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MAGNIT PJSC (MGNT)
PJSC 'Magnit' Announces Audited FY 2018 Results
15-March-2019 / 10:00 MSK
Dissemination of a Regulatory Announcement that contains inside information
according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
PJSC "Magnit" Announces Audited FY 2018 Results
***********************************************
Krasnodar, Russia (15 March, 2019): Magnit PJSC (MOEX and LSE: MGNT), one of
Russia's leading retailers announces its audited FY 2018 results prepared in
accordance with IFRS.
Key figures presented in this press release immaterially differ from the
numbers under management accounts announced by Magnit on February 7, 2019.
Key operating and financial highlights for 2018:
- Revenue increased by 8.2% from 1,143 billion RUR in 2017 to 1,237
billion RUR in 2018.
- The company opened 2,049 stores on net basis (1,302 convenience stores,
731 drogerie stores and 16 supermarkets). Total store base reached 18,399
stores as 2018 year-end.
- Addition of selling space in 2018 amounted to 669 thousand sq. m. (or
11.6% growth YoY) compared to 687 thousand sq. m. in 2017.
- LFL1 sales declined (2.5%) composed of 0.1% growth of average ticket and
(2.6%) traffic decline, but demonstrated positive dynamics towards the end
of the year.
- Gross Profit2 margin in 2018 was 24.0%. Margin contraction of 136bps vs
previous year was a result of a combination of investments into prices,
higher share of wholesale segment as well as share of fresh & food segment
in total sales, sell off of slow-moving assortment accumulated in 2017 and
first half of 2018 and higher transportation costs, offset partially by
improved commercial terms from suppliers.
- SG&A expenses as percentage of sales improved by 59bps to 20.3%. The
main driver of improvement were payroll expenses due to increased
productivity being partly offset by higher rent and bank services.
- EBITDA3 in 2018 was 89.9 billion RUR. Full year EBITDA margin was 7.3%
or 75bps lower than a year ago driven by gross margin dynamics partly
mitigated by increased operating efficiency.
- Net finance costs decreased by 17.3% to RUR 10.3 billion compared to
2017 (RUR 12.5 billion) due to a reduction of interest rates despite
higher net debt.
- Other income was 11.1% higher in 2018 vs 2017 and reached RUR 7.8
billion. As a percentage of revenue it showed marginal improvement by
2bps.
- Income tax for 2018 was RUR 9.2 billion. Effective tax rate was 21.4% vs
21.8% in 2017.
- As a result, we achieved net income of RUR 33.9 billion and margin of
2.7% in 2018 went down YoY by 4.7% and 37bps respectively.
- Capital expenditures of RUR 53.8 billion for 2018 were 28.5% less than
in 2017. This was a result of lower number of openings and redesigned
stores and more efficient capital deployment for new store openings.
- Net cash generated from operating activities before net interest and
income taxes paid decreased modestly by 0.1% to RUR 78.8 billion as a
result of positive working capital movements offset by lower profit before
income tax.
- As of 31 December 2018 Net Debt was RUR 137.8 billion. Compared to the
end of 2017 it was RUR 29.7 billion higher due to buy-back program and
debt inherited with SIA acquisition. Net Debt / EBITDA was 1.5x.
Olga Naumova, Magnit's Chief Executive Officer, said:
"Magnit as a company went through many changes in 2018. After ownership
changes early on in 2018, a new Supervisory Board and management team
started work in the first half of 2018. From mid-year 2018 we started a
turnaround program, with many internal processes and policies being
introduced and implemented. At our Capital Markets Day in September we
announced our new strategy concentrating on improving the performance of our
existing business. We thus embarked on several new projects laying the
foundation for our transformation including development our new CVP's for
all formats, revamping our category management, planning the launch of a
comprehensive cross format loyalty program and developing new procedures for
effective inventory management. These projects are now in either pilot
phases or being launched and we should see positive results later this year
and in 2020.
Despite the challenging macro environment of 2018 with slow macro growth and
stagnating consumer purchasing power we were able to post a top line 8.2%
growth for the full year, an EBITDA margin of 7.3% for 2018 and first
indications of LFL growth in the fourth quarter of the year. These results
give us a solid base for our transformation program for this year and
allowed us to pay dividends as well as launch a significant share buyback
program, which was successfully concluded in March this year.
Late last year we also closed our deal of acquiring SIA, a whole sale pharma
business. This transaction was very important as we were able to acquire a
solid platform enabling our rapid growth of the highly profitable Magnit
Cosmetics format and the launch of our Magnit Pharmacy format. I am
delighted to say the initial integration of SIA into Magnit and pilots have
gone in line with plans been and now over 2000 cosmetic stores or around 50%
of the total shops are already serviced through the platform and the launch
of our planned 2000 pharmacies has commenced successfully.
We also embarked on a major effort in launching a culture change basing it
on customer centricity and decentralized front office, allowing for faster
decision making and more localized customer value propositions.
A lot is happening at Magnit but I am confident that together with Jan and
our strong management team we will be successful in our transformation
during 2019 and will deliver on our promises in the coming years."
Financial results for FY 2018
12M 2018 12M 2017 Change
Net sales 1,237,015 1,143,314 8.2%
Convenience stores 917,853 846,113 8.5%
Supermarkets 207,434 206,214 0.6%
Drogerie Stores 91,563 78,786 16.2%
Wholesale 20,164 12,201 65.3%
Gross Profit 296,447 289,498 2.4%
Gross Margin, % 24.0% 25.3% n/a
EBITDAR 141,140 136,967 3.0%
EBITDAR Margin, % 11.4% 12.0% n/a
EBITDA 89,931 91,644 (1.9%)
Adjusted EBITDA4 91,429 91,644 (0.2%)
EBITDA Margin, % 7.3% 8.0% n/a
Adjusted EBITDA Margin, % 7.4% 8.0% n/a
EBIT 53,413 57,928 (7.8%)
EBIT Margin, % 4.3% 5.1% n/a
Profit before tax 43,072 45,424 (5.2%)
Taxes (9,207) (9,885) (6.9%)
Net Income 33,865 35,539 (4.7%)
Net Income Margin, % 2.7% 3.1% n/a
Net sales for 2018 amounted to RUR 1,216.9 billion or 7.6% higher than in
2017 driven by new store openings of 2,049 stores (or 11.6% of selling space
growth) and LFL sales growth of (2.5%). The main contribution to sales comes
from the convenience segment while strongest sales growth was demonstrated
by the drogerie format.
Wholesale reached RUR 20.2 billion, an increase of 65.3% compared to 2017.
Gross profit for the whole year increased by 2.4% and gross profit margin
for 2018 was 24.0% vs 25.3% a year ago. Gross profit margin deteriorated by
136bps as a result of the following factors:
- Cost of goods sold increased ahead of sales contributing 122bps of the
contraction:
? Due to investments into prices, higher shrinkage due to created
provisions for write-offs and increased share of fresh assortment,
pressure from selling off the old slow moving stock and increased share of
wholesale segment from 1.1% to 1.6% in 2018;
? Partially offset by improvements in commercial terms from suppliers.
- Transportation expenses as percentage of sales increased by 14bps as
higher centralization ratio (89% vs 88%), reduced average distance per trip
(560km vs 490 km) and other operational efficiency wasn't enough to offset
the impact of higher fuel prices and increased external transport rates.
12M 2018 12M 2017 Change
Payroll and related taxes 107,833 107,806 0.0%
as a % of Sales 8.7% 9.4% (0.7%)
Rent 51,209 45,323 13.0%
as a % of Sales 4.1% 4.0% 0.2%
Depreciation & amortization 36,517 33,716 8.3%
as a % of Sales 3.0% 2.9% 0.0%
Utilities 21,274 19,591 8.6%
as a % of Sales 1.7% 1.7% 0.0%
Advertising 8,601 8,432 2.0%
as a % of Sales 0.7% 0.7% (0.0%)
Other expenses 7,587 7,376 2.9%
as a % of Sales 0.6% 0.6% (0.0%)
Bank services 6,059 4,466 35.7%
as a % of Sales 0.5% 0.4% 0.1%
Repair and maintenance 4,421 5,041 (12.3%)
as a % of Sales 0.4% 0.4% (0.1%)
Taxes, other than income tax 3,804 3,399 11.9%
as a % of Sales 0.3% 0.3% 0.0%
Packaging and raw materials 3,531 3,443 2.5%
as a % of Sales 0.3% 0.3% (0.0%)
Total SG&A 250,837 238,593 5.1%
as a % of Sales 20.3% 20.9% (0.6%)
SG&A excl D&A 214,319 204,877 4.6%
as a % of Sales 17.3% 17.9% (0.6%)
SG&A expense as percentage of sales improved YoY by 59bps in 2018:
- Payroll related expenses decreased 71bps mainly due to increased overall
productivity in the Company by 10.1%
- Utilities went up only 1bp as indexation of tariffs in July 2018 were
almost completely offset by energy consumption reduction
? Rent as percentage of sales went up by 18bps due to higher share of rented
space of 69.5% vs 66.4% a year ago
- Advertising costs as percentage of sales decreased 4bps due to positive
impact of more cost effective media channels used for promotion campaigns
? Bank services as percentage of sales were higher by 10bps due to increased
rates for money collection which was partly offset by introduction of
automated deposit machines inside stores
- Maintenance expenses reduced by 8bps as a percentage of sales vs 2017 due
to review of suppliers and improved commercial terms
As a result, operating profit for the Company was RUR 53.4 billion for 2018,
7.8% lower than previous year.
12M 2018 12M 2017 Change
Operating profit 53,413 57,928 (7.8%)
Finance cost (8,926) (12,638) (29.4%)
FX gain / (loss) (1,415) 134 n/a
Profit before tax 43,072 45,424 (5.2%)
Taxes (9,207) (9,885) (6.9%)
Net Income 33,865 35,539 (4.7%)
Net Income Margin, % 2.7% 3.1% (0.4%)
Finance costs decreased by 29.4% to RUR 8.9 billion compared to 2017 (RUR
12.6 billion). It is a result of lower interest rates in combination with
refinancing activities and lower average amount of borrowings compared to
previous year. The weighted average cost of debt for 2018 was 7.2%
(including the effect of subsidized debt).
Income tax for 2018 was RUR 9.2 billion. Effective tax rate was 21.4% vs
21.8% in 2017.
As a result, net income for 2018 was RUR 33.9 billion and net income margin
2.7%, down YoY by 4.7% and 37bps respectively.
Cash Flow Statement for FY 2018
12M 2018 12M 2017 Change
Operating cash flows before working 90,434 92,262 (2.0%)
capital changes
Changes in working capital (11,604) (13,386) (13.3%)
Net Interest and income tax paid (14,093) (17,868) (21.1%)
Net cash from operating activities 64,737 61,008 6.1%
Net cash used in investing (53,208) (74,195) (28.3%)
activities
Net cash generated / (used) (3,119) 14,965 n/a
from/(in) financing activities
Net cash increase / (decrease) 8,410 1,778 373.0%
The Company's cash flows from operating activities before changes in working
capital for 2018 equalled RUR 90.4 billion, which was RUR 1.8 billion or
2.0% less than a year ago. The change in working capital decreased to RUR
11.6 billion from RUR 13.4 billion in 2017 mainly due to inventories
increase as a result of assortment review, increase of trade payables
turnover days mainly driven by addition of SIA payables of RUR 18.1 billion
and overall turnover increase.
Net interest and income tax paid in 2018 decreased by RUR 3.8 billion or
21.1% to RUR 14.1 billion. Net interest expenses reduced by 25.6% YoY to RUR
9.7 billion in 2018 due to lower interest rates and refinancing activities
held during the year supported with lower YoY average amount of borrowings.
Income tax paid for 2018 slightly reduced to RUR 4.4 billion with effective
tax rate improved to 21.4% vs 21.8% in the previous year.
With this net cash flows from operating activities in 2018 increased by 6.1%
to RUR 64.7 billion.
Net cash used in investing activities predominantly composed of capital
expenditures decreased by 28.3% from RUR 74.2 billion in 2017 to RUR 53.2
billion in 2018. The result is attributable to lower number of store
openings (2,385 stores in 2018 vs 2,665 in 2017), net selling space growth
in 2018 was only through rent option, less refurbishments were conducted in
2018, decrease of advance payments and lower investments in own production.
In 2018 net cash generated from financing activities was negative RUR 3.1
billion vs RUR 15 billion in 2017. The Company paid dividends in 2017 in the
amount of RUR 29.2 billion, while in 2018 dividend payments were reduced to
RUR 13.8 billion due to buyback program which amounted to RUR 17.7 billion
for the reported period. As a result, the difference is explained mainly by
dynamics of proceeds from borrowings, repayments of loans and a one off
effect related to additional issue of shares of RUR 45 billion in 2017.
Debt composition and leverage as of 31.12.2018
12M 2018 12M 2017 Change
Gross debt 164,573 126,460 30.1%
Long term debt 93,736 86,338 8.6%
Short term debt 70,837 40,122 76.6%
Net debt 137,826 108,123 27.5%
Net debt / EBITDA 1.5 1.2
As of 31 December 2018 Net Debt was RUR 137.8 billion. Compared to the end
of 2017 it was RUR 29.7 billion higher due to buyback program of RUR 17.7
billion and debt inherited with SIA acquisition of RUR 10.4 billion.
Company's debt is fully RUR denominated matching revenue structure. As of
year-end it was 57% long term. Net/Debt to EBITDA ratio as of year-end was
1.5x, below industry averages.
IFRS 16 implications
IFRS 16 came into force from the beginning of this year. The Company will
use the full retrospective approach. According to the new standard the
Company has to reconsider rent with fixed rates as financial lease
liabilities. As a result, it reduces rent expenses at a cost of depreciation
and interest payments. On the balance sheet side Assets increase with new
rights-of-use and Liabilities with debt and lower Equity, due to the
difference between historic rental costs and new depreciation amounts due to
discounting approach.
As a result of these changes the preliminary estimate for FY 2018 EBITDA is
about 60% increase, while Net Income is expected to drop less than 25% and
leverage ratio to increase to about 3.2 times.
Note the calculation of the IFRS 16 impact is preliminary. First results to
be published under IFRS 16 will be Magnit's 1Q 2019 update on 30th of April.
SIA acquisition impact
On 27 November 2018 the Company acquired one of the largest distributors of
pharmaceutical products and medical goods SIA Group with the purpose of
developing proprietary logistic capacities and increase in performance
efficiency of "Magnit Cosmetic" and "Magnit Pharmacy" stores.
From the date of acquisition SIA Group contributed RUR 2 billion of revenue
and RUR 0.2 billion to profit before tax from continuing operations of the
Group.
The cost of Group purchase was RUR 5.3 billion which with negative net asset
at fair value of RUR 17.5 billion resulted to a goodwill of RUR 22.7
billion. The goodwill is attributable to expected synergies arising from the
acquisition. The total amount of goodwill is allocated to Group activities
under the "Magnit Cosmetic" and "Magnit Pharmacy" formats, including related
stores and warehouses.
At the date of acquisition, the Company had information about provisional
fair values for SIA Group assets and liabilities mainly composed of:
property, plant and equipment of RUR 5.9 billion, deferred tax assets of RUR
2.6 billion, receivables of RUR 5 billion, inventories of RUR 2.2 billion,
debt of RUR 11.7 billion and payables RUR 20.7 billion.
Buyback program
In 2018 JSC "Tander" (Magnit's subsidiary company) purchased 4,760,089 of
Magnit's shares from the open market, the cost of which amounted to RUR 17.7
billion. Part of this in the amount of 1,513,601 shares or RUR 5.3 billion
were transferred as a payment for acquiring a SIA business.
The buyback program was completed in accordance with previously announced
information on 1 March 2019. Total number of shares repurchased from the
open market was 5,897,776 or RUR 22.2 billion. As of the end of the buyback
program Tander's share in total Magnit's shares outstanding reached 4.3%.
These shares will be used for long term staff incentive purposes.
Note:
1) This announcement contains inside information which is disclosed in
accordance with the Market Abuse Regulation which came into effect on 3
July 2016.
2) Please note that there may be small variations in calculation of
totals, subtotals and/ or percentage change due to rounding of decimals.
3) Please follow the link to view FY 2018 financial report -
http://ir.magnit.com/en/financial-reports/ [1] or
http://www.morningstar.co.uk/uk/NSM [2].
For further information, please contact
Dmitry Kovalenko Media Inquiries
Director for Investor Relations Media Relations Department
Email: kovalenko_dv3@magnit.ru Email: press@magnit.ru
Office: +7-861-277-4554 x 46082
Note to editors:
Public Joint Stock Company "Magnit" is one of Russia's leading retailers.
Founded in 1994, the company is headquartered in the southern Russian city
of Krasnodar. As of December 31, 2018, Magnit operated 37 distribution
centers and 18,399 stores (13,427 convenience, 467 supermarkets and 4,505
drogerie stores) in 2,976 cities and towns throughout 7 federal regions of
the Russian Federation.
In accordance with the audited IFRS results for 2018, Magnit had revenues of
RUB 1,237 billion and an EBITDA of RUR 90 billion. Magnit's local shares are
traded on the Moscow Exchange (MOEX: MGNT) and its GDRs on the London Stock
Exchange (LSE: MGNT) and it has a credit rating from Standard & Poor's of
BB.
Forward-looking statements:
This document contains forward-looking statements that may or may not prove
accurate. For example, statements regarding expected sales growth rate and
store openings are forward-looking statements. Forward-looking statements
involve known and unknown risks, uncertainties and other important factors
that could cause actual results to differ materially from what is expressed
or implied by the statements. Any forward-looking statement is based on
information available to Magnit as of the date of the statement. All written
or oral forward-looking statements attributable to Magnit are qualified by
this caution. Magnit does not undertake any obligation to update or revise
any forward-looking statement to reflect any change in circumstances.
ISIN: US55953Q2021
Category Code: MSCU
TIDM: MGNT
LEI Code: 2534009KKPTVL99W2Y12
OAM Categories: 2.2. Inside information
Sequence No.: 7827
EQS News ID: 787949
End of Announcement EQS News Service
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(END) Dow Jones Newswires
March 15, 2019 03:00 ET (07:00 GMT)