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9M 2010 Results

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9M 2010 Results

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9M 2010 Results

  1. 1. 9M 2010 Results
  2. 2. 2 Disclaimer The materials contained in this presentation (“Presentation”) have been prepared solely for the use in this Presentation and have not been independently verified. No representation, warranty or undertaking, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. None of OJSC “Magnit” (“the Company”), nor any shareholder of the Company, nor any of its or their affiliates, advisors or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this Presentation or its contents or otherwise arising in connection with the Presentation. No part of this Presentation, nor the fact of its distribution, should form the basis of, or be relied on in connection with, any contract or commitment or investment decision whatsoever. This Presentation is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would require any registration or licensing within such jurisdiction. Matters discussed in this Presentation may constitute forward-looking statements. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The words “believe,” “expect,” “anticipate,” “intends,” “estimate,” “forecast,” “project,” “will,” “may,” “should” and similar expressions identify forward-looking statements. Forward-looking statements include statements regarding: strategies, outlook and growth prospects; future plans and potential for future growth; liquidity, capital resources and capital expenditures; growth in demand for products; economic outlook and industry trends; developments of markets; the impact of regulatory initiatives; and the strength of competitors. The forward-looking statements in this Presentation are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management’s examination of historical operating trends, data contained in the Company’s records and other data available from third parties. These assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control and it may not achieve or accomplish these expectations, beliefs or projections. In addition, important factors that, in the view of the Company, could cause actual results to differ materially from those discussed in the forward-looking statements include the achievement of the anticipated levels of profitability, growth, cost and its recent acquisitions, the timely development of new projects, the impact of competitive pricing, the ability to obtain necessary regulatory approvals, and the impact of general business and global economic conditions. Past performance should not be taken as an indication or guarantee of future results, and no representation or warranty, express or implied, is made regarding future performance. Neither the Company, nor any of its agents, employees or advisors intend or have any duty or obligation to supplement, amend, update or revise any of the forward-looking statements contained in this Presentation or to update or to keep current any other information contained in this Presentation. The information and opinions contained in this document are provided as at the date of this Presentation and are subject to change without notice. By reviewing this Presentation and/or accepting a copy of this document, you acknowledge and agree to be bound by the foregoing.
  3. 3. 3 Table of Contents 1. Introduction 2. Business Overview - Convenience Format - Hypermarket Format - General Overview 3. Financial Overview 4. Summary Conclusions
  4. 4. 4 Our History 1994 –– 1998 Early years: wholesale distribution Foundation of wholesale business by Mr. Galitskiy Tander becomes one of the major distributors of household products and cosmetics in Russia Decision to expand into food retail market First 1998 –– 1999 Entrance into food retail convenience store opened in Krasnodar Experiments with format Stores merged into Magnit discounter retail chain 2001 –– 2005 Extensive roll-out to capture market share Rapid regional roll-out: 1,500 stores by the end of 2005 Adoption of IFRS Strict financial control Performance-linked compensation 2006 –– 2009 crisis Continued growth with focus on margin expansion and multi-format Leading food retailer in Russia by number of stores IPO in 2006 Independent director elected to the Board Audit Committee established Corporate governance rules established to comply with best practice SPO – 2008, 2009 24 hypermarkets opened in 2007-2009 636 convenience stores opened in 2009 (the total store base is 3,228 as of December 31, 2009) 2010 Strong performer compared to peers Flexible pricing and assortment matrix adjustable to volatile disposable income Large investment programme for 2010: plan to make Capital expenditures of over $1 bn Plan to open up to 800 convenience stores and up to 30 hypermarkets during 2010 Ongoing efficiency improvement
  5. 5. 02-09 CAGR: 36% 3 600 3 000 2 400 1 800 1 200 600 Source: Company 3 693 ($MM) (%) 4 000 3 000 2 000 1 000 5 Magnit Today Leading market position with broad geographic coverage Focus on cities and towns with population under 500,000 4,14% 2,81% 4,93% 6,78% 13,91% 18,84% 25% 20% 15% 10% 5% 0% -5% -10% FY2007- FY2006 FY2008- FY2007 FY2009- FY2008 1Q2010- 1Q2009 1H2010- 1H2009 9M2010- 9M2009 people Strong platform for rapid hypermarket operations expansion Efficient logistics system Sophisticated IT systems Experienced management team Strong financial performance Number of Stores, eop Financial Performance 21,7% 23,5% 22,3% 5 348 5 354 5 438 7,5% 9,5% 8,1% 5,1% 3,5% 4,4% 0 2008 2009 9M 2010 24% 16% 8% 0% Sales Gross Margin EBITDA Margin NI Margin Source: Company Source: Company, IFRS accounts Sales, Lfl Growth, Rub terms 3 204 3 658 2 197 3 228 2 568 2 194 2 582 1893 1500 1014 610 368 0 2002 2003 2004 2005 2006 2007 2008 2009 9M 2010 Convenience Stores Hypermarkets
  6. 6. 6 Strategy Further expansion of convenience store operations Hypermarket roll-out Efficiency and profitability improvements
  7. 7. Further Expansion of Convenience Store Operations 7 Medium term plans Further expansion of convenience store operations High level growth of convenience store operations Plan to add up to 500 convenience stores annually Acquisition of land plots to secure pipeline for future stores Store opening decision factors Hypermarket roll-out Proximity to existing distribution centres Ability to find suitable retail space Level of modern format penetration and consumer disposable income Further penetration in existing regions Areas with low modern format penetration Expansion into towns with population as low as 5,000 people Expansion into new locations within regions where Magnit is already present Efficiency improvement Adjusting format to customers’ needs Flexible SKU matrix adjustable to consumer disposable income Gradual shift to larger convenience store size to improve store attractiveness Promotion of one-stop shopping concept for everyday needs
  8. 8. 8 Hypermarkets Roll-Out Strong operational platform Strong brand name recognition and customer awareness generated by a large regional network of convenience stores Economies of scale in purchasing and efficient logistics system capable of supporting both formats in existing and new locations Existing retail expertise strengthened by a team of hypermarket specialists brought in to manage execution risks Increase of the number of owned stores Target locations Low or limited competition from other hypermarkets or modern retail formats Relatively low prices of land plots for hypermarket construction in towns with population of 50,000 to 500,000 people Benefiting from strong growth of disposable income and consumer spendings in the Russian regions Roll-out plan Locations are chosen on the basis of competition from other hypermarkets in the area, the strongest growth of disposable income of the population and minimum negative impact on existing convenience stores In small towns hypermarkets will be located in central locations which will give advantage of targeting consumers who do not own cars Hypermarkets total selling space (1) will vary from 2,000 to 12,500 sq. m. depending on availability of land plots Further expansion of convenience store operations Hypermarket roll-out Efficiency improvement Note (1) Including selling space designated for leases to third parties
  9. 9. Efficiency and Profitability Improvement Further expansion of convenience store operations Further growth of the share of high margin products, including fresh food products, ready-made 9 meals and private label Fresh food products and ready-made meals are expected to motivate customers to shop at our stores more frequently Achieve synergies Synergies arising from operation of neighbouring hypermarkets and convenience stores, allowing to increase the effect of economies of scale Hypermarket roll-out Efficiency improvement Increase the share of products distributed through own logistics system Efficient utilisation of in-house logistics system – Increase in the share of goods distributed through the company’s distribution centres from approximately 78% of cost of goods sold in 9M 2010 up to 90-92% in the long term – Reduction of third party logistics costs Improve the product mix Increase purchasing power Increasing the penetration of convenience store operations in areas of presence with relatively low market share, which is expected to result in greater purchasing or negotiating power vis-à-vis local suppliers and landlords Optimise labor productivity Investing in various technologies that have significant potential for productivity increases Measures to improve retention rates for employees and management, that will reduce costs associated with losing experienced employees and recruiting and training new ones
  10. 10. Business Overview
  11. 11. 11 A Shift to Multi Format Convenience Store Hypermarket Number of stores 3,658 as of 30 September 2010 35 as of 30 September 2010 Average store size Total space – 466 sq. m. Selling space – 307 sq. m. Total space: 7,573 sq. m. Magnit selling space (1): 3,323 sq. m. Product range 3,249 SKUs on average Private label – 13.08% of retail sales 14,265 SKUs depending on format Private label – 7.16% of retail sales Positioning (format) Walking distance from home Ground floor stores or freestanding Open 12 hrs/7 days All hypermarkets are built in convenient locations All easily accessed by public transport Target group People living within 500 metres from the store People living within 15 minutes by car / 30 minutes by public transport from the store. Effective radius – 7 km Ownership 34% owned / 66% leased as of 30 September 2010 94% owned / 6% leased Note: (1) Excludes selling space designated for leases third parties
  12. 12. Convenience Format
  13. 13. 3 600 3 200 2 800 2 400 2 000 1 600 1 200 800 400 13 Format Description Format Highlights Low prices Convenient locations Carefully selected product mix Standardised exterior and car parking Functional interior design Attention to customers Increasing customer convenience Main target group: all consumers living within 500 m 184 012 185 837 160 696 5341 145 207 6283 7477 5801 200 000 150 000 100 000 50 000 0 2006 2007 2008 2009 8000 6000 4000 2000 0 Rub USD radius Target locations: towns with potential high growth of disposable income of population Number of Convenience stores 610 1 014 1 500 1 893 2 194 2 568 3 204 3 658 Geographical Breakdown (% of total stores) 368 0 2002 2003 2004 2005 2006 2007 2008 2009 9M 2010 Operating Statistics sales / sq. m. / year Source: Company Source: Company Source: Company Central 24,2% Southern 28,2% Volga 30,3% North-West 5,0% Urals 5,5% North- Caucasian 6,6% Siberian 0,2%
  14. 14. 14 Typical Store Opening Process Considerable experience of store openings Acquisitions and construction are preferred in existing markets with already high penetration Key store opening criterion is payback period of not more than 3 years if leased; 6 – 7 years if owned Average total cost of a new convenience store is US$800 – 2,500 per sq. m. (excl. VAT) New stores reach their average traffic and sales target within 6 months from opening Rationalisation of store portfolio Identification of a property or a land plot Feasibility report and opening budget prepared Approval by the regional director and branch director MOU signed with landlord Legal due diligence Technical due diligence Approval by Committee on Store Openings Lease agreement or SPA signed Repair and maintenance Purchasing and installation of equipment Personnel hiring and training Sublet agreements signed Store opened W 1 W 2 W 3 W 4 W 1 W 2 W 3 W 4 W 1 W 2 W 3 W 4 Month 1 Month 2 Month 3
  15. 15. 2009 1,153 9M 2010 1,020 2008 1,005 2005 684 2006 783 2007 888 Southern 2003 387 2004 550 North-Caucasian 246 461 536 84 1,893 513 120 15 Store Opening Dynamics 802 950 160 888 1,111 183 638 743 115 379 368 61 545 628 88 Central Volga North-West 100 114 9 224 214 26 Urals 8 29 45 67 139 202 3,204 702 66 636 8 3,658 507 53 454 2,568 452 78 374 1,500 550 64 486 393 2,194 409 108 301 Siberian Total New openings 610 259 1,014 438 Closings 17 34 Net openings 242 404 53 convenience stores were closed as of September 30, 2010 – 11 due to poor performance – 29 were relocated to better locations – 13 were shut due to disagreements with landlords
  16. 16. As of 30 September 2010 the company owned 1,250 convenience stores and leased 2,408 Store ownership is gained on the basis of the following documents: – Sale-purchase agreements – Lease agreements with redemption rights – Construction share holding agreements – Investment contracts Convenience stores Hypermarkets 16 Store Ownership Structure 34,2% 65,8% Owned Leased Store Ownership Structure Source: Company as of 30 September 2010 94,3% 5,7% Owned Leased
  17. 17. (tickets / sq. m. / day) 6,0 4,0 2,0 Source: Company (sq. m.) 600 400 200 17 Key Operating Statistics Average Ticket Sales Mix 12,13% 11,7% 12,3% 11,3% 87,87% 88,3% 87,7% 88,7% 200 150 100 50 Source: Company 100,0% 80,0% 60,0% 40,0% 20,0% 0,0% 2007 2008 2009 9M 2010 Food Non Food Traffic 3,6 3,3 3,1 3,2 0,0 2007 2008 2009 9M 2010 Average Floor Size 443 458 470 466 292 299 306 307 0 2007 2008 2009 9M 2010 Selling Space Total Space Source: Company Source: Company 07-09 $ CAGR: 14% 07-09 Total Space CAGR: 11% 149 158 164 122 4,8 6,0 5,4 5,0 0 2007 2008 2009 9M 2010 8 6 4 2 0 RUB US $
  18. 18. 30% 25% 20% 15% 10% 5% 18 Lfl Sales Analysis Source: Company Traffic, Lfl Average Ticket, Lfl 3,8% 14,8% 21,7% 5,8% 3,2% 3,3% 2,0% 0,0% -2,0% 30% 20% 10% 0% 2007 2008 2009 1Q 2010 1H 2010 9M 2010 RUB terms -0,78% -2,32% -1,52% 1,20% 2,43% -0,70% -4,0% 2007 2008 2009 1Q 2010 1H 2010 9M 2010 Sales, Lfl 6,4% 4,6% 2,4% 4,1% 18,8% 13,9% 0% 2007 2008 2009 1Q 2010 1H 2010 9M 2010 RUB terms Source: Company Note: LFL analysis is based on the result of convenience stores that had been operating for not less than six months and have achieved a mature level of sales
  19. 19. FY 09 - FY 08 19 Lfl Sales Analysis LFL growth Traffic Average ticket, RUR Sales, RUR 1H 09 - 1H 08 (6) (0.83%) 11.08% 10.16% 1Q 10 – 1Q 09 (3) (0.70)% 3.17% 2.44% 1H 10 – 1H 09 (2) 1.20% 3.31% 4.55% (4) (1.52%) 5.75% 4.14% 9M 09 – 9M 08 (5) (1.07%) 8.44% 7.28% 9M 10 – 9M 09 (1) 2.43% 3.84% 6.36% 1Q 09 – 1Q 08 (7) 0.37% 13.68% 14.05% (1) Applicable to 2,070 convenience stores opened by July 01,2008 (2) Applicable to 2,149 convenience stores opened by July 01, 2008 (3) Applicable to 2,192 convenience stores opened by July 01, 2008 (4) Applicable to 1,739 stores opened by July 01, 2007 (5) Applicable to 1,783 stores opened by July 01, 2007 (6) Applicable to 1,815 stores opened by July 01, 2007 (7) Applicable to 1,849 stores opened by July 01, 2007
  20. 20. Hypermarket Format
  21. 21. Number of hypermarkets and selling space 3% small medium large 21 Format Description 23% Source: Company 46% 20% 11% 50 - 100 100 - 250 250 - 500 500 Format Highlights 3 principal hypermarket sub-formats – Small: total space of 2,500 - 7,000 sq. m., selling space of 1,800 - 3,000 sq. m. – Medium: total space of 10,200 - 11,700 sq. m., selling space (1) of 3,500 – 6,000 sq. m. – Large: total space up to 21,000 sq. m., selling space (1) up to 12,500 sq. m. The decision with regards to hypermarket format principally depends on the following factors: – Consumer disposable budget of the region – 5-7 year budget forecast – Percentage of the budget, attributable to hypermarket – Population of the region – Competition 24 35 56 365 3 14 78 107 116 300 11 590 40 30 20 10 0 2007 2008 2009 9M 2010 Number of hypermarkets Selling space, sq.m. Breakdown by sub-format (1) Breakdown by population, ths 57% 40% (1) Based on selling space
  22. 22. LFL Analysis Sales Mix 100% 80% 60% 40% 20% Traffic Average Ticket 530 520 510 22 Key Operating Statistics 2,99% 10,84% 11,01% 4,51% 14,16% 16,01% 18% 15% 12% 9% 6% 3% 0% 1H10-1H09* 9M10-9M09* Average ticket, RUR Traffic Sales, RUR 23% 22% 22% 77% 78% 78% 0% 2008 2009 9M 2010 Food Non-food tickets/sq. m./day 0,8 1 1,2 1,5 1 0,5 0 2008 2009 9M 2010 * Based on 7 hypermarkets opened by May 1, 2008 528,41 520,53 510,09 21,26 16,41 16,86 500 2008 2009 9M 2010 25 20 15 10 5 0 RUR USD
  23. 23. 1,156 locations in 7 federal districts 23 Geographical Coverage North-Western 1 hypermarket 183 convenience stores 1 distribution center Central 6 hypermarkets 888 convenience stores 3 distribution centers Volga 7 hypermarkets 1,111 convenience stores 2 distribution centers Southern 21 hypermarkets 1,020 convenience stores 3 distribution centers North-Caucasian 246 convenience stores Urals 202 convenience stores 1 distribution center Siberian 8 convenience stores
  24. 24. 24 Typical Store Opening Process M 1 M 2 M 3 M 4 M 5 M 6 M 7 M 8 M 9 M 10 M 11 M 12 M 13 M 14 M 15 M 16 M 17 M 18 Identification Land plot audit Land plot approval SPA signed Ownership right received Construction permit Building design Construction Financing Interior design / equipment Licences approval Hypermarket launch Ownership rights received Key store opening criterion is payback period from 5 to 8 years Average total cost of a new hypermarket varies between US$1,500 – 3,800 per sq. m. depending on format (excl. VAT) Expected store maturity pattern: 8 - 15 months from opening
  25. 25. General Overview
  26. 26. Youth (Up to 30 Years Old) 26 Pensioners (60+ Years Old) Priorities Price Location Assortment Comfort Key Features Shopping habits formed in Soviet time Conservative shoppers Most are low income Key Focus Areas Increased offering of Private Label products to reduce prices for essential goods Priorities Assortment Location Comfort Price Key Features More open to western lifestyles and oriented towards modern retail formats Key Focus Areas Offering product categories appealing to young audience Target Audience Families (30 – 60 Years Old) Priorities Location Assortment Price Comfort Key Features Time is of greater value than for other groups Growing car ownership High level of responsibility for quality of purchased food and family budget Key Focus Areas Increased share of fresh dairy, semi-prepared products and ready meals Ensure quick shopping, avoid bottlenecks in rush hour One stop shopping: ATMs, pharmacies, payment of mobile phone bills, etc Building more parking spaces at the stores 64% 12% 24% Shopping Motivation Convenience Stores Daily fresh shopping First need products Hypermarkets Weekly shopping
  27. 27. Mark-up for a given 27 product Overall necessity of a product Target audience for a product Purchasing frequency of a product Share in consumer basket Mark-Up Adjustments Target weighted average mark-up for the Group Competition in the area Geographical location (urban / rural matrix) Mark-Up Criteria Price assessment for convenience stores is based on an every day product basket (bread, milk, etc…) Hypermarket pricing model focuses on SKUs needed on a weekly basis Each product category is assigned a certain mark-up Revised every 4 months Seasonality Weighted average mark-up is established at the Group level based on the monitoring of competitors’ prices for 200 key SKUs Mark-up monitored on a daily basis using the powerful MIS Revised on a bi-weekly basis Can be changed within several hours Centralised matrix-based pricing system Pricing Model
  28. 28. Suppliers, Purchasing and Private Label 28 Share of Private Label Products in Revenue (%) 508 551 700 700 530 620 6,3% 265 8,2% 10,9% 12,1% 12,1% 12,3% 12,5% 800 600 400 200 0 2004 2005 2006 2007 2008 2009 9M 2010 15% 12% 9% 6% 3% 0% Number of Items Share in Retail Sales Magnit is the largest buyer for many domestic and international FMCG producers Weekly Assortment Committee approves the assortment and suppliers Direct purchasing and delivery contracts Economies of scale and wide geographical presence enable low prices and favorable contract terms – Volume discounts – Compensation of external and internal logistics costs – Average credit term in 2009 was 46 days and could be up to 60 days – Contract term is typically 1-year – Often can be unilaterally terminated by Magnit with no penalties Supplier bonuses criteria is based on – Meeting sales targets – Store promotions – Loyalty Private label products are designed to replace the cheapest SKUs to maximise returns on each metre of shelving space 620 private label SKUs Private label products accounted for 13.08% (convenience format)/7.16%(hypermarket) share of retail revenue in 9M 2010 Approximately 85% of private label products are food Share of non-food products in private label is expected to increase Source: Company
  29. 29. Stores Main Office 29 2006-2009 IT Systems Update Transport management system – Optimal route planning – All cars are equipped with GPS locating systems Warehouse management systems – Introduction of WiFi operated data collection terminals – Warehouses are customised to work with hypermarket product traffic Oracle IT platform introduced to convenience store format New price management system introduced to both formats Electronic document traffic system with suppliers Introduction of Corporate Information System based on 1C platform Cashiers Internet Database Server Store Director Mail Server ADSL / GPRS Database Server (cluster) Distribution Centres Tasks Processor (robot)
  30. 30. Federal District Southern Southern Effective Space sq.m. 16,314 30,048 Number of Serviced Stores 385 440 Bataysk Kropotkin Slavyansk-on-Kuban Southern 20,496 272 Engels Volga 19,495 481 Togliatti Volga 18,724 444 Tver Central 10,714 200 Oryol Central 12,197 481 Ivanovo Central 43,365 318 Convenience stores Hypermarkets 30 Logistics System As of September 30, 2010 approximately 78% of COGS vs. 57% in 2005 were distributed through the company’s distribution centers and the long-term target is to increase this share up to 90-92% for convenience stores and up to 80% for hypermarkets. At the moment Company’s logistics system includes: Automated stock replenishment system 10 distribution centers with approximately 208 565 sq. m. capacity Fleet of 2,262 vehicles Veliky Novgorod North-Western 21 060 226 Ural 16,152 208 565 446 3 693 Chelyabinsk Total City DC Processed Goods Source: Company 9M 2010 9M 2010 Target 19% 81% Outsourced Owned 92% 8% Outsourced Owned 80% 20% Outsourced Owned 59% 41% Target Owned Outsourced Source: Company
  31. 31. Well trained dedicated personnel Average number of employees vs. average 80 000 60 000 40 000 20 000 31 salary, 2007-2009* 48 194 59 135 13 714 75 745 10 679 13 100 0 2007 2008 2009 15 000 10 000 5 000 0 in RUR Average headcount Average monthly salary The average number of employees in the Group amounted to 86,330 as of September 30, 2010: • 62,305 in-store personnel, • 16,030 people engaged in distribution, • 5,588 people in regional branches, • 2,407 people employed by head office The average age of our employees is approximately 25 years The gross average monthly salary in 2009 was RUR 13,714 of which approximately 75% was basic salary Special performance-linked bonuses and incentives help to motivate the employees at all levels Key members of the Management hold Company’s shares Performance monitoring and evaluation on a regular basis Career development programs for all levels to ensure • Lower staff turnover • Increased motivation • Higher productivity Personnel training • 174 classrooms for trainings at all levels • Regular meetings and seminars between mid-level managers to exchange best practices • Coaching for top-management Strong corporate culture aimed at development of loyalty of employees • The Company publishes a corporate newspaper every two months • Team building events to ensure integrity of the team Source: Audited IFRS Financial Statements
  32. 32. Financial Overview
  33. 33. In US$ MM 2009 Net sales 5 354,5 Cost of sales (4,097.2) Gross profit 1257.3 Gross margin, % 23.48% SGA (760.3) Other income/(expense) 12.5 EBITDA 509.5 EBITDA margin,% 9.52% Depreciation (103.1) amortization EBIT 406.4 Net finance costs (51.7) Profit before tax 354.7 Taxes (79.5) Effective tax rate 22.43% Net income 275.2 33 Summary PL 2009 / 2008 Y-o-Y Growth 0.12% (2.17)% 8.43% (0.16)% 26.84% 16.09% 29.90% 46.42% 2008 5,347.8 (4,188.3) 1159.5 21.68% (761.5) 3.6 401.7 7.51% (88.8) 312.9 (53.3) 259.6 (71.7) 27.61% 187.9 3.51% 1H2010 3,447.7 (2,707.2) 740.5 21.48% (497.2) 8.5 251.8 7.30% (66.5) 185.3 (8.3) 177.0 (45.8) 25.87% 131.2 3.81% 1H10 / 1H09 Y-o-Y Growth 45.00% 48.43% 33.67% 45.99% 12.28% 45.81% 3.73% 11.27% Net margin, % 5.14% Source: IFRS accounts
  34. 34. Gross Margin Bridge / SGA Expense Structure 34 Gross Margin Bridge 54,1% 54,4% 21,3% 20,9% 11,8% 11,8% 6,6% 7,1% 2,6% 2,4% 2,1% 1,7% * As % of Sales Source: Company, IFRS accounts SGA Expense Structure 16.35%* 16.24%* 1,5% 1,7% 1H2010 1H2009 payroll and related taxes rent and utilities depreciationamortization other expenses taxes, other than income tax packaging and raw materials repair and maintanance 21,48% (0,39%) (1,07%) (0,54%) 23,48% (0,25%) 0,20% 1,85% 21,68% 24% 22% 20% 18% 16% 14% 12% 10% GM 2008 Trading Margin % Transport Losses GM 2009 Trading Margin % Transport Losses GM 1H2010
  35. 35. 35 EBITDA Bridge EBITDA Bridge As % of Sales 7,5% 1,8% 12% 10% 8% 6% 4% Source: Company, IFRS accounts (0,1%) 0,1% 0,1% 0,1% 9,5% (2,0%) (0,1%) (0,2%) 0,1% 7,3% 2% EBITDA 2008 GM Bank services Rent and utilities Foreign exchange gain Other expenses EBITDA 2009 GM Rent and utilities Salaries Other expenses EBITDA 1H2010
  36. 36. In US$ MM 2008 1H2010 ASSETS Property plant and equipment 1,331.1 1,896.0 Other non-current assets 19.8 31.1 Cash and cash equivalents 115.1 51.5 Trade accounts receivable 0.9 0.1 Merchandise 323.3 469.0 Other current assets 53.9 65.6 TOTAL ASSETS 1,844.1 2,513.3 Equity 836.8 1,479.2 Long-term debt 162.7 243.1 Other long-term liabilities 18.4 36.4 Trade accounts payable 484.9 563.0 Short-term debt 243.2 90.5 Other current liabilities 98.1 101.1 TOTAL EQUITY AND LIABILITIES 1,844.1 2,513.3 36 Balance Sheet 2009 1,638.5 28.5 371.0 0.2 415.2 75.1 2,528.5 1,424.8 152.3 27.3 572.3 266.6 85.2 2,528.5 EQUITY AND LIABILITIES Source: IFRS accounts
  37. 37. 37 1H 2010 Capex ((1)) Analysis US’ MM 52 13% Source: IFRS accounts 268 70% 17 4% 52 13% Notes (1) Capex calculated as additions + transfers of PPE in each period Other assets Construction in progress Buildings Machinery and equipment Land Total 1H 2010: $388.7 mn
  38. 38. 38 Cash Flow Statement 2008 404.8 420.1 (575.4) 200.2 44.8 115.1 2009 508.7 376.2 (448.1) 339.2 267.2 371.0 1H2010 251.4 156.8 (390.8) (97.9) (319.5) (51.5) In US$ MM OPERATING ACTIVITIES: Operating cash flows before movements in working capital Net cash generated from operating activities INVESTING ACTIVITIES: Net Cash used in investing activities FINANCING ACTIVITIES: Net cash generated from financing activities Net increase in cash and cash equivalents Cash and cash equivalents, end of the year Source: IFRS accounts
  39. 39. 34 30 26 22 18 14 1,0 0,5 39 Working Capital Analysis 46,4 37,7 - (40) (80) (120) (160) 40 30 20 2009 1H2010 Inventory Management Days (2) 32,4 29,4 10 2009 1H2010 Trade Accounts Payable Days (3) Source: Company Source: Company, IFRS accounts Working Capital (1) (173,7) (123,8) (200) 2009 1H2010 Source: Company Net Debt (4)/ EBITDA, USD 0,09 0,53 0,0 2009 1H2010 Notes: (1) Current assets (less CCE and short-term investments) – current liabilities (less short-term debt) (2) 2008-2009: 360 / (Cost of sales/year average inventory) (3) 2008-2009: 360 / (Cost of sales/year average trade accounts payable) (4) Net debt = long / short-term bonds and borrowings + finance lease liabilities – cash and cash equivalents
  40. 40. Summary Conclusions
  41. 41. Strong foothold in Russia’s cities and towns with population under 500,000 people: first mover advantage (first retailer in many locations to establish a modern format); low competition from other chains outside of Russia’s large cities 41 Summary Conclusions Leading Russian retailer: broadest geographic coverage with 3,693 stores (as of 30 September 2010) in more than 1,156 cities in seven out of eighth federal districts in Russia Further organic growth of store operations: continued roll-out of established business model in existing markets and selective expansion into new geographic areas Expanding hypermarket operations: leveraging strong existing platform (operations, logistics, brand, scale) to develop a leading hypermarket chain in the European part of Russia Additional measures to improve profitability: enhancing product mix, shifting to direct import contracts, increasing private label and increasing distribution through own logistics system to achieve margin improvements and cost savings Financing of expansion program: implementation of the Company’s mid-term strategy will be executed through a mix of operating cashflow and debt (bank loans and bonds)

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