X5 1H 2011 net profit climbs on like for like jump and expansion

Russian retail group, X5, has posted a1H 2011 net profit of $170 million under IFRS.

The 1H net profit is up 64% year on year, with 1H EBITDA rising 42% year on year to $566 million, as sales climbed 52% year on year in US dollar terms to $7.867 billion. The 1H figures included a 195% year on year increase in 2Q net profit to $73 million, as 2Q 2010 EBITDA rose 29% year on year to $284.9 million, on the back of a 52% year on year jump in 2Q net sales to $4.021 billion.X5 attributed the sales growth to an 11% increase in like for like sales, with a 16% increase from organic store expansion and a 17% contribution from its Kopeyka stores. X5 Retail Group CEO Andrei Gusev, said that a successful focus on operating efficiency and sustainable network expansion had driven strong group results “We continue to execute on our priorities for strengthening margins, driving organic growth and integrating Kopeyka. In the second quarter of 2011, we successfully maintained X5’s price leadership while managing supplier inflation, which resulted in a solid gross margin of 23.5% and helped drive EBITDA margin of 7.1%. Stepped up expansion, LFL sales and the acquisition of Kopeyka drove top-line growth of 41% this quarter. Our organic expansion program is on track to meet the Company’s objectives of 540 new stores this year. In Q2 2011 we nearly doubled the number of new stores added compared to the second quarter last year. As of mid-August 2011 we have also re branded about 500 Kopeyka stores as X5 discounters plus a few supermarkets. We expect to complete the integration by the end of 2011 and deliver substantial synergies in 2012.”X5 Retail Group CFO, Kieran Balfe, says that despite the strong 1H performance increased expenditures stemming from the Kopeyka acquisition would continue to provide headwinds.“Our focus on efficiency and productivity programs helped to reduce staff costs year on year despite the Russian social tax rise. However, EBITDA performance was weighed down this quarter as we took lower sales from Kopeyka stores during the integration and re branding process, resulting in lower operating margin. In addition, Other Expenses rose substantially in part due to a doubtful debts provision we decided to take this quarter following a conservative assessment of receivables.  We are focused on strengthening cash generation through a combination of top-line growth, operational efficiency and working capital improvement. Net debt rose compared to last year due to the acquisition of Kopeyka, but we improved average interest rate in part by renegotiating Kopeyka’s debt on X5’s more favorable terms. Higher operating profit, reversal of negative forex effects and an improved effective tax rate resulted in a net profit of USD 73 milllion.”