X5 REPORTS 17.6% REVENUE GROWTH IN Q3 2018,

EBITDA MARGIN RiSEs TO 7.4%

ü X5 delivered revenue growth of 17.6% year-on-year (y-o-y) on the back of positive like-for-like (LFL) sales and strong selling space expansion.

ü Gross margin improved by 91 b.p. y-o-y to 24.6% in Q3 2018, despite tough external environment, driven by y-o-y commercial margin improvement as a result of a stable share of promo and the format mix effect from proportionally more sales at Perekrestok, as well as successful measures by management to control shrinkage levels.

ü Low food inflation as well as non-food inflation exceeding food inflation, drove up SG&A expenses (excl. D&A&I) as a percentage of revenue by 53 b.p. y-o-y to 17.9%.

ü EBITDA totalled RUB 27,689 mln in Q3 2018, while the EBITDA margin grew by 36 b.p. to 7.4% year-on-year (y-o-y).

ü Net debt/EBITDA ratio declined to below the Company's upper annual target of 2.0x as of 30 September 2018, reaching 1.99x.

Amsterdam, 24 October 2018 - X5 Retail Group N.V. ("X5" or the "Company"), a leading Russian food retailer (LSE and MOEX ticker: FIVE), today released the Company's unaudited condensed consolidated interim financial information for the three months (Q3) and nine months (9M) ended 30 September 2018, in accordance with International Financial Reporting Standards as adopted by the European Union.

Profit and loss statement highlights⁽¹⁾

(1)  Please note that in this and other tables, and in the text of this press release, immaterial deviations in the calculation of % changes, subtotals and totals are due to rounding.

(2)  Net retail sales represent revenue from the operations of X5-managed stores net of VAT. This number differs from revenue, which includes proceeds from wholesale operations, direct franchisees (royalty payments) and other revenue.

Net retail sales

Total net retail sales growth reached 17.6% y-o-y in Q3 2018, driven by:

§ 0.5% increase in LFL sales; and

§ 17.1% y-o-y increase in net retail sales from net new space, resulting from a 19.6%
y-o-y rise in selling space.

Selling space by format, square meters (sq. m) 

Q3 & 9M 2018 LFL⁽⁴⁾ store performance by format, % change y-o-y

In Q3 2018, LFL sales performance was positive at 0.5% y-o-y.

For more details on net retail sales growth please refer to X5's Q3 2018 Trading Update.

Gross profit margin

The gross profit margin increased by 91 b.p. y-o-y to 24.6% in Q3 2018 due to improvement in the commercial margin as a result of a stable share of promo, a more balanced approach to promo and the format mix effect from proportionally more sales at Perekrestok, which has a higher commercial margin than the X5 average. Management initiatives focused on reducing shrinkage levels also had a positive impact on gross profit margin.

(3)  Including Perekrestok Express

(4)  LFL comparisons of retail sales between two periods are comparisons of retail sales in local currency (including VAT) generated by the relevant stores. The stores that are included in LFL comparisons are those that have operated for at least 12 full months. Their sales are included in the LFL calculation starting from the day of the store's opening. We include all stores that fit our LFL criteria in each reporting period.

Selling, general and administrative (SG&A) expenses (excl. D&A&I)

In Q3 2018, SG&A expenses excluding D&A&I, LTI and share-based payments as a percentage of revenue increased by 75 b.p. to 17.9%, mainly due to increased staff costs, lease expenses and utilities expenses.

Staff costs (excluding LTI and share-based payments) as a percentage of revenue increased by 23 b.p. y-o-y in Q3 2018 to 7.8%, mainly due to nominal wage growth outpacing shelf inflation and negative operating leverage.

Lease expenses as a percentage of revenue in Q3 2018 increased by 29 b.p. y-o-y mainly due to the growing share of leased space in X5's total real estate portfolio (75% as of 30 September 2018, compared to 72% as of 30 September 2017) as well as lease inflation rising faster than food inflation.

Utilities costs as a percentage of revenue in Q3 2018 increased by 31 b.p. y-o-y to 2.0% due to tariffs growing faster than food inflation.

Other store costs as a percentage of revenue in Q3 2018 decreased by 11 b.p. mainly due to lower security costs.

LTI and share-based payments expenses amounted to RUB 97 mln in Q3 2018. Based on the decision of Nomination and Remuneration committee in September, the Company released the LTI provisions that had been created for programme participants who have left the Company.

In 9M 2018, SG&A expenses excluding D&A&I, LTI and share-based payments as a percentage of revenue increased by 115 b.p. to 17.6%, mainly due to increased staff costs, lease expenses, utilities and other expenses.

(5)  As a result of IFRS 9 adoption the Company changed presentation of its condensed consolidated interim statement of profit or loss by reclassification of net impairment losses on financial assets out of selling, general and administrative expenses.

Lease/sublease and other income

As a percentage of revenue, the Company's income from lease, sublease and other operations changed immaterially in Q3 2018 compared to Q3 2017, totalling 0.7%.

EBITDA and EBITDA margin

As a result of the factors discussed above, EBITDA in Q3 2018 increased to RUB 27,689 mln, or 7.4% of revenue, compared to RUB 22,392 mln, or 7.0% of revenue in Q3 2017.

In 9M 2018, EBITDA totalled RUB 77,827 mln, decreasing as a percentage of revenue to 7.0% compared to RUB 72,392 mln, or 7.8% of revenue in 9M 2017.

D&A&I

Depreciation, amortisation and impairment costs in Q3 2018 totalled RUB 12,322 mln, (RUB 34,989 mln for 9M 2018), increasing as a percentage of revenue by 29 b.p. y-o-y to 3.3% (for 9M 2018: up by 26 b.p. to 3.2%). This was due to continuous changes in the composition of buildings, with a growing share of fixtures and fittings versus foundation and frame driven by the growing share of leased space in X5's total real estate portfolio.

Non-operating gains and losses

(6)  Adjusted EBITDA is EBITDA before costs related to the LTI programme, share-based payments and other one-off remuneration payments expense.

Net finance costs in Q3 2018 increased by 11.7% y-o-y to RUB 4,512 mln. The effect from the higher level of gross debt as of 30 September 2018 compared to 30 September 2017 was partially offset by the declining interest rates in Russian capital markets and actions undertaken by X5 to minimise interest expenses.

In Q3 2018 income tax expense increased by 80.7% y-o-y to RUB 2,728 mln mainly driven by accrual of deferred tax on investments associated with potential dividend payments and the low base of Q3 2017 due to one-off adjustments. X5's effective tax rate for 9M 2018 totalled 24.0%.

Consolidated cash flow statement highlights

In Q3 2018, the Company's net cash from operating activities before changes in working capital increased y-o-y by RUB 5,385 mln, or 24.2%, and totalled RUB 27,666 mln.

The lower change in working capital of RUB 8,475 mln in Q3 2018 compared to RUB 9,921 mln in Q3 2017 was mainly due to trade accounts payable driven by the slower pace of business expansion. This was partially offset by the decrease in inventories in Q3 2018 compared to the growth in Q3 2017 driven by decelerating growth of purchases due to the slower pace of business expansion and assortment optimisation.

Net interest and income tax paid in Q3 2018 increased by RUB 2,485 mln, or 45.1%, y-o-y and totalled RUB 7,994 mln. The rise in interest paid was in line with the higher level of gross debt y-o-y. Income tax paid grew due to the higher level of profit before tax in Q3 2018 and the lower level of advance profit tax payments in Q3 2017.

As a result, in Q3 2018, net cash flows generated from operating activities totalled RUB 28,147 mln, compared to RUB 26,693 mln in Q3 2017.

In 9M 2018, net cash flows generated from operating activities totalled RUB 55,779 mln, compared to RUB 37,598 mln for the same period of 2017 mainly due to lower changes in working capital.

Net cash used in investing activities, which generally consists of payments for property, plant and equipment, decreased to RUB 19,533 mln in Q3 2018 from RUB 23,135 mln in Q3 2017, and reflected lower expenditures on store expansion. X5 added 208.9 th. sq. m. of selling space in Q3 2018, a 35.4% decrease compared to the same period last year. For 9M 2018, net cash used in investing activities rose to RUB 68,986 mln from RUB 59,910 mln in 9M 2017 due to payments for M&A deals in H1 2018.

Net cash used in financing activities totalled RUB 7,012 mln in Q3 2018 compared to net cash generated from financing activities of RUB 1,375 mln in Q3 2017. This was related to growth of net cash flow from operating activities and a decrease in gross debt due to repayments during the period. In 9M 2018, net cash generated from financing activities decreased to RUB 1,015 mln from RUB 15,830 mln in 9M 2017.

Liquidity update

As of 30 September 2018, the Company's total debt amounted to RUB 217,184 mln and comprised 25.8% short-term debt and 74.2% long-term debt. The Company's net debt/EBITDA ratio declined to 1.99x as of 30 September 2018 from 2.18x as of 30 June 2018.

The Company's debt is 100% denominated in Russian roubles.

As of 30 September 2018, the Company had access to RUB 303,048 million in available credit limits with major Russian and international banks.

Note to Editors:

X5 Retail Group N.V. (LSE and MOEX: FIVE, Fitch - 'BB+', Moody's - 'Ba2', S&P - 'BB', RAEX - 'ruAA') is a leading Russian food retailer. The Company operates several retail formats: the chain of proximity stores under the Pyaterochka brand, the supermarket chain under the Perekrestok brand, the hypermarket chain under the Karusel brand and Express convenience stores under various brands.

As of 30 September 2018, X5 had 13,685 Company-operated stores. It has the leading market position in both Moscow and St Petersburg and a significant presence in the European part of Russia. Its store base includes 12,822 Pyaterochka proximity stores, 712 Perekrestok supermarkets, 92 Karusel hypermarkets and 59 convenience stores. The Company operates 40 DCs and 3,293 Company-owned trucks across the Russian Federation.

For the full year 2017, revenue totalled RUB 1,295,008 mln (USD 22,193 mln), Adjusted EBITDA reached RUB 99,131 mln (USD 1,699 mln), and adjusted net profit for the period amounted to RUB 33,768 mln (USD 579 mln). In 9M 2018, revenue totalled RUB 1,109,582 mln (USD 18,061 mln), adjusted EBITDA reached RUB 79,484 mln (USD 1,294 mln), and net profit amounted to RUB 22,400 mln (USD 365 mln).

X5's Shareholder structure is as follows: CTF Holdings S.A. - 47.86%, Intertrust Trustees Ltd (Axon Trust) - 11.43%, X5 Directors - 0.07%, treasury shares - 0.01%, Shareholders with less than 3% - 40.63%.

Forward looking statements:

This announcement includes statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the fact that they do not only relate to historical or current events. Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "expected", "plan", "goal", "believe", or other words of similar meaning.

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, a number of which are beyond X5 Retail Group N.V.'s control. As a result, actual future results may differ materially from the plans, goals and expectations set out in these forward-looking statements.

Any forward-looking statements made by or on behalf of X5 Retail Group N.V. speak only as of the date of this announcement. Save as required by any applicable laws or regulations, X5 Retail Group N.V. undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this document that may occur due to any change in its expectations or to reflect events or circumstances after the date of this document.

Elements of this press release contain or may contain inside information about X5 Retail Group N.V. within the meaning of Article 7(1) of the Market Abuse Regulation (596/2014/EU).