Income Statement Highlights(1)
| USD mln | FY 2011 | FY 2010 | % change y-o-y |
|---|---|---|---|
| Net Sales | 15,455.1 | 11,280.5 | 37.0% |
| incl. Retail | 15,397.3 | 11,248.1 | 36.9% |
| Gross Profit | 3,679.0 | 2,628.8 | 40.0% |
| Gross Margin, % | 23.8% | 23.3% | |
| EBITDA | 1,130.2 | 843.6 | 34.0% |
| EBITDA Margin, % | 7.3% | 7.5% | |
| Operating Profit | 702.0 | 545.1 | 28.8% |
| Operating Margin, % | 4.5% | 4.8% | |
| Net Profit | 302.2 | 271.2 | 11.4% |
| Net Margin, % | 2.0% | 2.4% |
Net Sales & Gross Margin Performance
| USD mln | FY 2011 | FY 2010 | % change y-o-y |
|---|---|---|---|
| Net Sales | 15,455.1 | 11,280.5 | 37.0% |
| incl. Retail | 15,397.3 | 11,248.1 | 36.9% |
| Hypermarkets | 2,267.3 | 2,012.7 | 12.7% |
| Supermarkets | 3,358.2 | 2,737.2 | 22.7% |
| Soft Discounters | 7,840.9 | 6,199.8 | 26.5% |
| Convenience stores(2) |
101.8 | 61.2 | 66.5% |
| Online(3) | 7.8 | 20.3 | (61.6%) |
| Kopeyka(4) | 1,821.3 | 217.0 | 739.5% |
| Gross Profit | 3,679.0 | 2,628.8 | 40.0% |
| Gross Margin, % | 23.8% | 23.3% |
In 2011, X5 reported net sales of USD 15,455 mln, a year-on-year increase of 37.0% in USD terms or 32.6% in RUR terms. Gross retail sales increased by 32.0%, in RUR terms, driven by a 6.0% increase in like-for-like (LFL)(5) sales, a 12.1% increase from organic store expansion and a 13.9% contribution from acquired Kopeyka stores. Full year 2011 gross margin totaled 23.8%, a 50 basis point (bp) increase compared to 2010.
Selling, General and Administrative Expenses (SG&A)
| USD mln | FY 2011 | FY 2010 | % change y-o-y |
|---|---|---|---|
| Staff Costs | (1,294.3) | (1,002.1) | 29.2% |
| % of Net Sales | 8.4% | 8.9% | |
| Lease Expenses | (565.4) | (372.1) | 52.0% |
| % of Net Sales | 3.7% | 3.3% | |
| Other Store Costs | (211.7) | (151.0) | 40.1% |
| % of Net Sales | 1.4% | 1.3% | |
| D&A | (428.3) | (298.5) | 43.5% |
| % of Net Sales | 2.8% | 2.6% | |
| Utilities | (326.8) | (214.3) | 52.5% |
| % of Net Sales | 2.1% | 1.9% | |
| Third Party Services | (110.7) | (99.7) | 11.0% |
| % of Net Sales | 0.7% | 0.9% | |
| Other Expenses | (234.1) | (86.6) | 170.3% |
| % of Net Sales | 1.5% | 0.8% | |
| Total SG&A | (3,171.2) | (2,224.4) | 42.6% |
| % of Net Sales | 20.5% | 19.7% |
In 2011, SG&A expenses, as a percentage of net sales, increased by 80 bp year-on-year to 20.5% primarily due to the Kopeyka integration during 2011. The integration process required the temporary closing of stores for rebranding to the Pyaterochka and Perekrestok formats, which put pressure on SG&A margins as we continued to incur staff costs, lease expenses, utilities and other expenses at these stores during rebranding.
Staff costs, as a percentage of net sales, decreased 50 bp year-on-year in 2011, to 8.4%. The decrease was primarily driven by income recognized on the Employee Stock Option Plan (ESOP) resulting from the re-measurement of the associated ESOP liability at 31 December 2011, compared to an expense recognized on the ESOP in the corresponding period of 2010, and to a lesser degree productivity initiatives, both of which helped mitigate increases in the social tax rate and one-off costs associated with the integration of Kopeyka.
The Company’s 2011 lease expenses, as a percentage of net sales, rose 40 bp year-on-year to 3.7% due to an increase in leased space as a percentage of our real estate portfolio. As a percentage of X5’s total real estate portfolio, leased space accounted for 53.6% at 31 December 2011 compared to 51.6% in the corresponding period of 2010.
In 2011, other general and administrative expenses increased by 75 bp, as a percentage of net sales, to 1.5% primarily due to the provision of USD 59.3 mln for impairment of trade and other accounts receivable. The provision was created in accordance with the Company’s accounting policies and after a review of these policies X5 believes it has suffi cient controls in place to mitigate the need for future impairments.
As a result of the factors discussed above, EBITDA in 2011 totaled USD 1,130 mln, or 7.3% of net sales.
Non-Operating Gains and Losses
| USD mln | FY 2011 | FY 2010 | % change y-o-y |
|---|---|---|---|
| Operating Profit | 702.0 | 545.1 | 28.8% |
| Finance Costs (Net) | (297.7) | (146.2) | 103.6% |
| Net FX Result | 0.8 | (13.0) | n/a |
| Share of Income of Associates |
- | 0.4 | n/a |
| Profit before Tax | 405.1 | 386.3 | 4.9% |
| Income Tax Expense | (102.9) | (115.1) | (10.6%) |
| Net Profit | 302.2 | 271.2 | 11.4% |
| Net Margin, % | 2.0% | 2.4% |
Finance Costs
Net fi nance costs for 2011 increased 103.6% year-on-year in USD terms, and 97.0% in RUR terms, due to an increase in our average borrowings as a result of the fi nancing of the acquisition of Kopeyka. The effective weighted average interest rate on X5’s total debt for the full year 2011 was approximately 7.7% per annum compared to approximately 7.0% per annum for the corresponding period in 2010. As at the end of 2011, the Company’s long-term debt is 100% denominated in Russian Roubles.
Foreign Exchange (FX) Result
The Company posted a USD 0.8 mln net FX gain for 2011. This was the net effect of FX gains in Q1, Q2 and Q4 2011, which was off set by a FX loss of USD 53 mln in Q3 2011 due to the sharp movement in the RUR/USD exchange rate. This is a non-cash item, resulting from revaluation of the Company’s long-term USDdenominated debt and the ESOP. In Q4 2011, X5 fully refinanced its debt portfolio into Russian Roubles, reducing the impact of future exchange rate volatility on X5’s reported financial results.
Income Tax
In 2011, X5 reported income tax expense of USD 103 mln. The effective tax rate decreased in 2011 to 25.4%, as compared to 29.8% for 2010, due to tax planning initiatives implemented throughout the year. Historically, X5’s effective tax rate is higher than the Russian statutory tax rate of 20.0% as inventory shrinkage, ESOP costs and FX results are only partially tax deductible in Russia.
(1)Please note that in this and other tables of this Annual Report, immaterial deviations in the calculation of percentage changes, subtotals and totals are explained by rounding. Kopeyka results are consolidated from 1 December 2010.
(2)Consolidated from 1 April 2010.
(3)Online business was sold on 29 April 2011.
(4)Consolidated from 1 December 2010.
(5)Like-for-like (LFL) comparisons of retail sales between two periods are comparisons of gross 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 twelve full months preceding the beginning of the last month of the reporting period. Their sales are included in LFL calculation starting from the fi rst day of the month following the month of the store opening.