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Detsky Mir Group announces financial results for 1st half 2017

KEY FINANCIAL RESULTS FOR 1H 2017

 

• Group Revenue increased by 24.8% to RUB 42.1bn, vs. RUB 33.7bn in 1H 2016;
• In accordance with the methodology of calculation of like-for-like comparisons, which would be closer to methodologies used in operating and financial reporting of publicly traded food retailers in Russia, like-for-like sales of Detsky Mir stores in Russia grew by 7.9%[1] , with number of tickets growth of 12.0% and a decline in the average ticket price of 3.7%;
• Gross profit increased by 22.9% year-on-year to RUB 13.8bn, with a gross margin of 32.7%;
• Selling, general and administrative expenses as a share of revenue[2] decreased year-on-year from 26.2% to 24.7% driven by increased operational efficiency;
• Adjusted EBITDA[3] increased by 39.9% to RUB 3.3bn for 1H 2017 vs RUB 2.4bn for 1H 2016; Adjusted EBITDA margin reached 7.9%. EBITDA[4] amounted to RUB 3.0bn;
• Adjusted profit for the period[5] rose by more than a half year-on-year to RUB 978mln; Profit for the period amounted to RUB 705mln;
• Net debt /Adjusted EBITDA LTM ratio was 1.7x at the end of 1H 2017.
• In July 2017, Detsky Mir paid dividends in the amount of RUB 2.6bn.

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

“Detsky Mir continues to steadily consolidate the market of children’s goods, showing a high revenue growth rate of 24.8% in the first half of 2017. The impact of abnormally cold weather on the sale of clothing and footwear during the first two months of the second quarter was partially offset by a significant influx of new customers. As a result, we reached a double-digit growth rate of 12.0% in the number of transactions (the number of checks) in the like-for-like stores of Detsky Mir chain in Russia.

We continue to automate business processes, as higher operational efficiency remains one of the Company’s priorities.

In the first six months of 2017, we managed to reduce SG&A expenses as a percentage of revenue by c.1.4 p.p., getting significant discounts from lessors and improving labour productivity in the chain’s stores. As a result, adjusted EBITDA grew by 39.9% year-on-year.

The debt portfolio optimisation, including the effective placement of the bond issue in April 2017, also had a positive impact on the growth of the Company’s profitability. Adjusted net profit rose by more than a half year-on-year.

The Company continues its expansion in Kazakhstan this year: a new store was opened in Aktau in June, and at least four supermarkets will be opened in different cities of the country by the end of 2017.

As in previous years, the rate of business expansion will grow in the second half of the year. We will open a total of at least 70 stores in 2017.”

 

KEY FINANCIAL & OPERATING HIGHLIGHTS – 1H2017 VS 1H2016 (UNAUDITED)

Key Operating Highlights

		1H 2016				1H 2017		Change, YoY (%)
Number of Stores		444			528				18.9%
Detsky Mir		400			488				22.0%
ELC		44			40				(9.1%)
Selling Space (‘000, sq.m.)		511			604				18.2%

 

Alternative Like-for-Like, %		1H 2016				1H 2017		Change, YoY (p.p.)
Like-for-Like revenue growth, %[6]		13.8%			7.9%				(5.9p.p.)
Like-for-Like number of tickets growth, %1		2.4%			12.0%				9.6p.p.
Like-for-Like average ticket growth, %1		11.1%			(3.7%)				(14.8p.p.)

 

Like-for-Like, %		1H 2016			1H 2017			Change, YoY (p.p.)
Like-for-Like revenue growth, %[7]		13.2%				7.7%			(5.5p.p.)
Like-for-Like number of tickets growth, %2		1.8%				11.8%			10.0p.p.
Like-for-Like average ticket growth, %2		11.2%				(3.6%)			(14.8p.p.)

 

Key Financial Highlights

Russian Ruble (RUB), million (mln)		1H 2016			1H 2017			Change, YoY (%)
Revenue		33,736				42,096			24.8%
Online store [8]		1,056				1,725			63.4%
Gross Profit		11,207				13,771			22.9%
Gross Profit Margin,%		33.2%				32.7%			(0.5p.p)
SG&A [9]		(8,824)				(10,413)			18.0%
% of revenue		26.2%				24.7%			(1.4p.p.)
EBITDA[10]		2,411				2,987			23.9%
EBITDA Margin, %		7.1%				7.1%			(0.05p.p)
Adjusted EBITDA [11]		2,378				3,328			39.9%
Adjusted EBITDA Margin, %		7.0%				7.9%			0.9p.p
Profit for the period		627				705			12.5%
Profit Margin, %		1.9%				1.7%			(0.2p.p)
Adjusted profit for the period [12]		601				978			62.7%
Adjusted profit Margin, %		1.8%				2.3%			0.5p.p
Net Debt		12,989				15,148			16.6%
Net Debt / EBITDA		2.1				1.7
Adjusted Net Debt [13]		11,965				15,148			26.6%
Adjusted Net Debt / Adjusted EBITDA		1.7				1.7

 

Additional information is available on the Company’s corporate website www.corp.detmir.ru

 

***

 

Conference Call Information

 

Detsky Mir’s management will host a conference call today at 17:00 pm (Moscow time) / 15:00 pm (London time) / 10:00 am (New York time) to discuss 1H 2017 Unaudited IFRS Financial Results.

 

The dial-in numbers for the conference call are:

 

Russia

+7 495 221 6523

 

UK

+44 203 043 24 40

 

USA

+1 877 887 41 63

 

PIN: 33405978#

 

The conference title: “Detsky Mir Group – 1H 2017 Unaudited IFRS Financial Results”.

For additional information:

Nadezhda Kiseleva Head of Public Relations Office: +7-495-781-0808, ext. 2041 Cell: +7-985-992-7857 nkiseleva@detmir.ru

Sergey Levitskiy Head of Investor Relations Office: +7-495-781-0808 ext. 2315 Cell: +7-903-971-4365 slevitskiy@detmir.ru

 

Detsky Mir Group (MOEX: DSKY) is Russia’s largest specialized children’s goods retailer. The company operates a network of 528 stores, including 475 Detsky Mir stores in Russia and 13 in Kazakhstan located in 181 different cities, as well as 40 ELC (Early Learning Centre) stores in Russia. The total selling space as of 30 June 2017 was approximately 604,000 square meters.

 

In accordance with the Audited Financial Statements under IFRS Group revenue amounted to RUB 79.5bn for the full year 2016. Adjusted EBITDA totaled RUB 8.2bn and Adjusted profit for the period amounted to RUB 3.8bn for 2016.

 

Detsky Mir Group’s shareholder structure is as follows: PJSC Sistema[14]  – 52.10%; Russia-China Investment Fund (RCIF) [15] – 14.03%; Other shareholders owning less than 5% of the shares – 33.87%. 

 

Lear more at www.detmir.ru, corp.detmir.ru or elc-russia.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.

Attachment A

 

EBITDA is calculated as profit for the period before income tax expense, foreign exchange loss, finance expense, finance income, depreciation and amortisation. EBITDA margin is calculated as EBITDA for a given period divided by revenue for such period expressed as a percentage. Our EBITDA may not be similar to EBITDA measures of other companies; is not a measurement under accounting principles generally accepted under IFRS and should be considered in addition to, but not as a substitute for, the information contained in our consolidated statement of profit and loss. We believe that EBITDA provides useful information to investors because it is an indicator of the strength and performance of our ongoing business operations, including our ability to fund discretionary spending such as capital expenditures, acquisitions of businesses and other investments and our ability to incur and service debt. While depreciation and amortization are considered operating costs under IFRS, these expenses primarily represent the non-cash current period allocation of costs associated with long-lived assets acquired or constructed in prior periods. EBITDA is commonly used as one of the bases for investors and analysts to evaluate and compare the periodic and future operating performance and value of companies. 

 

Adjusted EBITDA and Adjusted profit for the period are used to evaluate financial performance of the Group. This represents an underlying financial measure adjusted for a one-off gains and losses. We believe that adjusted measures provide investors with additional useful information to measure our underlying financial performance, particularly from period to period, because these measures are exclusive of certain one-off gains and losses.

 

EBITDA and Adjusted EBITDA can be reconciled to our consolidated statements of profit and loss as follows:

RUB mln
			1H 2016		1H 2017
Profit for the period			627		705
Add / (deduct):
Finance income			(117)		(22)
Finance expense			965		960
Foreign exchange loss			(45)		119
Income tax expense			209		350
Depreciation and Amortisation			771		874
EBITDA			2,411		2,987
Reverse effect of:
Additional bonus accruals under the LTI program (Income received from partial termination of employees’ right to receive shares under the LTI program)			(33)		341
Adjusted EBITDA			2,378		3,328

 

Adjusted profit for the period can be reconciled to our consolidated statements of profit and loss as follows:

RUB mln
			1H 2016		1H 2017
Profit for the period			627		705
Reverse effect of:
Additional bonus accruals under the LTI program (Income received from partial termination of employees’ right to receive shares under the LTI program) with related tax effects			(26)		273
Adjusted profit for the period			601		978

 

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([1]) Alternative like-for-like average ticket growth, like-for-like number of tickets growth and like-for-like revenue growth based on the stores that have been in operations for at least 12 full calendar months.

([2]) Selling, general and administrative expenses exclude D&A expenses and adjusted for share-based compensation and cash bonuses under the LTI program

([3]) Adjusted EBITDA is calculated as profit for the period before income tax, FX loss, net finance expense, D&A; adjusted for share-based compensation and cash bonuses under the LTI program. See Attachment A.

([4]) See Attachment A for definitions and reconciliation of EBITDA to IFRS financial measures.

([5]) Adjusted for additional bonus accruals under the LTI program (together with related tax effects). See Attachment A.

([6]) Alternative like-for-like average ticket growth, like-for-like number of tickets growth and like-for-like revenue growth based on the stores that have been in operation for at least 12 full calendar months.

([7]) LfL growth includes only DM stores in Russia that were in operation for one full prior calendar year. For example, a like-for-like comparison of retail sales between 1H 2017 and 1H 2016 would include revenue of all Detsky Mir stores that were opened prior to 31 December 2015 and that were in operation during the entirety of 2016 and 1H 2017.

([8]) Online store includes all online orders on the website – www.detmir.ru, including home delivery to customers and in store pick-up

([9]) Selling, general and administrative expenses exclude D&A expenses adjusted for share-based compensation and cash bonuses under the LTI program

([10]) See Attachment A for definitions and reconciliation of EBITDA to IFRS financial measures.

([11]) Adjusted EBITDA is calculated as profit for the period before income tax, FX loss, net finance expense, D&A; adjusted for share-based compensation and cash bonuses under the LTI program. See Attachment A.

([12]) Adjusted for the one-off effect relating to additional bonus accruals under the LTI program (together with related tax effects). See Attachment A.

([13])Adjusted Net debt is calculated as total borrowings less cash and cash equivalent / adjusted for the loan issued to CJSC “DM-Finance” (Sistema’s subsidiary) in 2013, fully repaid on February 27, 2017

([14]) PJSC Sistema is a publicly-traded diversified Russian holding company serving over 100 million customers in the sectors of telecommunications, high technology, pulp and paper, radio and space technology, banking, retail, mass media, tourism and healthcare services. Founded in 1993. Sistema’s global depositary receipts are listed under the symbol SSA on the London Stock Exchange. Sistema’s ordinary shares are listed under the ticker AFKS on Moscow Exchange.

([15]) RCIF is an equity fund established by the Russian Direct Investment Fund (RDIF) and China Investment Corporation (CIC), hold its stake in PJSC Detsky Mir through its funds: FLOETTE HOLDINGS LIMITED and EXARZO HOLDINGS LIMITED.