X5 Q2 & H1 2011 Trading Update

X5 Retail Group REPORTS Q2 2011 Trading Results(1):

Q2 2011 Net RETAIL SALES GROW 41% in RUR and 52% in USD TERMS

GROUP Q2 2011 LFL SALES GROWTH OF 10% IN RUR TERMS

214 new stores added and 316 kopeyka stores rebranded

year-to-date

Amsterdam, 8 July 2011 - X5 Retail Group N.V., Russia's largest retailer in terms of revenue (LSE ticker: "FIVE"), announced today its retail sales and operational performance for the second quarter and first half of 2011.

·; X5 expects 2011 RUR gross retail sales growth to be approx. 40%. Actual top line performance will be largely dependent on inflationary and consumer spending trends.

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(1) Numbers provided in this press-release are preliminary and not reviewed.

(2) Acquired Kopeyka stores sales are included from 1 December 2010.

(3) Including 24 stores purchased through the acquisition of Narodny retail chain on 30 June 2011 for a total consideration of RUR 510 mln, including debt.

Andrei Gusev, X5 Retail Group CEO, commented:

"X5 delivered RUR consolidated net retail sales growth of 41% year-on-year for the second quarter 2011, on the back of healthy organic performance at soft discounters and supermarkets and the contribution from acquired Kopeyka stores. Compared to the first quarter of 2011, Russian retail market sequential growth slowed somewhat in Q2 2011 as consumer income declined in real terms. We expect this trend to continue in Q3 2011, after which we expect stronger consumer demand in the fourth quarter. X5 achieved its objectives to maintain price leadership alongside managing supplier inflation to protect margins.

"X5 has made significant progress in its strategic priorities for stepped up growth. We added organically almost twice as many stores during the first half 2011 compared to the same period last year, and are making preparations to open the rest of the 540 stores targeted in our 2011 plan during the second half of the year.

"The fast-tracked Kopeyka integration process ramped up with the temporary closing and rebranding of 271 stores in Q2 2011. All Kopeyka stores outside Central region have been rebranded, doubling the scale of X5's discounter operations in Volgo-Vyatsky, Centralno-Chernozemny and Sredne-Volzhsky regions. We are already capturing synergies from enhanced purchasing power on Kopeyka sales volumes. We expect to complete the integration by the end of 2011 and to deliver substantial synergies from higher sales densities in 2012, with the full potential to be realized from the beginning of 2013. Our plans are well underway to integrate Kopeyka DCs into X5's logistics infrastructure this year and to launch Kopeyka best practices across X5 in 2012."

Net Retail Sales(1) Performance

Net Retail Sales Dynamics by Format(2)

X5 net retail sales for the second quarter of 2011 grew 41% year-on-year in RUR terms to RUR 112,198 mln, or 52% in USD terms to USD 4,006 mln. First half 2011 net retail sales were RUR 224,186 mln or USD 7,832 mln - an increase of 44% in RUR and 51% in USD terms, respectively.

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(1) Net retail sales represent revenue from operations of X5 managed stores excluding VAT. This number differs from total net sales that also include revenue from franchisees (royalty payments) and other revenue. The total net sales number will be reported along with Q2 2011 financial results.

 (2) Please note that in this and other tables of this press release immaterial deviations in calculation of % change, subtotals and totals are explained by rounding.

(3) Included from 1 April 2010.

(4) Online business was sold on 29 April 2011.

(5) Kopeyka sales consolidated by X5 from 1 December 2010; the number includes sales of rebranded stores.

Gross Retail Sales(1) Analysis

Gross Retail Sales Dynamics

RUR gross retail sales growth of 41% for the second quarter 2011 consisted of 10% LFL sales growth, 15% from organic store expansion and a 16% contribution from Kopeyka.

LFL Sales Performance

The Company's total LFL sales in second quarter 2011 increased 10% in RUR terms, driven by a 2% increase in customer traffic and 8% increase in average basket.

Like-For-Like(2)(3) Store Performance (see Appendix I for detailed LFL performance)

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(1) In this section all sales dynamics analysis is based on RUR-denominated gross retail sales (including VAT, excluding FX). Net retail sales RUR growth rates may immaterially differ due to effective VAT rate.

(2) Like-for-like (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 twelve full months preceding the beginning of the last month of the reporting period. Their sales are included in LFL calculation starting from the first day of the month following the month of the store opening.

(3)  Kopeyka's stores are not included in X5's LFL calculation since they were acquired in December 2010.While X5 maintained its strong position versus competitors, performance in late May and June was affected by a slowdown in the Russian retail market. Russian consumer real disposable income declined by 7% year-on-year in May 2011, according to the Russian Statistics Service. LFL growth was also affected by a higher comparable base for supermarkets, mainly due to the strong increase in sales following the completion of Paterson stores rebranding in May 2010.

Soft discounters delivered solid LFL growth of 9% in Q2 2011. The increase was driven entirely by higher basket. Supermarkets continued to demonstrate strong performance in Q2 2011 with 18% LFL growth on a 9% rise in traffic and 9% basket increase. Hypermarkets LFL growth was 4% in Q2 2011, on 5% higher basket and 1% lower traffic. Their performance was especially solid in Central region (+10% LFL), but was adversely affected by high competition in Saint-Petersburg (-1% LFL).

See Kopeyka Integration Update section for discussion of Kopeyka like-for-like performance.

Expansion 

In second quarter 2011, X5 added a net 138 stores, which includes 134 soft discounters, three supermarkets, seven convenience stores and closure of five Kopeyka stores and one hypermarket, for a total expansion of net selling space of 34 thousand sq. m. The quarterly total includes 24 stores purchased through the acquisition of Narodny retail chain on 30 June 2011. Narodny chain is located in Tatarstan republic, with 2010 net sales of RUR 1.8 bln.

For the year to date X5 has added a net 214 stores. The Company is on track to deliver on its plans for 540 new stores in 2011, with the majority to be opened in the second half of the year.

Additional information is provided in Appendix IV to this press release.

As at 30 June 2011, X5 Retail Group was present in 52 cities of European Russia, the Urals and Ukraine, operating 2,683 stores in total (1,605 thousand sq. m. in selling space).  This includes 1,606 soft discounters, 306 supermarkets, 70 hypermarkets, 54 convenience stores and 647 Kopeyka stores (including 315 stores rebranded as Pyaterochka and one as Perekrestok).

Kopeyka Integration Update

In Q2 2011 Kopeyka stores' sales totalled RUR 12,686 mln or USD 454 mln. LFL sales of acquired Kopeyka stores decreased by 7% in the second quarter on a 10% decline in traffic and 3% basket growth (see Appendix V for more details). Q2 2011 sales were affected by temporary store closings for rebranding, reconstruction and IT upgrades.

X5 is on track to deliver on its plans to fully integrate Kopeyka by the end of 2011. As of 30 June 2011 the Company has rebranded 316 stores and closed down 13 of the acquired 660 stores. On average each rebranded store has been closed for about 15 days across all regions. 

We expect Kopeyka sales level to remain flat in 2011 versus 2010 due to inventory liquidation, temporary store closings, ramp-up period after store reopening and other effects of the integration process. We are confident of delivering substantial synergies from 2012 through higher sales densities, better purchasing terms and administrative cost reduction, with the full potential synergies to be realized from the beginning of 2013.

Key integration milestones include: 

·; Merchandising: As Russia's largest retailer, X5 has better purchasing terms than Kopeyka, and we are already capturing synergies from enhanced purchasing power in Q2 2011. Full integration of the purchasing function is expected by the end of 2011, after all Kopeyka stores are rebranded as Pyaterochka and start offering Pyaterochka's wider assortment and lower prices.

·; Logistics: At the time of the acquisition, Kopeyka operated seven distribution centres (DCs) and owned about 300 trucks. X5 continues to operate five of Kopeyka's DCs and all of the acquired truck fleet. We decided to close down two DCs that did not meet X5's efficiency criteria. Three Kopeyka DCs are already operating with X5's Warehouse Management System (WMS); we plan to install the system at the other two DCs by the end of 2011.

·; Personnel: Store personnel training is well underway with almost 70% of Kopeyka staff trained at 30 June 2011. We are conducting training programs region-by-region in line with our store rebranding schedule. Head office integration will be largely completed by the beginning of Q4 2011. 

Logistics Infrastructure Development

During the first half of 2011 X5 Retail Group expanded its warehouse capacity by a net 58.0 thousand sq. m.

We integrated five Kopeyka DCs into our logistics infrastructure (two in the Moscow region, one in N. Novgorod, one in Voronezh and one in Samara), replaced one DC in St. Petersburg region with a more functional one and closed down a DC in Ekaterinburg as it was replaced by larger and more efficient DC opened there in Q4 2010.

As a result, at 30 June 2011 the Group operated 28 DCs with overall warehouse capacity of 464 thousand sq. m., which is fully adequate to service 1,604 thousand sq.m. of selling space.

Appendices

I. LFL Store Performance by Format and Region

II. Net Retail Sales Performance by Region

III. Average Ticket and Number of Customers

IV. Net Store Addition by Format and Region

V. Kopeyka Operational Performance

VI. Financial Calendar for 2011

Note to Editors:

X5 Retail Group N.V. (LSE: FIVE, Moody's - "B2", S&P - "B+") 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 30 June 2011, X5 had 2,683 Company-managed stores located in Moscow, St. Petersburg and other regions of European Russia, Urals and Ukraine, including 1,606 soft discount stores, 306 supermarkets, 70 hypermarkets, 54 convenience stores and 647 acquired Kopeyka stores (including 315 stores rebranded as Pyaterochka and one as Perekrestok).

As at 30 June 2011, X5's franchisees operated 705 stores across Russia.

For the full year 2010, net sales totaled USD 11,280 mln, EBITDA reached USD 844 mln, and net profit amounted to USD 271 mln. For the first quarter 2011, net sales totaled USD 3,845 mln, EBITDA reached USD 281 mln and net profit amounted to USD 97 mln.

X5 Shareholder structure is as follows: Alfa Group - 47.9%, founders of Pyaterochka - 19.9%, X5 Management - 1.8%, treasury shares - 0.1%, free float - 30.3%.

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.

Appendix I: LFL Store Performance by Format and Region(1)

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(1) Based on RUR-denominated gross sales (including VAT, excluding FX). Net sales RUR growth rates may immaterially differ due to effective VAT rate.

Like-for-like 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 like-for-like comparisons are those that have operated for at least twelve full months preceding the beginning of the last month of the reporting period. Their sales are included in like-for-like calculation starting from the first day of the month following the month of the store opening. The like-for-like comparison for each store takes into account retail sales generated by that store during the same months it was in operation in both the reporting period and the period of comparison. The retail sales of all the relevant stores in the relevant months are then aggregated and compared. Like-for-like sales are calculated on the basis of traffic and basket amounts of relevant stores in the period under review.

Please note that acquired Kopeyka stores are not included in X5's LFL calculations for Q2 and H1 2011 as X5 did not operate Kopeyka until the acquisition in December 2010. Information on Kopeyka's stand-alone operational performance is provided in Appendix V to this press release.

Appendix II: Net Retail Sales Performance by Region

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(1) Online business was sold on 29 April 2011.

(2) Kopeyka sales consolidated by X5 from 1 December 2010; the number includes sales of rebranded stores. 

Appendix III: Average Ticket and Number of Customers(1)

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(1) Based on all stores' gross sales, which include acquired Kopeyka stores' sales consolidated from 1 December 2010.

(2) Included from 1 April 2010.

(3) Online business was sold on 29 April 2011.

Appendix IV: Net Store Addition by Format and Region

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(1) Including stores rebranded as Pyaterochka and Perekrestok.

Appendix V: Kopeyka Operational Performance

Net Retail Sales

LFL Sales Performance

Average Ticket and Number of Customers(1) 

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(1) Based on all Kopeyka stores' gross retail sales. LFL performance includes VAT and excludes FX.

Appendix VI: Financial Calendar for 2011