MAGNIT PJSC (MGNT)
Magnit Reports 18.5% Sales Growth and 8% LFL Sales Growth in 1Q 2020
29-Apr-2020 / 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 Reports 18.5% Sales Growth and 8% LFL Sales Growth in 1Q 2020
********************************************************************
Krasnodar, Russia (29 April, 2020): Magnit PJSC (MOEX and LSE: MGNT; the
Company), one of Russia's leading retailers, announces its 1Q 2020 operating
and unaudited financial results.
1Q 2020 key operating and financial highlights:
- Total revenue increased by 18.5% y-o-y to RUB 376.0 billion;
- Net retail sales reached RUB 364.8 billion representing 17.6% y-o-y
growth;
- Wholesale revenue increased by 58.9% y-o-y to RUB 11.3 billion driven by
improvements of wholesale operations including expanded assortment and
increased customer base;
- LFL[1] sales growth stood at 7.8% on 3.7% average ticket growth and 4.0%
traffic growth, excluding leap year effect in February;
- The Company opened 321 stores[2] on gross basis (145 convenience stores
and 176 drogeries). Under the previously announced efficiency improvement
campaign, 186 stores (173 convenience stores, 1 supermarket and 12
drogerie stores) were closed, thus bringing the total store base as of
March 31, 2020 to 20,860 stores (135 net store additions);
- Addition of selling space amounted to 38 thousand sq. m., bringing total
selling space to 7,277 thousand sq. m. (8.3% y-o-y growth);
- The Company redesigned 214 convenience stores, 77 drogerie stores and 1
supermarket. As of March 31, 2020 the share of refurbished and new stores
reached 71% of convenience stores and 53% of drogeries;
- Gross Profit stood at RUB 85.2 billion with a margin of 22.7% (down 78
bps y-o-y) driven by a combination of lower trading margin and loyalty
card roll-out partially offset by improved commercial terms, lower
shrinkage and transportation costs, positive impact of product mix,
increased share of high-margin drogerie format and first promo margin
gains;
- Reported EBITDA was RUB 22.7 billion with 6.0% margin having improved by
14 bps y-o-y and 63 bps q-o-q driven by gross margin dynamics and lower
SG&A expenses;
- Net income increased by 30.8% y-o-y and stood at RUB 4.2 billion. Net
income margin increased by 10 bps y-o-y to 1.1%.
Jan Dunning, President and CEO of Magnit, commented:
"Health and safety of our customers and employees and sustainable operations
of our stores are our key priorities during this challenging environment.
Serving up to 16 million of customers every day we are responsible for
continuous supply, availability of products across all categories and
customer-centric services. All our 300,000 employees do everything they can
day and night to meet these challenges. We make every effort to ensure
safety of our customers and employees and work closely with suppliers and
public authorities to secure regular supply of affordable products.
Being a socially responsible company, we think it is important to support
our customers and provide them with affordable offering. The Company has
launched a support program for socially vulnerable citizens including food
aid and additional discounts in stores. We have set zero mark up on certain
socially important products. Under the program to support medical workers,
the Company has issued special cards with higher level of bonuses and will
provide food packages. We also support personnel of other organizations who
had to suspend their operations by engaging them in our stores and
distribution centers.
Resilient and efficient operations in challenging times is our double
responsibility. First quarter results demonstrate our ability to cope well
with the extraordinary situation. We continue implementing our strategic
initiatives aimed at quality improvements of our customer value proposition
and optimization of the key business processes. Positive customer response
is reflected not only in the results of the reported quarter as a whole but
in each month since the start of the year - for the first time in more than
five years we see positive LFL growth across all formats with total sales
growth outpacing selling space growth already in January and February on the
back of decelerating promo activity.
The ability to make quick and efficient decisions in adjusting commercial
and logistics functions, key operational processes and services to changing
demand definitely plays crucial role in the environment of restrictive
measures and macroeconomic uncertainty. Personalization and clusterization
of the customer value proposition supported by our evolving loyalty program
and recently launched digital transformation among other initiatives will
further strengthen our market position."
Key events in 1Q and after the reported period:
- Magnit paid dividends for 9M 2019 in the total amount of c. RUB 15
billion or RUB 147.19 per one ordinary share;
- The Board of Directors recommended to pay dividends for FY 2019 in the
amount of c. RUB 16 billion or RUB 157 per one ordinary share - subject to
shareholders' approval, this may bring total dividend payment to RUB 31
billion (RUB 304 per ordinary share) in line with the previous year;
- Exchange-traded bonds in a value of RUB 15 billion with an interest rate
of 6.2% per annum and 3-year duration were placed on MoEx on March 5,
2020. Analytical Credit Rating Agency ACRA assigned credit rating AA (RU)
to this bond issue;
- It was decided that exchange-traded bonds in a value of RUB 10 billion
with an interest rate of 6.7% per annum and 3-year duration will be placed
on MoEx from April 29, 2020;
- Magnit launched digital transformation by signing a number of agreements
with SAP on integration of IT solutions;
- Since the start of the pilot in March 2019 Magnit issued about 45
million loyalty cards with the number of active users exceeding 31
million. Company-wide the share of tickets with the use of the loyalty
card was 47% with penetration in sales reaching 64%[3];
- The Board elected Maxim Shchegolev, previously appointed as the Director
for Retail Chain Development, Real Estate, and Maintenance, to the
Management Board;
COVID-19 Implications
Safety for customers and employees
The Company undertakes additional measures to protect customers and
employees in the pandemic environment. These included intensified cleaning
of stores and distribution centres, installation of more than 7,000 screen
protectors at the cash desks, purchases of sanitizers, thermometers, thermal
imagers, around 1.4 million respirators, more than 2 million gloves and 20.1
million medical masks for 224 thousand of in-store and supply chain
employees. Special marking has been made in all the stores to ensure
customers keep social distance when shopping.
In the drogerie format cosmetics testers were withdrawn and sales assistants
instructed to keep 1.5m distance while consulting customers. DC staff were
allocated to separate zones. Employees are not allowed to migrate from one
store to another and supervisors can only visit one store per day according
to the preliminary agreed schedule. Mobile teams have been formed across all
regions and formats as well as logistics network to replace their colleagues
in the event of quarantine.
The Company has updated office hygiene program and cleaning procedures,
modified travel policies, arranged flexible working plans and introduced
daily filling of mandatory health check questionnaire by employees before
entering the workplace.
Personnel at the Company's headquarters in Krasnodar and regional offices
across the country started working remotely from mid-March. Up to 90% of the
Head Office employees and about 70% of regional offices currently work in
the remote mode.
Social Responsibility
The Company made a decision to issue approximately 150,000 loyalty cards for
medical officers with an elevated bonus of 20% of the purchase amount (vs
regular 0.5-2%). A discount of 10% on the entire assortment in convenience
stores and supermarkets provided to pensioners as well as volunteers and
social workers making purchases for elderly people who have to follow
self-isolation regime. Magnit and X5 Retail Group signed joint agreement
setting zero mark-up for selected list of socially important articles in the
price-entry segment to support customers during coronavirus epidemic. Magnit
has signed an agreement with more than 20 companies representing fast-food
chains, restaurants and non-food retailers for a temporary hiring of their
employees to work at Magnit stores and distribution centers in 20 Russian
regions to satisfy increasing customer demand. The Company also launched
special MagnitCare program to support socially vulnerable groups of people
providing set of basic food and non-food articles for free. The support so
far has covered over 140,000 targeted recipients in 8 regions.
Increased customer demand
Starting from the second decade of March the Company has increased supply
from its distribution centers to the stores by 20%, while for certain
product categories in high demand supply has been increased by 30%. This
required the whole car fleet of more than 5,400 trucks to be fully utilized
in operations. Moreover, the Company concluded mid-term contracts with
transport companies with guaranteed volumes to ensure transport availability
to be able to serve hikes in supplies. Distribution centers in the Moscow
region, which serve around 2,500 stores, arranged additional deliveries
during nighttime. Management team reviewed delivery schemes and flow types
at DCs to minimize lead times and arranged green corridor custom agreement
for all imported goods.
In order to serve extraordinary demand for socially important items the
Company had to make adjustments in the auto ordering system. For items under
risk of out-of-stock the Company increased stock levels in advance. Faster
shelf replenishment required simplification of in-store operational
standards and increased shelf space for socially important categories. With
all described measures, Magnit managed to maintain stock availability
metrics during the reported period at the industry average level of 90%.
For the details and impact on the Company's costs - see financial results
section.
Store network
Following decision of the federal and local governments Magnit's stand-alone
stores across all formats, including food, drogerie and pharma, continued
operating. Out of 180 supermarkets located in the shopping malls only 3
stores temporarily discontinued operations due to closure of the malls,
while the remaining continued operating through isolated entrance. In
addition, 15 drogerie stores have been temporarily closed due specific
regional restrictions. The Company does not expect visible impact on sales
from interim closure of the abovementioned stores.
Expansion and redesign program
In the environment of lockdown and other country-wide and regional
restrictions the Company is reviewing its store opening and redesign program
across all formats to continue selective expansion with greater focus on
return requirements.
For the details and impact on the Company's full year 2020 forecast - see
guidance section.
1Q 2020 Operating Results
Retail Sales
1Q 2020 1Q 2019 Change Change,
%
Total Net Retail Sales, million 364,784 310,159 54,626 17.6%
RUB
Convenience Stores[4] 279,795 237,475 42,320 17.8%
Supermarkets[5] 50,963 47,752 3,211 6.7%
Drogerie Stores 31,406 24,730 6,676 27.0%
Other Formats[6] 2,621 202 2,418 n/a
Number of Tickets, million 1,195 1,057 138 13.1%
Convenience stores 1,002 891 111 12.5%
Supermarkets 90 90 0 -0.5%
Drogerie Stores 95 75 20 26.9%
Other Formats 8.5 0.7 7.8 n/a
Average Ticket[7], RUB 305 294 12 4.0%
Convenience stores 279 267 13 4.8%
Supermarkets 566 528 38 7.2%
Drogerie Stores 332 332 0 0.0%
Other Formats 305 292 13 4.6%
Stores and Selling Space
1Q 2020 1Q 2019 Change Change, %
Number of Stores (EOP) 20,860 19,223 1,637 8.5%
Convenience Stores 14,594 13,909 685 4.9%
Supermarkets 472 467 5 1.1%
Drogerie Stores 5,794 4,847 947 19.5%
Store Openings (Gross) 321 949 -628 -66.2%
Convenience Stores 145 551 -406 -73.7%
Supermarkets 0 0 0 n/a
Drogerie Stores 176 398 -222 -55.8%
Store Closures 186 74 112 151.4%
Convenience Stores 173 69 104 150.7%
Supermarkets 1 0 1 n/a
Drogerie Stores 12 5 7 140.0%
Store Openings (Net) 135 875 -740 -84.6%
Convenience Stores -28 482 -510 -105.8%
Supermarkets -1 0 -1 n/a
Drogerie Stores 164 393 -229 -58.3%
Total Selling Space (EOP), th. 7,277 6,718 559 8.3%
sq.m
Convenience Stores 4,951 4,643 309 6.7%
Supermarkets 947 941 7 0.7%
Drogerie Stores 1,339 1,130 209 18.5%
Other Formats 39 5 34 n/a
Selling Space Addition (Net), 38 293 -255 n/a
th. sq.m
Convenience Stores 0 199 -199 n/a
Supermarkets -1 -2 0 n/a
Drogerie Stores 36 94 -58 n/a
Other Formats 3 2 2 n/a
LFL results
1Q 2020[8]
LFL composition, % Average Ticket Traffic Sales
Total 3.7% 4.0% 7.8%
Convenience stores 4.0% 4.2% 8.4%
Supermarkets 6.8% -2.4% 4.3%
Drogerie Stores -0.1% 8.9% 8.8%
Trading performance
Total sales in 1Q 2020 grew by 18.5% y-o-y and stood at RUB 376.0 billion.
Better result compared to the previous quarter was achieved thanks to
accelerated retail sales and revenue from wholesale operations partly offset
by lower selling space growth (8.3% in 1Q 2020 vs 12.7% in 4Q 2019).
Net retail sales in 1Q 2020 grew by 17.6% y-o-y and amounted to RUB 364.8
billion driven by a combination of 8.3% selling space growth and 7.8% LFL
sales growth. Starting from January 2020 net retail sales growth has been
outpacing selling space growth on strong LFL results leading to improvement
of sales densities first time since 3Q 2015. LFL sales growth excludes leap
year effect of 4.1% in February (1.4% in 1Q 2020) - including the respective
effect it would reach 9.2% in 1Q 2020 (vs reported 7.8%).
All regions of presence showed solid LFL performance in a positive territory
with Moscow and Saint-Petersburg outpacing the rest.
After turning positive in 4Q 2019 LFL sales growth continued accelerating
and reached 7.8% in 1Q 2020, demonstrating strong improvement in each
consecutive month of the reported quarter. LFL traffic growth of 4.0% vs
0.2% decline in 4Q 2019 was the key driver of these improvements, while LFL
average ticket growth rose to 3.7%. LFL sales growth in 1Q 2020 was positive
for all store formats for the first time since 2Q 2015 driven predominantly
by the contribution of stores opened before 2018.
Despite lower promo intensity vs previous quarter, LFL traffic in 1Q 2020
demonstrated solid positive result for the first time since 4Q 2016. In
January and February, this uplift was driven by a healthy combination of
growing number of unique customers gained from other players, and frequency
of visits. Starting from the second decade of March when customers were
stocking up on dry food and essentials, traffic growth accelerated mainly on
the back of increased visit frequency. Strong LFL traffic results indicate
positive response of the customers to on-going operational improvements and
initiatives.
In 1Q 2020 Magnit completed the roll-out of its cross-format loyalty
program. About 45 million cards have been issued since the start of the
pilot in March 2019 with the number of active users exceeding 70%.
Company-wide, the share of tickets with the use of the loyalty cards was 47%
with penetration in sales reaching 64%.
LFL ticket improvement was driven by growing number of articles per average
basket, especially in March on the back of stockpiling. Trading-up effects
continued thanks to assortment and on-shelf availability improvements,
although without any further acceleration, while in March the Company
recorded minor on-shelf inflation after deflationary environment in January
and February with the continuous gap between Magnit shelf price inflation
and official food CPI.
During the reported quarter promo intensity was gradually easing vs previous
quarter on the back of seasonality, lack of pressure coming from inventory
sell-out as well as low promo sensitivity of customers under lockdown
environment. Despite the share of promo being still higher y-o-y, the gap
has been narrowing each consecutive month of the quarter.
Store network development and performance by format
Convenience segment generated 76.7% of total net retail sales in the
reported quarter. In 1Q 2020 Magnit opened (gross) 145 convenience stores
(compared to 551 in 1Q 2019) and closed 173 stores under the previously
announced efficiency campaign, bringing the total number of convenience
stores to 14,594 stores (28 stores (net) less vs. December 31, 2019).
Selling space of convenience stores increased by 6.7% y-o-y and reached 5
million sq. m. as of March 31, 2020. Sales in the convenience format grew by
17.8% driven by selling space growth of 6.7% and LFL sales growth of 8.4% in
1Q 2020. LFL traffic demonstrated solid growth of 4.2% vs. 0.2% in the
previous quarter and -3.6% in 1Q 2019. LFL average ticket growth accelerated
to 4.0% in 1Q 2020 vs 1.0% in 4Q 2019.
Supermarkets accounted for 14.0% of the Group's net retail sales. During 1Q
2020 Magnit closed 1 supermarket with the total number of supermarkets
reaching 472. Selling space of this format increased by 0.7% and stood at
947 thousand sq. m. (1.2 thousand sq. m. net reduction of selling space
y-o-y). LFL sales of supermarkets turned positive for the first time during
last 5 years and stood at 4.3% driven by solid LFL ticket growth of 6.8% and
negative LFL traffic of 2.4%. LFL traffic demonstrated significant
improvement vs previous quarter with decline slowing down from -7.1% in 4Q
2019 to -2.4% in 1Q 2020. A combination of 0.7% y-o-y selling space growth
and 4.3% LFL sales growth resulted in acceleration of net retail sales
growth in the supermarket format to 6.7% in 1Q 2020.
Share of the drogerie format in the total net retail sales increased to 8.6%
in the reported quarter. During 1Q 2020 Magnit opened (net) 164 cosmetics
stores (compared to 393 in 1Q 2019) and added 36 thousand sq. m. of selling
space. Sales growth in the drogerie format in 1Q 2020 accelerated to 27.0%
on the back of selling space growth of 18.5% and LFL sales growth of 8.8%.
LFL traffic increased to 8.9% from 4.8% in 4Q 2019 again breaking the
maximum during last 4 years. LFL average ticket growth recovered from -2.9%
in 4Q 2019 to -0.1% in 1Q 2020 on higher average price per article.
Magnit continued its renovation program with 214 convenience stores, 77
drogerie stores and 1 supermarket being redesigned during the first quarter.
As a result, the combined share of refurbished and new stores was 71% for
convenience and 53% for drogerie format.
1Q 2020 Monthly Operating Results
January Change February Change March Change
Total net retail 112,392 12.0% 116,103 19.5% 136,289 21.0%
sales, RUB million
Convenience Stores 87,172 12.6% 88,304 19.4% 104,319 21.2%
Supermarkets 15,383 -0.4% 16,603 10.8% 18,977 9.5%
Drogerie Stores 9,121 23.7% 10,374 27.6% 11,911 29.2%
Other Formats 716 n/a 823 n/a 1,082 n/a
Number of tickets, 386 12.8% 384 16.4% 425 10.6%
million
Convenience stores 325 12.3% 322 15.7% 355 9.8%
Supermarkets 29 -1.1% 29 4.0% 32 -3.6%
Drogerie Stores 29 27.1% 31 28.5% 35 25.5%
Other Formats 2.4 n/a 2.7 n/a 3.3 n/a
Average ticket[9], 291 -0.7% 302 2.7% 321 9.4%
RUB
Convenience stores 268 0.2% 275 3.2% 294 10.4%
Supermarkets 526 0.8% 569 6.6% 600 13.7%
Drogerie Stores 316 -2.7% 337 -0.7% 341 2.9%
Other Formats 287 -2.0% 299 0.7% 323 13.0%
Number of Stores 20,764 n/a 20,793 n/a 20,860 n/a
(EOP)
Convenience stores 14,621 n/a 14,618 n/a 14,594 n/a
Supermarkets 472 n/a 472 n/a 472 n/a
Drogerie Stores 5,671 n/a 5,703 n/a 5,794 n/a
Store Openings 84 n/a 61 n/a 176 n/a
(Gross)
Convenience stores 39 n/a 28 n/a 78 n/a
Supermarkets 0 n/a 0 n/a 0 n/a
Drogerie Stores 45 n/a 33 n/a 98 n/a
Store Closures 45 n/a 32 n/a 109 n/a
Convenience stores 40 n/a 31 n/a 102 n/a
Supermarkets 1 n/a 0 n/a 0 n/a
Drogerie Stores 4 n/a 1 n/a 7 n/a
Store Openings 39 n/a 29 n/a 67 n/a
(Net)
Convenience stores -1 n/a -3 n/a -24 n/a
Supermarkets -1 n/a 0 n/a 0 n/a
Drogerie Stores 41 n/a 32 n/a 91 n/a
Total Selling 7,250 11.2% 7,260 9.9% 7,277 8.3%
Space (EOP), th.
sq. m.
Convenience stores 4,955 10.0% 4,956 8.7% 4,951 6.7%
Supermarkets 947 0.7% 947 0.7% 947 0.7%
Drogerie Stores 1,311 22.8% 1,319 19.9% 1,339 18.5%
Other Formats 37 n/a 38 n/a 39 n/a
Selling Space 11.1 n/a 10.2 n/a 17.0 n/a
Added (Net), th.
sq. m.
Convenience stores 2.7 n/a 1.3 n/a -4.4 n/a
Supermarkets -1.2 n/a 0.0 n/a 0.0 n/a
Drogerie Stores 8.7 n/a 7.5 n/a 20.3 n/a
Other Formats 0.8 n/a 1.4 n/a 1.1 n/a
Total net retail sales in each month of the first quarter demonstrated
strong double-digit results accelerating from 12.0% in January to 21.0% in
March despite slowdown of selling space growth from 11.2% to 8.3%
correspondingly. Significant uplift in both total and LFL sales growth
observed in January-February was not related to the coronavirus outbreak
followed by customer forward buying, but mainly attributed to continuous
improvements of customer offer. This resulted in further gain of unique
customers as well as hike in frequency of visits despite lower promo
intensity - deliberate tactics aimed at retaining consumers. Thus, LFL
traffic was the key driver of strong trading in January and February driven
by pick-up in stores opened before 2018, while further sales growth
acceleration in March was also supported by significant LFL ticket increase
related to stockpiling.
Financial results for 1Q 2020
IAS 17 IFRS 16
million 1Q 2020 1Q 2019 Change 1Q 2020 1Q 2019 Change
RUB
Total 376,038 317,242 18.5% 376,038 317,242 18.5%
revenue
Retail 364,784 310,159 17.6% 364,784 310,159 17.6%
Wholesale 11,254 7,083 58.9% 11,254 7,083 58.9%
Gross 85,185 74,333 14.6% 85,185 74,333 14.6%
Profit
Gross 22.7% 23.4% -78 bps 22.7% 23.4% -78 bps
Margin, %
SG&A, % of -20.6% -22.0% 140 bps -19.2% -20.3% 113 bps
sales
EBITDA pre 23,088 19,148 20.6% 40,056 33,997 17.8%
LTI[10]
EBITDA 6.1% 6.0% 10 bps 10.7% 10.7% -6 bps
Margin pre
LTI, %
EBITDA 22,744 18,730 21.4% 39,712 33,579 18.3%
EBITDA 6.0% 5.9% 14 bps 10.6% 10.6% -2 bps
Margin, %
EBIT 11,461 7,203 59.1% 17,407 12,544 38.8%
EBIT 3.0% 2.3% 78 bps 4.6% 4.0% 67 bps
Margin, %
Net -3,777 -3,575 5.6% -11,876 -11,725 1.3%
finance
costs
FX gain / -1,830 528 -446.5% -2,017 528 -482.0%
(loss)
Profit 5,854 4,155 40.9% 3,514 1,347 160.9%
before tax
Taxes -1,653 -944 75.2% -1,185 -432 174.2%
Net Income 4,201 3,212 30.8% 2,329 915 154.6%
Net Income 1.1% 1.0% 10 bps 0.6% 0.3% 33 bps
Margin, %
Total revenue in 1Q 2020 increased by 18.5% and stood at RUB 376.0 billion.
Net retail sales in 1Q 2020 grew by 17.6% y-o-y and amounted to RUB 364.8
billion driven by a combination of 8.3% selling space growth (135 store
additions) and 7.8% LFL sales growth. Sales growth is outpacing selling
space growth for the first time in many years driven by improving sales
densities.
Wholesale revenue in 1Q 2020 increased by 58.9% up to RUB 11.3 billion
driven by improvements of wholesale operations including expanded assortment
and increased customers base. Share of wholesale segment in the total
revenue increased from 2.2% in 1Q 2019 to 3.0% in 1Q 2020.
Gross Profit in 1Q 2020 stood at RUB 85.2 billion with a margin of 22.7%
down by 78 bps y-o-y on lower trading margin and loyalty card roll-out
partially offset by improved commercial terms, lower shrinkage and
transportation costs, positive impact of product mix, increased share of
high-margin drogerie format and first promo margin gains.
Despite higher frequency of supplies from distribution centers on the back
of increased demand in March and the Company's focus on shelf availability,
transportation costs reduced as a percent of sales y-o-y driven by higher
centralization ratio and utilization of trucks.
Shrinkage demonstrated significant improvement in 1Q 2020 y-o-y due to
ongoing optimization of supply chain processes, renegotiation of quality
standards with suppliers and other management initiatives launched in 2019.
Stocking up on dry goods and non-food items in March created additional
short-term positive product mix impact on shrinkage and on gross margin in
general in 1Q 2020.
Despite all measures taken to reduce shrinkage, on one hand, and abnormally
high customer demand in March on the other hand, the Company managed to
maintain its stock availability metrics during the reported period at the
industry average level of above 90%.
The share of high-margin drogerie format in total net retail sales increased
from 8.0% in 1Q 2019 to 8.6% in 1Q 2020 which had a positive impact on the
gross margin dynamics.
SG&A costs as a percent of sales reduced by 140 bps y-o-y and stood at 20.6%
on lower depreciation, rent, marketing, personnel and utilities costs as
well as positive impact of operating leverage.
Personnel costs as a percent of sales improved y-o-y on the back of higher
productivity and lower staff turnover despite additional hiring in March to
manage an increased demand. Productivity of in-store personnel increased by
8% y-o-y driven by accelerating sales growth and continuous automation of
key business processes. Staff turnover decreased across all regions and
reached the lowest level in the last five quarters thanks to improved
working conditions of in-store personnel including selective increase of
compensation. To meet the surge in demand in March 2020 the Company
increased its in-store personnel to support operations with most of
respective expenses to be reflected in the second quarter.
Rental costs as a percent of sales decreased y-o-y by 29bps driven by higher
sales density and improvements of lease terms with landlords despite growing
share of leased selling space to 77.3% in 1Q 2020 vs 75.6% a year ago.
Depreciation costs as a percent of sales reduced by more than 60 bps y-o-y
in 1Q 2020 as most of the newly opened stores were leased while the number
of store refurbishments in the reported quarter decreased by more than twice
(292 stores were refurbished in 1Q 2020 vs 700 in 1Q 2019).
Despite higher promo share y-o-y and additional costs related to loyalty
program, marketing and advertising expenses as a percent of sales reduced by
over 20 bps y-o-y thanks to more efficient tactics and tools of promo
campaigns.
Utilities, packaging, raw materials and other operating expenses[11] as a
percent of sales delivered some y-o-y improvements in 1Q 2020 driven by cost
optimization initiatives launched last year as well as positive impact of
operating leverage.
Total costs incurred as a result of the Company's response to COVID-19
amounted to approx. RUB 1 billion and included purchasing of individual
protective equipment, increased frequency of cleaning and sanitization,
additional personnel and supply-chain costs.
As a result, reported EBITDA was RUB 22.7 billion with 6.0% margin having
improved by 14 bps y-o-y and 63 bps q-o-q driven by gross margin dynamics
and lower SG&A expenses. LTI expenses in the reported period stood at 0.09%
of sales - as a result, EBITDA pre-LTI was 6.1%.
Net finance costs in 1Q 2020 increased by 5.6% to RUB 3.8 billion compared
to 1Q 2019 (RUB 3.6 billion) due to larger average amount of borrowings
offset by lower cost of debt compared to the previous year. As a result of
refinancing campaign during the reported quarter weighted average effective
cost of debt reduced to 6.8% from 7.6% in 4Q 2019 translating into the
reduction of net interest expense as a percent of sales by 12 bps in 1Q
2020.
Due to RUB depreciation foreign exchange losses related to direct import
operations in the reported quarter stood at RUB 1.8 billion.
Income tax in 1Q 2020 was RUB 1.7 billion. Effective tax rate increased to
28.2% compared to 22.7% in 1Q 2019 due to higher share of non-deductible
expenses.
As a result, net income in 1Q 2020 increased by 30.8% y-o-y and stood at RUB
4.2 billion. Net income margin increased by 10 bps y-o-y to 1.1%.
Capex in 1Q 2020 decreased by 25% y-o-y and stood at RUB 7.2 billion on the
back of decelerated redesign (292 stores in 1Q 2020 vs 700 stores in 1Q
2019) and expansion program (321 store openings on gross basis in 1Q 2020 vs
949 in 1Q 2019).
Gross debt increased by RUB 34.7 billion compared to December 31, 2019 and
stood at RUB 218.9 billion as of March 31, 2020 due to forward borrowing at
cheaper rates for future refinancing activities. This increase is almost
fully netted by strong cash position of RUB 27 billion resulted in the net
debt of RUB 192.2 billion compared to RUB 182.6 billion as of March 31,
2019. Company's debt is fully RUB denominated matching revenue structure.
Net Debt to EBITDA ratio was 2.2x as at 31 March 2020 vs 2.1x as at 31
December 2019.
31 March 31 December 31 March
2020 2019 2019
Gross Debt, RUB 218.9 184.2 198.6
billion
Net Debt, RUB billion 192.2 175.3 182.6
Net Debt/EBITDA 2.2x 2.1x 2.1x
FY 2020 Guidance
Following certain restrictions imposed on a federal and regional levels due
to the pandemic the Company made a decision to review its store opening and
redesign program across all formats aiming at selective expansion with
greater focus on returns. Limited number of stores that are currently in the
pipeline as committed or in progress are expected to be opened within next
months. Magnit intends to resume openings and redesign when situation
stabilizes and restrictions are lifted down. The Company will provide
regular updates on a quarterly basis with the revised store opening
guidance. Full year capital expenditures projections may be reduced
providing further flexibility for potential deleveraging.
Note:
1) This announcement contains inside information disclosed in accordance
with the Market Abuse Regulation effective from July 3, 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, 2020, Magnit operated 38 distribution centres
and 20,860 stores (14,594 convenience, 472 supermarkets and 5,794 drogerie
stores) in 3,718 cities and towns throughout 7 federal regions of the
Russian Federation.
In accordance with the audited IFRS results for FY 2019, Magnit had revenues
of RUB 1,369 billion and an EBITDA of RUB 147 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.
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[1] LFL calculation base includes stores, which have been operating for 12
months since its first day of sales. LFL sales growth and average ticket
growth are calculated based on sales turnover including VAT. No VAT effect
reflected in y-o-y comparison.
[2] The number of stores does not include pharmacies.
[3] As of March 31, 2020
[4] Convenience Stores include convenience stores and small pilots such as
Magnit City and Magnit Evening
[5] Supermarkets include Magnit Family supermarkets, superstores and Magnit
Cash&Carry
[6] Other Formats include pharmacies and stores located at Russian Post
offices
[7] Excluding VAT
[8] Excluding leap year effect, i.e. based on trading results of February
1-28, 2020
[9] Excluding VAT
[10] Long-Term Incentive Program
[11] Bank services and taxes other than income tax
ISIN: US55953Q2021
Category Code: MSCU
TIDM: MGNT
LEI Code: 2534009KKPTVL99W2Y12
OAM Categories: 2.2. Inside information
Sequence No.: 61010
EQS News ID: 1032335
End of Announcement EQS News Service
(END) Dow Jones Newswires
April 29, 2020 03:00 ET (07:00 GMT)
