Detsky Mir Group Adjusted EBITDA Increases by 16.3% to rub 14.7 bn in 2019
Moscow, Russia, 2 March 2020 – Detsky Mir Group (“Detsky Mir”, “the Group” or “the Company”, MOEX: DSKY), Russia’s largest specialized children’s goods retailer, announces its audited financial results in accordance with International Financial Reporting Standards (IFRS) for the fourth quarter and twelve months ended 31 December 2019.
Q4 2019 FINANCIAL HIGHLIGHTS[1]
- Group audited revenue increased by 13.4% year-on-year to RUB 38.9 bn.
- Online revenue[2] increased by 59.8% year-on-year to RUB 5.8 bn.
- Revenue in Kazakhstan rose by 41.5% year-on-year to RUB 1.2 bn.
- Like-for-like sales[3] at Detsky Mir stores in Russia and Kazakhstan grew by 5.0%. The number of tickets grew by 7.9%, while the average ticket decreased 2.7%.
- Like-for-like sales at Detsky Mir stores in Russia grew by 4.7%. The number of tickets grew by 7.4%, while the average ticket decreased by 2.5%.
- Like-for-like sales[4] at Detsky Mir stores in Kazakhstan increased by 27.4%.
- Detsky Mir opened 56 new branded stores in Q4 2019. The Group had 842 stores as of 31 December 2019.[5]
- Total selling space increased by 9.7% year-on-year to approximately 843,000 sq. m.
- Gross profit increased by 12.3% year-on-year to RUB 13.3 bn, with a gross margin of 34.1%.
- SG&A as a percentage of revenue[6] decreased by 0.1 p.p. year-on-year, driven by increased operational efficiency.
- Adjusted EBITDA[7] increased by 12.4% year-on-year to RUB 5.2bn; the adjusted EBITDA margin was 13.4%. EBITDA[8] totalled RUB 4.7bn (+11.0% year-on-year).
- Adjusted net profit[9] increased by 9.4% year-on-year to RUB 3.1bn. Net profit totalled RUB 2.8bn (+5.6% year-on-year).
- The net debt[10]/adjusted EBITDA LTM ratio stood at 1.2x as of 31 December 2019.
FY 2019 FINANCIAL HIGHLIGHTS
- Group audited revenue increased by 16.1% year-on-year to RUB 128.8 bn.
- Online revenue increased by 65.2% year-on-year to RUB 14.5 bn.
- Revenue in Kazakhstan rose by 48.8% year-on-year to RUB 3.7 bn.
- Like-for-like sales at Detsky Mir stores in Russia and Kazakhstan grew by 7.2%. The number of tickets grew by 8.5%, while the average ticket decreased by 1.2%.
- Like-for-like sales at Detsky Mir stores in Russia grew by 6.8%. The number of tickets grew by 7.9%, while the average ticket decreased by 1.0%.
- Like-for-like sales at Detsky Mir stores in Kazakhstan increased by 35.5%.
- Detsky Mir opened 101 new branded stores[11] in 2019.
- Gross profit increased by 12.8% year-on-year to RUB 41.5 bn, with a gross margin of 32.3%.
- SG&A as a percentage of revenue decreased by 1.0 p.p. year-on-year, driven by increased operational efficiency.
- Adjusted EBITDA increased by 16.3% year-on-year to RUB 14.7 bn; the adjusted EBITDA margin amounted to 11.4%. EBITDA totalled RUB 13.8 bn (+16.4% year-on-year).
- Adjusted net profit increased by 11.0% year-on-year to RUB 8.0 bn. Net profit totalled RUB 7.3 bn (+10.6% year-on-year).
Q4 2019 KEY EVENTS
- In December 2019, Detsky Mir paid an interim dividend for the first nine months of 2019 to a total of RUB 3.7 bn, or RUB 5.06 per ordinary share, bringing the total dividend declared in 2019 to RUB 7.0 bn, which is equivalent to a dividend yield[12] of 10.4%.
- In December 2019, the Company announced plans to enter the Kyrgyz market. Detsky Mir’s goal is to open its first store in Kyrgyzstan in 2020 and become a market leader in the mid-term.
- In December 2019, Detsky Mir announced the launch of active trials of the new Detmir.ru store format. The format utilizes a selling space of roughly 130–170 sq. m, primarily in cities with a population of less than 40,000 inhabitants. The total market capacity of such locations is now estimated at 2,000 Detmir.ru stores.
- In November 2019, PJSFC Sistema (the majority shareholder of the Company), and the Russia-China Investment Fund (RCIF) successfully priced the offering of Detsky Mir shares. The offering size was 175 million existing shares in Detsky Mir, representing 23.7% of Detsky Mir’s issued share capital. The offering increased the free float of the Company to 57.6%. PJSFC Sistema has a remaining ownership interest of 33.4% and RCIF has a remaining interest of 9.0% in the Company.
- In November 2019, Detsky Mir launched the pilot version of a children’s fashion marketplace. As part of the pilot, the assortment was increased by 5,000 SKUs, taking into account the size range.
- In November 2019, Detsky Mir launched the pilot of a full-feature mobile application, enabling customers to make purchases via the convenient online interface while using a virtual loyalty card.
- In October 2019, the Company launched a next-day delivery service (last-mile delivery) priced at RUB 99 for orders placed via Detsky Mir’s online store, making the service available in 30 major Russian cities. Compared to express delivery, the service offers a wider geographic 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 (February 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 totaling 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.
EVENTS AFTER THE REPORTING PERIOD
- In February 2020, Detsky Mir launched Manu, a new private-label brand of diapers, in the children’s goods markets of Russia, Kazakhstan and Belarus. Developed in partnership with Unicharm, Japan’s largest diaper manufacturer, Manu offers premium Japanese quality for a medium price, giving it a competitive edge over other global brands.
Vladimir Chirakhov, PJSC Detsky Mir Chief Executive Officer, said:
“In 2019, Detsky Mir consolidated its leadership of the Russian and Kazakhstan children’s goods markets, and successfully entered the Belarusian market. We were able to accelerate our total sales growth to 16.1% year-on-year, with consolidated revenue for FY 2019 reaching RUB 128.8 billion. At the same time, we have maintained our strong focus on driving extra footfall through low pricing and improved business processes. This has allowed us to grow faster than any other public Russian retailer in like-for-like sales, without sacrificing our strong EBITDA margins.
he Company’s key achievements of 2019 include the 101st new store opening, a 65% growth of online sales with a double-digit EBITDA margin, along with the launch of an online courier delivery service and a full-feature mobile application.
The successful secondary public offering (SPO) of PJSC Detsky Mir was another key highlight of the year. We are delighted with the positive response to our offering on the Russian stock market, and are now pleased to move forward with a high-quality and geographically diverse shareholder base.
In 2019, we distributed the Company’s entire net profit, totaling RUB 7.0 billion for the relevant periods, as dividends. Since then, we have substantially improved our financial position through strict investment discipline, cutting our net debt and Net Debt to EBITDA ratio compared to 2018. Our team will maintain a focus on increasing the Company’s market capitalization and dividends. PJSC Detsky Mir’s net profit for Q4 2019 under Russian Accounting Standards may increase by 23% year-on-year to RUB 4.1 billion. We will recommend distributing the entire net profit as a dividend for the year.
In 2020, we are planning to continue the expansion of Detsky Mir store network while focusing on an omnichannel business model. In the medium term, we are planning to open at least 300 stores with a 40% IRR. A top priority for us is to offer our customers a wide assortment of affordable products, including through fostering our private labels and launching a full-scale marketplace. We also see strong potential in pursuing the new extra-small format of stores to increase our presence in smaller towns and other locations while improving online delivery. A preliminary estimate puts total market capacity of such locations at 2,000 stores.”
Guidance
The Company’s management team expects to open at least 300 new Detsky Mir stores in Russia, Kazakhstan and Belarus with IRR of around 40% in the next 3–4 years. The Company currently expects that like-for-like sales in Russia may grow faster than the children’s goods market as a whole, and remain at single digits due to an increase in the number of tickets in 2019. As a result of the further development of the omnichannel business model, the Company aims to achieve a 30% share of online sales in the total revenue of Detsky Mir in Russia in the medium term.
Another key strategic goal of the Group in the medium term is to boost operational efficiency and maintain the adjusted EBITDA margin at double-digit levels under IAS 17, or in upper-teens under IFRS 16.
In accordance with Russian Accounting Standards (RAS), the Company’s management will recommend distributing the entire net profit for 2019 as a dividend. Thus, the final dividend for 2019 may increase by 23.0% year-on-year to RUB 4.1 bn.
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CONFERENCE CALL INFORMATION
Detsky Mir’s management will host a conference call today at 16:00 (Moscow time) / 13:00 (London time) / 8:00 (New York time) to discuss the Company’s FY 2019 audited IFRS Financial Results.
The dial-in numbers for the conference call are:
Russia
+7 495 283 98 58
UK
+44 203 984 98 44
USA
+1 718 866 46 14
PIN
288 543#
Online presentation
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 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 and the Detmir.ru retail chains, 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 766 Detsky Mir stores located in 293 cities in Russia, Kazakhstan and Belarus, 4 Detmir.ru stores, as well as 49 ELC, 13 ABC and ten Zoozavr stores as of 31 December 2019. Total selling space was approximately 843,000 square meters
Detsky Mir Group’s shareholder structure as of the date of this announcement is as follows: PJSFC Sistema[13] – 33.38%, Russia-China Investment Fund (RCIF) [14] – 9.0%, free-float – 57.62%.
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 in-store pick-up.
([3]) Hereinafter like-for-like average growth, like-for-like number of tickets growth and like-for-like revenue growth are based on stores in operation for at least 12 full calendar months.
([4]) Calculated in the national currency of Kazakhstan (tenge).
([5]) Including 62 ELC and ABC stores, four Detmir.ru stores as well as ten 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.
([11]) In 2019, Detsky Mir closed eight stores.
([12]) Dividend Yield is calculated at the record date.
([13]) 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.
([14]) 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.