MAGNIT PJSC (MGNT)
Magnit announces 10.5% revenue growth and adjusted EBITDA margin of 6.9% in 1H
2019
20-Aug-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 10.5% revenue growth and adjusted EBITDA margin of 6.9% in 1H
2019
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Krasnodar, Russia (20 August, 2019): Magnit PJSC (MOEX and LSE: MGNT), one of
Russia's leading retailers announces its reviewed 1H 2019 results prepared in
accordance with IFRS.
Key operating and financial highlights for 1H 2019:
- Total revenue increased by 10.5% from RUB 595.3 billion in 1H 2018 to RUB
657.9 billion in 1H 2019.
- LFL[1] sales growth improved to 1.1% on 4.1% average ticket growth and
2.9% traffic decline.
- The Company opened 1,536 stores[2] on net basis (804 convenience stores
and 733 drogerie stores as well as 1 supermarket closure) compared to 612
stores (378 convenience stores, 6 supermarkets and 228 drogerie stores)
opened in 1H 2018. Total store base reached 19,884 stores as of June 30,
2019.
- Addition of selling space in 1H 2019 amounted to 511 thousand sq. m.
representing 16.7% selling space growth YoY compared to 190 thousand sq. m.
in 1H 2018.
- During the reported quarter the Company redesigned 1,027 convenience
stores and 438 drogerie stores (compared to 414 convenience stores and 40
drogerie stores in 1H 2018). As of June 30, 2019 the share of stores
operating under the new concept reached 63% and 40% respectively.
- Gross Profit in 1H 2019 stood at RUB 155.6 billion with margin of 23.7%.
The impact of the fire at the Voronezh DC on gross margin was 15 bps or RUB
1.0 billion. Adjusted for this one-off factor, gross margin in 1H 2019 was
23.8% or 90 bps lower compared to 1H 2018 due to higher shrinkage partially
offset by improvements in commercial terms with suppliers.
- Adjusted EBITDA[3] in 1H 2019 was RUB 45.3 billion with 6.9% margin. The
decline of 65 bps YoY was caused by gross margin dynamics and increased
operating expenses a lot driven by additional pressure coming from stores in
the ramp up phase.
- Net income in 1H 2019 decreased by 44.8% YoY and stood at RUB 9.8 billion.
Net income margin decreased by 149 bps YoY to 1.5%.
- As of 30 June 2019, Net Debt was RUB 181.4 billion. Compared to the end of
2018 it was RUB 43.6 billion higher due to payments of dividends for the
full year 2018 and accelerated redesign program and store openings. Net Debt
/ EBITDA ratio was 2.1x.
Events after the reported period:
- The Company announced appointment of Anna Bobrova to the position of the
HR Director.
Financial results for 1H 2019
IAS 17 IFRS 16
million 1H 1H Change 1H 2019 1H 2018 Change
RUB 2019 2018[4]
Total 657,91 595,263 10.5% 657,917 595,263 10.5%
revenue 7
Retail 643,01 584,746 10.0% 643,012 584,746 10.0%
2
Wholesale 14,905 10,517 41.7% 14,905 10,517 41.7%
Gross 155,59 147,067 5.8% 155,598 147,067 5.8%
Profit 8
Gross 23.7% 24.7% -106 23.7% 24.7% -106
Margin, % bps bps
EBITDA 45,295 44,866 1.0% 76,348 72,400 5.5%
adjusted[
5]
EBITDA 6.9% 7.5% -65 bps 11.6% 12.2% -56 bps
Margin
adjusted
EBITDA 44,294 44,866 -1.3% 75,346 72,400 4.1%
pre
LTI[6]
EBITDA 6.7% 7.5% -80 bps 11.5% 12.2% -71 bps
Margin
pre LTI,
%
EBITDA 43,319 44,866 -3.4% 74,371 72,400 2.7%
EBITDA 6.6% 7.5% -95 bps 11.3% 12.2% -86 bps
Margin, %
EBIT 20,049 27,429 -26.9% 28,894 37,526 -23.0%
EBIT 3.0% 4.6% -156 4.4% 6.3% -191
Margin, % bps bps
Profit 13,248 22,462 -41.0% 5,983 18,282 -67.3%
before
tax
Taxes -3,443 -4,697 -26.7% -1,990 -3,861 -48.5%
Net 9,805 17,765 -44.8% 3,993 14,421 -72.3%
Income
Net 1.5% 3.0% -149 0.6% 2.4% -182
Income bps bps
Margin, %
Total net retail sales in 1H 2019 stood at RUB 643.0 billion or 10.0% higher
than in 1H 2018 driven by 16.7% selling space growth (or 1,536 new stores) and
LFL sales growth of 1.1%. The main contribution to sales comes from the
convenience segment while strongest sales growth was demonstrated by the
drogerie format.
Wholesale revenue in 1H 2019 increased by 41.7% up to RUB 14.9 billion
primarily driven by contribution from SIA Group. Share of wholesale segment
increased from 1.8% in 1H 2018 to 2.3% in 1H 2019.
Gross Profit in 1H 2019 increased by 5.8% YoY and stood at RUB 155.6 billion
with margin of 23.7%. Gross profit margin deteriorated by 106 bps as a result
of the following factors:
? The growth of the cost of goods sold outpaced the sales growth
representing 133 bps of margin contraction due to:
? The fire at the Voronezh DC causing gross margin contraction in the
amount of RUB 1.0 billion or 15 bps;
? Changes in the accounting policy starting in 2019, related to the
reclassification of warehousing costs from G&A expenses to the cost of
goods sold applied only for 2019 numbers resulting in gross margin
contraction (as well as G&A contraction) for the reported period while
2018 numbers remained unchanged;
? Combination of investments into prices and higher shrinkage due to
assortment review and increased share of wholesale segment;
? Improvements in commercial terms from suppliers and increased share of
drogerie segment.
? Transport costs as percentage of sales decreased by 28 bps as higher
centralization ratio (90% vs 89% in 1H 2018), reduced average distance per
trip and other operational efficiency more than offset the impact of higher
fuel prices and increased external transport rates.
IAS 17 IFRS 16
million RUB 1H 1H 2018 Change 1H 1H 2018 Change
2019 2019
Payroll and 59,33 53,304 11.3% 59,339 53,304 11.3%
related 9
taxes
as a % of 9.0% 9.0% 6 bps 9.0% 9.0% 6 bps
Sales
Rent 30,67 26,692 14.9% 221 71 209.6%
4
as a % of 4.7% 4.5% 18 bps 0.0% 0.0% 2 bps
Sales
Depreciation 23,27 17,437 33.4% 45,477 34,874 30.4%
& 0
amortization
as a % of 3.5% 2.9% 61 bps 6.9% 5.9% 105 bps
Sales
Utilities 12,12 11,264 7.6% 12,124 11,264 7.6%
4
as a % of 1.8% 1.9% -5 bps 1.8% 1.9% -5 bps
Sales
Advertising 4,127 3,277 25.9% 4,127 3,277 25.9%
as a % of 0.6% 0.6% 8 bps 0.6% 0.6% 8 bps
Sales
Other 4,140 3,474 19.2% 4,140 3,474 19.2%
expenses
as a % of 0.6% 0.6% 5 bps 0.6% 0.6% 5 bps
Sales
Bank 3,178 3,018 5.3% 3,178 3,018 5.3%
services
as a % of 0.5% 0.5% -2 bps 0.5% 0.5% -2 bps
Sales
Repair and 2,455 1,850 32.7% 2,455 1,850 32.7%
maintenance
as a % of 0.4% 0.3% 6 bps 0.4% 0.3% 6 bps
Sales
Taxes, other 1,672 1,915 -12.7% 1,672 1,915 -12.7%
than income
tax
as a % of 0.3% 0.3% -7 bps 0.3% 0.3% -7 bps
Sales
Packaging 1,672 1,794 -6.8% 1,672 1,794 -6.8%
and raw
materials
as a % of 0.3% 0.3% -5 bps 0.3% 0.3% -5 bps
Sales
Total SG&A 142,6 124,027 15.0% 134,40 114,843 17.0%
50 4
as a % of 21.7% 20.8% 85 bps 20.4% 19.3% 114 bps
Sales
SG&A excl 119,3 106,589 12.0% 88,926 79,969 11.2%
D&A 80
as a % of 18.1% 17.9% 24 bps 13.5% 13.4% 8 bps
Sales
SG&A expenses in 1H 2019 reached RUB 142.6 billion and as a percentage of
sales increased by 85 bps YoY:
? Payroll related expenses increased by 6 bps due to newly introduced LTI
program and its' accrued expenses of 15 bps, compensations related to
changes in management structure 18 bps, the impact of incoming pressure from
new stores in the ramp up phase, offset by increased overall productivity in
the Company.
? Rent as a percentage of sales went up by 18 bps as share of rented space
in 1H 2019 increased to 71.4% compared to 67.5% a year ago despite falling
rent expense per sq. m. of leased selling space.
? Depreciation of assets as a percentage of sales in 1H 2019 was 61 bps
higher than in 1H 2018. Under the new IFRS 16 methodology, the Company has
adjusted useful life of assets in line with the period of corresponding
lease agreements. As a result, the useful life for the most types of
leasehold improvements in rented stores changed from 30 to 10 years and
depreciation has been recalculated accordingly.
? Utilities went down by 5 bps driven by measures undertaken to reduce
energy consumption.
? Advertising costs as a percentage of sales increased by 8 bps due to
changes in structure of communication channels.
? Bank services as a percentage of sales went down by 2 bps as introduced
automated deposit machines inside stores more than offset increased rates
for money collection.
? Repair and maintenance expenses increased by 6 bps as a percentage of
sales compared to 1H 2018.
? Taxes other than income tax as a percentage of sales improved by 7 bps
compared to 1H 2018 due to increased share of rented stores and cancelled
tax on movable property since 2019.
? Packaging and raw materials as a percentage of sales reduced by 5 bps
driven by improved purchasing terms with suppliers.
? Other expenses as a percentage of sales increased by 5 bps in 1H 2019
driven by payments for long term consultancy contracts that were expensed in
the reported period as the projects were finished.
As a result, operating profit for the Company in 1H 2019 stood at RUB 20.0
billion or 26.9% lower than a year ago.
IAS 17 IFRS 16
million 1H 2019 1H 2018 Change 1H 2019 1H 2018 Change
RUB
Operating 20,049 27,429 -26.9% 28,894 37,526 -23.0%
profit
Net -7,442 -4,264 74.5% -23,551 -18,542 27.0%
finance
cost
FX gain / 641 -703 -191.2% 641 -703 -191.2%
(loss)
Profit 13,248 22,462 -41.0% 5,983 18,282 -67.3%
before tax
Income tax -3,443 -4,697 -26.7% -1,990 -3,861 -48.5%
Net Income 9,805 17,765 -44.8% 3,993 14,421 -72.3%
Net Income 1.5% 3.0% -149 bps 0.6% 2.4% -182 bps
Margin, %
Finance costs increased by 74.3% to RUB 7.6 billion compared to RUB 4.4
billion in 1H 2018 due to higher average amount of borrowings compared to the
previous year. The weighted average effective interest rate for 1H 2019 was
8.4% (including the effect of subsidized debt).
Income tax for 1H 2019 was RUB 3.4 billion. Effective tax rate increased to
26.0% compared to 20.9% in 1H 2018 due to higher share of non-deductible
expenses.
As a result, net income in 1H 2019 decreased by 44.8% YoY and stood at RUB 9.8
billion. Net income margin decreased by 149 bps YoY to 1.5%.
Cash Flow Statement for 1H 2019
IAS 17 IFRS 16
million 1H 2019 1H 2018 Change 1H 2019 1H 2018 Change
RUB
Operating 45,176 45,004 0.4% 75,687 71,573 5.7%
cash flows
before
working
capital
changes
Changes in -22,502 -16,443 36.8% -21,446 -16,090 33.3%
working
capital
Net -8,390 -5,780 45.2% -24,499 -20,057 22.1%
Interest
and income
tax paid
Net cash 14,285 22,780 -37.3% 29,741 35,426 -16.0%
from
operating
activities
Net cash -22,070 -20,343 8.5% -21,374 -19,701 8.5%
used in
investing
activities
Net cash -2,050 -10,241 -80.0% -18,203 -23,529 -22.6%
generated
/ (used)
from/(in)
financing
activities
Net cash -9,836 -7,804 26.0% -9,836 -7,804 26.0%
increase /
(decrease)
The Company's cash flows from operating activities before changes in working
capital for 1H 2019 equalled to RUB 45.2 billion, which was RUB 0.2 billion or
0.4% higher YoY. The change in working capital increased to RUB 22.5 billion
from RUB 16.4 billion in 1H 2018 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 RUB 18.1 billion in the end of 2018 and
overall turnover increase.
Net interest and income tax paid in 1H 2019 increased by RUB 2.6 billion or
45.2% to RUB 8.4 billion. Net interest expenses increased by 36.7% YoY to RUB
6.7 billion in 1H 2019 due to higher YoY average amount of borrowings. Income
tax paid for 1H 2019 increased to RUB 1.7 billion.
With this net cash flows from operating activities in 1H 2019 decreased by
37.3% to RUB 14.3 billion.
Net cash used in investing activities predominantly composed of capital
expenditures increased by 8.5% from RUB 20.3 billion in 1H 2018 to RUB 22.1
billion in 1H 2019. The result is attributable to higher number of store
openings (1,536 stores in 1H 2019 vs 612 in 1H 2018), more refurbishments
conducted in 1H 2019 partially offset by decrease of advance payments and
lower investments in own production.
In 1H 2019 net cash used in financing activities was RUB 2.1 billion vs RUB
10.2 billion in 1H 2018. In 1H 2019 the Company paid dividends in the amount
of RUB 29.9 billion and did a buyback of RUB 5.1 billion. The rest was driven
by dynamics of proceeds from borrowings and repayment of loans.
Debt composition and leverage as of 30.06.2019
million RUB 1H 2019 Share, FY Share, % 1H Share, %
% 2018 2018
Gross debt 198,313 164,57 115,59
3 6
Long term debt 120,789 60.9% 93,736 57.0% 67,013 58.0%
Short term debt 77,524 39.1% 70,837 43.0% 48,584 42.0%
Net debt 181,401 137,82 105,06
6 3
Net debt / 2.1 1.5 1.2
EBITDA
As of 30 June 2019 Net Debt under IAS 17 was RUB 181.4 billion compared to RUB
137.8 billion at the end of 2018. The net debt increase was due to payments of
dividends for the full year 2018 and acceleration of redesign program and
store openings. Company's debt is fully RUB denominated matching revenue
structure. As of end of 1H 2019 it was 61% long-term debt. Net/Debt to EBITDA
ratio was 2.1x.
Changes in classification of income and expense in the profit and loss
statement
Numbers presented in this press release differ from the numbers prepared in
accordance with the management accounts announced by Magnit for the 1Q and 2Q
2019 operating results. Based on the results review, certain income and
expense items of the profit and loss statement were reclassified. This
reclassification did not impact the final financial result but changed the
allocation of items within the profit and loss statement. The changes relate
to:
1) Allocation of income from advertising services and lease and sublease
income to revenue. It was decided to allocate this income below gross
profit;
2) Allocation of income from penalties to suppliers, as well as cost of
sales for promo campaigns to cost of goods sold. It was decided to allocate
the penalties to other income, while cost of sales for promo campaigns - to
selling expense;
3) Breakdown of sales by retail and wholesale.
Adjusted numbers are provided in the table below:
Reported during 2019 Restated Difference
million RUB 1Q19 2Q19 1H19 1H19 1H19
Total 318,984 342,879 661,863 657,917 -3,946
revenue
Retail 310,598 333,279 643,877 643,012 -865
Wholesale 6,644 7,396 14,040 14,905 865
Other 1,742 2,204 3,946 - -3,946
Gross 75,853 82,216 158,069 155,598 -2,471
Profit
Gross 23.8% 24.0% 23.9% 23.7% -0.23%
Margin, %
IFRS 16 implications
IFRS 16 came into force from the beginning of this year. The Company uses the
full retrospective approach. According to the new standard the Company
reconsidered rent with fixed rates as financial lease liabilities.
Under the IFRS 16 methodology rent expense went down by RUB 30.5 billion
bringing new EBITDA up to RUB 74.4 billion and EBITDA margin of 11.3%, which
is 472 bps better versus IAS 17 result.
Depreciation increased by RUB 22.2 billion and interest expenses grew by RUB
16.1 billion.
1H 2019 income tax compared to IAS 17 improved by 42.2% or RUB 1.5 billion,
while profit before tax decreased by 54.8% or RUB 7.3 billion. New effective
tax rate was 33.3% compared to 26.0% in 1H 2019 pre-IFRS 16 driven by
increased share of non-deductible expenses.
As a result, IFRS 16 net income stood at RUB 4.0 billion or 0.6% margin. It
was RUB 5.8 billion and 88 bps lower compared to previous accounting
methodology.
IFRS 16 has the following key impacts on the statement of financial position:
? Assets increased by RUB 308.6 billion due to the introduction of
rights-of-use assets line;
? Liabilities increased by RUB 350.6 billion due to the introduction of
lease liabilities line;
? Equity reduced by RUB 42.1 billion, due to the difference between historic
rental costs and new depreciation and interest expenses amounts due to
discounting approach.
IFRS 16 affects the structure of Cash flow statement with no impact on the Net
cash change itself.
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 1H 2019 financial report -
http://ir.magnit.com/en/financial-reports/ [1]
For further information, please contact:
Dmitry Kovalenko Dina Chistyak Media Inquiries
Director for Investor Relations Director for Investor Relations Media
Relations Department
Email: dmitry_kovalenko@magnit.ru Email: dina_chistyak@magnit.ru Email:
press@magnit.ru
Office: +7 (861) 210-48-80 Office: +7 (861) 210-9810 x 15101
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 June 30, 2019, Magnit operated 38 distribution centers and
19,884 stores (14,231 convenience, 466 supermarkets and 5,187 drogerie stores)
in 3,354 cities and towns throughout 7 federal regions of the Russian
Federation.
In accordance with the reviewed IFRS results for 1H 2019, Magnit had revenues
of RUB 658 billion and an EBITDA of RUB 43 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] 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.
[2] The number of stores does not include pharmacies.
[3] Adjusted for long-term incentive program accruals and one-off costs
related to damage cased from the fire at Voronezh DC.
[4] 1H 2018 numbers have been recalculated for reclassification of lease and
sublease income from G&A expenses to a separate line and reclassification of
FX differences below EBITDA.
[5] Adjusted for the accident on Voronezh DC and LTI expense
[6] Long-Term Incentive Program
ISIN: US55953Q2021
Category Code: MSCU
TIDM: MGNT
LEI Code: 2534009KKPTVL99W2Y12
OAM Categories: 2.2. Inside information
Sequence No.: 17295
EQS News ID: 859963
End of Announcement EQS News Service
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(END) Dow Jones Newswires
August 20, 2019 03:00 ET (07:00 GMT)
