STRONG GROWTH OUTLOOK FOR RUSSIAN RETAIL Despite trading down trends in 2009, people continued to buy basic necessities and other items for enjoyable and healthy lifestyles. Looking to the future, we believe the Russian consumer growth story remains intact. We see substantial opportunities for strengthening X5’s position and growing the penetration of the modern retail channel as a share of the overall market.
Attractive stores offering an abundance of choice are one of the most visible signs of the country’s economic transformation, and ordinary Russians with rising incomes have seen dramatic improvements in their quality of life as a result. The Russian retail market also remains extremely fragmented. Modern food retailing accounts for approximately one third of the market, and the top ten retailers account for just 15% of sales. Measured another way, X5’s national market share is approximately 4% despite its number one position.
The 2009 crisis environment was a test of X5’s resilience – but it created new opportunities as well. With many retailers weakened by economic downturn, X5 responded aggressively to strengthen its leadership. We also increased our investment discipline, putting a strict limit on capital expenditures even as we significantly exceeded our expansion objectives for the year.
X5 is planning to sustain strong growth in 2010 through like-for-like sales increases and stepped up new store openings. Assuming stabilization of the macro-economic environment, X5 expects to deliver net sales growth comparable to the 2009 pro-forma level.
SELECTIVE EXPANSION
AND STRENGTHENED LEADERSHIP IN 2009 The financial and economic crisis has significantly impacted smaller and weaker retail chains, resulting in even greater prospects for strong market participants. X5 seized unique opportunities in 2009 to further increase market share, obtain high quality store premises in strategically important regions, and acquire smaller retail chains at attractive valuations.
In 2009, X5 continued to add selling space both organically and by acquisition. We added 271 stores on a net basis, bringing X5’s total store count to 1,372. We shifted our real estate strategy to leasing new locations to take advantage of lower rents and availability of unused retail space – and also accelerated our distribution network expansion plans due to favourable market conditions.
PRUDENT FINANCIAL MANAGEMENT
AND DISCIPLINED GROWTH X5 aims to maximise cash flows by growing the top-line, controlling costs and managing working capital. We prioritise investment opportunities to focus on projects with the best strategic fit and optimal returns. While we continue to review potential acquisitions of retail chains and assets, our approach is selective, price-conscious and risk-averse.
In 2009, we set a capital expenditure limit of RUR 14 billion (approximately USD 450 million). While remaining within this limit, we significantly exceeded our new store openings plan, adding organically 189 stores for the year, and in addition, acquired 82 Paterson stores at an attractive price.
The Company also managed its liquidity prudently to mitigate short-term volatility while optimising our debt structure to improve the maturity profile. And finally, we secured a “forward-start” credit facility from Sberbank, which guarantees the refinancing of USD 1.1 billion of syndicated loan maturing in 2010, and increases our flexibility in defining strategic goals and executing future investment plans.
In 2010, X5 plans to accelerate openings of new stores, particularly in soft discounter format, with selective expansion in hypermarkets and supermarkets. Our objective is to open between 200 and 250 soft discounters, approximately 15 supermarkets and between seven and 10 hypermarkets. We will also continue to invest in logistics and other infrastructure projects. Our CapEx limit for the year is RUR 18 billion (approximately USD 600 million), maintaining investment levels within operating cash flow generation capacity.