DJ O'KEY Group S.A.: O'KEY Group announces audited financial results for 2018
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O'KEY Group S.A. (OKEY)
O'KEY Group S.A.: O'KEY Group announces audited financial results for 2018
01-Apr-2019 / 15:07 CET/CEST
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.
Press Release
1 April 2019
O'KEY GROUP ANNOUNCES AUDITED FINANCIAL RESULTS FOR 2018
O'KEY Group S.A. (LSE: OKEY, the 'Group'), one of the leading Russian food
retailers, announces its financial results for the FY2018 based on
consolidated financial statements reviewed by auditors.
All the materials published by the Group are available on its website at
www.okeyinvestors.ru [1].
2018 financial highlights
- Underlying Group revenue, excluding the effect of the supermarket
business unit sale (32 stores), fell by 1.1% YoY. IFRS Group revenue
decreased by 8.4% YoY, from RUB 176,076 mln[1] to RUB 161,303 mln
- Underlying revenue generated by O'KEY hypermarkets, excluding the effect
of the supermarket business unit sale (32 stores), decreased by 3.4% YoY.
IFRS revenue generated by O'KEY decreased by 10.9% YoY to RUB 147,688 mln.
- Revenue generated by DA! grew 31.9% YoY to RUB 13,616 mln, supported by
solid growth in traffic and the average ticket
- The Group's gross margin grew by 20 bps, reaching 23.2%, while gross
profit decreased by 7.6% YoY to RUB 37,382 mln
- The Group EBITDA margin grew by 6 bps YoY to 5.4%, while EBITDA
decreased by 7.4% YoY to RUB 8,644 mln
- O'KEY's EBITDA margin increased by 20 bps YoY to 7.1%, while EBITDA fell
8.3% YoY to RUB 10,416 mln
- EBITDA loss generated by DA! improved from negative RUB 2,024 mln
(-19.6% of sales) in 2017 to negative RUB 1,772 mln (-13.0% of sales) in
2018, driven by new store openings and higher LFL sales
Key events in 2018
- Two hypermarkets (in Moscow[2] and Novocherkassk) and nineteen new
discounters (in the Moscow, Tver, and Tula regions) were opened in 2018,
while four discounters and one supermarket were closed
- Under the framework agreement on the sale of O'KEY's supermarket
business unit, all 32 supermarkets included within the deal were
transferred to the buyer up to and including April 2018
- In July, RAEX (Expert RA) assigned O'KEY a 'ruA-' rating with a positive
outlook
- In 2018, the Group extended the maturity dates of several long-term
borrowings
- In August 2018, the Group signed non-revolving loan facility agreements
with Sberbank in the total amount of RUB 12 bn, which were used for
refinancing the current loan agreements and enabled lengthening the debt
portfolio duration
- In October, the Group redeemed the bond issue 4?02-04-36415-R placed on
15 October 2013 with a coupon rate of 8.9%-11.7% for the total amount of
RUB 5,050,112 ths
- In December, we moved both the O'KEY and DA! headquarters in close
proximity to each other in new offices to encourage cooperation and active
dialogue between both formats
- As at the end of 2018, the Group's weighted average interest rate
decreased from 9.8% as at the end of 2017 to 8.8%. The Group maintains its
strong focus on debt portfolio optimisation
Guidance
- We expect the net retail revenue generated by our hypermarket business
in 2019 to grow by low single digits YoY, while profitability will stay at
the level of 2018
- We expect double-digit LFL growth from our discounter business in 2019,
driven by growing popularity of the business model among customers. Up to
20-25 new store openings are planned for 2019
Group profit and losses
RUB mln 2018 2017 Change, YoY
Total Group revenue[3] 161,303 176,076 (8.4%)
Gross profit 37,382 40,444 (7.6%)
Gross profit margin 23.2% 23.0% 20 bps
SG&A (33,915) (36,189) (6.3%)
SG&A as % of revenue 21.0% 20.6% 47 bps
Group EBITDA[4] 8,644 9,335 (7.4%)
Group EBITDA margin 5.4% 5.3% 6 bps
Net loss (599) 3,167 n/a
Group operating results
Segment 2018 2017
Net Traffic Average Net Traffic Average
retail ticket retail ticket
revenue revenue
LFL Group (3.3%) (2.6%) (0.6%) (1.4%) (2.2%) 0.8%
LFL (4.3%) (4.8%) 0.4% (3.2%) (5.0%) 1.9%
hypermarket
s
Discounters 31.9% 27.8% 3.3% 81.8% 62.8% 11.7%
LFL 12.7% 9.5% 1.2% 52.0% 34.8% 12.7%
discounters
Revenue
In 2018, underlying Group revenue, excluding the effect of the supermarket
business unit sale, fell by 1.1% YoY. IFRS Group revenue decreased by 8.4%
YoY to RUB 161,303 mln. The revenue decline was primarily triggered by the
supermarket business unit sale (32 stores) initiated in December 2017.
Weakened consumer sentiment resulting from real disposable income
diminishing by 0.2% YoY[5] amid rising inflation, stagnant pensions and
intensifying market competition continued to put pressure on the Group's
operations during the year. In addition adaptation to new working schedules
influenced service levels and freshness during the summer period putting
pressure on a top line.
The closure of hypermarkets in Cherepovets and Sterlitamak in 1H 2017 and
supermarket in Omsk in 2H 2018, along with the temporary closure of the
hypermarkets at the RIO shopping mall (from July 2017 to May 2018) and
Otrada shopping park (in December 2018) in Moscow also impacted the Group's
results during the period under review.
By the end of the reporting period, total selling space increased by 1.2% to
584,914 sq. m. O'KEY selling space decreased by 0.7% to 528,124 sq. m, while
DA! selling space increased by 22.9% to 56,790 sq. m.
Cost of goods sold and gross profit
Gross profit as a percentage of revenue increased by 20 bps in 2018 to RUB
37,382 mln. The table below provides the breakdown of cost of goods sold in
2018 and 2017.
RUB mln 2018 % of 2017 % of Change,
revenue revenue YoY
Total revenue 161,303 100.0% 176,076 100.0%
Cost of goods sold (123,922) 76.8% (135,631) 77.0% (20 bps)
Cost of trading stock (115,981) 71.9% (127,883) 72.6% (73 bps)
Inventory shrinkage (2,875) 1.8% (3,086) 1.8% 3 bps
Logistics costs (4,424) 2.7% (3,834) 2.2% 57 bps
Labelling and (642) 0.4% (828) 0.5% (7 bps)
packaging costs
Gross profit 37,382 23.2% 40,444 23.0% 20 bps
The gross profit increase was mostly driven by a reduction in cost of
trading stock as a percentage of revenue by 73 bps YoY, resulting from
successful negotiations with suppliers enabling more favourable purchasing
conditions to be secured and continued renewal and enhancement of the
product mix.
Gradual increase in logistics centralisation YoY along with growing level of
logistics tariffs contributed to a logistics cost increase by 57 bps YoY.
Shrinkage costs as a percentage of revenue remained almost flat YoY, while
in absolute terms it decreased by 6.8%.
Selling, general and administrative costs
General, selling, and administrative expenses as a percentage of revenue
increased by 47 bps YoY in 2018. The table below provides the general,
selling, and administrative expenses breakdown for 2018 and 2017.
RUB mln 2018 % of 2017 % of Change,
revenue revenue YoY
Personnel costs (14,068) 8.7% (15,619) 8.9% (15 bps)
Operating leases (5,426) 3.4% (5,758) 3.3% 9 bps
Depreciation and (4,367) 2.7% (4,613) 2.6% 9 bps
amortisation
Communication and (3,503) 2.2% (3,525) 2.0% 17 bps
utilities
Advertising and marketing (2,012) 1.3% (2,116) 1.2% 5 bps
Repairs and maintenance (1,230) 0.7% (1,254) 0.7% 5 bps
Insurance and bank (817) 0.5% (819) 0.5% 4 bps
commissions
Operating taxes (803) 0.5% (730) 0.4% 8 bps
Security expenses (736) 0.5% (869) 0.5% (4 bps)
Legal and professional (630) 0.4% (520) 0.3% 10 bps
expenses
Materials and supplies (294) 0.2% (330) 0.2% 0 bps
Other costs (29) 0.0% (36) 0.0% 0 bps
Total SG&A 33,915 21.0% 36,189 20.6% 47 bps
Personnel costs
During the year, we revised the work schedules of employees in hypermarkets,
which, along with ongoing business process optimisations aimed at efficiency
increases per hour and per square metre at both store and head office
levels, led to a personnel costs decrease by 15 bps YoY as a percentage of
revenue. In 2019, the Group will maintain its focus on improving the
efficiency of business processes.
Operating leases
Operating lease costs as a percentage of revenue increased by 9 bps YoY to
3.4%, while in absolute terms it decreased by 5.8% YoY. The decrease,
primarily attributable to the sale of the supermarket business, was
partially offset by the continued rollout of discounters during the year, in
line with approved plans. The operating lease expenses as a percentage of
revenue are expected to decrease as the discounters continue to gain
traction[6].
Communication and utilities costs
Communication and utilities expenses as a percentage of revenue increased by
17 bps YoY to 2.2%. The increase was primarily caused by the indexation of
tariffs in the second half of 2017. The Group continues to work towards
optimising related costs and achieving efficiency gains.
Advertising and marketing expenses
Advertising and marketing expenses as a percentage of revenue increased by 5
bps YoY to 1.3%, while in absolute terms it decreased by 3.9% YoY. During
2018, the Group was focused on marketing model optimisation, whereby the
most efficient channels of communication were prioritised over those
delivering poorer results.
Legal and professional expenses
Legal and professional expenses as a percentage of revenue increased by 10
bps YoY to 0.4%. The increase in legal and professional expenses was largely
attributable to consulting costs arising from the sale of the supermarket
business and marginal growth of software costs on the back of new IT systems
implementation.
EBITDA[7]
RUB mln O'KEY Change, DA! Change, Group Change
YoY YoY ,
YoY
2018 2017 2018 2017 2018 2017
Revenue 147, 165,7 (10.9%) 13,6 10,33 31.9% 161,3 176,0 (8.4%)
688 44 16 2 03 76
EBITDA 10,4 11,35 (8.3%) (1,7 (2,02 (12.5%) 8,644 9,335 (7.4%)
16 9 72) 4)
EBITDA 7.1% 6.9% 20 bps - - - 5.4% 5.3% 6 bps
margin
The Group EBITDA margin grew by 6 bps YoY to 5.4%, while EBITDA decreased by
7.4% YoY to RUB 8,644 mln.
O'KEY's EBITDA margin increased by 20 bps YoY to 7.1%, while EBITDA fell
8.3% YoY to RUB 10,416 mln. The EBITDA margin increase was primarily driven
by improved purchasing terms and increased operational efficiency across the
Group.
EBITDA loss generated by DA! improved from negative RUB 2,024 mln (-19.6% of
sales) in 2017 to negative RUB 1,772 mln (-13.0% of sales) in 2018, driven
by increased efficiency.
Depreciation and amortisation
Depreciation and amortisation as a percentage of revenue increased by 9 bps
YoY to 2.7%, while in absolute terms it decreased by 5.4%. The D&A increase
as a percentage of revenue was mainly driven by growth in intangible assets
during the year and continued discounter rollouts.
Operating taxes
Operating taxes as a percentage of revenue increased by 8 bps YoY to 0.5%.
The increase in operating taxes was mainly caused by changes in the Russian
tax legislation leading to an increased cadastral value of real estate.
Net finance costs
While net finance costs as percentage of revenue remained almost unchanged
in 2018, they fell in absolute terms by 8.8% YoY as a result of decreased
finance costs amid the decline in the weighted average interest rate to 8.8%
in 2018 from 9.8% in 2017.
Net loss
Net loss for the Group amounted to RUB 599 mln. The net loss was partly
triggered by an increase in foreign exchange losses, arising from intragroup
USD-denominated loans as well as opening of 19 new discounters.
Cash flow and working capital
RUB mln 2018 2017
Net cash from operating activities 4,762 4,874
Net cash from/(used in) investing activities 3,479 (3,365)
Net cash used in financing activities (7,248) (5,187)
Net increase/(decrease) in cash and cash 993 (3,678)
equivalents
Effect of exchange rate on cash and cash (31) (35)
equivalents
Net cash from operating activities
The gradual improvement in turnover of cash and cash equivalents, trade
payables and trade receivables offset by marginal slowdown in inventories
turnover led to a flat YoY change in working capital turnover in 2018. The
inventory turnover slowdown in 2018 was largely caused by the transition to
the new business model (hypermarkets and discounters), created after the
sale of supermarket business at the end of 2017, as it took some time to
adapt the business processes to its needs.
As a result, net cash from operating activities during the reporting period
stayed almost at the previous year level, amounting to RUB 4,762 mln, while
as at 31 December 2017 cash from operating activities amounted to RUB 4,874
mln.
Net cash from investing activities
Net cash from investing activities amounted to RUB 3,479 mln in 2018. The
increase in this item was primarily a result of the RUB 7,070 mln proceeds
received from the sale of the supermarket business, which more than offset
the Group's 2018 capital expenditures (CAPEX) of RUB 3,622 mln (excluding
VAT). During the reporting period, the Group invested RUB 1,706 mln
(excluding VAT) into the development of its hypermarket business and RUB
1,916 mln (excluding VAT) in growing its discounter business.
Net cash used in financing activities
Net cash used in financing activities in 2018 amounted to negative RUB 7,248
mln. Over the reporting period, the Group attracted RUB 15,006 mln of
financing primarily in the form of long-term credit lines, and made
repayments totalling RUB 16,897 mln. In January 2018, the Group paid
dividends in the total amount of RUB 1,879 mln. The dividend yield as at the
day of the dividend's announcement amounted to 4.7%. As at 31 December 2018,
the Group had RUB 12,207 mln of undrawn, committed borrowing facilities
available in Russian roubles on a fixed and floating rate basis, for which
all conditions have been met. The proceeds from these facilities may be used
to finance operating and investing activities, if necessary.
Debt
The Group considers the Net Debt/EBITDA ratio as the principal means for
evaluating the impact of the Group's borrowings on its operations. As at 31
December 2018, Net Debt/EBITDA was 2.97x, compared with 3.03x on 31 December
2017. The decrease was driven mainly by the reduction in total debt by RUB
1.7 bn YoY. We are maintaining a conservative approach to borrowing and
expect Net Debt/LTM EBITDA to be below 3.0x by the end of 2019.
RUB mln As at 31 As at 31
December 2018 December 2017
Total debt 34,426 36,109
Short-term debt[8] 2,462 11,430
Long-term debt 31,964 24,679
Cash and cash equivalents 8,712 7,750
Net Debt 25,714 28,359
Net debt/EBITDA 2.97x 3.03x
OVERVIEW
O'KEY Group S.A. (LSE: OKEY, RAEX - 'ruA-') operates under two main formats:
hypermarkets under the 'O'KEY' brand and discounters under the 'DA!' brand.
As at 1 April 2019, the Group operates 162 stores across Russia (78
hypermarkets and 84 discounters). The Group opened its first hypermarket in
St. Petersburg in 2002 and has since demonstrated continuous growth. O'KEY
is the first among Russian food retailers to launch and actively develop
e-commerce operations in St. Petersburg and Moscow, offering a full range of
hypermarket products for home delivery. The Group operates six e-commerce
pick-up points in Moscow and six e-commerce pick-up points in St.
Petersburg. The Group operates four distribution centres across the Russian
Federation - two in Moscow and two in St. Petersburg. As at 31 December 2018
the Group employs more than 20,000 people.
For the full year 2018, revenue totalled RUB 161,303,411 thousand, EBITDA
reached RUB 8,644,008 thousand, and net loss for the period amounted to RUB
599,755 thousand.
The O'KEY shareholder structure is as follows: NISEMAX Co Ltd - 44.79%, GSU
Ltd - 29.52%, free float - 25.69%.
DISCLAIMER
These materials contain statements about future events and expectations that
are forward-looking in nature. These statements typically contain words such
as 'expects' and 'anticipates' and words of similar import. Any statement in
these materials that is not a statement of historical fact is a
forward-looking statement that involves known and unknown risks,
uncertainties, and other factors which may cause our actual results,
performance, or achievements to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements.
None of the future projections, expectations, estimates, or prospects in
this announcement should be taken as forecasts or promises, nor should they
be taken as implying any indication, assurance, or guarantee that the
assumptions on which such future projections, expectations, estimates, or
prospects have been prepared are correct or exhaustive or, in the case of
the assumptions, fully stated in this announcement. We assume no obligation
to update the forward-looking statements contained herein to reflect actual
results, changes in assumptions, or changes in factors affecting these
statements.
For further information please contact:
Veronika Kryachko
Head of Investor Relations
+7 495 663 6677 ext. 404
Veronika.Kryachko@okmarket.ru
www.okeyinvestors.ru [1]
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[1] From 1 January 2018, the Group adopted IFRS 15, resulting in changes in
accounting policies and adjustments to the amounts recognised in the
consolidated statement of profit or loss and other comprehensive income.
[2] The RIO hypermarket in Moscow was closed in July 2017 and reopened in
May 2018.
[3] The Group has adopted IFRS 15 from 1 January 2018 which resulted in
adjustments to presentation of revenue, comparable figures were restated
respectively as described in the note 5 of Consolidated Financial
Statements.
[4] EBITDA is earnings before interest, tax, depreciation and amortisation
adjusted for certain one-off items. The explanation of EBITDA calculation is
provided in the note 6 of Consolidated Financial Statements.
[5] Source: Rosstat. Including the impact of a one-off RUB 5,000 payout made
to pensioners in January 2017.
[6] 2019 expected trends are presented without effect of adoption of new
standard IFRS 16 "Leases" as described in note 36 (w) to Consolidated
Financial Statements.
[7] The explanation of EBITDA calculation is provided in the note 6 of
Consolidated Financial Statements.
[8] Short-term debt does not include interest accrued on loans and
borrowings.
ISIN: US6708662019
Category Code: ACS
TIDM: OKEY
LEI Code: 213800133YYU23T4L791
Sequence No.: 8025
EQS News ID: 794233
End of Announcement EQS News Service
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April 01, 2019 09:07 ET (13:07 GMT)
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