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DETSKY MIR GROUP ADJUSTED EBITDA INCREASES BY 18.5% TO RUB 9.5BN IN 9M 2019

Moscow, Russia, 7 November 2019 – Detsky Mir Group (“Detsky Mir”, “the Group” or “the Company”, MOEX: DSKY), Russia’s largest specialized children’s goods retailer and a Sistema company (LSE: SSA, MOEX: AFKS), announces its unaudited financial results in accordance with International Financial Reporting Standards (IFRS) for the third quarter and the nine months ended 30 September 2019.

Q3 2019 FINANCIAL HIGHLIGHTS[1]

Group unaudited revenue increased by 19.3% year-on-year to RUB 34.0 bn.
- Online revenue[2] increased by 64.5% year-on-year to RUB 3.4 bn.
- Revenue in Kazakhstan rose by 51.2% year-on-year to RUB 1.1 bn.
Like-for-like revenue[3] at Detsky Mir stores in Russia and Kazakhstan grew by 10.7%. The number of tickets grew by 9.6%, while the average ticket increased by 1.0%.
Like-for-like revenue at Detsky Mir stores in Russia grew by 10.2%. The number of tickets grew by 9.1%, while the average ticket increased by 1.0%.
Like-for-like revenue [4] at Detsky Mir stores in Kazakhstan increased by 42.2%.
Detsky Mir opened 22 new branded stores in Q3 2019. The Group had 780 stores as of 30 September 2019.[5]
Total selling space increased by 11.2% year-on-year to approximately 794,000 sq. m.
Gross profit increased by 12.6% year-on-year to RUB 10.7 bn, with a gross margin of 31.5%.
SG&A as a percentage of revenue[6] decreased by 1.5 p.p. year-on-year, driven by increased operational efficiency.
Adjusted EBITDA[7] increased by 15.8% year-on-year to RUB 4.2 bn; the adjusted EBITDA margin was 12.3%. EBITDA[8] totalled RUB 4.1 bn (+16.9% year-on-year).
Adjusted net profit[9] increased by 9.9% year-on-year to RUB 2.4 bn. Net profit totalled RUB 2.4 bn (+11.0% year-on-year).
The net debt[10]/adjusted EBITDA LTM ratio stood at 1.4x as of 30 September 2019.

9M 2019 FINANCIAL HIGHLIGHTS1

Group unaudited revenue increased by 17.3% year-on-year to RUB 89.8 bn.
- Online revenue increased by 69.2% year-on-year to RUB 8.7 bn.
- Revenue in Kazakhstan rose by 52.3% year-on-year to RUB 2.6 bn.
Like-for-like revenue at Detsky Mir stores in Russia and Kazakhstan grew by 8.2%. The number of tickets grew by 8.8%, while the average ticket decreased by 0.5%.
Like-for-like revenue at Detsky Mir stores in Russia grew by 7.7%. The number of tickets grew by 8.1%, while the average ticket decreased by 0.4%.
Like-for-like revenue at Detsky Mir stores in Kazakhstan increased by 39.4%.
Detsky Mir opened 45 new branded stores[11] in 9M 2019.
Gross profit increased by 13.0% year-on-year to RUB 28.3 bn, with a gross margin of 31.5%.
SG&A as a percentage of revenue decreased by 1.3 p.p. year-on-year, driven by increased operational efficiency.
Adjusted EBITDA increased by 18.5% year-on-year to RUB 9.5 bn; the adjusted EBITDA margin improved by 0.1 p.p. to 10.6%. EBITDA totalled RUB 9.1 bn (+19.3% year-on-year).
Adjusted net profit increased by 12.0% year-on-year to RUB 4.9 bn. Net profit totalled RUB 4.6 bn (+12.8% year-on-year).

EVENTS AFTER THE REPORTING PERIOD

In November 2019, the Board of Directors recommended that the EGM (to be held by absentee vote with the final date for receipt of completed ballots on December 6, 2019) approved an interim dividend for the nine months of 2019 totalling RUB 3.7 bn, representing a payment of RUB 5.06 per ordinary share. The Board also recommended that the EGM set the record date establishing eligibility to receive the dividend as 17 December 2019.
In November 2019, Detsky Mir launched the pilot of a full-feature mobile application, which provides customers with ability to make purchases via the convenient online interface while using a virtual loyalty program card.

In October 2019, the Company launched next-day delivery service (last mile delivery) for a charge of RUB 99 for orders placed via Detsky Mir’s online store, making this service available to 30 major Russian cities. Compared to express delivery, this service offers lower price, wider geographical coverage, including regional cities, as well as a wider assortment of goods.

In October 2019, the Board of Directors approved a new Long Term Incentive Plan (LTIP) for the senior management of Detsky Mir. The new LTIP covers the 3-year period from the end date of the current program (Feb 8, 2020) through February 7, 2023. Senior executives who are program members and continue to be employed by the Company on April 30, 2024 will be eligible for share grants and cash payments totalling up to 4.6% of the increase in the Company’s stock market value (inclusive of dividend payments) over the three-year period. The new LTIP includes more than 20 key employees.

Vladimir Chirakhov, PJSC Detsky Mir Chief Executive Officer, said:

“In the first nine months of 2019, we continued to actively consolidate the children’s goods market in Russia, Kazakhstan and Belarus. Our consolidated unaudited revenue grew by 17.3% year-on-year to RUB 89.8bn.

“Our biggest achievement for the past nine months has been the strong growth of like-for-like revenue at Detsky Mir stores in Russia and Kazakhstan, which were up 8.2% in 9M 2019. As new stores reach their designed capacity, they also start making a significant contribution to the growth of the Company’s turnover. This year, we expect to open at least 100 Detsky Mir stores instead of the previously planned 90. As many as 45 stores have already been opened, and the rest will open in the last quarter, during the peak sales period.

“At the same time, we have demonstrated excellent results in the e-commerce segment. Revenue from our online store, www.detmir.ru, surged by 69.2% to RUB 8.7bn, and its share in Detsky Mir’s total revenue in September was 11.7%. We believe that the further development of our omnichannel business model, as well as the continuous improvement of service level across all online orders delivery channels, will provide for a 30% share of the online store in Detsky Mir’s total revenue in the medium term.

“We continue looking for new opportunities to optimize the Company’s operating expenses. This year, lease and marketing expenses have been the key factors behind Detsky Mir’s improving operational efficiency. In 9M 2019, the amount of selling, general and administrative expenses (net of management bonuses) as a percentage of revenue fell by 130 b.p. year-on-year. Such savings enable us to further reduce prices, which would in turn increase customer traffic. At the same time, we managed to increase the adjusted EBITDA margin for 9M 2019 by 10 b.p. year-on-year.

“Thanks to a strict investment discipline, we are successfully balancing a brisk pace of business growth with high dividend payments, while maintaining a low debt burden. The Board of Directors recommended that the General Meeting of Shareholders allocate all of the Company’s net income under RAS, a total of RUB 3.7bn, for dividend payments. This means that the dividend payout this year may grow by 15% compared to 2018. As we look ahead, we plan to maintain high business growth rates and to continue paying significant dividends to our shareholders.”

View the full press release

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Conference Call Information

Detsky Mir’s management will host a conference call today at 17:00 (Moscow time) / 14:00 (London time) / 9:00 (New York time) to discuss the Company’s 9M 2019 unaudited IFRS Financial Results.

The dial-in numbers for the conference call are:

Russia

+7 495 646 93 15

+44 207 194 37 59

USA

+1 646 722 49 16

PIN

792 212 55#

For additional information:

Nadezhda Kiseleva

Head of Public Relations

Office: +7 495 781 08 08, ext. 2041

Cell: +7 985 992 78 57

nkiseleva@detmir.ru

Sergey Levitskiy

Head of Investor Relations

Office: +7 495 781 08 08 ext. 2315

Cell: +7 903 971 43 65

slevitskiy@detmir.ru

Detsky Mir Group (MOEX: DSKY) is a multi-format retailer and Russia’s largest specialized children’s goods retailer. The Group comprises the Detsky Mir retail chain, and the ELC (Early Learning Centre in Russia) and the ABC retail chains, as well as the Zoozavr pet supplies retail chain. The company operates a network of 710 Detsky Mir stores located in 266 cities in Russia, Kazakhstan and Belarus, as well as 48 ELC, 14 ABC and eight Zoozavr stores as of 30 September 2019. Total selling space was approximately 794,000 square meters.

Detsky Mir Group’s shareholder structure as of the date of this announcement is as follows: PJSFC Sistema[12] – 52.10%, Russia-China Investment Fund (RCIF) [13] – 14.03%, other shareholders owning less than 5% of the shares – 33.87%.

Lear more at www.detmir.ru, elc-russia.ru, ir.detmir.ru

Disclaimer

Some of the information in these materials may contain projections or other forward-looking statements regarding future events or the future financial performance of Detsky Mir. You can identify forward looking statements by terms such as “expect”, “believe”, “anticipate”, “estimate”, “intend”, “will”, “could,” “may” or “might” the negative of such terms or other similar expressions. Detsky Mir wishes to caution you that these statements are only predictions and that actual events or results may differ materially. Detsky Mir does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of Detsky Mir, including, among others, general economic conditions, the competitive environment, risks associated with operating in the Russian Federation, rapid technological and market change in the industries Detsky Mir operates in, as well as many other risks specifically related to Detsky Mir and its operations.

([1])The Company’s consolidated financial measures for 2018-2019 and related interim periods are based on proforma financial information prepared as if IFRS 16 ‘Leases’ had not been adopted, and thus do not represent IFRS measures.

([2]) This channel includes online orders at www.detmir.ru (including sales via “in-store pickup” service).

([3]) Hereinafter like-for-like average ticket growth, number of tickets growth and revenue growth are based on stores in operation for at least 12 full calendar months. Revenue of each store included into like-for-like comparison represents retail revenue of the store (including VAT, excluding plastic bags and revenue from online orders delivered by couriers) for respective period but excludes store revenue for those months in which the store was not operating for 3 days or more.

([4]) Calculated in the national currency of Kazakhstan (tenge).

([5]) Including 62 ELC and ABC stores, as well as eight Zoozavr stores.

([6]) Hereinafter, selling, general and administrative expenses is calculated as selling, general and administrative expenses adjusted for depreciation and amortization expenses, additional share-based compensation expense and cash bonuses under the LTI program.

([7]) Hereinafter, adjusted EBITDA is calculated as profit for the period before income tax expense, foreign exchange (loss)/gain, gain on acquisition of controlling interest in associate, finance expense, finance income, depreciation and amortization, adjusted for share-based compensation expense and cash bonuses under the LTI program. See Attachment A.

([8]) Hereinafter, see Attachment A for definitions and reconciliation of EBITDA to IFRS financial measures.

([9]) Hereinafter, adjusted net profit is calculated as profit for the period adjusted for the share-based compensation expense and cash bonuses under the LTI program. See Attachment A.

([10]) Hereinafter, net debt is calculated as total borrowings (defined as long term loans and borrowings and short-term loans and borrowings and current portion of long-term loans and borrowings) less cash and cash equivalents. Lease liabilities are not included in the calculation of net debt. Adj. EBITDA LTM is calculated as adj. EBITDA (as defined above) for the last 12-months period.

([11]) In 9M 2019, Detsky Mir closed eight stores.

([12]) Sistema PJSFC is a publicly-traded diversified Russian holding company serving over 150 million customers in the sectors of telecommunications, children’s goods retail, paper and packaging, healthcare services, agriculture, high technology, banking, real estate, pharmaceuticals and hospitality.

([13]) RCIF, an equity fund established by the Russian Direct Investment Fund (RDIF) and China Investment Corporation (CIC), holds its stake in PJSC Detsky Mir through its funds: Floette Holdings Limited and Exarzo Holdings Limited.