OREANDA-NEWS. On 01 June 2009 X5 Retail Group N.V., Russia's largest retailer in terms of sales (LSE ticker: “FIVE”), announced its IFRS results for the quarter ended 31 March 2009, reviewed by auditors.

Q1 2009 Highlights

• Consolidated* net sales increased 46% year-on-year in RUR terms to RUR 63,346 mln or 5% in USD terms to USD 1,867 mln;

• On a pro-forma basis**, net sales grew 28% year-on-year in RUR terms and declined 8% in USD terms (due to negative RUR devaluation effect);

• Gross profit totaled USD 458 mln, for a gross margin of 24.5%;

• EBITDA amounted to USD 163 mln, for an EBITDA margin of 8.7%;

• X5 reported a net loss of USD 82 mln due to mainly non-cash foreign exchange loss;

• 2009 sales growth and CapEx outlook, as announced on 6 March 2009, reiterated.

X5 Retail Group CEO Lev Khasis commented:

“X5’s solid operational performance in the first quarter benefited from our discounters’ leading price position, which drove strong growth in customer traffic and like-for-like sales. X5 puts the customer first, and this is especially important in tougher economic conditions. At the end of the first quarter, we took Pyaterochka’s price leadership to the next level, launching our “lowest price in the market on 100% of assortment” initiative. I am pleased to say that the response we are getting from consumers is very encouraging. At the same time, Pyaterochka’s phenomenal success is a clear indicator that trading down trends persist, consumers remain extremely price-conscious, and this currently presents a challenging operating environment for other formats.”

X5 Retail Group CFO Evgeny Kornilov added:

“Our efforts to ensure affordability of products on our shelves combined with the postintegration price repositioning strategy at Karusel resulted in a managed gross margin decline of 100 bp year-on-year. At the same time, focus on cost controls enabled us to maintain a stable EBITDA margin compared to the same period last year. We also used our strong cash position as an opportunity to bring down debt and eliminate short-term FX exposure, while continuing selective expansion. For the rest of the year, we will make every effort to drive efficiency and profitable growth, with a focus on cash generation and deleveraging.”

RUR Devaluation Effects on Reported Results and Their Dynamics

X5’s operational currency is the Russian Ruble (RUR), while our presentation currency is the U.S. Dollar (USD). As RUR has significantly devalued against USD, comparisons of the Company’s financial results either with the corresponding period a year ago (for profit & loss statement) or with the beginning of the year (for balance sheet statement) have been substantially affected by RUR devaluation:

• Comparisons of profit & loss figures for Q1 2009 to Q1 2008 reflect a negative translational effect from RUR devaluation, resulting in a difference between year-on-year change in RUR and the respective change in USD of approximately 37%. For reference, to translate its profit & loss figures from RUR to USD for reporting purposes, the Company applied RUR/USD rate of 24.26 for the first quarter 2008 (average for the period) and RUR/USD rate of 33.93 for the first quarter 2009 (average for the period).

• Comparisons of balance sheet figures as at 31 March 2009 to balance sheet figures as at 31 December 2008 reflect a negative translational effect from RUR devaluation, resulting in a difference between change in RUR and the respective change in USD of approximately 16%. For reference, to translate its balance sheet figures from RUR to USD for reporting purposes, the Company applied RUR/USD rate of 29.38 as at 31 December 2008 and RUR/USD rate of 34.01 as at 31 March 2009.

In Q1 2009 X5 reported net sales of USD 1,867 mln – a year-on-year decline of 8% in USD terms due to the sharp RUR devaluation in the first quarter. In RUR terms net revenue increased 28% year-on-year thanks to 13% growth in LFL sales with the rest coming from expansion. Soft discounters were the clear winners as consumers traded down in the current environment. Supermarkets demonstrated healthy performance in Moscow, St. Petersburg and other large cities, partially offset by declines in certain regions more affected by economic downturn. In the first quarter, X5 completed the rebranding of all Perekrestok hypermarkets as Karusel and focused on fine-tuning its hypermarket model to reflect new economic realities and improve hypermarkets performance.

For detailed discussion on Q1 retail sales dynamics, please see our Trading Update dated 9 April 2009 at http://www.X5.ru/en/investors/operational_results/. First quarter 2009 gross margin totalled 24.5% – a 100 bp decline versus first quarter 2008, which was in line with the management’s expectations. The decline is attributable to the

following factors: planned investment in prices across formats, a managed reduction in Karusel’s gross margin; and the impact of trading down trends as reflected in the change of product mix in favour of purchases of basic staples.

In the first quarter 2009, X5 further tightened its cost controls. As a result, SG&A expenses decreased as a percentage of revenue from 20.6% in Q1 2008 to 19.6% in Q1 2009 (net of ESOP, SG&A expenses decreased from 20.4% in Q1 2008 to 19.7% in Q1 2009). This decrease was achieved primarily through administrative expense and staff cost optimization. As at 31 March 2009 the Company employed 60,060 people compared to 60,467 as at 31 December 2008, which reflects headcount optimization at both head office and store levels. These positive effects were partially offset by higher utility costs due to increases in government-regulated tariffs.

Finance Costs

Net finance costs decreased by 7% year-on-year in USD terms and increased 30% in RUR terms due to higher interest rates on short-term RUR funding. Over 70% of the Company’s debt portfolio has no exposure to interest rate fluctuations, due to a LIBOR hedge on USD 1.1 bln syndicated loan (effective interest of appr. 4.2% p.a.) and the fact that RUR 9 bln bonds have a fixed coupon (7.6% p.a.). The Company is thus relatively protected against fluctuations in interest rates. The effective interest rate on X5’s total debt for the first quarter 2009 was approximately 8.0%.

Foreign Exchange (FX) Loss

Due to the significant devaluation of the Russian Ruble versus the U.S. Dollar in the first quarter 2009, the Company reported an FX loss of USD 164 mln. This is a primarily noncashitem, resulting from revaluation of the Company’s long-term USD-denominated debt.

Income Tax

In the first quarter 2009, X5 reported income tax benefit in the amount of USD 3 mln, which is explained by deferred tax income in the amount of USD 45 mln, primarily attributable to the reported FX loss.

First quarter 2009 net cash used in operating activities totaled USD 38 mln versus USD 34 mln generated from operating activities a year ago. Strong cash generation from operations was offset by two major factors that affected working capital: 1) inventories increased due to extensive store openings, particularly hypermarkets, as well as because of substantial warehouse area expansion; 2) accounts payable decreased significantly, which is a typical seasonal factor for the first quarter of each year, as the Company paid suppliers for inventories accumulated in the fourth quarter 2008 for New Year and Christmas sales. Net cash used in investing activities totaled USD 43 mln, as the Company opened new stores (33 thousand square meters of selling space added), continued the development of logistics infrastructure (warehouse capacity was expanded by 10 thousand square meters) and implementation of its IT projects (SAP).

Net cash used in financing activities amounted to USD 85 mln as the Company used available cash to reduce outstanding debt.

As at 31 March 2009, the Company’s total debt amounted to USD 1,864 mln (at RUR/USD exchange rate of 34.01), out of which 24% was short-term (USD 441 mln or RUR 15 bln), mainly represented by revolving credit lines with the largest Russian and international banks, denominated in RUR. In addition to currently used facilities, as at 31 March 2009 X5 had undrawn credit lines in the total amount of USD 297 mln or RUR 10 bln

(denominated in RUR).

In the first quarter X5 continued its deleveraging efforts, paying down net USD 70 mln (excluding FX revaluation effect on RUR-denominated debt). By 31 March 2009 X5 had completely eliminated its short-term FX exposure by repaying short-term USD-denominated debt. Thus, the Company’s FX exposure is limited to the USD 1.1 bln syndicated loan with maturity in December 2010, which does not expose X5 to short-term liquidity risks. For the remainder of 2009, we expect that our cash flow generation, disciplined investment program and prudent financial management will enable the Company to improve its debt maturity profile and further reduce leverage.