X5 Retail Regulatory News (FIVE)

X5 REPORTS 15.6% REVENUE GROWTH in Q1 2020

Adj. ebitda margin UNDER IAS 17 AT 7.0%

Amsterdam, 24 April 2020 - X5 Retail Group N.V. ("X5" or the "Company"), a leading Russian food retailer that operates the Pyaterochka, Perekrestok, and Karusel retail chains (LSE and MOEX ticker: FIVE), today released its unaudited condensed consolidated interim financial information for the three months ended 31 March 2020 ("Q1"), in accordance with International Financial Reporting Standards as adopted by the European Union.

In the face of the constantly changing situation surrounding the spread of COVID-19, X5 has been able to meet the rapid growth in demand caused by consumers stocking up before the lockdown was announced in Russia on 28 March 2020. Our supply chain has been operating smoothly and stores remain open and well-stocked, while we are also protecting employees and customers. At X5 we introduced measures such as mandatory body temperature checks for all employees entering our premises (stores, distribution centres, offices), we have provided masks and disposable gloves to operational personnel, introduced additional disinfection hours daily for all stores as well as additional disinfection in stores during working hours. We have also added floor markings to indicate a safe social distance for our shoppers, as their safety remains our priority. Our logistics operations proved fit to handle the massive growth in volume of high demand goods during peak times and our early moves to increase stocks of these goods ensured good availability of products at all times.

In the event that a member of our operational personnel tests positive for COVID-19, we have developed internal procedures that aim to minimise the negative impact on our operations by creating extra operational teams/shifts for our store and logistics operations.

Our store and logistics personnel are on the front line for delivering an uninterrupted supply of food to more than 70 million people in Russia. We recognise their work and dedication, and we are profoundly thankful to our store and logistics workers who continue to perform during the lockdown period.

Finally, we have stepped up our community support efforts, including price discounts for volunteers who help the most vulnerable citizens, food donations through our Basket of Kindness programme, free delivery service for pensioners in Moscow via our Pyaterochka express delivery, as well as supplying 550 ready-made meals for free every day from our Smart Kitchen to the medical staff at four Moscow hospitals.

ü In Q1 2020, X5 delivered 15.6% year-on-year (y-o-y) revenue growth driven by a 5.7% increase in like-for-like (LFL)(1) sales (7.0% unadjusted for the additional trading day in February as 2020 is a leap year) and 10.2% sales growth contribution from an 11.0% rise in selling space.

ü Gross margin under IAS 17 decreased by 43 b.p. y-o-y to 24.3% (decreased by 45 b.p. y-o-y to 24.7% under IFRS 16) in Q1 2020, mainly driven by targeted price investments in January-February and higher logistics costs in March due to measures taken to ensure uninterrupted supply chain operations as the impact of the COVID-19 pandemic caused significant spikes in demand.

ü SG&A expenses (excl. D&A&I, LTI and share-based payments) under IAS 17 as a percentage of revenue decreased by 27 b.p. y-o-y to 18.1% (decreased by 8 b.p. y-o-y to 13.4% under IFRS 16), despite additional measures taken to protect the health of our personnel and customers. Operational cost savings came from lease expenses, given the positive operating leverage on the back of increased demand, and utilities due to the warmer weather.

ü Adjusted EBITDA(2) margin under IAS 17 decreased by 23 b.p. y-o-y to 7.0% in Q1 2020 (decreased by 40 b.p. y-o-y to 12.1% under IFRS 16).

ü Adjusted net profit(3) margin under IAS 17 totalled 1.8% in Q1 2020 (0.9% under IFRS 16), down from 2.3% (2.1% under IFRS 16) in Q1 2019.

ü Net debt/EBITDA under IAS 17 was 1.48x (3.14x under IFRS 16) as of 31 March 2020.

Profit and loss statement highlights(4)

* For more details on the impact of IFRS 16 please refer to the section Effect of IFRS 16 on X5 Retail Group's financial statements.

Note: The financial measures under IAS 17 are used in this press release as upon adoption of IFRS 16 management continued to apply IAS 17 for leases for performance assessment purposes mainly due to the fact that investment community is still focusing on IAS 17 and management decision making processes as well as internal reporting are also based on IAS 17 figures. The reconciliation of IAS 17 and IFRS 16 figures is presented below in the section "Effect of IFRS 16 on X5 Retail Group's financial statements".

Net retail sales

Total net retail sales growth reached 15.9% y-o-y in Q1 2020, driven by positive like-for-like (LFL) sales and selling space expansion.

Selling space by format, square meters (sq. m) 

Q1 2020 LFL(6) store performance by format, % change y-o-y

In Q1 2020, LFL sales performance remained strong at 5.7% y-o-y.

For more details on net retail sales growth please refer to X5's Q1 2020 Trading Update.

Gross profit margin

The gross profit margin under IAS 17 decreased by 43 b.p. y-o-y to 24.3% (decreased by 45 b.p. y-o-y to 24.7% under IFRS 16) in Q1 2020. The decrease was mainly driven by targeted price investments in January-February and higher logistics costs in March due to increased load amid the spread of the coronavirus pandemic. 

Selling, general and administrative (SG&A) expenses (excl. D&A&I)

* For more details on the impact of IFRS 16 please refer to the section Effect of IFRS 16 on X5 Retail Group's financial statements.

In Q1 2020, SG&A expenses excluding D&A&I, LTI and other one-off share-based payments under IAS 17 as a percentage of revenue decreased by 27 b.p. to 18.1% (decreased by 8 b.p. to 13.4% under IFRS 16), mainly driven by lease expenses and utilities costs. The Karusel transformation had no impact on SG&A in Q1 2020, except for D&A&I.

Staff costs (excluding LTI and other one-off share-based payments) remained stable at 8.1% in Q1 2020 compared to Q1 2019. Higher payments to in-store personnel in March during quarantine were offset by positive operating leverage effect.

LTI and share-based payments expenses amounted to RUB 495 mln in Q1 2020.

Lease expenses under IAS 17 as a percentage of revenue in Q1 2020 decreased by 12 b.p.y-o-y to 5.0% due to positive operating leverage effect. The share of leased space in X5's total real estate portfolio amounted to 79% as of 31 March 2020.

Utilities costs as a percentage of revenue in Q1 2020 decreased by 20 b.p. y-o-y to 2.2% due to positive operating leverage effect and warmer weather compared with 2019.

Other store costs under IAS 17 as a percentage of revenue in Q1 2020 decreased by 5 b.p. y-o-y to 1.0% (decreased by 5 b.p. y-o-y to 1.0% under IFRS 16) due to positive operating leverage effect.

Other expenses under IAS 17 as a percentage of revenue in Q1 2020 increased by 17 b.p. y-o-y to 1.1% (increased by 3 b.p. y-o-y to 1.0% under IFRS 16) primarily due to an increase in acquiring costs driven by increasing penetration of card payments and other one-off expenses.

Lease/sublease and other income

As a percentage of revenue, the Company's income from lease, sublease and other operations under IAS 17 totalled 0.8% (0.8% under IFRS 16), a decrease of 6 b.p. y-o-y (a decrease of 2 b.p. y-o-y under IFRS 16) in Q1 2020 driven by lower market prices on recyclable materials since the end of 2019.

EBITDA and EBITDA margin

* For more details on IFRS 16 impact please refer to the section Effect of IFRS 16 on X5 Retail Group's financial statements.

D&A&I

Depreciation, amortisation and impairment costs under IAS 17 in Q1 2020 totalled RUB 15,960 mln (RUB 32,285 mln under IFRS 16), increasing as a percentage of revenue by 32 b.p. y-o-y to 3.4% (increasing by 22 b.p. y-o-y to 6.9% under IFRS 16). This was mainly due to revenue growth outpacing the growth of gross book value of assets, as well as impairment and accelerated depreciation of non-current assets related to the transfer of Karusel stores to Perekrestok, in line with the transformation plan.

Non-operating gains and losses

* For more details on IFRS 16 impact please refer to the section Effect of IFRS 16 on X5 Retail Group's financial statements.

Net finance costs under IAS 17 in Q1 2020 decreased by 6.1% y-o-y to RUB 4,032 mln (increased by 3.9% to RUB 14,053 mln under IFRS 16) due to a decrease in the weighted average effective interest rate as a result of declining interest rates in Russia, as well as actions taken by X5 to minimise interest expenses.

The negative net FX result of RUB (1,047) mln (RUB (3,705) mln under IFRS 16) in Q1 2020, compared to positive RUB 323 mln (RUB 1,605 mln under IFRS 16) in Q1 2019, was due to accounts payable nominated in foreign currency related to regular direct import operations and sharp currency moves in March caused by oil price dynamics. The negative result under IFRS 16 is also due to revaluation of foreign currency liabilities resulting from lease contracts denominated in foreign currencies.

In Q1 2020, income tax expense under IAS 17 increased by 1.0% y-o-y to RUB 3,271 mln (decreased by 26.1% to RUB 2,228 mln under IFRS 16).

Consolidated cash flow statement highlights

* For more details on IFRS 16 impact please refer to the section Effect of IFRS 16 on X5 Retail Group's financial statements.

In Q1 2020, the Company's net cash from operating activities before changes in working capital under IAS 17 increased by RUB 2,995 mln and totalled RUB 31,786 mln (increased by RUB 5,313 mln and totalled 55,383 mln under IFRS 16). The positive change in working capital under IAS 17 of RUB 15,082 mln (RUB 15,652 mln under IFRS 16) in Q1 2020, compared to negative change of RUB 3,176 mln (negative change of RUB 3,114 mln under IFRS 16) in Q1 2019, was mainly due to the smaller decrease in accounts payable and higher inventory turnover in March driven by increased demand amid the spread of COVID-19.

Net interest and income tax paid under IAS 17 in Q1 2020 decreased by RUB 1,576 mln, or 18.8% y-o-y and totalled RUB 6,827 mln (decreased by RUB 788 mln, or 4.5% and totalled RUB 16,823 mln under IFRS 16). Income tax paid decreased y-o-y in line with tax accruals in previous periods.

As a result of business growth, sustained healthy profitability of operations and better working capital, in Q1 2020 net cash flow from operating activities under IAS 17 improved to RUB 40,041 mln, up from RUB 17,212 mln (to RUB 54,212 mln, up from 29,345 mln under IFRS 16) in Q1 2019.

Net cash used in investing activities, which generally consists of payments for property, plant and equipment, remained stable at RUB 17,294 mln in Q1 2020 compared to RUB 17,373 mln in Q1 2019 due to the almost unchanged y-o-y number of new openings.

Net cash used in financing activities under IAS 17 totalled RUB 29,440 mln (RUB 43,611 mln under IFRS 16) in Q1 2020 compared to net cash used in financing activities of RUB 5,926 mln (RUB 18,059 mln under IFRS 16) in Q1 2019 driven by repayment of short-term loans.

Liquidity update

The Company's debt under IAS 17 is 100% denominated in Russian Roubles.

As of 31 March 2020, the Company had access to RUB 438,491 million in available credit limits with major Russian and international banks.

Effect of IFRS 16 on X5 Retail Group's financial statements

Effect on gross profit

Gross profit and gross margin are higher by RUB 1,736 mln and 37 b.p. under IFRS 16 compared to IAS 17 in Q1 2020, respectively, due to the lease for distribution centres, which was previously part of cost of sales, but has been excluded from the gross profit calculation in order to align the presentation of depreciation of right-of-use assets and other assets.

Effect on EBITDA, operating profit and finance costs

Lease expenses, other store costs, third party services and other expenses in the total amount of RUB 21,862 mln have been excluded from SG&A expenses in Q1 2020 under the new standard. Additional depreciation of RUB 16,325 mln related to leased assets has been added to SG&A costs in Q1 2020 under IFRS 16.

Financial costs increased by RUB 10,021 mln under the new standard compared to IAS 17 due to the interest expense on lease liabilities in Q1 2020.

The implementation of IFRS 16 increases the Company's EBITDA significantly, as lease expenditure attributable to minimum lease payments previously recognised in the income statement is excluded. Adjusted EBITDA margin is 507 b.p. higher under the new standard compared to IAS 17 in Q1 2020. Interest expense on liabilities is recognised in finance costs, below the EBITDA level.

Effect on net profit

The negative net FX result is RUB 2,658 mln higher under IFRS 16 compared to IAS 17 in Q1 2020 due to revaluation of foreign currency liabilities resulting from lease contracts denominated in foreign currencies.

IFRS 16 resulted in lower income tax expense due to lower profit before tax.

Net profit and net profit margin are impacted by the IFRS 16 standard as a result of additional depreciation and interest, and are lower by RUB 4,174 mln and 89 b.p. under the new standard compared to IAS 17 in Q1 2020.

Effect on cash flow statement

The implementation of the new standard affects cash flow statement presentation but not the net change in cash result, as principal payments on leases are classified as financing activities, prepayments are classified as investing activities, and interest payments are considered interest paid in operating activities.

(1) LFL comparisons of retail sales between two periods are comparisons of retail sales in local currency (including VAT) generated by the relevant stores. The stores that are included in LFL comparisons are those that have operated for at least 12 full months. Their sales are included in the LFL calculation starting from the day of the store's opening. We include all stores that fit our LFL criteria in each reporting period.

(2) Adjusted EBITDA is EBITDA before costs related to the LTI programme, share-based payments and other one-off remuneration payments expense.

(3) Adjusted net profit is net profit before one-off impacts of the Karusel transformation (mainly due to impairment and accelerated depreciation of non-current assets related to the transfer of stores to Perekrestok).

(4) Please note that in this and other tables, and in the text of this press release, immaterial deviations in the calculation of % changes, subtotals and totals are due to rounding.

(5) Net retail sales represents revenue from the operations of X5-managed stores net of VAT. This number differs from revenue, which includes proceeds from wholesale operations, direct franchisees (royalty payments) and other revenue.

(6) LFL figures for Q1 2020 were adjusted for the additional trading day in February as 2020 is a leap year. Unadjusted LFL sales for Q1 2020: X5 7.0%, Pyaterochka 7.3%, Perekrestok 7.3%, Karusel (1.6)%.

Note to Editors:

X5 Retail Group N.V. (LSE and MOEX: FIVE, Fitch - 'BB+', Moody's - 'Ba1', S&P - 'BB', RAEX - 'ruAA+') is a leading Russian food retailer. The Company operates several retail formats: the chain of proximity stores under the Pyaterochka brand, the supermarket chain under the Perekrestok brand and the hypermarket chain under the Karusel brand.

As of 31 March 2020, X5 had 16,658 Company-operated stores. It has the leading market position in both Moscow and St Petersburg and a significant presence in the European part of Russia. Its store base includes 15,739 Pyaterochka proximity stores, 846 Perekrestok supermarkets and 73 Karusel hypermarkets. The Company operates 42 DCs and 4,098 Company-owned trucks across the Russian Federation.

For the full year 2019, revenue totalled RUB 1,734,347 mln (USD 26,791 mln), Adjusted EBITDA under IAS 17 reached RUB 127,380 mln (USD 1,968 mln), and net profit under IAS 17 for the period amounted to RUB 25,908 mln (USD 400 mln). In Q1 2020, revenue totalled RUB 468,994 mln (USD 7,065 mln), adjusted EBITDA reached RUB 32,980 mln (USD 497 mln), and net profit amounted to RUB 8,175 mln (USD 123 mln).

X5's Shareholder structure is as follows: CTF Holdings S.A. - 47.86%, Intertrust Trustees Ltd (Axon Trust) - 11.43%, X5 Directors - 0.08%, treasury shares - 0.02%, Shareholders with less than 3% - 40.61%.

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 of 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.

Elements of this press release contain or may contain inside information about X5 Retail Group N.V. within the meaning of Article 7(1) of the Market Abuse Regulation (596/2014/EU).