X5 Retail Regulatory News (FIVE)

X5 reports 30.7% revenue growth in Q3 2016

 EBITDA MARGIN IMPROVES BY 48 B.P. TO 7.8%

ü Revenue growth accelerated to 30.7% year-on-year (y-o-y) on the back of solid like-for-like (LFL) sales and strong selling space expansion.

ü Pyaterochka was the main driver of growth: net retail sales rose by 36.1% y-o-y.

ü X5 added 638 net new stores in Q3 2016 vs. 541 in Q3 2015, contributing additional net selling space of 277.8 th. sq. m. in the quarter.

ü The gross margin decreased by 57 b.p. y-o-y to 24.4% in Q3 2016 due to value proposition refinements including targeted re-investment of operating efficiencies into lower prices to maintain consumer loyalty, as well as on the back of the changes in the retail formats' contribution to gross profit.

ü SG&A expenses (excl. D&A&I) as a percentage of revenue improved by 106 b.p. y-o-y to 17.4%, due to the positive impact of ongoing projects to improve operational efficiency and as a result of operating leverage.

ü EBITDA grew by 39.3% y-o-y and reached RUB 19,863 mln in Q3 2016. The EBITDA margin improved by 48 b.p. y-o-y in Q3 2016 to 7.8%.

ü The Company's net debt/EBITDA ratio decreased to 2.15x as of 30 September 2016, the lowest since 31 December 2009.

Amsterdam, 26 October 2016 - X5 Retail Group N.V. ("X5" or the "Company"), a leading Russian food retailer (LSE ticker: FIVE), today released the Company's unaudited condensed consolidated interim financial information for the nine months (9M) ended 30 September 2016, in accordance with International Financial Reporting Standards as adopted by the European Union.

Profit and loss statement highlights (1)

(1) 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

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

Net retail sales

Total net retail sales growth was a solid 30.2% y-o-y, driven by:

§ 9.1% increase in LFL sales; and

§ 21.1% y-o-y increase from net new space, resulting from a 30.7% y-o-y rise in selling space.

Pyaterochka continues to attract value-conscious customers while also benefitting from its rapid opening programme, and was the key driver of X5's Q3 2016 growth: net retail sales rose by 36.1% y-o-y.

Perekrestok's net retail sales growth accelerated to 19.5% y-o-y in Q3 2016 from 19.2% y-o-y in Q2 2016.

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

Q3 & 9M 2016 LFL(3) store performance by format, % change y-o-y

In Q3 2016, LFL sales performance remained strong despite decreased food inflation y-o-y and weak retail consumption.

Solid LFL traffic growth of 3.2% y-o-y was driven by the strong performance of Pyaterochka and traffic improvement at Perekrestok, which delivered positive LFL traffic for the third quarter in a row.

For more details on net retail sales growth please refer to X5's Q3 2016 Trading Update.

Gross profit margin

The gross margin decreased by 57 b.p. y-o-y to 24.4% in Q3 2016 due to value proposition refinements including targeted re-investment of operating efficiencies into lower prices to maintain consumer loyalty. The changing breakdown of contribution to revenue by format also affected gross margin, as Pyaterochka's share continued to rise.

(3) 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.

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

In Q3 2016, SG&A expenses excluding D&A&I as a percentage of revenue declined y-o-y by 106 b.p. to 17.4%, mainly due to improved staff costs, lease expenses, other store costs and third party services.

Staff costs as a percentage of revenue fell y-o-y by 47 b.p. in Q3 2016 to 7.6%, mainly due to the positive operating leverage effect.

Lease expenses as a percentage of revenue in Q3 2016 decreased y-o-y by 5 b.p. to 4.7% mainly due to improvement of lease terms with real estate owners. Lease expenses improved despite the growing share of leased space in X5's total real estate portfolio, which accounted for 66% as of 30 September 2016, compared to 60% as of 30 September 2015.

Utilities costs as a percentage of revenue increased slightly, by 5 b.p. to 1.9% in Q3 2016 due to selling space expansion outpacing revenue growth.

Other store costs as a percentage of revenue decreased by 32 b.p. in Q3 2016 compared to Q3 2015, driven by projects to optimise in-store processes and a reduction in security costs.

Third-party services expenses as a percentage of revenue declined y-o-y by 26 b.p. in Q3 2016 to 0.7% due to decreased expenses for marketing services.

In Q3 2016, other expenses as a percentage of revenue changed immaterially y-o-y.

In 9M 2016, SG&A expenses as a percentage of revenue decreased y-o-y by 87 b.p. to 17.2% due to the impact of operational efficiency projects and operating leverage.

Lease/sublease and other income

As a percentage of revenue, the Company's income from lease, sublease and other operations changed immaterially in Q3 2016 compared to Q3 2015.

EBITDA and EBITDA margin

As a result of the factors discussed above, EBITDA in Q3 2016 grew by 39.3% and totalled RUB 19,863 mln, or 7.8% of revenue, compared to RUB 14,263 mln, or 7.3% of revenue in Q3 2015.

In 9M 2016, EBITDA increased by 34.9% y-o-y and amounted to RUB 56,361 mln, or 7.6% of revenue, compared to RUB 41,780 mln, or 7.2% of revenue, in the corresponding period of 2015.

D&A&I

Depreciation, amortisation and impairment costs in Q3 2016 totalled RUB 6,589 mln (RUB 17,223 mln for 9M 2016), increasing y-o-y as a percentage of revenue by 23 b.p. to 2.6% (for 9M 2016: increased by 6 b.p. to 2.3%). This was driven by the impairment of obsolete trade and other equipment as part of the store refurbishment programme.

Non-operating gains and losses

Net finance costs in Q3 2016 increased by only 0.9% y-o-y to RUB 4,375 mln despite the increase in total debt. The weighted average effective interest rate on X5's debt portfolio decreased from 13.0% for 9M 2015 to 11.5% for 9M 2016 due to declining interest rates in Russian capital markets and actions undertaken by X5 to minimise interest expenses.

In September 2016, X5 registered a new bonds program in the total amount of RUB 50 bln with maximum tenor up to 15 years. Also in September 2016, X5 issued corporate bonds in the total amount of RUB 15 bln at a 9.45% coupon rate with a 3-year put option.

Consolidated cash flow statement highlights

In Q3 2016, the Company's net cash from operating activities before changes in working capital increased by RUB 5,592 mln, or 38.7% y-o-y, and totalled RUB 20,050 mln. The positive change in working capital was mostly attributable to an increase in accounts payables due to strong business expansion, as well as to changes in other liabilities.

Net interest and income tax paid in Q3 2016 increased slightly by RUB 256 mln, or 4.0%, and totalled RUB 6,718 mln. The effect from increased gross debt as of 30 September 2016 compared to 30 September 2015 was offset by the lower weighted average effective interest rate on X5's debt for Q3 2016. Income tax paid increased due to business expansion.

As a result, in Q3 2016 net cash flows generated from operating activities totalled RUB 20,135 mln, compared to a RUB 7,241 mln for the same period of 2015. In 9M 2016, net cash flows generated from operating activities increased to RUB 38,416 mln, compared to a RUB 11,833 mln for the same period of 2015.

Net cash used in investing activities, which generally consists of payments for property, plant and equipment, totalled RUB 19,970 mln in Q3 2016, compared to RUB 16,248 mln for the same period last year, and reflects higher expenditures on store expansion. Х5 added 277.8 th. sq. m. of selling space in Q3 2016, a 17.7% increase compared to the same period last year. For 9M 2016, net cash used in investing activities increased to RUB 53,501 mln from RUB 37,588 mln in 9M 2015. X5 added 692.0 th. sq. m. of selling space in 9M 2016, which is a 36.4% increase y-o-y.

Net cash generated from financing activities decreased to RUB 407 mln in Q3 2016 from RUB 9,355 mln for Q3 2015. In 9M 2016, net cash generated from financing activities totalled RUB 12,135 mln compared RUB 5,015 mln for 9M 2015. In Q3 2016, the Company refinanced part of its debt portfolio on better terms, and gross debt changed immaterially compared to Q2 2016.

Liquidity update

As of 30 September 2016, the Company's total debt amounted to RUB 156,435 mln, of which 27.7% was short-term debt and 72.3% long-term debt. The Company's debt is 100% denominated in Russian Roubles.

As of 30 September 2016, the Company had access to RUB 239,760 mln of available credit limits from major Russian and international banks.

Note to Editors:

X5 Retail Group N.V. (LSE: FIVE, Fitch - 'BB', Moody's - 'Ba3', S&P - 'BB-') 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, the hypermarket chain under the Karusel brand and Express convenience stores under various brands.

As of 30 September 2016, X5 had 8,574 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 7,787 Pyaterochka proximity stores, 503 Perekrestok supermarkets, 90 Karusel hypermarkets and 194 convenience stores. The Company operates 35 DCs and 1,561 Company-owned trucks across the Russian Federation.

For the full year 2015, revenue totalled RUB 808,818 mln (USD 13,268 mln), Adjusted EBITDA reached RUB 59,413 mln (USD 975 mln), and net profit for the period amounted to RUB 14,174 mln (USD 233 mln). In 9M 2016, revenue totalled RUB 739,491 mln (USD 11,443 mln), EBITDA reached RUB 56,361 mln (USD 872 mln), and net profit amounted to RUB 19,874 mln (USD 308 mln).

X5's Shareholder structure is as follows: Alfa Group - 47.86%, founders of Pyaterochka - 14.43%, X5 Directors - 0.06%, treasury shares - 0.01%, free float - 37.64%.

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.