OREANDA-NEWS. December 4, 2012. X5 Retail Group N.V., (“X5” or the “Company”) Russia's largest retailer in terms of sales (LSE ticker: “FIVE”), today released the Company’s condensed consolidated interim financial statements for the three (Q3) and nine months (9M) ended 30 September 2012, in accordance with International Financial Reporting Standards.

Income Statement Highlights(1)(2)

USD mln

Q3 2012

Q3 2011

% change, y-o-y

9M 2012

9M 2011

% change,

y-o-y

Net sales

3,616.7

3,623.0

(0.2%)

11,475.4

11,489.8

(0.1%)

incl. Retail

3,610.4

3,610.7

(0.01%)

11,454.2

11,442.8

0.1%

Soft Discounters

2,374.8

2,261.2

5.0%

7,469.8

7,142.1

4.6%

Supermarkets

750.9

783.3

(4.1%)

2,445.8

2,524.3

(3.1%)

Hypermarkets

441.0

541.1

(18.5%)

1,425.8

1,694.4

(15.9%)

Convenience stores

39.8

25.1

58.9%

105.6

74.1

42.4%

Online(3)

3.9

-

n/a

7.1

7.8

(8.9%)

Gross profit

825.0

838.3

(1.6%)

2,682.5

2,698.1

(0.6%)

Gross profit margin, %

22.8%

23.1%

23.4%

23.5%

EBITDA

219.9

219.8

0.04%

774.2

785.8

(1.5%)

EBITDA margin, %

6.1%

6.1%

6.7%

6.8%

Operating profit

Operating profit margin, %

98.2

2.7%

116.1

3.2%

(15.4%)

436.7

3.8%

463.7

4.0%

(5.8%)

Net profit/(loss)

Net profit margin, %

12.1

0.3%

(2.1)

n/a

n/a

147.3

1.3%

168.2

1.5%

(12.4%)

Net sales reported in US Dollars decreased year-on-year (y-o-y) in Q3 and 9M 2012 by 0.2% and 0.1%, respectively, due to Russian Rouble (RUR)/US Dollar (USD) exchange rate differences*2

In Q3 and 9M 2012, X5’s net sales in RUR terms increased y-o-y by 10.2% and 8.0%, respectively, to RUR 116,085 million (mln) and RUR 356,866 mln, respectively, primarily due to an increase in soft discounters’ and supermarkets’ retail sales, which was partially offset by a decrease in hypermarkets’ retail sales.

The increase in RUR retail sales in both 2012 periods was due to organic store additions, positive performance of maturing stores added over the past two years and on-going promotional activities. The decrease in RUR retail sales from hypermarkets in both 2012 periods was the result of operational issues related to the on-going transformation of the format’s business model.

Gross profit margin in Q3 and 9M 2012 was 22.8% and 23.4%, respectively, a 30 basis point (bp) and 10 bp decrease y-o-y, respectively. The decrease in both periods was primarily due to inventory clean up at our distribution centers.

Selling, General and Administrative (SG&A) Expenses

USD mln

Q3 2012

Q3 2011

% change,

y-o-y

9M 2012

9M 2011

% change,

y-o-y

Staff costs

(290.0)

(318.8)

(9.0%)

(956.9)

(971.8)

(1.5%)

% of Net sales

8.0%

8.8%

8.3%

8.5%

Lease expenses

(145.9)

(145.9)

0.0 %

(441.8)

(428.6)

3.1 %

% of Net sales

4.0%

4.0%

3.9%

3.7%

Other store costs

(68.2)

(54.2)

26.0%

(191.4)

(158.4)

20.8%

% of Net sales

1.9%

1.5%

1.7%

1.4%

D&A

(121.7)

(103.7)

17.3%

(337.5)

(322.1)

4.8 %

% of Net sales

3.4%

2.9%

2.9%

2.8%

Utilities

(71.2)

(70.4)

1.2 %

(243.0)

(244.7)

(0.7%)

% of Net sales

2.0%

1.9%

2.1%

2.1%

Third party services

(27.7)

(26.9)

3.0 %

(85.7)

(82.7)

3.6%

% of Net sales

0.8%

0.7%

0.7%

0.7%

Other expenses

(45.8)

(45.3)

1.0 %

(117.9)

(163.3)

(27.8%)

% of Net sales

1.3%

1.3%

1.0%

1.4%

Total SG&A

% of Net sales

(770.5)

21.3%

(765.1)

21.1%

0.7%

(2,374.2)

20.7%

(2,371.6)

20.6%

0.1 %

In Q3 2012, SG&A expenses, as a percentage of net sales, increased y-o-y by 20 bp to 21.3%.

Staff costs, as a percentage of net sales, decreased 80 bp y-o-y in Q3 2012, to 8.0% primarily driven by a reduction in bonus accruals (86 bp), the reclassification of security and maintenance staff expenses from staff costs to other store costs (40 bp), and a decrease in the social tax rate from 34% to 30%, effective from 1 January 2012 (19 bp). These decreases were partially offset by a y-o-y increase of 45 bp in Q3 2012 employee salaries and wages as a percentage of net sales as well as a 20 bp decrease in income recognized on the re-measurement of the Company’s long term incentive plans at 30 September 2012, compared to the corresponding period of 2011.

The Company’s Q3 2012 lease expenses, as a percentage of net sales, remained unchanged y-o-y at 4.0% primarily due to an increase in store openings and lower sales densities in Q3 2012, while lease expenses in Q3 2011 were impacted by store closures related to the Kopeyka integration. As a percentage of X5’s total real estate portfolio, leased space accounted for 54.0% at 30 September 2012 compared to 52.9% in the corresponding period of 2011.

In Q3 2012, other store costs increased, as a percentage of net sales, by 40 bp y-o-y to 1.9% mainly due to the reclassification of security and maintenance staff expenses from staff costs to other store costs.

Utilities expense, as a percentage of net sales, increased by 10 bp y-o-y in Q3 2012 to 2.0% due to an increase in tariffs, which was partially offset by cost-saving initiatives, such as water and electricity consumption meters, which provide greater cost control.

Third party services expense in Q3 2012 increased, as a percentage of net sales, by 10 bp y-o-y due to an increase in advertising activity.

As a result of the factors discussed above, EBITDA in Q3 2012 totaled USD 220 mln, or 6.1% of net sales.

Non-Operating Gains and Losses

USD mln

Q3

2012

Q3

2011

% change, y-o-y

9M

2012

9M

2011

% change,

y-o-y

Operating profit

98.2

116.1

(15.4%)

436.7

463.7

(5.8%)

Finance costs (net)

(82.7)

(66.4)

24.5%

(237.7)

(219.8)

8.1%

Net FX result

(1.2)

(52.5)

(97.7%)

(1.7)

(15.9)

(89.4%)

Share of gain/(loss) of associates

0.04

-

n/a

(0.1)

-

n/a

Profit/(Loss) before tax

14.4

(2.8)

n/a

197.2

228.0

(13.5%)

Income tax (expense)/benefit

(2.2)

0.7

n/a

(49.9)

(59.8)

(16.5%)

Net profit/(loss)

12.1

(2.1)

n/a

147.3

168.2

(12.4%)

Net profit margin, %

0.3%

n/a

1.3%

1.5%

Net finance costs in Q3 2012 increased by 24.5% y-o-y in USD terms, and 36.8% in RUR terms, primarily due to an increase in short-term debt and interest rates. The weighted average effective interest rate on X5’s total debt for 9M 2012 increased to 8.5% per annum from 7.7% per annum for 9M 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.

In 9M 2012, X5’s effective tax rate was 25.3% compared to 26.2% in the corresponding period of

2011. The Russian statutory income tax rate for both periods was 20%. The difference between X5’s effective and statutory tax rates is primarily due to certain non-deductible expenses.

Consolidated Cash Flow

USD mln

Q3

Q3

% change,

9M

9M

% change,

2012

2011

y-o-y

2012

2011

y-o-y

Net cash flows generated from operating activities

131.4

308.6

(57.4%)

123.0

317.9

(61.3%)

Net cash from operating activities before changes in working capital

221.9

224.4

(1.1%)

786.7

815.2

(3.5%)

Change in working capital

24.3

181.0

(86.6%)

(301.5)

(180.6)

66.9%

Net interest and income tax paid

(114.9)

(96.9)

18.6%

(362.2)

(316.7)

14.4%

Net cash used in investing activities

(195.4)

(226.6)

(13.8%)

(570.3)

(496.3)

14.9%

Net cash generated from/(used in) financing activities

113.4

(89.1)

n/a

270.5

31.7

753.6%

Net increase/(decrease) in cash & cash equivalents

49.4

(7.1)

n/a

(176.7)

(146.8)

20.4%

In Q3 2012, net cash flows generated from operating activities totaled USD 131 mln compared to USD 309 mln in the corresponding period of 2011. The decrease was primarily due to changes in working capital and to a lesser degree an increase in interest paid in Q3 2012 due to the reasons mentioned in the “Non-Operating Gains and Losses” section.

The working capital deficits in Q3 2012 and 2011 were primarily due to increases in trade and other accounts payable. We generally operate with a working capital deficit in the second half of the year due to the seasonal impact of the Q4 holidays on inventory and accounts payable.

Net cash flows generated from operating activities in 9M 2012 amounted to USD 123 mln compared to USD 318 mln in 9M 2011. The decrease was due primarily to changes in working capital and the increase in interest expense in 9M 2012, due to the reasons mentioned above.

Net cash used in investing activities totaled USD 195 mln and USD 570 mln in Q3 and 9M 2012, respectively, compared to USD 227 mln and USD 496 mln, respectively, for the corresponding periods in 2011 and generally consisted of payments for property, plant and equipment. These capital expenditures were primarily related to new store growth as well as the remodeling of

existing stores, which aggregated to approximately 91% and 76% of investments in Q3 and 9M

2012, respectively.

Net cash generated from financing activities in Q3 and 9M of 2012 totaled USD 113 mln and USD 271 mln, respectively, and was related to short-term credit facilities drawn to finance working capital requirements.

Liquidity Update

USD mln

30-Sep-12

% in total

30-Jun-12

% in total

31-Dec-11

% in total

Total debt

4,036.8

3,691.4

3,610.0

Short-term debt

1,404.8

34.8%

1,170.1

31.7%

913.2

25.3%

Long-term debt

2,632.0

65.2%

2,521.3

68.3%

2,696.9

74.7%

Net debt/(net cash)

3,814.3

3,525.3

3,225.0

Denominated in U SD

0.0

n/a

0.0

n/a

(9.5)

n/a

Denominated in RUR

3,814.3

100.0%

3,525.3

100.0%

3,234.5

100.0%

FX, End of Period

30.92

32.82

32.20

Net debt/EBITDA(1)

3.40x

3.40x

3.13x

At 30 September 2012, the Company’s total debt amounted to USD 4,037 mln (at RUR exchange rate of 30.92), of which 34.8% was short-term debt (USD 1,405 mln) and 65.2% long-term debt (USD 2,632 mln).

At 30 September 2012, the Company had access to RUR 77.4 billion (USD 2.5 billion) in undrawn credit lines with major Russian and international banks.

Effect of RUR/USD Exchange Rate Movements on the Presentation of X5's Results

X5’s operational currency is the Russian Rouble (RUR), while the Company's presentation currency is the U.S. Dollar (USD). As the RUR/USD exchange rate has substantially changed in the past twelve months, comparisons of the Company’s financial results, either with the corresponding period a year ago (for income statement) or with the beginning of the year (for statement of financial position), have been substantially affected by these movements:

• Comparisons of income statement figures with respective period last year reflect a negative translational effect from RUR/USD rate movements, resulting in a difference between y-o-y change in RUR and the respective change in USD of approximately 8% for 9M 2012. For reference, to translate the Company’s income statement from RUR to USD for presentation purposes, the Company applied a RUR/USD rate of 31.10 for 9M 2012 (average for the period) and a RUR/USD rate of 28.77 for 9M 2011 (average for the period).

• Comparison of the statement of financial position at 30 September 2012 to the statement of financial position at 31 December 2011 reflects a positive translational effect from the RUR/USD exchange rate movement, resulting in a difference between the change in RUR and the respective change in USD of approximately 4%. For reference, to translate the statement of financial position from RUR to USD for presentation purposes, the Company applied a RUR/USD exchange rate of 30.92 at 30 September 2012 and RUR/USD exchange rate of 32.20 at 31 December 2011.