OREANDA-NEWS. May 22, 2012. X5 Retail Group N.V., (“X5” or the “Company”) Russia's largest retailer in terms of sales (LSE ticker: “FIVE”), today released its consolidated interim condensed financial information as of and for the three months ended 31 March 2012 prepared in accordance with International Financial Reporting Standards (IFRS).

Income Statement - Key Trends and Developments

Income Statement Highlights

USD mln

Q1 2012

Q1 2011

% change, y-o-y

Net Sales

3,870.7

3,845.4

0.7%

incl. Retail

3,862.0

3,826.1

0.9%

Gross Profit

947.2

913.6

3.7%

Gross Profit Margin, %

24.5%

23.8%

 

EBITDA

274.0

281.1

(2.5%)

EBITDA Margin, %

7.1%

7.3%

 

Operating Profit

171.0

174.7

(2.1%)

Operating Profit Margin, %

4.4%

4.5%

 

Net Profit

66.3

96.9

(31.6%)

Net Profit Margin, %

1.7%

2.5%

 

Net Sales & Gross Profit Margin Performance

USD mln

Q1 2012

Q1 2011

% change,

 

y-o-y

Net Sales

3,870.7

3,845.4

0.7%

incl. Retail

3,862.0

3,826.1

0.9%

Soft Discounters

2,475.1

2,378.7

4.1%

Supermarkets

854.9

859.4

(0.5%)

Hypermarkets

501.1

558.7

(10.3%)

Convenience stores

30.0

22.8

31.7%

Online

0.9

6.6

(86.8%)

Gross Profit

947.2

913.6

3.7%

Gross Profit Margin, %

24.5%

23.8%

 

In Q1 2012, X5's net sales in RUR terms increased year-on-year by 4.1% while reported net sales in USD increased to 3,871 mln for a year-on-year increase of 0.7%. Q1 2012 gross profit margin totaled 24.5%, a 70 basis point (bp) increase compared to Q1 2011.

Selling, General and Administrative (SG&A) Expenses

USD mln

Q1 2012

Q1 2011

% change,

 

y-o-y

Staff Costs

(342.4)

(332.5)

3.0%

% of Net Sales

8.8%

8.6%

 

Lease Expenses

(151.3)

(135.9)

11.4%

% of Net Sales

3.9%

3.5%

 

Other Store Costs

(61.3)

(48.0)

27.6%

% of Net Sales

1.6%

1.2%

 

D&A

(103.0)

(106.4)

(3.2%)

% of Net Sales

2.7%

2.8%

 

Utilities

(91.2)

(85.5)

6.7%

% of Net Sales

2.4%

2.2%

 

Third Party Services

(23.7)

(24.7)

(3.9%)

% of Net Sales

0.6%

0.6%

 

Other Expenses

(46.0)

(51.0)

(9.7%)

% of Net Sales

1.2%

1.3%

 

Total SG&A

(818.9)

(783.9)

4.5%

% of Net Sales

21.2%

20.4%

 

In Q1 2012, SG&A expenses, as a percentage of net sales, increased by 80 bp year-on-year to 21.2%. The significant step-up in store openings, and associated SG&A expenses, in the second half of 2011 as well as the continued ramp-up of these and Kopeyka stores' sales densities, negatively affected our SG&A expenses' as a percentage of net sales.

Staff costs, as a percentage of net sales, increased by 20 bp year-on-year in Q1 2012, to 8.8% primarily driven by an increase in store personnel, associated with the increase in new store openings, employee bonuses and expense recognized on the Company's Employee Stock Option Plan (ESOP) resulting from the remeasurement of the associated ESOP liability at 31 March 2012 compared to income recognized on the ESOP in the corresponding period of 2011. The increase in store personnel and bonuses accounted for 22 bp and 35 bp, respectively, of the increase in staff costs while the ESOP expense added 23 bp. Staff costs in Q1 2012 benefited from the reclassification of security expense from staff costs to other store costs and a decrease in long-term incentive expense, which reduced staff costs as percentage of nets sales by 34 bp and 5 bp, respectively, as well as a decrease in the social tax rate from 34% to 30%, effective from 1 January 2012, reducing staff costs as a percentage of net sales by 22 bp.

The Company's Q1 2012 lease expenses, as a percentage of net sales, rose 40 bp year-on-year to 3.9% due to the addition of new selling space under lease agreements. As a percentage of X5's total real estate portfolio, leased space accounted for 53.9% at 31 March 2012 compared to 52.0% in the corresponding period of 2011.

Other store costs, as a percentage of net sales, have increased by 40 bp year-on-year in Q1 2012 to 1.6% mainly due to the reclassification of security expenses from staff costs to other store costs.

Utilities expenses, as a percentage of net sales, have increased by 20 bp year-on-year in Q1 2012, to 2.4% due to the significant step-up in store openings as well as an increase in tariffs compared to Q1 2011.

As a result of the factors discussed above, EBITDA in Q1 2012 totaled USD 274 mln, or 7.1% of net sales.

Non-Operating Gains and Losses

USD mln

Q1 2012

Q1 2011

% change,

 

y-o-y

Operating Profit

171.0

174.7

(2.1%)

Finance Costs (Net)

(79.5)

(75.9)

4.7%

Net FX Result

(1.0)

32.4

n/a

Share of Loss of Associates

(0.1)

-

n/a

Profit before Tax

90.4

131.2

(31.1%)

Income Tax Expense

(24.1)

(34.3)

(29.8%)

Net Profit

66.3

96.9

(31.6%)

Net Profit Margin, %

1.7%

2.5%

 

Finance Costs

Net finance costs in Q1 2012 increased 4.7% year-on-year in USD terms, and 8.2% in RUR terms. The weighted average effective interest rate on X5's total debt for Q1 2012 increased to 8.5% per annum from 7.9% per annum in Q1 2011. The increase was primarily due to the conversion of the Company's USD-denominated debt into RUR by year-end 2011 and the generally higher interest rates charged on RUR borrowings.

Income Tax

In Q1 2012, X5 reported income tax expense of USD 24 mln resulting in an effective tax rate of 26.6% in Q1 2012 as compared to 26.1% for Q1 2011. X5's effective tax rate is higher than the Russian statutory tax rate of 20.0% as inventory shrinkage.