok (supermarket chain) on 18 May 2006. In June 2008, X5 acquired Karusel hypermarket chain and substantially strengthened its position in hypermarket format.

As at 31 December 2008, X5 had 1,101 Company-managed stores located in Moscow, St. Petersburg and other regions of European Russia, Urals and Ukraine, including 848 soft discount stores, 207 supermarkets and 46 hypermarkets.

As at 31 December 2008, X5's franchisees operated 607 stores across Russia. 

Including Karusel on pro-forma basis the Company's net sales for the first nine months of 2008 totaled USD 6,516 mln, gross profit amounted to USD 1,674 mln, EBITDA - to USD 578 mln and net income - to USD 138 mln.

For the full year 2008, X5 Retail Group N.V.'s net retail sales including acquired Karusel stores on pro-forma basis totaled USD 8,844 mln.

X5 Shareholder structure is as follows: Alfa Group - 47.9%, founders of Pyaterochka - 23.1%, X5 Management - 1.9%, treasury shares - 0.1%, free float - 27.0%.