OREANDA-NEWS. On 18 April 2008 X5 Retail Group N.V, Russia's largest food retailer in terms of sales, published its audited IFRS results for the full year ended 31 December 2007.

FY 2007 Highlights
In accordance with its audited full year 2007 results X5 confirms:

• Net sales of USD 5,320 mln, an increase of 53%* year-on-year;
• Gross profit of USD 1,404 mln, an increase of 51% year-on-year; and
• EBITDA of USD 479 mln, an increase of 62% year-on-year.

X5’s audited net profit for 2007 totaled USD 144 mln, an increase of 41% year-on-year.
X5’s audited operating cash flow totaled USD 427 mln, an increase of 35% year-on-year.

Evgeny Kornilov, X5 Retail Group CFO, commented:

“Our strong operational performance in 2007, supported by rigorous working capital management, resulted in healthy cash flow generation, enabling the Company to finance almost half of its capital expenditure program from its own resources. These results also provide a solid foundation for the implementation of our ambitious expansion program throughout 2008 and beyond".

Balance Sheet – Key Trends and Developments
Non-Current Assets

At the end of 2007 PP&E and investment property amounted to USD 2,117 mln, an increase of 62% year-on-year. This increase is attributable to organic expansion and tactical M&A transactions closed during 2007.
At the end of 2007 goodwill totaled USD 2,934 mln versus USD 2,629 mln at the end of 2006. The majority of the amount reported at 31 December 2006 was associated with the reverse acquisition of Pyaterochka, while USD 305 mln increase in 2007 was generated from tactical acquisitions in the amount of USD 116 mln and FX revaluation adjustment in the amount of USD 189 mln.

Current Assets

Current assets increased by 36% to USD 862 mln. The increase was lower than revenue growth and was attributable to higher VAT and other taxes recoverable as well as an increase in inventories in line with sales growth.

Non-Current Liabilities

Non-current liabilities totaled USD 1,726 mln, an increase of 52% year-on-year, mainly due to higher amount of long-term outstanding debt (USD 1,465 mln as of 31 December 2007).  During 2007 X5 focused on optimization of its debt portfolio for the purpose of improving the Company’s financing terms and debt structure. As a result, at the end of 2007 over 85% of X5’s outstanding debt was long-term, while the effective interest rate was 7.1%.

Current Liabilities

Current liabilities grew 45% year-on-year to USD 1,552 mln. This increase is primarily explained by growth in trade and other accounts payable as X5 managed to improve its payment terms with suppliers and other counterparties in 2007.

Cash Flow from Operating Activities

Net cash from operating activities totaled USD 427 mln on the back of strong operating performance as well as working capital improvement.

The increase in trade and other accounts receivable is explained by growth in X5’s scale of business and, as a result, higher supplier bonuses and allowances.  The increase in inventories is explained by the same factor, however, going forward, as X5 continues to develop its logistics infrastructure and increase its levels of supply centralization, these initiatives should have positive impact on inventories turnover and, hence, the Company’s working capital.

The increase in trade accounts payable is a result of two key factors: higher volume of purchases from suppliers and better supplier terms reflecting an improvement of X5’s purchasing power.  The decrease in other accounts payable is mainly attributable to cancellation fees in respect of Pyaterochka’s Employee Stock Option Program (ESOP) in the amount of approximately USD 65 mln that were reported in the 2006 P&L but paid in 2007.

Cash Flow from Investing Activities

Net cash used in investing activities totaled USD 899 mln, as the Company continued to add selling space and invested in its distribution infrastructure development.

In total, X5 added 31% in net selling space during 2007. The total net selling area increased by 143.1 thousand sq.m. This takes into account 3.6 thousand sq.m. that were closed during the year (8 soft discounters and 2 supermarkets) and includes stores acquired through tactical M&A transactions. Net addition of stores totalled 249, of which 223 were in soft discount format, 23 were supermarkets and 3 were hypermarkets.

As a result, at 31 December 2007, X5 operated 868 company-managed stores (consisting of 674 soft discounters, 179 supermarkets, 14 compact hypermarkets and one full-size hypermarket store), with the total net selling space of 609.2 thousand sq. m.  During 2007 X5 also added net five distribution centers (DCs) (one DC in Moscow was closed), increasing its storage capacity by 78.1 thousand sq.m. As a result, at the end of 2007 the Group had 10 DCs with the total storage area of 143.7 thousand sq.m., including four DCs in Moscow (total storage space of 88.0 thousand sq.m.), three DCs in St. Petersburg (total storage space of 37.2 thousand sq.m.), one DC in Nizhniy Novgorod (storage space of 13.5 thousand sq.m.), one DC in Chelyabinsk (2.5 thousand sq.m.) and one DC in Yekaterinburg (2.5 thousand sq.m.).

A step-up in 2007 CapEx is explained by USD devaluation against RUR (9%), inflation in real estate and construction prices as well as the fact that a bigger than planned amount (about 20% of full year CapEx) was spent on stores to be opened in 2008 and further, including purchasing of landplots for future hypermarket construction.

During 2007 X5 optimized its debt portfolio and as a result decreased its cost of funding and improved its debt structure. The steps undertaken by the Company in 2007 to optimize its debt portfolio included ruble debt restructuring whereby X5 replaced three outstanding bonds previously issued by Pyaterochka and Perekrestok in the total amount of RUR 6 bln with one 7-year bond (puttable in 3 years) with an interest of 7.6% and a notional amount of RUR 9 bln (USD 352 mln). Additionally, X5 has replaced its previous syndicated loan with a USD 1.1 bln facility bearing interest of LIBOR + 225 basis points p.a. during the first year. Starting from the second year, spread over LIBOR on this facility will decrease to 200 bps or lower depending on the company’s Net Debt/EBITDA ratio. As a result of these measures, at the end of 2007 over 85% of X5’s outstanding debt was longterm, while the effective interest rate was 7.1%.