28th Feb 2008 07:08
X5 Retail Group N.V.28 February 2008 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA OR JAPAN X5 RETAIL GrouP N.V. REPORTS YEAR-ON-YEAR TOP LINE GROWTH OF 53%, EBITDA GROWTH OF 62% IN 20071 Amsterdam, 28 February 2008 - X5 Retail Group N.V., Russia's largest foodretailer in terms of sales (LSE ticker: "FIVE"), published today its preliminaryunaudited IFRS results for the quarter and full year ended 31 December 2007based on management accounts. Q4 2007 Highlights FY 2007 Highlights• Q4 Net Sales2 surged 59% year-on-year to USD 1,703 • Full year Net Sales surged 53% year-on-year to USDmln; 5,320 mln; • Q4 Gross Profit grew by 47% year-on-year to USD • Full year Gross Profit grew by 51% year-on-year to458 mln, Gross Margin totaled 26.9%; USD 1,404 mln, Gross Margin totaled 26.4%; • Q4 EBITDA reached USD 168 mln, a year-on-year • Full year EBITDA reached USD 479 mln, aincrease of 38%; year-on-year increase of 62%; • Q4 Net Profit grew by 32% year-on-year to USD 87 • Full year Net Profit grew by 38% year-on-year tomln. USD 141 mln. Lev Khasis, X5 Retail Group CEO, commented: "2007 was a very successful year for X5 in terms of sales and market sharegrowth - we are proud that our client-oriented approach and continuousinvestment in customer loyalty resulted in stronger competitive positions andenhanced market leadership. This year we plan to continue with our growthstrategy to capitalize on untapped opportunities both in terms of regionalexpansion and multi-format approach. Furthermore, the growing scale of ourbusiness creates new opportunities for our relationships with suppliers,resulting in more attractive value proposition for our customers. Thus, weconfirm our sales growth guidance for 2008 at 36-38% in rouble terms." X5 Retail Group CFO Evgeny Kornilov said: "We have delivered another year of strong growth and plan to continue on thispath. Moreover, having operated as a joint Company for over a year, now we canreinforce our focus on improving efficiency both at operational and headquarterslevel by upgrading logistics capacity, improving IT infrastructure andoptimizing business-processes. While we do not expect to see an immediateimpact from these measures on the Group's financials, we believe they arecritical for strengthening X5's competitive position and ensuring sustainableefficiency levels in the coming years." He added: "In 2008 we will also beworking hard to ensure that our financing strategy is tailored to meet theGroup's growth targets for 2008 and beyond." P&L Highlights USD mln Q4 2007 Q4 2006 % change, FY 2007 FY 2006 % change, y-o-y y-o-yNet Sales 1,702.7 1,074.03 59% 5,320.4 3,485.4 53% incl. Retail 1,691.9 1,074.6 57% 5,284.3 3,460.4 53%Gross Profit 457.5 310.6 47% 1,403.7 928.9 51% Gross Margin, % 26.9% 28.9% 26.4% 26.7%EBITDA 168.1 121.5 38% 479.2 296.7 62% EBITDA Margin, % 9.9% 11.3% 9.0% 8.5%EBIT 142.7 101.3 41% 337.5 210.3 61% EBIT Margin, % 8.4% 9.4% 6.3% 6.0%Net Profit 87.2 66.1 32% 141.4 102.2 38% Net Margin, % 5.1% 6.2% 2.7% 2.9% Net Sales Performance Total net sales for the fourth quarter 2007 increased by 59% in USD terms to USD1,703 mln, translating into a 53% increase year-on-year to USD 5,320 mln for thefull year 2007. Net Retail Sales Dynamics % change % changeUSD mln Q4 2007 Q4 2006 y-o-y FY 2007 FY 2006 y-o-yHypermarkets 131.9 81.5 62% 392.7 244.9 60%Supermarkets 618.2 398.5 55% 1,944.7 1,254.5 55%Soft Discounters 941.8 594.6 58% 2,946.8 1,961.0 50%Total Net Retail Sales 1,691.9 1,074.6 57% 5,284.3 3,460.4 53% Total net retail sales for the fourth quarter 2007 increased by 57% in USD terms(48% in RUR terms) to USD 1,692 mln, translating into a 53% (44% in RUR terms)increase year-on-year to USD 5,284 mln for the full year 2007. Impressiveretail sales surge was due to a very strong performance of soft discounters inthe regions and in Moscow, outstanding results demonstrated by supermarketsacross all regions and improving performance of hypermarkets opened at the endof 2006. For detailed discussion on Q4 and FY 2007 retail sales dynamics, including LFL &new stores performance, information on average ticket and number of customers,please see our Trading Update dated 22 January 2008. Gross Profit & Gross Margin Analysis USD mln Q4 2007 Q4 2006 % change, FY 2007 FY 2006 % change, y-o-y y-o-yGross Profit 457.5 310.6 47% 1 403.7 928.9 51% Gross Margin. % 26.9% 28.9% 26.4% 26.7% For the fourth quarter 2007, gross profit increased by 47% to USD 458 mln,translating into a 51% year-on-year growth to USD 1,404 mln for the full year.Gross margin for the fourth quarter 2007 totaled 26.9% versus 28.9% for the sameperiod a year ago, while full year 2007 gross margin amounted to 26.4% comparedto 26.7% in 2006. High gross margin achieved in the fourth quarter of 2006 reflects the result ofrevision of the purchasing contracts that Pyaterochka and Perekrestok had priorto their merger and takes into account significant additional discounts that thejoint company managed to obtain as a result of those negotiations. In 2007 theCompany took advantage of its enlarged scale and invested certain share of itspost-merger margin increase into consumer loyalty. This approach proved to be asuccess leading to very strong traffic growth and sales surge. Selling, General and Administrative Expenses (SG&A)4 USD mln Q4 2007 Q4 2006 % change, FY 2007 FY 2006 % change, y-o-y y-o-yStaff Costs, incl. (153.2) (104.7) 46% (513.4) (370.0) 39% % of Net Sales 9.0% 9.7% 9.6% 10.6% ESOP (12.0) (2.6) 362% (47.6) (64.6) -26% % of Net Sales 0.7% 0.2% 0.9% 1.9%Lease Expenses (51.8) (32.3) 60% (175.9) (113.5) 55% % of Net Sales 3.0% 3.0% 3.3% 3.3%Other Store Costs (33.0) (17.2) 92% (90.7) (56.5) 61% % of Net Sales 1.9% 1.6% 1.7% 1.6%D&A (25.4) (20.2) 26% (141.7) (86.4) 64% % of Net Sales 1.5% 1.9% 2.7% 2.5%Utilities (27.4) (14.5) 89% (78.1) (42.1) 86% % of Net Sales 1.6% 1.4% 1.5% 1.2%Third Party Services (23.5) (10.0) 135% (70.0) (51.4) 36% % of Net Sales 1.4% 0.9% 1.3% 1.5%Other Expenses (28.1) (20.5) 37% (72.2) (39.5) 83% % of Net Sales 1.7% 1.9% 1.4% 1.1%Total SG&A (342.5) (219.4) 56% (1,142.0) (759.4) 50% % of Net Sales 20.1% 20.4% 21.5% 21.8% For the fourth quarter 2007, SG&A expenses totaled USD 343 mln - an increase of56% year-on-year. For the full year 2007, SG&A costs increased by 50% over thesame period a year ago to USD 1,142 mln primarily due to growth in staff costs, higher lease expenses andD&A charges. Staff Costs For the fourth quarter 2007, staff costs, including ESOP totaled USD 153 mln andincreased by 46% compared to the same period of last year, translating into a39% year-on-year increase for the full year 2007 to USD 513 mln. Net of ESOP costs, which in 2006 included one-off restructuring expense of theprevious ESOP, full year 2007 staff costs grew by 53% on the back of continuingwage inflation and extensive hiring for new store openings. ESOP costs for 2007 totaled USD 48 mln which represent proportionally accruedexpenses related to the first and the second tranches of current ESOP. Asreported earlier, in 2006 the Company reported USD 65 mln ESOP-restructuringcharge. Lease Expenses For the fourth quarter 2007, lease expenses increased by 60% year-on-year to USD52 mln on the back of rent inflation and expansion. Full year 2007 leaseexpenses totaled USD 176 mln, an increase of 55% year-on-year. As a largeproportion of the Group's stores are owned, this reduces its exposure to thegrowth in rent prices. Depreciation & Amortization Full year 2007 D&A charges totaled USD 142 mln, an increase of 64% year-on-year. Increase in D&A expenses is explained by the Group's aggressive expansion interms of store area and distribution centers. Non-Operating Gains and Losses USD mln Q4 2007 Q4 2006 % change, FY 2007 FY 2006 % change, y-o-y y-o-yEBIT 142.7 101.3 41% 337.5 210.3 60% Finance costs (net) (28.2) (29.3) -4% (128.5) (71.8) 79% Net FX gain/(loss) 19.6 7.4 165% 31.8 14.7 116%Profit before tax 134.1 79.4 69% 240.8 153.3 57% Income tax expense (46.9) (13.3) 253% (99.5) (51.1) 95%Net Profit 87.2 66.1 32% 141.4 102.2 38% Finance Costs Finance costs for the fourth quarter 2007 amounted to USD 28 mln versus USD 29mln in the fourth quarter of 2006. Full year finance costs totaled USD 129 mln- an increase of 79% year-on-year, which is explained by an increase inoutstanding debt as well as one-off debt restructuring costs incurred in thethird quarter of 2007 aimed at reduction of the Group's interest rate exposureand improvement of its debt structure. In the fourth quarter of 2007 the Group continued to focus on optimization ofits debt portfolio: in December it raised USD 1.1 bln in a three year syndicated loan fullypre-funded by a consortium of banks. The facility bears interest of LIBOR + 225bps p.a. during the first year. Starting from the second year, spread overLIBOR will decrease to 200 bps or lower depending on the Company's Net Debt/EBITDA ratio. The proceeds of the facility were used to re-finance X5 Retail Group's one yearUSD 1 bln bridge loan, which enhanced X5's financial flexibility, improved itsdebt structure and enabled the Company to avoid a significant step-up in theinterest rate on the refinanced loan. At 31 December 2007 net outstanding debt of the Group totaled USD 1.54 blnversus USD 1 bln at 31 December 2006, while effective interest rate was 7.1%. FX Gain/(Loss) Full year FX gain amounted to USD 32 million on the back of significantdepreciation of USD against RUR during the year. As X5 Retail Group employshedging strategy to minimize its foreign exchange and interest rate exposure, FXgains on its USD 1 bln denominated bridge loan were partially off-set bymark-to-market result on the hedging facility. The Company continues to applyhedging policy and has hedged its recently raised USD 1.1 bln syndicated loan. Income Tax Effective tax rate for the fourth quarter 2007 totaled 35%, translating into thefull year effective tax rate of 41%. The Company is undertaking measures tofurther improve its tax efficiency. Capital Expenditure Full year 2007 CapEx totaled approximately USD 870 mln. Increase overforecasted USD 700 mln is explained by USD devaluation against RUR, inflation inreal estate and construction prices as well as the fact that a bigger thanplanned amount (about 20% of full year CapEx) was spent on stores to be openedin 2008 and further, including purchasing of landplots for future hypermarketconstruction. Outlook for 2008 X5 Retail Group reiterates its sales and expansion guidance for 2008 given inthe Company's trading update as of 22 January 2008 and provides its outlook for2008 in terms of margins and leverage. FY 2007A FY 2008ESales Growth (excl. FX) 44% 36-38%LFL Sales Growth (excl. FX) 20% approx. 10%Net Selling Space Growth 143,100 sq.m. 140 - 160,000 sq.m.Storage Area (DC) Growth 78,100 sq.m. 40,000 sq.m.Capital Expenditure USD 0.87 bln USD 1.2 - 1.4 blnGross Margin 26.4% 25.8 - 26.2%EBITDA Margin 9.0% 8.8 - 9.0%Net Debt/EBITDA 3.2x less/equals 4x Please note that 2008 outlook numbers do not take into account potentialacquisition of Karusel hypermarket chain. However, these figures includecontribution of tactical M&A transactions that are treated by the Company asorganic development. Appendices I. Preliminary unaudited income statement for the three months and full year ended 31 December 2007 and 2006 II. Final pro-forma P&L for 2006 III. Full year Merkado (2006), Korzinka (2007) and Strana Gerkulesia (2007) net sales with quarterly breakdown IV. Financial Calendar for 2008 Note to Editors: X5 Retail Group N.V. is Russia's largest food retailer in terms of sales. TheCompany was created as a result of a merger between Pyaterochka (soft discounterchain) and Perekrestok (supermarket chain) on 18 May 2006. As of 31 December 2007, the Group had 674 Company managed soft discount storeslocated in Moscow (309), St. Petersburg (244) and other Russian areas (121), 179Company managed supermarkets across Central Russia and Ukraine, including 105stores in Moscow (Moscow region and Yaroslavl region), and 15 Company managedhypermarkets. As of 31 December 2007, X5's franchisees operated 688 stores across Russia andKazakhstan. The Group's net sales for the full year 2007 reached USD 5,320 mln, an increaseof 53% year-on-year. Gross profit for the period totaled USD 1,404 mln, EBITDAamounted to USD 479 mln. Full year 2007 net income reached USD 141 mln. 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 Elena CherkalovaIR Director PR ManagerTel.: +7 (495) 980-2729, ext. 22 162 Tel: +7 (495) 950-5577e-mail: [email protected] e-mail: [email protected] Appendix I PRELIMINARY UNADITED INCOME STATEMENT FOR THE THREE MONTHS AND YEAR ENDED 31DECEMBER 2007 AND 20065 (expressed in millions of US Dollars, unless otherwise stated) Three months ended Year ended 31 Dec 2007 31 Dec 2006 31 Dec 2007 31 Dec 2006Revenue 1,702.7 1,074.0 5,320.4 3,485.4 Cost of sales (1,245.2) (763.4) (3,916.7) (2,556.5)Gross Profit 457.5 310.6 1,403.7 928.9 Selling. general and administrative (342.5) (219.4) (1,142.0) (759.4) expenses Lease/sublease and other income 27.7 10.1 75.8 40.8Operating Profit 142.7 101.3 337.5 210.3 Finance costs (net) (28.2) (29.3) (128.5) (71.8) Net FX gain/(loss) 19.6 7.4 31.8 14.7Profit before tax 134.1 79.4 240.8 153.3 Income tax expense (46.9) (13.3) (99.5) (51.1)Profit for the period 87.2 66.1 141.4 102.2 Appendix II FINAL PRO-FORMA P&L FOR 2006 P&L FY 2006 Step 1 Step 2 Step 3 FY 2006 Q4 2006 Initial Logistics Merkado Final FinalUSD mln Pro-Forma* Reclass D&A Jan-Oct 06 Pro-Forma Pro-FormaNet Sales, incl. 3,551.5 (66.1) 3,485.4 1,074.0Cost of Sales (2,562.0) -42.3 47.8 (2,556.5) (763.4)Gross Profit 989.5 (18.3) 928.9 310.6Gross Margin, % 27.9% 26.7% 28.9%SG&A (808.8) 42.3 (17.9) 25.0 (759.4) (219.4)Lease/sublease and other income 43.8 (3.0) 40.8 10.1EBITDA before ESOP 360.0 1.3 361.3 124.1EBITDA Margin, % 10.1% n/a 10.4% 11.6%EBITDA 295.4 1.3 296.7 121.5EBITDA Margin, % 8.3% n/a 8.5% 11.3%EBIT 224.5 (17.9) 3.7 210.3 101.3EBIT Margin, % 6.3% n/a 6.0% 9.4%Profit Before Tax 159.5 (17.9) 11.7 153.3 79.4Income Tax Expense (56.7) 4.3 1.3 (51.1) (13.3)Net Profit 102.8 (13.6) 13.0 102.2 66.1Net Margin, % 2.9% n/a 2.9% 6.2% * as reported in the Company's Annual Report for 2006 Step 1: Product delivery and handling expenses were reclassified from SG&A toCost of Sales. Step 2: In line with IFRS requirements for pro-forma reporting, additionaldepreciation and amortization (D&A) charge was reported as if merger betweenPerekrestok and Pyaterochka took place on January 1, 2006, hence Pyaterochka'sassets were revalued at market price as of January 1, 2006 and not May 18, 2006. Step 3: 10 months of Merkado operations (January through October) wereexcluded from final 2006 pro-forma P&L. The management believes that for thepurposes of financial reporting pro-forma approach should be applied tostrategic large size acquisitions only, while small tactical M&A transactionsare reported on consolidation basis as of the date of the purchase. Appendix III FULL YEAR SALES DATA FOR MERKADO (2006), KORZINKA (2007) AND STRANA GERKULESIA(2007) 2006 Pyaterochka, Perekrestok & Merkado Net SalesUSD mln Q1 2006 Q2 2006 Q3 2006 Q4 2006 FY 2006Perekrestok & Pyaterochka6 762.3 818.5 830.5 1,057.4 3,468.8Merkado 19.8 18.8 19.7 24.4 82.7Total Net Sales 782.1 837.3 850.2 1,081.8 3,551.5 2007 X5 Retail Group, Korzinka & Strana Gerkulesia Net SalesUSD mln Q1 2007 Q2 2007 Q3 2007 Q4 2007 FY 2007X5 Retail Group7 1,106.2 1,241.4 1,270.1 1,682.6 5,300.4Korzinka 29.2 37.3 45.0 52.7 164.1Strana Gerkulesia 19.5 20.4 20.1 21.6 81.6Total Net Sales 1,154.9 1,299.1 1,335.2 1,756.9 5,546.1 Appendix IV: Financial Calendar for 2008 Date EventFebruary 28, 2008 Preliminary Unaudited FY 2007 Financial Results Release & Conference Call April 10, 2008, TBC Q1 2008 Trading Update Release April 22, 2008, TBC Audited FY 2007 IFRS Results Release May 29, 2008, TBC Q1 2008 Unaudited Financial Results Release July 10, 2008, TBC Q2 & H1 2008 Trading Update Release September 23, 2008, TBC Q2 & H1 Audited IFRS Results Release October 9, 2008, TBC Q3 2008 Trading Update Release November 25, 2008, TBC Q3 2008 Unaudited Financial Results Release Notes 1 Numbers provided in this press-release are preliminary and unaudited. 2006 P&L numbers represent final pro-forma results for 2006 as if the mergerbetween Perekrestok and Pyaterochka took place on January 1, 2006 and take intoaccount only two months (November and December) of Merkado operations. Thesenumbers also include reclassification of product handling and delivery expensesfrom SG&A to Cost of Sales. For your convenience, Appendix II to this pressrelease contains detailed information on final pro-forma P&L for 2006. 2007 P&L numbers include one month (December) of Korzinka operations. For your convenience, Appendix III to this press release contains full yearrevenue numbers for Merkado (2006), Korzinka (2007) and Strana Gerkulesia(2007). 2 Excluding VAT 3 In 2006 the Company reclassified an insignificant portion of other revenue(related to marketing income. The full amount of the reclassification wasreported in the fourth quarter which resulted in negative other revenue figurefor this period. 4 Please note that all SG&A expenses provided in the above table are net oflogistic expenses as those were reclassified to Cost of Sales. 5 2006 P&L numbers are reported on pro-forma basis for Pyaterochka, butinclude only two months - November&December 2006 - of Merkado operations. 2007P&L numbers include one month (December) of Korzinka operations. For yourconvenience, Appendix III to this press release contains full year revenuenumbers for Merkado (2006), Korzinka (2007) and Strana Gerkulesia (2007). 6 Excluding two months (November & December) of Merkado operations 7 Excluding one month (December) of Korzinka operations This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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