X5 Continues to Implement its Strategy of Franchisee Program Development
18 Jun 2008
Amsterdam, 18 June 2008 - X5 Retail Group N.V. (“X5” or the “Company”), Russia's largest
food retailer in terms of sales (LSE ticker: “FIVE”), announces that it has increased its stake in
Pyaterochka store chain in Urals and signed a new franchising agreement to begin roll-out of
Pyaterochka stores in Ivanovo and Kostroma regions.
• In accordance with the agreement between X5 and the former owners of Pyaterochka
franchisee in Chelyabinsk, X5 has purchased further 24% in the company that operates
Pyaterochka stores in Yekaterinburg and Chelyabinsk for approximately USD 11 million (the
chain’s sales for 2007 exceeded USD 160 million). As a result, X5’s stake in the business
increased to 75%. As per the agreement, X5 has an option to purchase the remaining 25% in
2009. Purchase price will be determined on the basis of the chain’s sales for 2008.
• X5 has signed a new franchising agreement with the Prodmag company (Ivanovo) (hereinafter
– “Prodmag”) to develop a chain of Pyaterocka stores in the Ivanovo and Kostroma regions.
In accordance with the agreement, Prodmag is obliged to open no fewer than 30 Pyaterochka
stores in the Ivanovo and Kostroma regions within two years. Already by the end of 2008 the
number of operating Pyaterochka stores in these regions is expected to be close to 20.
In addition to the franchising agreement, the parties have signed a call option agreement
enabling X5 to buy-out the chain of Pyaterochka stores opened by Prodmag in the Ivanovo and
Kostroma regions. The option is exercisable in 2011, which is in line with the Company’s
planned timing for entering these regions. Purchase price will depend on the chain’s
performance in 2010.
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For Information:
In accordance with franchising agreements, X5 Retail Group provides its counterparties with,
among other things, the right to use its brand name, brand book, business development &
operational know-how, as well as software. In its turn, franchising counterparties make an
advance payment for exclusivity rights and then pay to the Company a monthly royalty fee for
the use of the brand name and management processes.
Please note that X5 does not consolidate its franchisees’ store sales, while royalty fees from
franchisees are reported as other revenue. The number of franchisees’ stores is also reported
separately from Company-managed stores.
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