UPDATE 3-Russia's Magnit to raise dividends as expansion pays off

Tue Jan 22, 2013 12:11pm EST

* To pay 25-35 pct of earnings in divs vs 14 pct in 2011

* Net income almost doubled in 2012

* 2013 capex seen at $1.8 bln vs $1.6-1.7 bln in 2012

* Raises 2013 sales growth guidance to 27-29 pct

* Shares close down 2.7 pct, backtrack after recent gains

By Maria Kiselyova

MOSCOW, Jan 22 (Reuters) - Fast-growing Russian retailer Magnit plans to raise its dividends as a proportion of profits, allowing shareholders including Chief Executive Sergei Galitskiy to benefit from the company's ambitious expansion.

The company plans to pay between 25 and 35 percent of net profit to its investors in the next two or three years, Galitskiy said on Tuesday, versus no more than 15 percent in recent years.

Russia's second-biggest retailer by revenue, Magnit nearly doubled net profit last year to $803.9 million from $418.7 million in 2011, partly reflecting the company's growing size allowing it to extract better terms from its suppliers.

It opened 1,575 stores during the year, bringing its total network of convenience and cosmetics stores and hypermarkets to 6,884.

"We are still in the process of winning market share and therefore we will do our best to be highly aggressive," Galitskiy said in a statement.

Magnit, which has grown into the country's biggest retailer by store count since Galitskiy founded it in 1998, has outperformed rivals in sales growth and profitability thanks partly to a lack of competition in the provincial towns where it focuses.

He said on a conference call that Magnit could grow revenue by between 27 and 29 percent in rouble terms this year - an upward revision of its previous 25 to 27 percent guidance and compared with about 34 percent in 2012.

The growth expectations are based on plans to further expand its retail empire with a 2013 capital spending programme totalling around $1.8 billion, he said, having previously forecast spending in a range of $1.6 to 1.8 billion this year compared with $1.6 to 1.7 billion in 2012.

STORE OPENINGS

Magnit plans to open more than 1,100 convenience stores and over 60 hypermarkets and 250 cosmetics stores, launch four distribution centres and buy at least 1,200 trucks this year.

Its Moscow-traded shares closed down 2.7 percent, lagging the broad market, with analysts attributing the fall to profit-taking after a rally in the run-up to the expectedly strong results.

The stock has risen by around 10 percent over the past two weeks. According to brokerage Otkritie, the company's GDRs are trading on a multiple of 23.8 times forecast 2013 earnings - reflecting a premium to its Russian peers. X5 for instance trades on 13.9 times.

Galitskiy said on the conference call he expected a 2013 EBITDA margin of between 9.2 and 9.8 percent, adding that the forecast was conservative and the margin was unlikely to fall below 9.5 percent.

In the fourth quarter the EBITDA margin rose to a record 11.3 percent, above a 10.9 percent forecast given by analysts in a Reuters poll. For the full year the profit margin rose to 10.56 percent from 8.22 percent.

Quarterly net income was $264 million, above the average forecast of $219 million, while its full year EBITDA (earnings before interest, taxation, depreciation and amortisation) grew 60 percent to $1.5 billion.

"Results are not just strong, they are outstanding compared with both the Russian retail sector and global peers," said Maria Kolbina, an analyst at VTB Capital, noting the key reason behind the profitability improvement was better purchasing terms.

Bigger rival X5, struggling with operational issues, earlier reported an 8 percent rise in rouble sales to 490 billion roubles ($16.2 billion).