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Edited Transcript of FIVE.L earnings conference call or presentation 27-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 X5 Retail Group NV Earnings Call

Moscow May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of X5 Retail Group NV earnings conference call or presentation Thursday, April 27, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dmitry Gimmelberg

X5 Retail Group N.V. - CFO

* Maxim Novikov

X5 Retail Group N.V. - Head of IR

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Conference Call Participants

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* Brady Martin

Citigroup Inc, Research Division - Director

* David Ferguson

Renaissance Capital, Research Division - Deputy Head of Research and Equity Research Analyst

* Marat Ibragimov

BCS Financial Group, Research Division - Retail and Development Senior Analyst

* Nida Iqbal

Morgan Stanley, Research Division - Equity Analyst

* Nikolay Kovalev

VTB Capital, Research Division - Research Analyst

* Victoria Petrova

Crédit Suisse AG, Research Division - Research Analyst

* Yulia Gerasimova

Goldman Sachs Group Inc., Research Division - Equity Analyst

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Presentation

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Operator [1]

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Good morning. My name is Catelyn, and I will be your conference operator today. At this time, I would like to welcome everyone to the X5 First Quarter 2017 Financial Results Conference Call. (Operator Instructions) Thank you. Maxim Novikov, you may begin your conference.

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Maxim Novikov, X5 Retail Group N.V. - Head of IR [2]

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Good morning and good afternoon, ladies and gentlemen. Thank you for joining us on this call, where we will discuss X5 financial results for the first quarter of 2017. Participating in this call are Dmitry Gimmelberg, our CFO; and myself, Maxim Novikov, the company's Head of Investor Relations.

I'd like to remind you that we disclosed the press release this morning via our website, on the Internet, and our own distribution list. Note that the release and the presentation for this call are currently available on our website in the Investor Relations section.

Before we start, I would like to draw your attention to the fact that some of the information announced during this call may contain projections or other forward-looking statements regarding future events of -- or the future financial performance of X5 Retail Group. Please refer to the beginning of the presentation for this call for the disclaimer with regards to such statements.

I will now pass the floor to Dmitry, who will take you through the company's key results and achievements.

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [3]

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Thank you, Max. Good morning and good afternoon, ladies and gentlemen. Thank you very much again for joining our call today.

We have held the 2016 results conference call exactly 1 month ago, so I'm not going to give a quite long introduction. What I would like to do is just briefly go through our key highlights and drivers and then we can get straight move to the Q&A session.

On the revenue side, we are pleased with our performance in the first quarter of 2017, including, in particular, the strong top line growth. X5 total revenue increased by 26.5% on a year-on-year basis and amounted to RUB 293 billion, driven by a 7.3% increase in like-for-like sales and the 29.5% rise in selling space. 87% of the growth in the selling space was attributable to the organic net, as usually. Strong like-for-like traffic growth of 4.6% year-on-year basis was -- is the highest level since the fourth quarter of 2009, which has been the fastest growing public retailer in Russia by revenue for 6 quarters in a row.

Margins expanded. The EBITDA margin for the first quarter of 2017 was 6% -- 7.6%, which is up 44 basis points from 7.1% for the same period of the previous year.

In terms of market and operating environment, nothing has changed materially since our last conference call, so the environment, to a large extent, remains quite challenging. As you all definitely know, food inflation continued to slow during the first quarter of the current year. In a year-on-year term, food inflation deteriorated to 3.5% in March compared to 3.7% in February and 4.2% year-on-year in January of the current year. This, of course, has impacted our like-for-like results on the market side. In particular, due to ruble appreciation, we see meaningful deflation in the [successful] categories like fruit and vegetables, sugar, vegetable oil, beer, et cetera.

Moving along to the margins. The 17 basic -- 17 basis points year-on-year decreased in our gross margin, which was 24.1% in the reporting period, was primarily due to added expansion of the store base, with the growing number of regional stores and the recent share of stores in a ramp-up phase as well as our strategic decision to make changes in investments in our customers.

In terms of EBITDA, as I said, we finished the quarter with EBITDA margin of 7.6%, which was 44 basis points higher than the same period over the last year. This was primarily due to the positive (inaudible) on the SG&A side, on the back of improved stock costs, other store costs and [helped by] insurances.

As usually, I want to say a couple of words on our [O‘Key] program. We started to improve sales for the second stage of the program in the fourth quarter of the last year and want to continue with the 2 evenly during the year ahead. In the first quarter, we have accrued RUB 537 million. While remaining in process either in terms of top line growth, the company's net finance costs in the reporting period decreased by 14.7% due to our efforts to minimize interest expenses and thanks to declining interest rates in Russia capital markets (inaudible). We expect our CapEx interest rate to continue declining during 2017. In April 2017, X5 issued its debut RUB 20 billion Eurobond, which is due April 2020 and has a coupon rate of 9.25% per annum. We are happy to receive very high-quality information on (inaudible), including (inaudible) information of farms and private banks participating in this issue. As a result of all these factors, the company's net profit in the first quarter of 2017 increased by 70 -- 65.3%, while our net profit margin improved by 67 basis points and reached 2.9% of the revenues.

Turning to our balance sheet. At the end of the quarter, our net debt-to-EBITDA ratio was 1.9x compared to almost 2.5x at the 31st of March of the previous year, primarily due to the strong EBITDA growth.

Cash flow. Looking at the operating cash flow, the only thing I would like to comment on is the change -- expected change in the working capital. As has mentioned in our last conference call in 2017, we expect a slight negative impact on our working capital in the amount of between RUB 7 billion to RUB 10 billion due to amendment in the trading law. And this was the main reason for an increase and the change of working capital to RUB 13.9 billion for the first quarter, primarily due to the change in accounts payable, which declined by RUB 25.3 billion. Although it is not that there was an additional cash on our balance sheet as of December -- 31 December 2016, at this day, fell on top of it.

Capital investments. I will say just a few words about our capital expenditures for the reporting period. X5 total capital expenditure amounted to RUB 14.4 billion, approximately 2/3 of which went to expansion of our store base, where we increased the number of stores added by 67% compared to the same period of the last year. The [net losses] category was store refurbishment, which accounted for approximately 16% of the total CapEx during this period, decreasing from 33% for the same period of the last year. We performed (inaudible) 2 refurbishment program, with almost over 96% of stores at the regions under the new concept. The remaining CapEx consists usually of IT, logistics and other investments.

Year-to-date results. We are happy with the strong results we have seen in April. Net sales growth as of the 28th of April was around 28% year-on-year. And like-for-like sales growth was about 10%.

That concludes my brief presentation of results. I appreciate your attention. Thank you very much. Max?

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Maxim Novikov, X5 Retail Group N.V. - Head of IR [4]

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Yes. Ladies and gentlemen, that concludes our presentation. We're now ready to take your questions. The session will last approximately 30 minutes. (Operator Instructions) Operator, can we have the first question, please?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Brady Martin.

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Brady Martin, Citigroup Inc, Research Division - Director [2]

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Two questions from me. One is on the opening outlook for the year. I think on the last call, you'd given this 2,000 store -- these 2,000 stores. But given that you opened 630 stores in Q1, a big jump up year-on-year. And the seasonal opening is generally focused in the second half. Are you ready to update this guidance as it looks kind of conservative at present? The other question is on D&A and whether you can help or guide us on how to try to forecast this line. I mean, we discussed on the last call, there is a big jump up. And then we just kind of understood that this was a -- of the year last year. I mean, that wasn't given in percentage of sales. But even if you look at it on per-square-meter basis, it looks like Q1 is not that much different from Q3, so it doesn't look like a step-up for me. It's only -- on per-square-meter basis, only up about 3% per square meter. I would have expected a bigger increase after what you said in the Q4 comments. So just any guidance you can give us in how to estimate that for this year.

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [3]

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Thank you for the question. First of all, on the number of stores opened, so we stayed with the previous guidance, going to be 2,000-plus stores. We were even so far for us to update (inaudible) for the full year, though you rightly point out we had a very strong first quarter. But we anticipate some movements in the markets, so we stay with 2,000-plus -- just 2,000-plus stores as the forecast for the full year. And for the second question, the way that we have been told to look at our depreciation and appreciation charges is to take a look at the full year instead of comparing them on a quarterly basis because, on the one hand, in the last quarter of the previous year, we had accumulated our share of changes in our account and (inaudible) with regards to the depreciation here. And also in the last quarter of the year, we did book the effect of impairment there. So therefore, looking at the full year estimation, I would be thinking percentage-wise of the long-term assets. And if you take depreciation charges (inaudible) for the period, multiply them by 4 and then relate them to the asset base, I think you will end with something like 14% to 15% of the overall depreciation charges compared to the long-term base. And I suggest you look at them in this way. Thank you.

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Brady Martin, Citigroup Inc, Research Division - Director [4]

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Okay, that's clear. Just one follow-up on the -- can you just repeated what you said about April? Did I understand correctly that it was 28% sales growth so far in April?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [5]

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Yes, right, 2-8, yes.

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Operator [6]

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Your next question comes from the line of David Ferguson.

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David Ferguson, Renaissance Capital, Research Division - Deputy Head of Research and Equity Research Analyst [7]

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Maybe 2 questions. Firstly, the way you come off against a refurbished Magnit store, do you see any traffic outflows? And regardless of whether you do or not, how do you respond when a store will be refurbished, Magnit's store is open, close to you? That's the first question. Secondly, I guess one of the things that helps over the last couple of months, couple of quarters, is the cost-saving initiatives, security and different consultancy programs. Are there any other large-scale cost base -- cost savings programs that can make a difference to the margin in the remaining 3 quarters of the year? That's it.

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [8]

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Thank you for your questions. First of all, statistically significant -- we didn't see any statistical significant changes in the traffic as a subsequent event of Magnit's refurbishment program. So should some -- it should be sometime when probably we will notice some inflows or outflows well within the next few months. Our response will be just to continue this opening customer value addition. And it's true for certain [metrics] and add additional items as -- following the positive trends and the overall improvements in the Russian economy. This is (inaudible) sign but we are not [planning] at the moment, 10 years, it's difficult for us. Regarding your second question on the cost-savings initiatives, so we have quite a number of them, and we continue moving ahead with those initiatives. We can't disclose some strategic numbers at the moment because we are still at the beginning of the financial year. So probably we can give some more qualified update by the end of the first half of the trimester year. I would -- but I would rather point your attention to the fact that we had a significant reduction in our SG&A expenses percentage-wise of the revenue compared to the same period of the previous year, and more than half of the sales of the SG&A reduction came from the part of our increasing operational leverages.

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Operator [9]

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Your next question comes from the line of Victoria Petrova.

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Victoria Petrova, Crédit Suisse AG, Research Division - Research Analyst [10]

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Congratulations on strong results. My first question is related to gross profit. Your gross profit is down 17 basis points year-over-year. Does it suggest that you did not really visit your terms with the suppliers this year, or maybe there was some seasonality difference? Relative to last year, do you expect any improvement of suppliers' terms maybe into the second quarter? Or have you just simply invested more of the gross margins into pricing than last year? How should we look at that and anticipate -- I mean, in the context of sales anticipation, of gross profit correction into 2017? I still am very impressed with your EBITDA margin, of course.

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [11]

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Thanks for the questions. I would come still to those investments and from a different status. First of all, you have to take into consideration relating to a portion of the (inaudible) in our gross profit, so they behave in a slightly different manner. The (inaudible) is in part growing because of the increasing share of Pyaterochka in our basis. Secondly, we have re-continued all the arrangements and conveniences with our suppliers, and to the end of the previous year, full compliances are attainable. And there was some positive impact on the trading conditions and our food terms. And because of the increasing competition, we decided that we have to invest some additional margins into our customers, offering them some favorable conditions and providing some additional marketing tools. So therefore, there is some slight negative impact on our gross margins. On the same time, I will try to suggest that we wait and see how this will develop over the full year, because there is a seasonality factor for the first quarter. And looking forward, that the way we believe that the overall gross margin shall stay in the range of above 24% throughout the year for the range.

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Victoria Petrova, Crédit Suisse AG, Research Division - Research Analyst [12]

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My second question is still the same, where you said -- and when I looked at your results -- operating results. What do you think X5 is doing completely different to continue to (inaudible) quite a different trend to the rest of the market? It seems that you are gaining market share from competitors, from whom the ones which have quality stores, from the ones which potentially have lower-quality stores, from the ones who seem to be cheaper than you. Are you -- do you think you are the cheapest on this market in terms of pricing or you are at par with your competitors? And what is the key reason for such consistent now -- on a consistent now and continuous market share gain? And my very sort of small question is for how many, based on average, have you been closing your Pyaterochka stores during refurbishment? That's just a clarification one.

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [13]

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Let me start with answering your second question. If I understood it correctly, it was how long we can close Pyaterochka stores during the refurbishment, right?

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Victoria Petrova, Crédit Suisse AG, Research Division - Research Analyst [14]

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On average, yes. An average closer base.

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [15]

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On average, it's between 2 and 3 weeks, maybe trending towards 2 weeks, on average. Coming back to the -- your first question, I think that there's quite people who just continue to run the business we did before. So I think that we have picked the solid customers with our propositions. And the ones that are different from what our major competitors are offering, in terms of the number of SKUs in their store, in terms of the portion of fresh, ultra-fresh fruits and vegetables, as you probably know, we have like now 40% of our important markets attributable to both (inaudible). And therefore, it differentiates us from the rest of the market, and our customers appreciate the [fourth link]. We are also offering sizable promotions for our shoppers. And especially still under the bad economic conditions, the shoppers also appreciate the quiet promotions from propositions. So basically, there is no tweak -- or there are no tweaks. We continue driving the business like this for the last many quarters. And this just confirms that we made the right choice back in 2013, 2014, while we were then happy to introduce our new operational model and our new customer welfare propositions. I think that's it.

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Operator [16]

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(Operator Instructions) Your next question comes from the line of Nida Iqbal.

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Nida Iqbal, Morgan Stanley, Research Division - Equity Analyst [17]

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Just following up on the question regarding how exciting it is to outperform peers in like-for-likes. Is X5 [classic] benefiting in any way from the restructuring of peers, such as store closures at Magnit for re-signing? It's my first question. Secondly, just a follow-up, what are the current promos that run at X5? And I just want to clarify on the like-for-likes in April, was it 7% that you mentioned?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [18]

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Nida, thank you for your question. So with regard to the first question, I think I'll refer to something and repeat what I already mentioned. So we continue to run that offering the same path (inaudible) proposition and the same important markets. So while our major (inaudible) who work in their, refurbish their stores, and we will see if this will lead to some significant or large extent of their offerings for the customers. So we will adapt if necessary on a case-by-case or store-by-store basis of our offering. So that addition of stores that are located in close proximity to Magnit. But as I mentioned before, they don't have any account (inaudible). So again, we will continue with our current customer propositions our current -- important current offering of our performance, signage, and, in addition, some new tools in marketing, such as world (inaudible) the one that (inaudible) for Pyaterochka during this month and the one that they have launched for Perekrestok a couple of months ago. So the like-for-like sales in April, I can say that it was now in the range of 10%. And I think we'll stay quite well ahead of our competition here, also the same offers also for the same figures.

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Operator [19]

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Your next question comes from the line of Yulia Gerasimova.

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Yulia Gerasimova, Goldman Sachs Group Inc., Research Division - Equity Analyst [20]

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Two questions from me, please. The first -- first of all, I wanted to clarify about the like-for-like increase in the refurbished stores? I remember when the refurbishment program started and you indicated that the refurbished stores have been generating more than 20% higher like-for-like -- growth of more than 20% in refurbished stores. I wanted to check because you refurbished almost all of your Pyaterochka stores, have this like-for-like growth changed? Over time, are you still seeing initial -- initially, like 20%, over 20% like-for-like growth after the refurbishments? Or -- and also, how long this superior like-for-like growth post refurbishment is lasting? So, I would say, let's say, I don't know, a period in the first 12 months after refurbishing, you are seeing more than 20% like-for-like growth, and then it normalizes in the second 12 months, it normalizes through to normal like-for-like growth? So that's the first question. And the second question, about your hypermarket. So I think the hypermarkets traffic in this format has actually improved a lot. So I think in supermarket, it's more understandable because you are also doing the refurbishment program, which is definitely bearing the fruit. But in terms of the hypers, what is -- what was driving the improvement in the like-for-like traffic growth in the hypermarket format?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [21]

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Yulia, thank you for the questions, very good question. In terms of the first one, would be better off of answering this question face-to-face with [notes] on the table, but I'll try to answer it anyway. When I have started our refurbishment program, just keep in mind that this started with the stores that were -- that had to get faster and better operational results much quicker. And when I started with the inflation in Russia was also higher than last year or this year, so therefore, for the -- from the beginnings of the program, especially for the 2014 and '15, the like-for-like sales jumped to 20% after the refurbishment. But again, these were the stores where we can get the fastest and quickest wins. And again, the inflation was quite different through the last years. Now we've come into the less [livened] stores and with inflation decelerating to 3% -- 3.5% this year, the like-for-like went down, so the average like-for-like for the -- after the refurbishment went down to, say, 12% to 14%, in this range. And now the -- it's affected, all diminished, while you can see that out of 1,200 stores that we have refurbished last year, so compared to the 9,000-plus stores base that we have at the moment for -- basically, that happened in those stores for the overall like-for-like, it's quite substantial. And if you just take the course after the refurbishment, with inflation going down, compared with the like-for-like effect, we would go down. On your second question, if I understand that -- and correct there, you were asking what was the cause of the positive like-for-like traffic in the hypermarkets, is that right?

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Yulia Gerasimova, Goldman Sachs Group Inc., Research Division - Equity Analyst [22]

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Yes, yes.

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [23]

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I think that the positive result overall for our hypermarkets, for our current sales that we achieved for the first quarter of this year, it's all the result of the whole work performed by our new management team. As you know, we have hired the new Chief Executive Officer for Karusel in December -- actually, in August last year. And they have concentrated on important improvements in their operational model, like more shelf ability, and taking care of the stores, taking care of stock shortages and [laws] and also improving quality of promo action, pre-order, (inaudible) so all these are important ones, but basic processes within the store. And actually, what we see now is the result of those small but important steps, small but important actions, so there was no miracle whatsoever. Also, you should bear in mind that for the last year, we have seen quite a big volatility; and in our hypermarkets, also due to the fact that the stores were probably managed not to the best possible way.

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Yulia Gerasimova, Goldman Sachs Group Inc., Research Division - Equity Analyst [24]

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Just a small follow-up, Dmitry, about the like-for-like. So how long do you see that effect of the superior 12% to 14% like-for-like, those lasting? Is it, I would say, first 12 months after the store refurbished and -- or lower than that?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [25]

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I don't think that, that number is in front of me, but I think in that range of 1 year.

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Operator [26]

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We have no further questions. And we do have just like 2 more questions that have just queued up. Your next question comes from the line of [Mark Smith].

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Unidentified Analyst, [27]

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Can you talk about cash flow dynamics and, in particular, whether you have any ambition or prospect of being cash -- free cash flow generative in the future?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [28]

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Yes. Thank you for the question. We -- if you -- well, if you take into account our dynamics, the growth of the company and our move to keep the operational margins in the broader range as of today, we will probably be cash positive towards the end of next financial year, which is 2018.

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Unidentified Analyst, [29]

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Sorry, could you -- can you elaborate what will produce that -- of the free cash flow? Is it because of the working capital will revert to being positive?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [30]

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We are not expecting any significant change to the working capital. So it's growing in line with business. As I mentioned before, we experienced some negative feedback from the trading store change, but it's quite insignificant. The positive free cash flow will come from the -- through growing EBITDA. Again, if we will keep the same margins as today and the company will be growing the way it's doing now, you can contemplate the amount of EBITDA we will have in the next financial year. So at the same time, we are not going to increase our investments. Therefore, if you also implement extrapolation of our potential future EBITDA, less taxes and less interest charges, it will probably end up with a positive free cash flow towards the end of next year -- next financial year.

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Operator [31]

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Your next question comes from the line of [Carlene Fosick].

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Unidentified Analyst, [32]

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Congratulation on the great results. Just a follow-up on the questions you've had. Can I be sure you are saying that you plan to be cash flow positive towards the end of FY '18 and not the full year '18, on a full year basis? And if that's true, should we expect FY '19, on a full year basis, to be free cash flow positive?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [33]

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Again, we don't give any guidance, but I will summarize on what I already mentioned. So we will become cash positive towards the end of next year but for the full financial year of 2018. And if we will develop the way we are doing right now, we shall be cash positive in full year 2019.

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Operator [34]

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Your next question comes from the line of Nikolay Kovalev.

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Nikolay Kovalev, VTB Capital, Research Division - Research Analyst [35]

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I have 3 quick questions. First one, if you can clarify how much you are able to include in purchasing terms for a year-on-year comparison, if possible. Also, a follow-up on the discussion of free cash flow. Can you state your CapEx plans for this year? And the final question was, if we calculate sales densities per square meter, we'd have 7 quarters of decline in strength. So I was wondering if you can possibly comment here and how do you compare yourself with Magnit on sales efficiency, if you do comparison?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [36]

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Sales density, CapEx. What was the first question?

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Nikolay Kovalev, VTB Capital, Research Division - Research Analyst [37]

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The question is if you can state how much you do in purchasing terms?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [38]

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Okay. So before I disclose the number, we did have some improvement in purchasing terms, and all those improvements, they are transferred to our customers, but we don't disclose the exact number. With regard to the CapEx, again, well, I would try to refrain from giving any particular guidance, but you can make yourself an estimation. We have targeted 2,000-plus stores for this year. And this was the result of the previous year. And the cost of construction remained roughly the same place and adjust, so you can make your own estimation piece out of that, I assume. And for the sales densities, it's declining due to the increasing number of the regional stores and the increasing number of the stores in the ramp-up, and specifically the number of stores in ramp-up in the region. So we will see probably like 70% a year of our total stores in the main regions towards the end of this year. And once those regional and ramp-up in stores will commence, we will see improvement in the sales densities, obviously.

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Nikolay Kovalev, VTB Capital, Research Division - Research Analyst [39]

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And for the location, that a competing Magnit (inaudible) any comparisons? And what's on the ratio dynamics for several quarters?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [40]

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Yes, what was the comparison? I can tell you that it doesn't really matter whether we stay in a close proximity to Magnit (inaudible). So the sales densities are affected by different factors, not by proximity level of Magnit or somebody else. It truly depends whether the stores located in the region or in the capital, it truly depends on the inventory [per capita] and particular location, and it depends on the sales availability, which, in turn, is a consequence of our (inaudible) season, et cetera. So there are other factors that affects our sales densities, but the proximity of Magnit alone is not, in turn, key.

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Operator [41]

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Your next question comes from the line of Marat Ibragimov.

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Marat Ibragimov, BCS Financial Group, Research Division - Retail and Development Senior Analyst [42]

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I know that you are not providing any guidance on full year sales growth, EBITDA margin. But I -- could you, please, if possible, say how you feel about the current concerns (inaudible), market is looking at 23.3% or almost 24% top line growth this year? I mean, EBITDA margins were 7.4, which implies a difference in (inaudible) reduction versus last year. Can you say how do you feel about this number for EBITDA? Do you feel comfortable then (inaudible) with this big number?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [43]

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Okay. Thank you for your questions. Just regard on the (inaudible). For the growth -- top line growth, it fully depends on the actual inflation the we will see for the full year. FX rate will affect our long-term sales growth to some extent as quite a potential part of the products that are either imported or has potential imported parts in it. Basically, you can make your own judgment on the -- on our potential sales growth, taking into account the -- your estimation on inflation and the exchange rate for Russian ruble and our (inaudible) target of 2,000-plus stores additional this year. What was the second question?

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Marat Ibragimov, BCS Financial Group, Research Division - Retail and Development Senior Analyst [44]

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It was about the big margin. Just how you can afford a bigger margin, with the market [that you are in]?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [45]

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No, we are believing that the healthy margin for the business should be in the range -- growth range of 7.5% or 7% EBITDA margin. And we're thinking this figure is a good range, provided that (inaudible) gross margins we can (inaudible) in our customers. What was the last question?

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Marat Ibragimov, BCS Financial Group, Research Division - Retail and Development Senior Analyst [46]

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(inaudible) qualifies to this range, which you just announced, this includes LTI costs, right?

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Dmitry Gimmelberg, X5 Retail Group N.V. - CFO [47]

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But the growth range of 7%, 7.5% was what's included in there the healthy margin, with or without (inaudible).

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Maxim Novikov, X5 Retail Group N.V. - Head of IR [48]

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Ladies and gentlemen, this concludes our conference call today. Thank you for participating. And please do not hesitate to contact us if you require any further information. We appreciate your interest in our company, and we look forward to a continued dialogue with you. Thanks very much, and bye-bye.

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Operator [49]

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This concludes today's conference call. You may now disconnect.