X5 Cuts 2008 CAPEX by 30%
10 Oct 2008
Amsterdam, 10 October 2008 - X5 Retail Group N.V., Russia's largest retailer in terms of
revenue (LSE ticker: “FIVE”), published today its retail sales and expansion results for the
quarter and nine months ended 30 September 2008.
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Q3 2008 Highlights |
9M 2008 Highlights |
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• Net retail sales* including Karusel on pro- |
• Net retail sales including Karusel on pro- |
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forma basis totaled USD 2,177 mln – an |
forma basis totaled USD 6,479 mln – an |
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increase of 48% year-on-year (year-on- |
increase of 56% year-on-year (year-on- |
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year growth on consolidation basis totaled |
year growth on consolidation basis totaled |
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73%); |
65%); |
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• Pro-forma LFL sales increased 21%; |
• Pro-forma LFL sales increased 25%; |
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• In Q3 2008 X5 added net 36 stores; |
• In the first nine months 2008 X5 added net |
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• In Q3 2008 net addition of selling space equaled 31.2 thousand sq.m.; |
159 stores, including 24** acquired Karusel hypermarkets; |
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• All of the acquired Karusel stores were re-launched on new IT platform ahead of schedule. |
• In the first nine months 2008 net addition of selling space equaled 213.8 thousand sq.m., including 138.0 thousand sq. m. of acquired Karusel hypermarkets |
Lev Khasis, X5 Retail Group CEO, commented:
“We are pleased to report that X5 has surpassed the 1,000 store milestone and progresses on
Karusel integration well ahead of schedule. The third quarter results came out in line with the
management’s expectation as we continued to see healthy consumer demand despite financial
markets turbulence and weak seasonality typical for modern retail in this quarter.
At the same time, we understand that the financial crisis may in the end affect consumer
confidence, so we closely track our customer behaviour and are ready to quickly respond to
changes in consumption patterns.”
* 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 and other revenue. The total net sales number
will be reported along with the 9M 2008 financial results.
Numbers provided in this press-release are preliminary and unaudited.
For your convenience, we provide net retail sales for Q3 2007 and 2008 both excluding and including Karusel
(on pro-forma and consolidation basis). Q3 2007 numbers exclude results of operations of Korzinka, Strana
Gerkulesia and Kama Retail.
** Including 23 hypermarkets operating at the time of the acquisition and one hypermarket under construction that was opened in Q3.
Evgeny Kornilov, X5 Retail Group CFO, added:
“We believe that we do all the right things in the current financial crisis environment – we
prudently manage our cash flows and have taken decision to scale down CapEx, focus on
highest returns and shortest paybacks and reduce short-term debt exposure. We also chase all
the opportunities that this distressed market may offer. It is quite clear by now that the
strongest and the smartest will successfully live through the crisis and come out as winners and
it is our intention to continue to lead the way."
Excluding 24 acquired Karusel hypermarkets, net retail sales for the third quarter 2008
increased by 52% to USD 1,913 mln, translating into a 57% (46% in RUR terms) increase
year-on-year to USD 5,656 mln in the first nine months of 2008.
Acquired Karusel hypermarkets posted 26% growth to USD 264 mln in the third quarter 2008.
Acquired stores’ performance was negatively affected by the 3-4 days closing needed for IT
platform replacement. All of the acquired stores were closed and relaunched in Q3. As a result
net retail sales in the first nine months 2008 reached USD 822.3 mln (year-on-year growth of
49% in USD terms).
Including acquired Karusel stores on pro-forma basis, net retail sales for the first nine months
2008 totaled USD 6,479 mln, a year-on-year increase of 56% in USD terms.
* Acquired Karusel hypermarkets include 23 hypermarkets operating at the time of the acquisition and one
hypermarket under construction that was opened in Q3
For the third quarter 2008, LFL sales, excluding acquired Karusel hypermarkets, surged 22% in
RUR terms, composed of 3% increase in traffic and 19% increase in average basket. As
expected, we saw slow down in LFL sales growth in Q3 versus the first half of the year, as the
comparative 2007 base was already very strong due to changes in pricing and assortment
policies that we started benefitting from in the second half of 2007. Expansion brought
additional 22% in terms of growth. As a result, first nine months 2008 LFL sales increased by
25% with traffic growing by 6% and basket – by 19%, while 21% came from expansion.
During the first nine months of the year X5 continued to restrain prices growth and invest in its
customer loyalty – in September 2008 product prices on X5’s shelves increased on average by
14.1% year-on-year compared to officially reported food inflation in Russia of 19.9%
(September 2008 to September 2007).
Including Karusel on a pro-forma basis, third quarter 2008 LFL sales increased 21% in RUR
terms on the back of 3% growth in traffic and 18% increase in average basket. Expansion
added 19% in terms of growth. As a result, first nine months 2008 LFL sales (including
Karusel) increased 25% (6% growth in traffic and 19% in average basket) with additional 20%
delivered by non-LFL stores.
X5 Hypermarkets
For the third quarter 2008, hypermarket sales increased 45%, excluding FX effect. This growth
came as a result of an 18% increase in LFL sales with another 27% added by non-LFL stores.
Hypermarkets located in Moscow and the Moscow region posted impressively strong results,
especially noticeable in remodeled hypermarkets. As X5 continues to implement its new
concept in all of its hypermarkets, we expect to improve the regional stores performance as
well. For the first nine months 2008, gross sales in the hypermarket format increased by 45% in
RUR terms (LFL sales up 21%, non-LFL stores sales up 24%).
Karusel Hypermarkets
For the third quarter 2008 Karusel sales grew by 19%, excluding FX effect, as a result of a
14% growth in LFL sales and 5% coming from expansion. As discussed above, acquired
Karusel stores’ LFL performance was affected by the closings associated with the IT platform
change.
For the first nine months of 2008, gross sales in Karusel hypermarkets increased by 38% in
RUR terms (LFL sales up 27%, non-LFL stores sales up 11%).
Supermarkets
For the third quarter 2008, supermarket sales grew by 35%, excluding FX effect, as a result of
22% surge in LFL sales and 13% coming from expansion. Strong LFL results are due to
healthy performance of supermarkets located in Moscow and St. Petersburg and we continue to
see very positive trends in both cities. The Company has changed its pricing policy in Moscow
and St. Petersburg-based supermarkets by decreasing prices on certain back-basket product
categories (approximately 15,000 SKUs) by 15% on average in order to enhance sales of more
premium goods and raise the average ticket. Based on encouraging consumer response that we
start seeing already now, we are introducing these re-pricing initiatives in our regional
supermarkets as well and expect to see positive impact, especially during the New Year and
Christmas sales. We are also very happy with the results of our new Green Perekrestok store
launched in Rostov-on-Don – the first premium class supermarket of X5.
For the first nine months of 2008, gross sales in the supermarket format increased by 40% in
RUR terms (LFL sales up 27%, non-LFL stores sales up 13%).
Soft Discounters
For the third quarter 2008 soft discounter sales grew by 50%, excluding FX effect, as a result
of a 23% surge in LFL sales and 27% coming from expansion. The strongest LFL growth in
the soft discounter format was demonstrated by regional stores (up 37%) underpinning success
of the format in the regions.
For the first nine months of 2008, gross sales in the soft discounter format increased by 51% in
RUR terms (LFL sales up 24%, new stores sales up 27%).
Expansion
In the third quarter 2008, X5 Retail Group N.V. opened net 36 stores, including 32 soft
discounters, one supermarket and three hypermarkets with a total net selling space of 31.2
thousand sq.m. As a result, at 30 September 2008, X5 Retail Group N.V., operated 1,027
stores in total, consisting of 794 soft discounters, 191 supermarkets, and 42 hypermarket stores
(including 24 acquired Karusel hypermarkets), with the total net selling space of 823.0
thousand sq. m.
Franchisees Expansion and Buy-Out Update
In the third quarter 2008 X5 decided to terminate its franchise contracts with counterparties
that operated under Pyaterochka brand in Belgorod, Krasnodar and Kazakhstan due to breaches
of the agreement terms.
As a result, at 30 September 2008 the Company’s franchisee store network totaled 684 stores
across Russia, including 8 Perekrestok and 676 Pyaterochka stores. X5 Retail Group does not
consolidate franchisee stores’ sales. The Group receives royalty payments from franchisees
and reports them as other revenue.
Logistics Infrastructure Development
During the third quarter 2008 X5 Retail Group expanded its warehouse capacity by net 9.7
thousand sq. m. by opening three new distribution centers (DCs) in St. Petersburg, Lipetsk and
Yekaterinburg, expanding storage capacity of an existing warehouse in St. Petersburg and
closing a small warehouse in Yekaterinburg. As a result, at 30 September 2008 the Group had
16 DCs totaling 198.5 thousand sq.m., including six DCs in Moscow (total storage space of
123.7 thousand sq.m.), four DCs in St. Petersburg (total storage space of 41.3 thousand sq.m.),
one DC in Nizhniy Novgorod (storage space of 13.5 thousand sq.m.), one DC in Chelyabinsk
(6.6 thousand sq.m.), one DC in Yekaterinburg (7.0 thousand sq.m.), one DC in Perm (3.6
thousand sq.m.) and two in Lipetsk (2.8 thousand sq.m.). Six Moscow-based DCs include a
distribution center in Lobnya (the Moscow region) with the storage area of 32.0 thousand
sq.m., which is currently under reconstruction. 17.4 thousand sq.m. of this DC will become
operational by the end of October this year with the rest scheduled for opening during 2009.
Update on Karusel Integration
As it was announced by the Company earlier, X5 acquired operational control over Karusel
hypermarkets on 26 June 2008. By the end of the third quarter 2008 the Company made
substantial progress on Karusel integration and had:
− completed stock-takings;
− closed and re-launched all 23 acquired hypermarkets to change the IT systems and all
the store-related software;
− centralized HR and administrative functions, integrated the stores into respective
regional branches and closed down two Karusel head offices;
− centralized operations, including pricing and assortment management;
− centralized purchasing;
− integrated logistics in fresh product categories;
− integrated all the financial functions, including accounting, management and tax
planning.
The Company also launched the 24th of the acquired hypermarkets that operated in a test mode
at the time of the acquisition.
Liquidity Risk Management
X5 continues to carefully manage its liquidity position. This includes:
− prudent cash flow management with a particular focus on working capital;
− cost controls enhancement including optimization of staff costs;
− scale down of CapEx, including suspension of capital-intensive projects and
concentration on projects with shortest payback periods;
− gradual reduction of short-term debt;
− constant contact with the leading Russian and foreign banks to ensure that the Company
has available funding and sufficient committed credit facilities.
Revised Outlook for 2008
X5 Retail Group has revised its full year guidance for 2008 to take into account current
situation in the financial markets and in the country in general. While LFL and sales
expectations remain fundamentally unchanged, we revise our CapEx and store openings
outlook as we decided to defer certain projects in order to consolidate resources in the current
liquidity-constrained environment, reduce short-term debt exposure and ensure that we are well
positioned to capitalize from the ongoing decrease in real estate prices, lower construction
costs and emergence of attractive M&A opportunities. We also conservatively expect that
three hypermarkets initially planned for opening this year will open only in 2009 due to delays
on the developers’ side.
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