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MAGNIT PJSC (MGNT)
Magnit Announces 1Q 2019 results in line with its expectations
30-Apr-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.
Magnit Announces 1Q 2019 results in line with its expectations
**************************************************************
Krasnodar, Russia (30 April, 2019): Magnit PJSC (MOEX and LSE: MGNT), one of
Russia's leading retailers announces its operating and unaudited financial
1Q 2019 results prepared in accordance with IFRS.
Please note the Company will continue to provide analysis of financial
metrics using pre-IFRS 16 approach during 2019 in order to support smooth
and transparent transition of the market to the new reporting standard.
Respective financial data with IFRS 16 implication is disclosed further in
the text.
Key operating and financial highlights for 1Q 2019:
- Total revenue[1] increased by 10.1% from RUB 289.7 billion in 1Q 2018 to
RUB 319.0 billion in 1Q 2019.
- Net retail sales growth was 8.9% reaching RUB 310.6 billion.
- Wholesale revenue increased by 105.8% up to RUB 6.6 billion primarily
driven by contribution from SIA Group.
- LFL[2] sales growth reached 0.6% composed of 4.2% growth of average
ticket and 3.5% traffic decline.
- The Company opened 875 stores[3] on net basis (482 convenience stores
and 393 drogerie stores) compared to 277 stores (158 convenience stores, 1
supermarket and 118 drogerie stores) opened in 1Q 2018. Increase of store
openings YoY is attributable to a shift in calendarization during the
year. Total store base reached 19,223 stores as of end of 1Q 2019.
- Addition of selling space in 1Q 2019 amounted to 293 thousand sq. m. (or
15.2% growth YoY) compared to 75 thousand sq. m. in 1Q 2018.
- During the quarter the Company completed redesigns of 518 convenience
stores and 182 drogerie stores (compared to 150 convenience stores and 10
drogerie stores in 1Q 2018) bringing share of stores operating under new
concept to 58% and 31% respectively.
- Gross Profit margin[4] in 1Q 2019 improved versus previous quarter by 29
bps to 23.8%.
Margin contraction of 55 bps vs previous year was a result of a
combination of higher share of low marginal wholesale segment in total
sales, sell off of slow-moving assortment accumulated in 2017 and first
half of 2018 and higher shrinkage, offset partially by improved commercial
terms from suppliers, increased share of drogerie segment and more
efficient logistics.
- EBITDA in 1Q 2019 was RUB 19.1 billion with 6.0% margin. Decline of 107
bps YoY was driven by gross margin dynamics and operating expenses
increasing as percentage of sales. Higher productivity in LFL stores and
reduced marketing expenses were not enough to offset the combination of:
(1) the impact of incoming pressure from new stores in the ramp up phase;
(2) accrued LTI provisions; (3) one off compensation to new Management
Board member; (4) increased cleaning and electricity expenses; (5) higher
rent costs due to added leased space.
- Depreciation of assets in the 1Q 2019 was RUB 11.5 billion, 31.6% higher
than in the 1Q 2018 driven by a review of useful life of assets to match
the depreciation to the length of the lease agreements in line with
IFRS16.
- Net finance costs increased by 51.7% to RUB 3.6 billion compared to 1Q
2018 (RUB 2.4 billion) due to higher debt and increased market rates. The
weighted average effective interest rate[5] for the quarter was 7.8%
(including the effect of subsidized debt).
- Income tax for 1Q 2019 was RUB 1 billion. Effective tax rate increased
to 22.5% compared to 21.1% in 1Q 2018 due to higher share of
non-deductible expenses.
- As a result, we achieved net income of RUB 3.5 billion and margin of
1.1% in 1Q 2019 went down YoY by 52.2% and 145 bps respectively.
- As of 31 March 2019 Net Debt was RUB 182.6 billion compared to the end
of 2018 of RUB 137.8 billion. Net Debt growth is attributable mostly to
payments of dividends for 9 months 2018, completion of a buyback program
for LTI purposes, acceleration of redesign program and store openings. Net
Debt / EBITDA ratio as of end of 1Q 2019 was 2.1x.
Key events in 1Q and after the reported period:
- During the 1Q 2019 Management Board was extended to 10 members with Jan
Dunning (President), Vladimir Sorokin, Jyrki Talvitie joining the Company
and Maria Dei being promoted to the Management Board.
- Magnit launched a unified brand for its family of stores. Magnit's
proximity stores, Family and Family+ supermarkets, drogerie and pharmacy
stores will come together under single branding unified by the slogan
"Let's bring families together!".
- The Company completed a buyback program launched in September 2018 in
accordance with previously announced information on 1 March 2019.
- The Company commenced and completed an additional buyback in early April
in the total sum of RUB 607 million.
- Magnit launched its cross format loyalty program in the end of 1Q 2019.
The pilot started in Yaroslavl, Chelyabinsk and Kostroma regions. With the
new loyalty program customers will be able to spend bonuses across all
formats of Magnit family of stores.
- The Board of Directors recommended to pay dividends for the results of
2018 reporting year in the amount of RUB 17.0 billion, which accounts for
RUB 166.78 per one ordinary share.
Jan Dunning, President of Magnit, commented:
"Our results for the first quarter were on budget and in line with our
previous messaging and guidance for 2019. The results also reflect the stage
of transformation we are in, as we dismantle and rebuild the whole customer
value proposition.
Breaking down the quarter we see that we had a very challenging January and
February, with some one-offs and as we had a push to change assortment,
getting rid of old and introducing new. This work is still not complete but
we have already started to see better trends in sales, LFL's and traffic in
March and April."
Olga Naumova, Magnit's Chief Executive Officer, said:
"Magnit sales growth for the first quarter 2019 exceeded 10% on the back of
positive LFL sales growth for the second consecutive quarter with an EBITDA
margin of 6.0%. While we are pleased to report positive LFL sales growth the
target is to achieve positive traffic dynamics across all formats while
maintaining strong ticket growth. This is essential to achieving the
ambitious targets we have set ourselves for the transformation of Magnit.
We are pleased to see our core convenience format showing improvements
through LFL. We are moving in line with internal forecasts and expect
stronger improvements in the second half of the year. March and April trends
look promising highlighting sound improvement in traffic trends with stable
positive ticket dynamics on the back of improved product mix. Strategic
projects are on track either at pilot or at integration stage. As a result,
we reiterate our guidance to deliver sustainable EBITDA margin for full year
2019."
Operating results for 1Q 2019
1Q 2018 1Q 2019 Change Change, %
Total net retail sales, million 285,332 310,598 25,265 8.9%
RUB
Convenience stores 215,300 237,475 22,174 10.3%
Supermarkets 48,551 47,752 -799 -1.6%
Drogerie Stores 20,943 24,730 3,787 18.1%
Other formats 537 641 104 19.3%
Number of Stores (EOP) 16,575 19,223 2,648 16.0%
Convenience stores 12,283 13,909 1,626 13.2%
Supermarkets 452 467 15 3.3%
Drogerie Stores 3,840 4,847 1,007 26.2%
New Store Openings (NET) 277 875 598 215.9%
Convenience stores 158 482 324 205.1%
Supermarkets 1 0 -1 -100.0%
Drogerie Stores 118 393 275 233.1%
Total Selling Space (EOP), th. 5,830 6,718 888 15.2%
sq. m.
Convenience stores 4,011 4,643 632 15.7%
Supermarkets 924 941 16 1.8%
Drogerie Stores 892 1,130 238 26.6%
New Selling Space, th. sq. m. 75 293 219 292.5%
Convenience stores 53 199 146 274.8%
Supermarkets -6 -2 5 -76.2%
Drogerie Stores 28 94 66 235.0%
Number of tickets, million 1,005 1,057 52 5.2%
Convenience stores 847 891 44 5.2%
Supermarkets 92 90 -2 -1.8%
Drogerie Stores 65 75 10 14.9%
Average ticket[6], RUB 284 294 10 3.5%
Convenience stores 254 267 12 4.9%
Supermarkets 527 528 1 0.1%
Drogerie Stores 323 332 9 2.8%
1Q 2019 LFL results
LFL composition, % Average Ticket Traffic Sales
Total 4.2% -3.5% 0.6%
Convenience stores 4.9% -3.6% 1.1%
Supermarkets 1.3% -4.5% -3.2%
Drogerie Stores 3.2% 0.1% 3.3%
Total net retail sales for the 1Q 2019 was RUB 310.6 billion or 8.9% growth
YoY (which is 9.5% growth YoY including VAT) driven by a combination of
selling space growth of 15.2% and LFL sales growth of 0.6%.
Increased YoY number of openings is purely the result of shift in
calendarization with the plan to even store openings during the year.
LFL dynamics for the total store network was a result of negative traffic
-3.5% offset by average ticket growth of 4.2%. We continue adjusting
assortment and expanding higher price categories which is appreciated by our
customers and reflected in positive assortment mix (trade up) - the main
driver of LFL average ticket growth. Average ticket (net of VAT) in the 1Q
2019 was higher YoY across all formats, including 4.9% in the convenience
format, 0.1% in supermarkets and 2.8% in drogerie stores. 4Q 2018 trends
continued during the first two months of the 1Q 2019 due to promotional
campaigns launched for November 2018 - February 2019 period. March and April
results look encouraging and we are pleased to see improving traffic trends.
Sales growth in the convenience format was 10.3% driven by selling space
growth of 15.7% and LFL sales growth of 1.1% accelerated from 0.3% in the 4Q
2018. Although traffic growth remained negative -3.6%, the average ticket
growth accelerated to 4.9% due to strong trading up as a result of
assortment changes, improved availability in the stores and service level of
own and external deliveries.
Sales growth in supermarkets was -1.6% on the back of selling space growth
of 1.8%. Supermarkets LFL sales growth declined to -3.2% (from -0.7% in 4Q
2018) due to traffic decline to -4.5% (from -1.8% in 4Q 2018) on the back of
average ticket growth of 1.3%. The new CVP for the format was approved late
March and it is currently being piloted before the full scope roll-out
across supermarket stores.
Sales growth in the drogerie segment was 18.1% driven by a combination of
selling space growth of 26.6% and LFL sales growth of 3.3%. LFL traffic
growth was 0.1% and average ticket growth was 3.2%.
Magnit continues its renovation program with 518 convenience stores and 182
drogerie stores redesigned during the first quarter. As a result, the share
of stores operating under new concept reached 58% for convenience and 31%
for drogerie format.
Monthly operating results for 1Q 2019
January Y-o-Y, % February Y-o-Y, % March Y-o-Y, %
Total net 100,415 9.5% 97,353 7.3% 112,830 9.7%
retail
sales,
million RUB
Convenience 77,451 10.8% 73,972 8.6% 86,052 11.3%
stores
Supermarkets 15,445 0.6% 14,983 -2.9% 17,324 -2.5%
Drogerie 7,377 15.8% 8,133 15.8% 9,221 22.1%
Stores
Other 144 9.6% 265 48.0% 233 2.3%
formats
Number of 18,637 n/a 18,909 n/a 19,223 n/a
Stores (EOP)
Convenience 13,583 n/a 13,722 n/a 13,909 n/a
stores
Supermarkets 467 n/a 467 n/a 467 n/a
Drogerie 4,587 n/a 4,720 n/a 4,847 n/a
Stores
New Store 289 n/a 272 n/a 314 n/a
Openings
(NET)
Convenience 156 n/a 139 n/a 187 n/a
stores
Supermarkets 0 n/a 0 n/a 0 n/a
Drogerie 133 n/a 133 n/a 127 n/a
Stores
Total 6,517 12.9% 6,604 14.1% 6,718 15.2%
Selling
Space (EOP),
th. sq. m.
Convenience 4,506 13.5% 4,560 14.5% 4,643 15.7%
stores
Supermarkets 941 1.1% 941 1.6% 941 1.8%
Drogerie 1,068 22.4% 1,099 25.0% 1,130 26.6%
Stores
New Selling 93 n/a 87 n/a 114 n/a
Space, th.
sq. m.
Convenience 62 n/a 54 n/a 82 n/a
stores
Supermarkets -2 n/a 0 n/a 0 n/a
Drogerie 32 n/a 32 n/a 31 n/a
Stores
Number of 342 4.2% 330 4.5% 384 6.7%
Customers,
million
Convenience 290 4.2% 278 4.5% 323 6.6%
stores
Supermarkets 30 -0.7% 28 -2.7% 33 -1.9%
Drogerie 23 10.7% 24 14.5% 28 18.9%
Stores
Average 293 5.1% 295 2.6% 294 2.9%
ticket, RUB
Convenience 267 6.4% 266 3.9% 266 4.4%
stores
Supermarkets 522 1.3% 534 -0.2% 528 -0.6%
Drogerie 324 4.6% 339 1.1% 332 2.7%
Stores
Financial results for 1Q 2019
IAS 17 IFRS 16
million 3M 3M Change 3M 2019 3M 2018 Change
RUB 2019 2018[7]
Total 318,98 289,690 10.1% 318,984 289,690 10.1%
revenue 4
Retail 310,59 285,332 8.9% 310,598 285,332 8.9%
8
Wholesale 6,644 3,229 105.8% 6,644 3,229 105.8%
Other 1,742 1,128 54.4% 1,742 1,128 54.4%
Gross 75,853 70,492 7.6% 75,853 70,492 7.6%
Profit
Gross 23.8% 24.3% -55 bps 23.8% 24.3% -55 bps
Margin, %
EBITDA 19,561 20,480 -4.5% 34,411 33,670 2.2%
pre LTI
EBITDA 6.1% 7.1% -94 bps 10.8% 11.6% -83 bps
Margin
pre LTI,
%
EBITDA 19,143 20,480 -6.5% 33,993 33,670 1.0%
EBITDA 6.0% 7.1% -107 10.7% 11.6% -97 bps
Margin, % bps
EBIT 7,616 11,722 -35.0% 12,958 15,744 -17.7%
EBIT 2.4% 4.0% -166 4.1% 5.4% -137
Margin, % bps bps
Profit 4,569 9,394 -51.4% 1,761 6,442 -72.7%
before
tax
Taxes -1,026 -1,984 -48.3% -515 -1,394 -63.1%
Net 3,543 7,409 -52.2% 1,246 5,048 -75.3%
Income
Net 1.1% 2.6% -145 0.4% 1.7% -135
Income bps bps
Margin, %
Total revenue for 1Q 2019 amounted to RUB 319.0 billion or 10.1% driven by:
? new store openings of 875 stores (or 15.2% selling space growth)
? LFL sales growth of 0.6%
? Wholesale revenue of RUB 6.6 billion increased by 105.8% YoY mainly due
to consolidated sales of SIA wholesale business.
? Other revenue primarily generated by rent income and income from
advertising services reclassified from respective cost centers. The
Company applied changes retrospectively and recalculated comparable data
for 2018.
Gross Profit in 1Q 2019 stood at RUB 75.9 billion with margin of 23.8%. We
note improvement of margin versus 4Q 2018 by 29 bps despite the fact that
traditionally gross margin in the 1Q is the weakest for retailers. Margin
contraction of 55 bps versus previous year was a result of higher share of
wholesale segment in total sales (2.1% vs 1.1% in 1Q 2018), sell off of
slow-moving assortment accumulated in 2017 and first half of 2018 and higher
shrinkage, offset partially by improved commercial terms from suppliers,
increased share of drogerie segment (7.8% vs 7.2% in 1Q 2018) and more
efficient logistics.
EBITDA in 1Q 2019 was RUB 19.1 billion and 6.0% margin down 107 bps YoY
driven by gross margin dynamics and increased as a percentage of sales
operating expenses. With high number of new store openings share of stores
in the ramp up phase increased creating additional pressure on SG&A
expenses. Increased productivity in LFL store base was more than offset by
accrued LTI provisions and one off cash compensation to the President of
Magnit, Jan Dunning. Elevated utilities expense was driven mainly by
increased rates on cleaning services and indexation of electricity rates in
the middle of previous year, partly mitigated by internal measures focused
on energy consumption reduction. Higher rental costs were driven by growing
share of leased selling space (75.6% in 1Q 2019 versus 71.9% a year ago)
while ongoing efforts on contract terms improvement helped to drive down
rental costs per sq. m. of selling space.
Depreciation of assets in the 1Q 2019 was RUB 11.5 billion, 31.6% higher
than in the 1Q 2018. With new IFRS 16 in place the Company has revised
useful life of the assets bringing it in line with the period of respective
lease agreements. As a result, useful life of reconstructions was decreased
from 30 years to 10 years and depreciation recalculated accordingly.
Net finance costs increased by 51.7% to RUB 3.6 billion compared to 1Q 2018
(RUB 2.4 billion) due to higher interest rates in combination with higher
average amount of borrowings compared to previous year. The weighted average
effective interest rate for 1Q 2019 was 7.8% (including the effect of
subsidized debt).
Income tax for 1Q 2019 was RUB 1 billion. Effective tax rate increased to
22.5% compared to 21.1% in 1Q 2018 due to higher share of non-deductible
expenses.
As a result, we achieved net income of RUB 3.5 billion and margin of 1.1% in
1Q 2019 went down YoY by 52.2% and 145 bps respectively.
As of 31 March 2019 Net Debt was RUB 182.6 billion compared to RUB 137.8
billion at the end of 2018. The net debt increase was due to payments of
dividends for 9 months 2018, completion of a buyback program for LTI
purposes, acceleration of redesign program and store openings. Company's
debt is fully RUB denominated matching revenue structure. As of end of 1Q
2019 it was 59% long term debt. Net/Debt to EBITDA ratio was 2.1x.
IFRS 16 implications
IFRS 16 equalizes presentation of leased assets with owned assets. Thus,
rent expenses were replaced with depreciation and interest payments. The
lease capitalized is reduced on straight line basis but interest is charged
on outstanding lease liabilities, thus interest is higher in the earlier
years and decreases over time. As a result, the impact on the net income
depends a lot on average lease maturity - the higher maturity of the store
is, the lower interest charges are. As Magnit leased store base is
relatively young, with an average of 3.5 years, the impact on net income is
high but will decrease significantly going forward. Share of lease contracts
with rental periods of 10 years or over is about 80%, while share of
contracts with at least half of duration left is almost 75%.
Due to the above changes rent expense went down by RUB 14.8 billion bringing
new EBITDA up to RUB 34.0 billion and EBITDA margin of 10.7%, which is 466
bps better versus IAS 17 result.
Depreciation increased by RUB 9.5 billion and interest expenses grew by RUB
8.1 billion.
1Q 2019 income tax compared to IAS 17 improved by 49.8% or RUB 0.5 billion,
while profit before tax decreased by 61.5% or RUB 2.8 billion. New effective
tax rate was 29.2% compared to 22.5% in 1Q 2019 pre-IFRS 16 driven by
increased share of non-deductible expenses.
As a result, IFRS 16 net income stood RUB 1.2 billion or 0.4% margin. It was
RUB 2.3 billion and 72 bps lower compared to previous accounting
methodology.
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.
For further information, please contact:
Dmitry Kovalenko
Director for Investor Relations
Email: dmitry_kovalenko@magnit.ru
Office: +7 (861) 210-48-80
Dina Chistyak
Director for Investor Relations
Email: dina_chistyak@magnit.ru
Office: +7 (861) 210-9810 x 15101
Media Inquiries
Media Relations Department
Email: press@magnit.ru
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 March 31, 2019, Magnit operated 38 distribution centres
and 19,223 stores (13,909 convenience, 467 supermarkets and 4,847 drogerie
stores) in 3,077 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 RUB 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.
=---------------------------------------------------------------------------
[1] Since 2019 the Company reviewed revenue composition and reclassified
income from advertising services and rental income from respective cost
centres into revenue line. Changes were applied retrospectively and had
impact on all ratios calculated as percentage of revenue.
[2] LFL calculation base includes stores, which have been opened for 12
months since its first day of sales. LFL sales growth and average ticket
growth are calculated based on sales turnover including VAT.
[3] The number of stores does not include pharmacies.
[4] Note during 2018 and 1Q 2019 the Company extended list of expenses
related to cost of sales, including expenses for the processing of goods at
distribution centres (payroll, utilities, etc.), penalties for goods for
resale, cost of sales for promo campaigns. The Company applied changes
retrospectively and recalculated comparable data for 2018.
[5] Interest expense, including respective fees, divided by average gross
debt (including subsidized debt) calculated as the average amount of debt at
the end of the month preceding to reporting period and of each month of the
reporting period
[6] Excluding VAT
[7] 1Q 2018 data was recalculated to be comparable with the 1Q 2019
approach, including new methodology for gross profit calculation.
ISIN: US55953Q2021
Category Code: MSCU
TIDM: MGNT
LEI Code: 2534009KKPTVL99W2Y12
OAM Categories: 2.2. Inside information
Sequence No.: 8428
EQS News ID: 805121
End of Announcement EQS News Service
(END) Dow Jones Newswires
April 30, 2019 03:00 ET (07:00 GMT)
