X5 Q3 & 9M 2011 Financial Results

X5 REPORTS third Quarter 2011 RESULTS(1):

Q3 2011 NET SALES UP 32% IN RUR AND 39% IN USD TERMS

net cash from operations of usd 309 mln in q3 2011 on significant improvement in working capital

solid Gross margin of 23.1% and ebitda margin of 6.1% in peak quarter for kopeyka integration

Amsterdam, 29 November 2011 - X5 Retail Group N.V., Russia's largest retailer in terms of sales (LSE ticker: "FIVE"), today published its IFRS results for the quarter and nine months ended 30 September 2011, reviewed by auditors.

X5 Retail Group CEO Andrei Gusev commented:

"X5 delivered solid margins in the third quarter of 2011 although this was the peak quarter for Kopeyka's fast-tracked integration in the Moscow region and we incurred the majority of integration costs as well as costs related to inventory liquidation and promo activity in Kopeyka stores. I am pleased to report we have now completed the integration of all acquired stores, and those converted to Pyaterochkas in the initial part of the year are now delivering solid double-digit sales growth.

In the first nine months of 2011 we doubled the CapEx compared to the same period last year. We remain on track to deliver on our organic expansion plans of 540 new store openings in 2011.

We also made substantial progress in generating cash through working capital improvements, a major priority for X5 this year. Net cash from operating activities increased more than three-fold compared to Q3 2010 (the first quarter after the implementation of the New Retail Law), supported by more efficient administration of supplier payables terms." 

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(1) Numbers in this press-release were reviewed by PricewaterhouseCoopers.

Income Statement - Key Trends and Developments

Income Statement Highlights(1)(2)

Net Sales & Gross Margin Performance

For the third quarter of 2011, X5 reported net sales of USD 3,623 mln, a year-on-year increase of 39% in USD terms. In RUR terms net revenue for the quarter increased 32% year-on-year. For the first nine months of 2011, net sales totaled USD 11,490 mln - a year-on-year increase of 47% in USD terms and 40% in RUR terms. This performance was driven by a 9% increase in like-for-like (LFL)(6)sales, a 15% increase from organic store expansion and a 16% contribution from acquired Kopeyka stores.

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(1) Please note that in this and other tables of the press-release immaterial deviations in calculation of % change, subtotals and totals are explained by rounding. Kopeyka results are consolidated from 1 December 2010.

 (2) X5's operational currency is the Russian Ruble (RUR), while the Company's presentation currency is the U.S. Dollar (USD). As RUR/USD rate has substantially changed in the past twelve months, comparisons of the Company's financial results either with the corresponding period a year ago (for income statement) or with the beginning of the year (for statement of financial position) have been substantially affected by these movements. For more information please see page 6 of this press-release.

(3) Consolidated from 1 April 2010.

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

(5) Consolidated from 1 December 2010.

(6) 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.

Soft discounters contributed LFL growth of 3% in Q3 2011 on 4% lower traffic and 7% higher basket. Traffic was negatively affected across all formats by a slowdown in customer shopping activity contributing to a widely-observed slowdown in the Russian food retail market. Supermarkets delivered 6% LFL growth on 3% lower traffic and a 9% increase in basket. They also faced a high base compared to last year, when the format launched an aggressive price campaign from June to September 2010. Hypermarkets' LFL growth was 2% in Q3 2011, on 6% higher basket and 4% lower traffic.

Selling, General and Administrative Expenses (SG&A)

Third quarter 2011 SG&A expenses as a percentage of revenue increased by 20 bp year-on-year to 21.1%. Kopeyka integration effects impacted almost all SG&A items as percent of sales, especially as sale volumes have declined in Q3 2011 vs. Q2 2011: stores with lower sales densities and stores closed temporarily put pressure on SG&A margins, particularly in relation to operating expenses including staff costs, leasing, utilities and other expenses associated with Kopeyka.

Staff costs decreased 60 bp year-on-year as a percentage of sales amounting to 8.8% in Q3 2011 driven by productivity initiatives and changes to X5's long term incentive program which more than offset increases in the social tax rate and one-off costs associated with the integration of Kopeyka.

Lease expenses rose 60 bp year-on-year as percentage of sales, accounting for 4.0% in Q3 2011, as the share of leased space in X5's total real estate portfolio increased to 53% in September 2011 from 47% a year ago.

Other expenses increased 20 bp to 1.3% as percentage of sales in Q3 2011, almost entirely due to Kopeyka integration effects.

 Non-Operating Gains and Losses

Finance Costs

Net finance costs for the first nine months of 2011 increased 125% year-on-year in USD terms and 114% in RUR terms due to higher debt. The effective weighted average interest rate on X5's total debt for the first nine months of 2011 was approximately 7.7% per annum.

Foreign Exchange (FX) Result

The Company posted a USD 16 mln net FX loss for the first nine months of 2011. This is mainly attributable to a FX loss of USD 52.5 mln in Q3 2011, due to the sharp movement in the RUR/USD rate.  This is a non-cash item, resulting from revaluation of the Company's long-term USD-denominated debt and ESOP.

Income Tax

In the first nine months of 2011, X5 reported income tax expense of USD 60 mln. Effective tax rate for the first nine months of 2011 was 26% as compared to 32% for the same period in 2010. The effective tax rate was higher than the statutory tax rate as inventory shrinkage is only partially tax deductible in Russia.

In the third quarter of 2011, X5 reported a slight loss before tax of USD 2.8 mln.

Consolidated Cash Flow - Key Trends and Developments

For the first nine months of 2011 net cash generated from operating activities totaled USD 318 mln compared to a USD 66 mln outflow for operating activities a year ago. This positive swing was driven by the significant improvement in X5's working capital in Q3 2011 vs. that of Q3 2010 (the first quarter after the implementation of the New Retail law), with a net cash inflow of USD 181 mln during the quarter as a result of more efficient administration of payables terms with suppliers.

Net cash used in investing activities totaled USD 496 mln in the first nine months of 2011 compared to USD 252 mln for the same period last year.

Net cash generated from financing activities in the first nine months of 2011 amounted to USD 32 mln.

Liquidity Update

As of the end of September 2011, the Company's total debt amounted to USD 3,578 mln (at RUR exchange rate of 31.88), out of which 22% was short-term (USD 771 mln) and 78% long-term (USD 2,807 mln). Ruble-denominated borrowings accounted for 89% of X5 net debt at 30 September 2011. X5's net debt to EBITDA ratio improved slightly to 3.57x compared to 3.70x at the end of 2010.

As of 30 September 2011, the Company had access to RUR-denominated credit facilities of approximately RUR 125.9 billion (approximately USD 3.9 billion). Of this amount, approximately RUR 59.3 billion (approximately USD 1.9 billion) represented available undrawn credit lines with major Russian and international banks.

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(1) Debt covenants are set in RUR terms in accordance with loan facilities the Group maintains.

(2)  Based on pro-forma EBITDA of RUR 30,812 mln, i.e. including Kopeyka from 1 October 2010.

(3) Based on pro-forma EBITDA of RUR 30,861 mln, i.e. including Kopeyka from 1 July 2010.

(4) Based on pro-forma EBITDA of RUR 28,131 mln, i.e. including Kopeyka from 1 January 2010.

Effect of RUR/USD Exchange Rate Movements on Presentation of X5's Results and Their Dynamics

X5's operational currency is the Russian Ruble (RUR), while the Company's presentation currency is the U.S. Dollar (USD). As RUR/USD rate has substantially changed in the past twelve months, comparisons of the Company's financial results either with the corresponding period a year ago (for income statement) or with the beginning of the year (for statement of financial position) have been substantially affected by these movements:

·; Comparisons of income statement figures with respective periods last year reflect a positive translational effect from RUR/USD rate movements, resulting in a difference between year-on-year change in RUR and the respective change in USD of approximately 5% for 9M 2011. For reference, to translate its income statement figures from RUR to USD for reporting purposes, the Company applied RUR/USD rate of 28.77 for 9M 2011 (average for the period) and RUR/USD rate of 30.25 for 9M 2010 (average for the period).

·; Comparisons of statement of financial position figures as at 30 September 2011 to statement of financial position figures as at 31 December 2010 reflect a negative translational effect from RUR/USD rate movement, resulting in a difference between change in RUR and the respective change in USD of approximately 5%. For reference, to translate its statement of financial position figures from RUR to USD for reporting purposes, the Company applied RUR/USD rate of 31.88 as at 30 September 2011 and RUR/USD rate of 30.48 as at 31 December 2010.

Appendices

I. Consolidated Interim Income Statement for the Three and Nine Months Ended 30 September 2011

II. Consolidated Interim Statement of Comprehensive Income for the Three and Nine Months Ended 30 September 2011

III. ConsolidatedInterimStatement of Financial Position at 30 September 2011

IV. Consolidated Interim Statement of Cash Flows for the Nine Months Ended 30 September 2011

V. Financial Calendar for 2012

Note to Editors:

X5 Retail Group N.V. (LSE: FIVE, Moody's - "B2", S&P - "B+") is Russia's largest food retailer. The Company operates several retail formats: the soft discounter chain under the Pyaterochka brand, the supermarket chain under the Perekrestok brand, the hypermarket chain under the Karusel brand and convenience stores under different brands.

As at 30 September 2011, X5 had 2,785 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 2,327 soft discounter stores, 321 supermarkets, 72 hypermarkets and 65 convenience stores.  The Company operates 29 distribution centers across the Russian Federation.

As at 30 September 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 nine months of 2011, net sales totaled USD 11,490 mln, EBITDA reached USD 786 mln and net profit amounted to USD 168 mln.

X5's shareholder structure is as follows: Alfa Group - 47.86%, founders of Pyaterochka - 19.85%, X5 Management and/or Supervisory Board members - 0.02%, treasury shares - 0.11%, free float - 32.16%.

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:

CONSOLIDATED INTERIM INCOME STATEMENT

FOR THE THREE AND NINE MONTHS ENDED 30 SEPTEMBER 2011(1)

(expressed in thousands of US Dollars)

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 (1) Kopeyka results are consolidated from 1 December 2010.

Appendix II:

CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME

FOR THE THREE AND NINE MONTHS ENDED 30 SEPTEMBER 2011(1)

 (expressed in thousands of US Dollars)

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(1) Kopeyka results are consolidated from 1 December 2010.

Appendix III: CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION AT 30 SEPTEMBER 2011 (expressed in thousands of US Dollars)

Appendix IV:

CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2011

(expressed in thousands of US Dollars) 

Appendix V: Financial Calendar for 2012