UPDATE 2-Magnit trims sales outlook and defends margins

Mon Jan 27, 2014 12:07pm EST

* Cuts 2014 sales growth f'cast to 22-24 pct vs about 25 pct

* Repeats conservative core profit margin f'cast of 10.5 pct

* To increase dividend payout ratio to 40 pct

* Q4 net $362 mln vs forecast $319 mln

* Shares up 0.7 pct in London

By Maria Kiselyova

MOSCOW, Jan 27 (Reuters) - Russia's biggest food retailer Magnit reduced its sales growth forecast for the year on Monday as it focuses increasingly on profitability at the expense of revenue growth.

Russian supermarket operators have invested heavily in opening stores in the past few years and are now facing increased competition for customers, who often have a choice of three or four outlets on a single street.

Magnit has been leading the market's expansion and using its growing purchasing power to achieve lower prices from suppliers to improve margins while keeping a tight rein on costs, a formula which has proved increasingly popular among Russian consumers.

But Magnit's sales growth slowed to an annual 23 percent in December from 29 percent in November and Chief Executive Sergei Galitsky said the company now hopes to grow sales by between 22 and 24 percent in rouble terms, compared with a previous forecast of around 25 percent and with last year's 29 percent.

Galitsky, Magnit's majority owner, said the December slowdown had resulted from Magnit's decision not to cut prices as it chose to make profit over boosting traffic.

The company also reported a record high 12.5 percent margin on the basis of earnings before interest, taxes, depreciation and amortisation (EBITDA) for the fourth quarter, bringing the full-year result to 11.2 percent.

For 2014, it expects a 10.5 percent margin, Galitsky said, reiterating an earlier forecast, but added the guidance was "conservative" and could be revised.

"We are more interested in the aggregate EBITDA and net profit ... (than sales growth)," he told a conference call.

He added the company planned to increase its dividend payout ratio to 40 percent this year. It had paid around 30 percent of net profit in first-half 2013 dividends.

For the fourth quarter, Magnit reported a 35 percent rise in net profit to $362 million, beating an average analyst forecast of $319 million in a Reuters poll.

The result came on the back of a 32 percent increase in EBITDA to $624 million and brought its full-year net income to $1.1 billion on revenue of $18.2 billion.

Last year, Magnit overtook struggling X5 as Russia's No.1 grocery chain by revenue. X5's sales reached &16 billion in 2013.

Magnit's London-listed stock closed 0.7 percent higher at $53, valuing the company at $22.7 billion.

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