UPDATE 3-Russia's X5 cuts 2008 capex plan by third

Fri Oct 10, 2008 10:32am EDT

Related Topics

* X5 cuts 2008 capex to about $1 bln

* Expects to delay three store openings to 2009

* Says Q3 pro-forma like-for-like sales up 21 pct

* Q3 pro-forma net retail sales $2.2 bln, up 48 pct

(Adds analyst, hedge fund manager comments, Kopeika statement, updates shares)

By Maria Kiselyova

MOSCOW, Oct 10 (Reuters) - Russia's top food retailer X5 (PJPq.L) said on Friday it has cut 2008 capital expenditure by about 30 percent because of the financial crisis and was getting ready to respond to a possible decline in consumer sentiment.

X5 Retail Group, majority owned by Russian billionaire Mikhail Fridman's empire, Alfa Group, said it had cut its capex outlook for this year to around $1 billion.

Rival chain Kopeika said in a statement on Friday it had frozen a number of costly long-term projects to strengthen its liquidity profile in the financial crisis and free up cash for possible acquisitions. [ID:nLA221653]

The news follows some Russian companies' moves to cut jobs, output and investment plans as the global credit crunch spills into the real economy, potentially eroding consumer demand.

"It is good that they are adjusting to the crisis," Da Vinci Capital hedge fund manager Gleb Yakovlev said. "It is good to be in shape. They need to be strong to weather the blow, and the one who is strong and prepared will win."

X5, Russia's largest food retailer by revenue, now expects that three hypermarkets initially planned for openings this year will open in 2009 due to delays on the developers' side. Its sales expectations remained fundamentally unchanged.

"We revise our capex and store openings outlook as we decided to defer certain projects in order to consolidate resources in the current liquidity-constrained environment," X5 said in a third-quarter trading update.

By 1405 GMT, X5's London-listed shares fell 12.28 percent to $10, slightly outperforming an index of Russian Global Depositary Receipts traded on London Stock Exchange .FTRIOB.

Morgan Stanley and Goldman Sachs said X5 expansion deferral should not have much if any impact on sales growth for the next couple of years. Goldman maintained its Buy rating on X5.

CONSUMER CONFIDENCE

X5's Chief Executive Officer Lev Khasis said the company continued to see healthy consumer demand in the third quarter despite financial markets turbulence and weak seasonality.

"At the same time, we understand that the financial crisis may in the end affect consumer confidence, so we are closely tracking our customer behaviour and are ready to quickly respond to changes in consumption patterns," Khasis said.

Morgan Stanley on Friday initiated coverage of X5 with an overweight rating and a price target of $25, praising the company's broad exposure to the Russian food retail market given its mix of formats.

"We like management's realism that the credit crunch could delay their longer-term expansion plans somewhat, and that they are a little cautious about the strength of the Russian consumer in H2 2008," the bank said.

X5 said it would focus on reducing its short-term debt exposure and would seek to profit by lower real estate prices and construction costs as well as emerging M&A opportunities.

"We ... are chasing all the opportunities that this distressed market may offer," said Chief Financial Officer Evgeny Kornilov.

"It is quite clear by now that the strongest and the smartest will successfully live through the crisis and come out as winners and it is our intention to continue to lead the way."

Fridman said in separate X5 statement that Alfa Group would keep its stake in the retailer intact and did not rule out investing more in the company.

Q3 STILL STRONG

Like-for-like sales at X5 rose by 21 percent year-on-year in the third quarter and by 25 percent in the first nine months, including recently acquired chain Karusel on a pro-forma basis.

Net retail sales, which do not take account of revenue from franchisees and non-retail revenue and exclude value-added tax, increased 48 percent to $2.177 billion in the third quarter and by 56 percent to $6.479 billion in January-September 2008.

Consolidated net retail sales were up 73 percent in the third quarter and by 65 percent in January-September 2008.

The company added 36 stores in the third quarter alone, and 159 outlets in the first nine months of the year, including 24 Karusel hypermarkets. As of Sept. 30, it had 1,027 stores.

X5 said it now expects sales growth of around 40 percent and like-for-like sales growth of around 20 percent compared with an earlier forecast of more than 40 and more than 20 percent.

The outlook includes Karusel on a pro-forma basis but excludes possible forex gains and losses.

X5 was created through a merger between the Pyaterochka discount chain and the Perekrestok supermarket chain in May 2006. In 2007, revenues at X5 rose 53 percent to $5.32 billion.

It currently has a 3.5 percent share of the Russian food retail market, despite being undisputed market leader in revenues, as the market is very fragmented. (Additional reporting by Melissa Akin)

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