X5 Retail Regulatory News (FIVE)

X5 reports 19.2% revenue growth in Q3 2022, 7.4% adj. EBITDA margin pre-IFRS 16

+19.2% y-o-y

Revenue growth in Q3 2022driven by solid like-for-like (LFL)1 sales and selling space expansion

+38.4 % y-o-y

Digital business (express delivery, Vprok.ru, 5Post and Mnogo Lososya) net sales growth in Q3 2022Digital business net sales amounted to RUB 14.7 billion, which comprised 2.3% of consolidated Q3 2022 revenue

24.3% -186 b.p.

Gross margin under IFRS 16 in Q3 2022(-182 b.p. to 24.0% pre-IFRS 162)driven predominantly by lower commercial margin, partially compensated by improved logistics efficiency

12.0% -95 b.p.

Adjusted EBITDA3 margin under IFRS 16 in Q3 2022(-47 b.p. to 7.4% pre-IFRS 16)

2.1% -11 b.p.

Net profit margin under IFRS 16 in Q3 2022(-5 b.p. to 2.5% pre-IFRS 16)

2.41x

Net debt/EBITDA ratio as of 30 September 2022 (under IFRS 16)(0.89x pre-IFRS 16)

Amsterdam, 25 October 2022 - X5 Retail Group N.V. ("X5" or the "Company", LSE and MOEX ticker: FIVE), a leading Russian food retailer that operates the Pyaterochka, Perekrestok and Chizhik retail chains, today released its unaudited condensed consolidated interim financial information for the three months (Q3) and nine months (9M) ended 30 September 2022, in accordance with International Financial Reporting Standards as adopted by the European Union.

Igor Shekhterman X5 Chief Executive Officer

"In the second half of the year, we are focused on enhancing our customer value proposition, boosting like-for-like sales and growing our market share. In Q3, we prioritised the expansion of our Chizhik hard discounter format, which saw a 19-fold increase in revenue year-on-year in 9M 2022 and is showing results above our expectations. During the third quarter, we opened 163 new Chizhik stores and expect to accelerate store openings in the following quarter. Other areas of focus include the ongoing development of our Pyaterochka proximity store network and further development of our consolidated online business with profitability, efficiency and customer convenience in mind.

Regarding the latter, we are leveraging our partnerships with delivery aggregators Delivery Club and SberMarket to grow our online customer base, and are expanding our own delivery services to more cities, having established a presence in 60 regions of Russia as of late September.

Inorganic expansion was another key focus area in Q3. In August, we agreed on a strategic partnership with Krasniy Yar and Slata, two leading retailers in Eastern Siberia. This partnership will significantly advance our plans to expand our offering to customers in the region. In September, X5 also signed a cooperation agreement with the Russian Far East and Arctic Development Corporation to launch operations in Russia's Far Eastern Federal District.

Throughout this time, X5 remains committed to meeting the needs of society. We continue to invest in the prices of socially important categories of goods to offset accelerating inflation and expect that this strategy, as well as our evolving customer value proposition, will continue to impact our commercial margin. We have also placed significant focus on the societal aspect of our ESG strategy through a number of social initiatives, which we consider to be particularly important at this time. In particular, during Q3 we launched a pilot food sharing project in partnership with Foodsharing and Foodbank Rus to donate food from our stores to individuals in need.

We continue to closely monitor the evolving market environment to ensure efficiency and uninterrupted performance of our business as well as secure best opportunities the market presents."

Profit and loss statement highlights4

Revenue

Revenue growth reached 19.2% year-on-year in Q3 2022. Net retail sales increased by 19.5%, driven by a combination of 6.6% selling space growth and 12.4% LFL sales growth, while X5's digital business sales grew by 38.4% y-o-y.

Selling space by format, square metres (sqm)

Q3 and 9M 2022 LFL store performance by format, % change y-o-y

In Q3 2022, LFL sales performance accelerated year-on-year to 12.4%, supported by solid LFL results of Pyaterochka and Perekrestok at 13.7% and 6.3%, respectively, on the back of accelerated inflation.

The LFL basket was the main driver of LFL sales in Q3 2022, with LFL traffic in positive territory at 3.9% year-on-year, with Pyaterochka showing 4.4% year-on-year growth.

For more details on net retail sales performance, please refer to X5's Q3 2022 Trading Update.

Gross profit margin

Gross profit margin under IFRS 16 decreased by 186 b.p. year-on-year to 24.3% (decreased by 182 b.p. year-on-year to 24.0% pre-IFRS 16) in Q3 2022, mainly due to lower commercial margin on the back of CVP transformation and assortment adaptation in Pyaterochka, partially offset by improved logistics efficiency.

Selling, general and administrative (SG&A) expenses (excl. D&A&I and the impact of the Karusel transformation)

In Q3 2022, SG&A expenses excluding D&A&I, LTI, share-based payments and the impact of the Karusel transformation under IFRS 16 as a percentage of revenue decreased by 122 b.p. to 13.1% (decreased by 160 b.p. to 17.2% pre-IFRS 16), mainly driven by lower staff cost, utilities, other store costs, third-party services and other expenses as a result of the operating leverage effect as well as cost control measures.

Staff costs (excluding LTI and share-based payments) as a percentage of revenue decreased by 68 b.p. year-on-year in Q3 2022 to 7.9%, mainly due to the operating leverage effect on the back of accelerated revenue growth in Q3 2022, as well as a balanced approach to targeted salary increases.

LTI and share-based payment expenses amounted to RUB 727 million in Q3 2022, down by 18.2% from RUB 889 million in Q3 2021, as a result of the reassessment of the KPIs under the LTI programme.

Lease expenses under IFRS 16 as a percentage of revenue in Q3 2022 increased by 15 b.p. year-on-year to 0.8%, mainly due to a higher number of revenue-linked leases and reverse franchising agency fees. The decrease in pre-IFRS 16 lease expenses by 24 b.p. to 4.6% was caused by a positive operational leverage effect and measures taken to reduce lease expenses, partially compensated by a higher number of revenue-linked leases.

Utilities costs as a percentage of revenue in Q3 2022 decreased by 14 b.p. year-on-year to 1.9%, mainly due to electric lighting system optimisation initiatives, particularly in 24-hour operating stores.

Other store costs under IFRS 16 as a percentage of revenue in Q3 2022 decreased by 13 b.p. year-on-year (falling by 13 b.p. pre-IFRS 16), mainly due to the positive operating leverage effect.

Third-party service expenses under IFRS 16 as a percentage of revenue in Q3 2022 decreased by 21 b.p. year-on-year to 0.7% (down 22 b.p. to 0.7% pre-IFRS 16), mainly due to lower marketing expenses.

Other expenses under IFRS 16 as a percentage of revenue in Q3 2022 decreased by 20 b.p. year-on-year to 1.0% (down 19 b.p. to 1.2% pre-IFRS 16), mainly due to the one-off effect from release of provisions.

Lease/sublease and other income9

As a percentage of revenue, the Company's income from leases, subleases and other operations under IFRS 16 totalled 0.8%, representing a decrease of 30 b.p. year-on-year in Q3 2022 (a decrease of 25 b.p. to 0.6% pre-IFRS 16), due to lower income from the sale of recyclable materials and lower fixed lease/sublease fees as percentage of revenue on the back of accelerated revenue growth in Q3 2022.

EBITDA and EBITDA margin

D&A&I

Depreciation, amortisation and impairment costs under IFRS 16 decreased as a percentage of revenue by 56 b.p. year-on-year to 6.3% (up 1 b.p. year-on-year to 3.4% pre-IFRS 16) in Q3 2022, totalling RUB 41,054 million (RUB 22,344 million pre-IFRS 16). This was mainly driven by a positive operating leverage effect, a reduced investment programme and a lower number of refurbishments compared to the same period of the previous year, partially offset by additional impairment. In 9M 2022, depreciation, amortisation and impairment costs under IFRS 16 decreased by 49 b.p. year-on-year to 6.5% (increased by 6 b.p. year-on-year to 3.5% pre-IFRS 16), totalling RUB 122,994 million (RUB 67,143 million pre-IFRS 16).

Non-operating gains and losses

Net finance costs under IFRS 16 in Q3 2022 increased by 10.5% year-on-year to RUB 16,300 million (down 21.7% year-on-year to RUB 3,453 million pre-IFRS 16), driven by increasing interest rates in Russian capital markets on the back of Central Bank key rate raise and increasing interest on lease liabilities partially offset by decreased interest cost due to decreased lower total debt.

The negative net FX result totalled RUB 1,512 million (RUB 949 million under pre-IFRS 16) in Q3 2022, compared with negative RUB 79 million (negative RUB 73 million under pre-IFRS 16) in Q3 2021 due to the revaluation of accounts payable on imports driven by the depreciation of the rouble. 

In 9M 2022, the effective tax rate under IFRS 16 was 32.2% (31.4% under pre-IFRS 16), up from 27.4% in 9M 2021 (26.7% under pre-IFRS 16) due to one-off effects.

Consolidated cash flow statement highlights

In Q3 2022, the Company's net cash from operating activities before changes in working capital under IFRS 16 increased by RUB 6,872 million (up RUB 4,597 million under pre-IFRS 16) and totalled RUB 75,322 million (RUB 46,847 million under pre-IFRS 16), reflecting business growth. The positive change in working capital under IFRS 16 of RUB 16,715 million in Q3 2022 as compared to Q3 2021 was driven by a decrease in inventories on the back of assortment optimisation processes, as well as a higher increase in other accounts payable driven by deferred social tax payments.

Working capital highlights (under IFRS 16)

Net interest and income tax paid under IFRS 16 in Q3 2022 increased by 106.9% year-on-year (up 6-fold year-on-year pre-IFRS 16) and totalled RUB 25,403 million (RUB 12,614 million pre-IFRS 16), driven by higher income tax paid due to a one-off tax refund in Q3 2021.

As a result, net cash flow generated from operating activities under IFRS 16 totalled RUB 66,634 million in Q3 2022, up from RUB 61,087 million in Q3 2021 (RUB 49,082 million, up from RUB 45,055 million in Q3 2021 pre-IFRS 16).

In 9M 2022, net cash flows generated from operating activities under IFRS 16 totalled RUB 168,770 million, up 9.4% from RUB 154,217 million in 9M 2021 (and totalled RUB 119,572 million, up 12.7% from RUB 106,134 million in 9M 2021 pre-IFRS 16).

In Q3 2022, net cash used in investing activities, which predominantly consists of payments for property, plant and equipment, under IFRS 16 decreased to RUB 13,018 million (to RUB 12,966 million under pre-IFRS 16) due to a lower number of refurbishments, the calendarisation of store openings and capex optimization. For 9M 2022, adjusted net cash used in investing activities under IFRS 16 decreased to RUB 50,043 million (RUB 50,233 million under pre-IFRS 16) from RUB 63,820 million (RUB 64,498 million under pre-IFRS 16) in 9M 2021.

Net cash used in financing activities under IFRS 16 totalled RUB 52,512 million (RUB 35,010 million pre-IFRS 16) in Q3 2022, compared with RUB 39,581 million (RUB 23,295 million pre-IFRS 16) in Q3 2021, driven by higher repayments of loans. In 9M 2022, net cash used in financing activities under IFRS 16 increased to RUB 134,855 million from RUB 97,430 million (and increased to RUB 85,465 million from RUB 48,669 million pre-IFRS 16) in 9M 2021.

Liquidity update

The Company's net debt/EBITDA ratio under IFRS 16 was 2.41x (0.89x pre-IFRS 16) as of 30 September 2022.

The Company's debt pre-IFRS 16 is 100% denominated in Russian roubles.

As of 30 September 2022, the Company had access to RUB 469,884 million in available credit limits with major Russian and international banks.

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. The pre-IFRS 16 financial measures are calculated by adjusting the applicable IFRS measures to include fixed lease expenses and fixed non-lease components of lease contracts and to exclude any gain on derecognition of right-of-use assets and lease liabilities, depreciation of right-of-use assets and interest on lease liabilities and gain/loss from sale of asset undersale and leaseback operations for the proportion of the rights retained recognised under IFRS 16..

3. Adjusted EBITDA is EBITDA before costs related to the LTI programme, share-based payments, other one-off remuneration payment expenses and the impact of the Karusel transformation.

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 represent 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. Including Mnogo Lososya

6. Including Mnogo Lososya

7. Including Vprok.ru dark stores and Mnogo Lososya dark kitchens

8. Including Chizhik and Karusel

9. Mainly consists of lease/sublease income, income from the sale of recyclable materials and other one-off gains

10. Adjusted for repayment of short-term financial investments

NOTE TO EDITORS

X5 Retail Group N.V. (LSE and MOEX: FIVE; Expert RA - ruAAA; ACRA - AAA(RU)) is a leading Russian food retailer. The Company operates proximity stores under the Pyaterochka brand, Perekrestok supermarkets and Chizhik hard discounters. X5 provides an omnichannel experience to its customers, integrating retail stores and e-commerce through its businesses Vprok.ru, 5Post and Mnogo Lososya.

As of 30 September 2022, X5 had 20,227 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 18,865 Pyaterochka proximity stores, 972 Perekrestok supermarkets and 316 Chizhik hard discounters. The Company operates 52 DCs and 4,247 Company-owned trucks across the Russian Federation.

X5 is one of the largest employers in Russia. The Company employs over 325 thousand people.

For the full year 2021, revenue totalled RUB 2,204,819 million (USD 29,935 million*), EBITDA pre-IFRS 16 reached RUB 161,024 million (USD 2,186 million*), and net profit pre-IFRS 16 for the period amounted to RUB 48,513 million (USD 659 million*). In 9M 2022, revenue totalled RUB 1,900,049 million (USD 26,908 million**), adjusted EBITDA pre-IFRS 16 reached RUB 152,894 million (USD 2,165 million**), and net profit pre-IFRS 16 amounted to RUB 46,395 million (USD 657 million**).

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 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 Group N.V. speak only as of the date of this announcement. Save as required by any applicable laws or regulations, X5 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.

* FX rate: 73.6541 USD/RUB ** FX rate: 70.6135 USD/RUB

For further details, please contact:

Varvara Kiseleva

Head of Corporate Finance and IR

Tel.: +7 (495) 662-88-88 ext. 27-300

e-mail: Varvara.Kiseleva@x5.ru

Maria Yazeva

Investor Relations Officer

Tel.: +7 (495) 662-88-88 ext. 13-147

e-mail: Maria.Yazeva@x5.ru