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Magnit Reports 7.2% LFL Sales Growth and 7.9% -4-

DJ Magnit Reports 7.2% LFL Sales Growth and 7.9% EBITDA margin in 2Q 2020

MAGNIT PJSC (MGNT) 
Magnit Reports 7.2% LFL Sales Growth and 7.9% EBITDA margin in 2Q 2020 
 
30-Jul-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 7.2% LFL Sales Growth and 7.9% EBITDA margin in 2Q 2020 
********************************************************************** 
 
     Krasnodar, Russia (30 July, 2020): Magnit PJSC (MOEX and LSE: MGNT; the 
   Company), one of Russia's leading retailers, announces its 2Q and 1H 2020 
            operating and unaudited financial results. 
 
            2Q 2020 key operating and financial highlights: 
 
  - Total revenue increased by 13.7% y-o-y to RUB 387.3 billion; 
 
  - Net retail sales reached RUB 379.2 billion representing 13.9% y-o-y 
  growth; 
 
  - LFL[1] sales growth stood at 7.2%[2] on 24.7% average ticket growth and 
  14.0% traffic decline; 
 
  - The Company opened 177 stores[3] on gross basis (94 convenience stores, 
  82 drogeries and 1 supermarket). As a result of the ongoing efficiency 
  improvement campaign and closure of another 143 stores (107 convenience 
  stores, 35 drogeries and 1 supermarket), net store addition stood at 34, 
  thus bringing the total store base as of June 30, 2020 to 20,894 stores; 
 
  - Addition of selling space amounted to 14 thousand sq. m., bringing total 
  selling space to 7,290 thousand sq. m. (5.1% y-o-y growth); 
 
  - The Company redesigned 19 stores across all formats on the back of 
  restrictions and strong sales momentum. As of June 30, 2020 the share of 
  refurbished and new stores reached 71% of convenience stores, 24% of 
  supermarkets and 54% of drogeries; 
 
  - Gross Profit margin of 24.4% - an increase of 58 bps y-o-y or by 16.5% 
  to RUB 94.3 billion on improved commercial terms, lower promo activity 
  combined with better promo coverage and higher promo margin, lower 
  shrinkage, supply chain costs and favorable format mix.; 
 
  - EBITDA was RUB 30.5 billion with 7.9% margin having improved by 73 bps 
  y-o-y and 182 bps q-o-q driven by gross margin dynamics and lower SG&A 
  expenses; 
 
  - Net income increased by 101.5% y-o-y and stood at RUB 12.8 billion. Net 
  income margin increased by 145 bps y-o-y to 3.3%. 
 
Jan Dunning, President and CEO of Magnit, commented: 
 
   "Second quarter was another period of unprecedented challenges on the one 
     hand, but new opportunities on the other. COVID-19 had an extraordinary 
          impact on people and industries worldwide. Under these challenging 
   circumstances, health and safety of our customers and colleagues remained 
            our first priority. 
 
Customer behaviour and demand patterns have been quickly changing throughout 
  this quarter with preferences moving towards affordable offering, relevant 
     assortment and service level. We were adapting to new buying trends and 
      preparing for potentially lasting changes to continue growing in a new 
            normal. 
 
  With each month of the quarter we have recorded positive customer response 
to our initiatives leading to further gradual improvement of sales densities 
   in the old stores, growing loyalty, traffic inflow from other players and 
  accelerating spend per visit despite less intense promo activity. This led 
to 13.9% retail sales growth driven by first of all LFL sales growth of 7.2% 
            and to lesser extent by selling space growth of 5.1%. 
 
  All business segments improved significantly in the second quarter pushing 
     up sales even further building on a strong start of the year. LFL sales 
         growth in July continues to accelerate further making it the second 
            strongest month of the year after March. 
 
          Continuous strict cost control combined with stronger gross margin 
improvements was pushing profitability to 7.9% - the highest quarterly level 
      for the last three years. Ensuring sustainability of these qualitative 
            enhancements will be one of our priorities going forward. 
 
  We have moved at speed to maintain our operations through this crisis, but 
 had to make a deliberate swift decision to take a breath with expansion and 
   refurbishment during pandemic to focus our efforts on satisfying customer 
demand and move out of the crisis into recovery even stronger. With business 
       performance exceeding our original expectations and new opportunities 
        arising in the market we are looking now into faster expansion going 
            forward. 
 
      We now have a team of professionals in place to accelerate our digital 
  transformation to increase the efficiency of our core business by renewing 
   and upgrading retail technologies, developing IT infrastructure, advanced 
 analytics, searching and implementing new solutions and optimizing business 
            processes. 
 
 We are systematically reviewing all areas of cash generation and deployment 
in the rapidly changing environment, so that we can reallocate funds towards 
   the best opportunities. Improvement of our balance sheet, working capital 
       days and cash flow will build foundation that allows operating from a 
  position of financial strength and flexibility resuming faster growth once 
            the crisis subsides. 
 
   We are confident in a resilience of the business model and our ability to 
            achieve continued success and growth over the long term". 
 
Key events in 2Q 2020 and after the reported period: 
 
  - The AGM elected a new Board of Directors consisting of 9 members 
  including 5 independent non-executive directors. For the third consecutive 
  year Charles Ryan was elected a Chairman of the Board of Directors; 
 
  - Magnit paid dividends for FY 2019 in the amount of c. RUB 16 billion or 
  RUB 157 per one ordinary share bringing the total dividend payment to RUB 
  31 billion (RUB 304 per ordinary share) in line with the previous year; 
 
  - Florian Jansen was appointed as Executive Director and became one of the 
  three deputies of the CEO Jan Dunning. Florian is responsible for 
  acceleration of the digital transformation; 
 
  - Two issues of the exchange-traded bonds in a value of RUB 10 billion and 
  RUB 15 billion with an interest rate of 6.7% and 5.9% per annum 
  correspondingly were placed on MoEx. Analytical Credit Rating Agency ACRA 
  assigned credit rating AA (RU) to the both bond issues; 
 
  - Magnit became the main supplier for Yandex.Lavka dark stores in Moscow 
  as part of a pilot project; 
 
  - Magnit presented a Sustainability Strategy called "Retail with Purpose". 
  The Company has singled out five priority areas and, for the first time in 
  Russian retail, has set up quantitative and qualitative targets and 
  criteria of their implementation by 2025; 
 
  - Dmitry Ivanov has been appointed acting CFO of JSC Tander effective from 
  15 July 2020; 
 
  - The Company started piloting discounter concept with the first three 
  stores under the new format opened in the regions; and 
 
  - Magnit reached an agreement to acquire long-term leasehold rights for 
  the 89 stores currently operating under Evroros, Yablochko, and Tvoy 
  brands in Murmansk and Murmansk region. 
 
2Q and 1H 2020 Operating Results 
 
            Retail Sales 
 
                2Q  2Q  Change Change, %  1H  1H  Change  Change 
                202 201                  2020 201          , % 
                 0   9                         9 
Total Net       379 332 46,321     13.9% 743, 643 100,947  15.7% 
Retail Sales,   ,17 ,85                   959 ,01 
million RUB       4   3                         2 
Convenience     295 258 37,494     14.5% 575, 495  79,813  16.1% 
Stores[4]       ,79 ,30                   591 ,77 
                  6   2                         7 
Supermarkets[5] 49, 49,    745      1.5% 100, 96,   3,956   4.1% 
                992 247                   955 999 
Drogerie Stores 30, 25,  5,847     23.4% 62,2 49,  12,523  25.2% 
                876 029                    82 759 
Other           2,5 275  2,236       n/a 5,13 477   4,654    n/a 
Formats[6]       11                         1 
Number of       1,0 1,1   -107     -8.9% 2,28 2,2      31   1.4% 
Tickets,         92  99                     7  55 
million 
Convenience     920 1,0   -102     -9.9% 1,92 1,9       9   0.5% 
stores               21                     2  12 
Supermarkets     78  97    -19    -20.0%  168 188     -20 -10.6% 
Drogerie Stores  87  79      8      9.6%  181 154      28  18.0% 
Other Formats   7.5 1.0    6.5       n/a 15.9 1.7    14.3    n/a 
Average         347 278     70     25.1%  325 285      40  14.1% 
Ticket[7], RUB 
Convenience     322 253     69     27.2%  300 259      40  15.5% 
stores 
Supermarkets    643 507    136     26.9%  602 517      85  16.4% 
Drogerie Stores 356 317     40     12.6%  344 324      20   6.1% 
Other Formats   326 266     60     22.7%  315 276      39  13.9% 
 
            Stores and Selling Space 
 
             2Q 2020 2Q  Change Change, % 1H  1H  Change Change, 
                     201                  202 201           % 
                      9                    0   9 
Number of     20,894 19,  1,010      5.1% 20, 19,  1,010    5.1% 
Stores (EOP)         884                  894 884 
Convenience   14,581 14,    350      2.5% 14, 14,    350    2.5% 
Stores               231                  581 231 
Supermarkets     472 466      6      1.3% 472 466      6    1.3% 
Drogerie       5,841 5,1    654     12.6% 5,8 5,1    654   12.6% 
Stores                87                   41  87 
Store            177 829   -652    -78.6% 498 1,7 -1,280  -72.0% 
Openings                                       78 
(Gross) 
Convenience       94 479   -385    -80.4% 239 1,0   -791  -76.8% 
Stores                                         30 
Supermarkets       1   0      1       n/a   1   0      1     n/a 
Drogerie          82 350   -268    -76.6% 258 748   -490  -65.5% 
Stores 
Store            143 168    -25    -14.9% 329 242     87   36.0% 

(MORE TO FOLLOW) Dow Jones Newswires

July 30, 2020 03:00 ET (07:00 GMT)

DJ Magnit Reports 7.2% LFL Sales Growth and 7.9% -2-

Closures 
Convenience      107 157    -50    -31.8% 280 226     54   23.9% 
Stores 
Supermarkets       1   1      0       n/a   2   1      1     n/a 
Drogerie          35  10     25    250.0%  47  15     32  213.3% 
Stores 
Store             34 661   -627    -94.9% 169 1,5 -1,367  -89.0% 
Openings                                       36 
(Net) 
Convenience      -13 322   -335   -104.0% -41 804   -845 -105.1% 
Stores 
Supermarkets       0  -1      1       n/a  -1  -1      0     n/a 
Drogerie          47 340   -293    -86.2% 211 733   -522  -71.2% 
Stores 
Total          7,290 6,9    355      5.1% 7,2 6,9    355    5.1% 
Selling               36                   90  36 
Space (EOP), 
th. sq.m 
Convenience    4,956 4,7    179      3.7% 4,9 4,7    179    3.7% 
Stores                77                   56  77 
Supermarkets     944 939      4      0.5% 944 939      4    0.5% 
Drogerie       1,350 1,2    142     11.7% 1,3 1,2    142   11.7% 
Stores                08                   50  08 
Other             41  11     29       n/a  41  11     29     n/a 
Formats 
Selling           14 218   -204       n/a  52 511   -459     n/a 
Space 
Addition 
(Net), th. 
sq.m 
Convenience        4 134   -130       n/a   4 333   -329     n/a 
Stores 
Supermarkets      -3  -1     -2       n/a  -5  -3     -2     n/a 
Drogerie          11  78    -67       n/a  47 172   -125     n/a 
Stores 
Other              2   7     -5       n/a   5   8     -3     n/a 
Formats 
 
            2Q and 1H 2020 LFL results 
 
            2Q 2020 
 
LFL composition, % Average Ticket Traffic Sales 
Total                       24.7%  -14.0%  7.2% 
Convenience stores          26.3%  -14.3%  8.2% 
Supermarkets                26.2%  -20.2%  0.7% 
Drogerie Stores             12.1%   -2.5%  9.3% 
 
            1H 2020[8] 
 
LFL composition, % Average Ticket Traffic Sales 
Total                       13.9%   -5.6%  7.5% 
Convenience stores          14.9%   -5.7%  8.3% 
Supermarkets                15.9%  -11.6%  2.5% 
Drogerie Stores              5.8%    3.0%  9.0% 
 
            Trading performance 
 
  Total sales in 2Q 2020 grew by 13.7% y-o-y and stood at RUB 387.3 billion. 
 
   Net retail sales in 2Q 2020 grew by 13.9% y-o-y and amounted to RUB 379.2 
   billion driven by a combination of 5.1% selling space growth and 7.2% LFL 
  sales growth. For a second consecutive quarter net retail sales growth was 
  outpacing selling space growth on strong LFL results leading to continuous 
 improvement of sales densities starting from January 2020. Sales density of 
   the Company overall demonstrated 1.7% improvement in 2Q 2020 q-o-q, while 
            the main format - convenience store - improved by 2.2% q-o-q. 
 
    All regions of presence showed solid positive LFL sales with North-West, 
            Siberia and Moscow outpacing the rest. 
 
       Despite no further stockpiling or extraordinary demand in any product 
   category was observed starting from April, LFL sales growth in 2Q 2020 of 
7.2% - was just slightly below reported in the 1Q 2020 and well above CPI of 
      3.2%. Contribution of mature stores continued to be the main driver of 
            strong LFL performance. 
 
   The structure of LFL sales has changed with average ticket being the main 
            driver in 2Q 2020 vs traffic in 1Q 2020. 
 
        The lockdown and restrictions implemented in the end of March forced 
       consumers to stay in their catchment areas and change normal shopping 
  habits. This had a negative impact on the frequency of visits resulting in 
     LFL traffic decline of -14.0% in 2Q 2020 vs 4.0% growth in 1Q 2020 with 
        gradual monthly improvement throughout the quarter. Negative traffic 
   dynamics was overcompensated by strong LFL average ticket growth of 24.7% 
compared to 3.7% in 1Q 2020 driven by increased spending per visit on higher 
 number of articles per basket, trading up effect, lower promo intensity and 
  on-shelf inflation. Volume effect driven by the growing number of articles 
  per basket was the strongest in April and started to ease in the following 
            months compensated by gradual traffic recovery. 
 
      Incremental traffic recovery did not lead to softer LFL average ticket 
     growth - it remained strong throughout the quarter indicating continued 
         positive customer response to on-going operational improvements and 
            initiatives. 
 
    2Q 2020 was the first full quarter of on-shelf inflation since September 
2019 compared with deflationary environment of the previous quarter and last 
            year. 
 
      Promo intensity was lower both q-o-q and y-o-y mainly due to low promo 
 sensitivity of customers under lockdown environment and softer competition. 
Consumers followed one-stop shopping mission or reduced the number of stores 
      visited, shifting to federal retailers with the best regular offering, 
            safety procedures and proximity locations. 
 
 In 2Q 2020 there was upswing in sales of certain categories. After stocking 
  up on dry goods and non-food items in March, since April there was a shift 
  of demand from dry food into fresh food, especially fruits and vegetables. 
 
      Magnit cross-format loyalty program continued to gain popularity among 
   customers. About 59 million cards have been issued since the start of the 
   pilot in March 2019 with the number of active users exceeding 34 million. 
 Company-wide, the share of tickets with the use of the loyalty card was 49% 
            with penetration in sales reaching 66%. 
 
            Store network development and performance by format 
 
        Convenience segment generated 78.0% of total net retail sales in the 
    reported quarter. In 2Q 2020 Magnit opened (gross) 94 convenience stores 
     (compared to 479 in 2Q 2019) and closed 107 stores under the previously 
     announced efficiency campaign, bringing the total number of convenience 
       stores to 14,581 stores (41 stores (net) less vs. December 31, 2019). 
        Selling space of convenience stores increased by 3.7% y-o-y to 4,956 
thousand sq. m. as of June 30, 2020. Sales in the convenience format grew by 
14.5% driven by selling space growth of 3.7% and LFL sales growth of 8.2% in 
     2Q 2020. Due to restrictions imposed in different regions of Russia LFL 
       traffic decreased by 14.3% vs. 4.2% in the previous quarter. Negative 
traffic was overcompensated by strong LFL average ticket growth of 26.3% vs. 
            4.0% in 1Q 2020. 
 
Supermarkets accounted for 13.2% of the Group's net retail sales. As of June 
 30, 2020 the total number of supermarkets remained flat vs previous quarter 
    - 472 - on 1 store opening and one closure. Selling space of this format 
increased by 0.5% y-o-y and stood at 944 thousand sq. m. Supermarket was the 
       most affected format in the lockdown environment and demonstrated 20% 
 traffic decline as consumers stayed in their catchment areas and shopped in 
 the nearest convenience stores. Strong LFL ticket growth of 26.2% driven by 
   volume overcompensated negative traffic performance resulting in positive 
           LFL sales for the second consecutive quarter (0.7% in 2Q 2020). A 
    combination of 0.5% selling space growth y-o-y and 0.7% LFL sales growth 
    resulted in 1.5% net retail sales growth in the supermarket format in 2Q 
            2020. 
 
 Share of the drogerie format in the total net retail sales stood at 8.1% in 
the reported quarter. During 2Q 2020 Magnit opened (net) 47 cosmetics stores 
 (compared to 340 in 2Q 2019) and added 11 thousand sq. m. of selling space. 
   Sales growth in the drogerie format in 2Q 2020 remained solid and reached 
  23.4% on the back of selling space growth of 11.7% and LFL sales growth of 
       9.3% - the strongest performance among all store formats. LFL traffic 
    decreased by 2.5% and as just like in the case of the other segments was 
            more than offset by strong LFL ticket growth of 12.1%. 
 
 Given recent changes in the consumer patterns and shift to proximity stores 
      on the back of restrictions and strong sales momentum, Magnit redesign 
 program has been limited to those stores that can be renovated and continue 
 to fully operate. During 2Q 2020 12 convenience stores, 4 supermarket and 3 
drogeries were redesigned resulting in the combined share of refurbished and 
    new stores of 71% for convenience, 24% supermarkets and 54% for drogerie 
    format. For more information on FY 2020 forecast - see guidance section. 
 
            2Q 2020 Monthly Operating Results 
 
                     April  Change   May   Change  June   Change 
Total net retail    124,937  15.0% 127,569  13.1% 126,668  13.6% 
sales, RUB million 
Convenience Stores   98,480  16.5%  99,286  13.1%  98,029  14.0% 
Supermarkets         16,631   2.4%  16,845   2.4%  16,516  -0.3% 
Drogerie Stores       8,958  15.5%  10,620  25.7%  11,298  28.0% 
Other Formats           868    n/a     818    n/a     825    n/a 
Number of tickets,      337 -13.2%     368  -9.5%     387  -4.3% 
million 
Convenience stores      284 -13.9%     309 -10.8%     326  -5.2% 
Supermarkets             24 -24.4%      26 -19.2%      28 -16.6% 
Drogerie Stores          26   1.8%      30  12.0%      31  14.5% 
Other Formats           2.5    n/a     2.5    n/a     2.5    n/a 
Average ticket[9],      371  32.5%     347  25.0%     327  18.7% 
RUB 
Convenience stores      346  35.4%     321  26.8%     301  20.3% 
Supermarkets            695  35.5%     641  26.7%     600  19.5% 
Drogerie Stores         348  13.4%     358  12.3%     362  11.8% 
Other Formats           334  22.5%     323  22.6%     321  22.2% 
Number of Stores     20,891    n/a  20,904    n/a  20,894    n/a 
(EOP) 
Convenience stores   14,599    n/a  14,593    n/a  14,581    n/a 
Supermarkets            472    n/a     471    n/a     472    n/a 
Drogerie Stores       5,820    n/a   5,840    n/a   5,841    n/a 
Store Openings           93    n/a      58    n/a      26    n/a 
(Gross) 
Convenience stores       59    n/a      23    n/a      12    n/a 

(MORE TO FOLLOW) Dow Jones Newswires

July 30, 2020 03:00 ET (07:00 GMT)

DJ Magnit Reports 7.2% LFL Sales Growth and 7.9% -3-

Supermarkets              0    n/a       0    n/a       1    n/a 
Drogerie Stores          34    n/a      35    n/a      13    n/a 
Store Closures           62    n/a      45    n/a      36    n/a 
Convenience stores       54    n/a      29    n/a      24    n/a 
Supermarkets              0    n/a       1    n/a       0    n/a 
Drogerie Stores           8    n/a      15    n/a      12    n/a 
Store Openings           31    n/a      13    n/a     -10    n/a 
(Net) 
Convenience stores        5    n/a      -6    n/a     -12    n/a 
Supermarkets              0    n/a      -1    n/a       1    n/a 
Drogerie Stores          26    n/a      20    n/a       1    n/a 
Total Selling Space   7,286   7.4%   7,291   6.6%   7,290   5.1% 
(EOP), th. sq. m. 
Convenience stores    4,958   5.8%   4,959   5.1%   4,956   3.7% 
Supermarkets            943   0.3%     942   0.2%     944   0.5% 
Drogerie Stores       1,345  16.5%   1,350  14.5%   1,350  11.7% 
Other Formats            40    n/a      41    n/a      41    n/a 
Selling Space Added     9.5    n/a     5.1    n/a    -0.9    n/a 
(Net), th. sq. m. 
Convenience stores      6.9    n/a     0.4    n/a    -2.8    n/a 
Supermarkets           -3.9    n/a    -0.9    n/a     1.4    n/a 
Drogerie Stores         5.6    n/a     5.0    n/a     0.3    n/a 
Other Formats           0.9    n/a     0.5    n/a     0.3    n/a 
 
    Net retail sales in each month of the second quarter demonstrated strong 
  double-digit results with April delivering the highest growth of 15.0%. On 
  the back of continued slowdown of selling space growth, LFL became the key 
            driver of the sales growth. 
 
  After continuous improvement during 1Q 2020, traffic declined in April due 
 to lower frequency of visits on the back lockdown and restrictions. As they 
 had been gradually lifted down traffic demonstrated progressive recovery in 
     May and especially in June on the back of increased visit frequency and 
growing number of unique customers gained from other players and traditional 
 retail. This improvement was not accompanied by similar deceleration of LFL 
        ticket growth, which has been normalizing throughout the quarter but 
 remained strong leading to further acceleration of LFL sales growth in July 
            compared to 1Q and 2Q average. 
 
  Monthly trends have been affected by specific restrictions in the regions, 
home-dining effect, ban on international travel, later start of the domestic 
       tourism in the Black Sea regions and warmer weather vs previous year. 
 
  Trading up effect demonstrated solid growth every consecutive month of the 
        quarter driven by assortment and on-shelf availability improvements. 
 
Financial results for 2Q and 1H 2020 (IAS 17) 
 
million RUB      2Q 2020 2Q 2019 Change  1H 2020 1H 2019 Change 
Total revenue    387,323 340,675   13.7% 763,361 657,917   16.0% 
Retail           379,174 332,853   13.9% 743,959 643,012   15.7% 
Wholesale          8,149   7,822    4.2%  19,403  14,905   30.2% 
Gross Profit      94,337  80,989   16.5% 179,522 155,323   15.6% 
Gross Margin, %    24.4%   23.8%  58 bps   23.5%   23.6%  -9 bps 
SG&A, % of sales  -20.4%  -21.4% 103 bps  -20.5%  -21.7% 120 bps 
EBITDA pre        30,482  24,870   22.6%  53,570  44,018   21.7% 
LTI[10] 
EBITDA Margin       7.9%    7.3%  57 bps    7.0%    6.7%  33 bps 
pre LTI, % 
EBITDA            30,476  24,313   25.3%  53,220  43,043   23.6% 
EBITDA Margin, %    7.9%    7.1%  73 bps    7.0%    6.5%  43 bps 
EBIT              18,676  12,571   48.6%  30,137  19,773   52.4% 
EBIT Margin, %      4.8%    3.7% 113 bps    3.9%    3.0%  94 bps 
Net finance       -3,497  -3,867   -9.6%  -7,274  -7,442   -2.3% 
costs 
FX gain / (loss)   1,005     113  791.7%    -824     641 -228.6% 
Profit before     16,185   8,816   83.6%  22,039  12,972   69.9% 
tax 
Taxes             -3,342  -2,444   36.7%  -4,995  -3,388   47.4% 
Net Income        12,843   6,372  101.5%  17,044   9,584   77.8% 
Net Income          3.3%    1.9% 145 bps    2.2%    1.5%  78 bps 
Margin, % 
 
 Total revenue in 2Q 2020 increased by 13.7% and stood at RUB 387.3 billion. 
   Net retail sales in 2Q 2020 grew by 13.9% y-o-y and amounted to RUB 379.2 
   billion driven by a combination of 7.2% LFL sales growth and 5.1% selling 
            space growth. 
 
  Wholesale revenue in 2Q 2020 stood at RUB 8.1 billion with the growth rate 
   decelerating from 58.9% in the previous quarter to 4.2% y-o-y driven by a 
            decline in demand by HORECA related to restrictions environment, 
fluctuations on the wholesale pharmaceutical market following stockpiling in 
March and changes in regulation of tobacco sales. Share of wholesale segment 
 in the total revenue decreased from 3.0% in 1Q 2020 to 2.1% in the reported 
            quarter. 
 
Gross Profit in 2Q 2020 increased by 16.5% to RUB 94.3 billion with a margin 
    improvement by 58 bps y-o-y to 24.4% on improved commercial terms, lower 
 promo activity in a combination with better promo coverage and higher promo 
   margin, lower shrinkage and supply chain costs. Format mix had a positive 
   impact on gross margin development with the share of high-margin drogerie 
    format growing from 7.5% in 2Q 2019 to 8.1% in 2Q 2020 and the wholesale 
            segment decreasing as a % sales. 
 
     Despite continuous increase of on-shelf availability supply chain costs 
demonstrated substantial improvement y-o-y on lower transportation costs and 
     base effect driven by one-off costs related to the accident on Voronezh 
            Distribution Center in 2Q 2019. 
 
       Shrinkage as a % of sales decreased further by 77 bps y-o-y driven by 
    ongoing optimization of supply chain processes, renegotiation of quality 
     standards with suppliers and other initiatives launched in 2019 despite 
       growing share of fresh assortment and overall improvement of on-shelf 
            availability. 
 
  SG&A costs demonstrated solid improvement by 103 bps to 20.4% as a percent 
of sales on lower marketing, depreciation and rent costs as well as positive 
            operating leverage effect. 
 
   Personnel costs as a percent of sales slightly increased y-o-y reflecting 
 one-off COVID-related expenses offsetting efficiency improvements. In April 
  the Company made elevated payments to existing frontline personnel related 
  to extra working hours and additional hiring to cover high demand in March 
   partially compensated by increased productivity and lower staff turnover. 
  Continuous improvement of staff turnover was driven by on-going automation 
    of business processes, improved working conditions of in-store personnel 
    including selective increase of compensation as well as higher retention 
            rate. 
 
      Rental costs as a percent of sales decreased by 23 bps y-o-y driven by 
  higher sales density, improvements of lease terms with landlords and lower 
 store openings despite growing share of leased selling space to 77.4% in 2Q 
            2020 vs 76.3% a year ago. 
 
Depreciation as a percent of sales reduced by 40 bps y-o-y in 2Q 2020 driven 
    by operating leverage and slower expansion. During the reported quarter, 
    Magnit renovated only 19 stores in total compared to 765 stores over the 
            corresponding period of last year. 
 
   Lower promo intensity and smarter marketing strategies on the back of low 
        promo sensitivity of customers under lockdown environment and softer 
        competition resulted in the reduction of advertising expenses y-o-y. 
 
         Other lines including utilities, packaging, raw materials and other 
  operating expenses[11] as a percent of sales remained under strict control 
        supported by ongoing optimization initiatives and positive impact of 
            operating leverage. 
 
Total costs incurred as a result of the Company's response to COVID-19 in 2Q 
2020 amounted to approx. RUB 1.5 billion and included additional payments to 
       frontline personnel (reflected in staff costs), and safety procedures 
            (reflected in other operating expenses). 
 
   As a result, reported EBITDA was RUB 30.5 billion with 7.9% margin having 
  improved by 73 bps y-o-y and 182 bps q-o-q driven by gross margin dynamics 
    and lower SG&A expenses. EBITDA pre-LTI was 7.9% - in-line with reported 
  EBITDA due to partial release of accruals made last year in order to align 
            with LTI threshold achievement. 
 
Net finance costs in 2Q 2020 decreased by 9.6% y-o-y (or 23 bps as a percent 
      of sales) to RUB 3.5 billion due to lower cost of debt compared to the 
previous quarter. As a result of unprecedented refinancing campaign starting 
  from the beginning of the year cost of debt reduced to 6.3% (130 bps y-o-y 
      or 50 bps q-o-q). This has also led to further improvement of the debt 
 profile with increased share of long-term borrowings to 73% and longer debt 
            maturity from 17 months to 21 months. 
 
   In the reported quarter the Company received FX gain in the amount of RUB 
            1.0 billion related to direct import operations. 
 
Income tax in 2Q 2020 was RUB 3.3 billion. Effective tax rate has normalized 
            to 20.6%. 
 
As a result, net income in 2Q 2020 doubled (an increase of 101.5% y-o-y) and 
  stood at RUB 12.8 billion. Net income margin increased by 145 bps y-o-y to 
            3.3%. 
 
Financial results for 2Q and 1H 2020 (IFRS 16) 
 
million RUB      2Q 2020 2Q 2019 Change  1H 2020 1H 2019 Change 
Total revenue    387,323 340,675   13.7% 763,361 657,917   16.0% 
Retail           379,174 332,853   13.9% 743,959 643,012   15.7% 
Wholesale          8,149   7,822    4.2%  19,403  14,905   30.2% 
Gross Profit      94,337  80,989   16.5% 179,522 155,323   15.6% 
Gross Margin, %    24.4%   23.8%  58 bps   23.5%   23.6%  -9 bps 
SG&A, % of sales  -19.0%  -20.5% 157 bps  -19.1%  -20.4% 136 bps 
EBITDA pre        47,184  41,073   14.9%  87,240  75,070   16.2% 
LTI[12] 
EBITDA Margin      12.2%   12.1%  13 bps   11.4%   11.4%   2 bps 
pre LTI, % 
EBITDA            47,179  40,516   16.4%  86,891  74,095   17.3% 

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EBITDA Margin, %   12.2%   11.9%  29 bps   11.4%   11.3%  12 bps 
EBIT              24,396  16,074   51.8%  41,803  28,618   46.1% 
EBIT Margin, %      6.3%    4.7% 158 bps    5.5%    4.3% 113 bps 
Net finance      -11,059 -11,826   -6.5% -22,935 -23,551   -2.6% 
costs 
FX gain / (loss)   1,097     113  873.1%    -920     641 -243.6% 
Profit before     14,434   4,360  231.0%  17,948   5,707  214.5% 
tax 
Taxes             -2,992  -1,503   99.1%  -4,177  -1,935  115.9% 
Net Income        11,442   2,857  300.5%  13,771   3,772  265.1% 
Net Income          3.0%    0.8% 212 bps    1.8%    0.6% 123 bps 
Margin, % 
 
            Balance Sheet and Cash Flows 
 
            Financial Position Highlights as of 30.06.2020 (IAS 17) 
 
Million RUB                         30.06.2020 31.12.2019 
Inventories                            219,236    218,874 
Trade and other receivables              9,949     13,993 
Cash and cash equivalents               21,149      8,901 
 
Long-term borrowings                   117,051    119,632 
Trade and other payables               117,654    161,676 
Short-term borrowings and short-term    91,542     64,578 
portion of long-term borrowings 
 
      Despite 16.0% sales growth in 1H 2020, ongoing improvement of on-shelf 
      availability, increased share of drogerie format to 8.1% of net retail 
 sales, supplier inflation and stock-up activities to cover increased demand 
  in March-April 2020, inventories remained almost flat vs December 31, 2019 
            and stood at RUB 219.2 billion. 
 
    As a result of seasonal decline in the first half of the year related to 
 payments to suppliers in January-February for large December volumes, lower 
buying volumes in the second quarter and higher share of fresh categories in 
    sales, trade and other payable reduced by 27.2% compared to December 31, 
2019 and stood at RUB 117.7 billion. Magnit continued working on improvement 
         of account payables improving payment terms with suppliers in days. 
 
Working capital management remains one of the key priorities of the Company. 
     A number of ongoing initiatives, including optimization of receivables, 
      electronic document flow, cross-functional projects aiming at reducing 
  inventories, etc. will result in working capital improvement going forward 
          predominantly through the reduction of inventory turnover in days. 
 
             30 June 2020   31 March   31 December  30 June 2019 
                              2020         2019 
Gross Debt,         208.6        218.9        184.2        198.3 
RUB billion 
Net Debt,           187.4        192.2        175.3        181.4 
RUB billion 
Net                  2.0x         2.2x         2.1x         2.1x 
Debt/EBITDA 
 
 Gross debt decreased by RUB 10.3 billion or 4.7% compared to March 31, 2020 
         and stood at RUB 208.6 billion as of June 30, 2020 due to repayment 
 activities. Alongside with that, cash position remained strong totalling to 
  RUB 21.2 billion. As a result net debt reduced by RUB 4.8 billion compared 
       to March 31, 2020 and stood at RUB 187.4 billion as of June 30, 2020. 
Company's debt is fully RUB denominated matching revenue structure. Net Debt 
    to EBITDA ratio was 2.0x as at 30 June 2020 vs 2.2x as at 31 March 2020. 
 
 Capex in 2Q 2020 decreased by 58% y-o-y and stood at RUB 5.0 billion on the 
 back of slowdown of expansion program (177 store openings on gross basis in 
2Q 2020 vs 829 in 2Q 2019) and decelerated redesign (19 stores in 2Q 2020 vs 
 765 stores in 2Q 2019). Total capital expenditures for the first six months 
   of 2020 stood at RUB 12.2 billion vs RUB 22.3 billion in 1H 2019 (down by 
            45.2% y-o-y). 
 
FY 2020 Guidance Update 
 
Number of store openings (gross/net)      Original       New 
Convenience Stores                        700/250  600/150 
Supermarkets                                 12/6      2/-5 
Drogerie Stores                       1,130/1,100  550/480 
Number of Redesigns 
Convenience Stores                            900      220 
Supermarkets                                   25        26 
Drogerie Stores                               380       80 
CAPEX, RUB billion                           60-65     45-50 
 
 Following certain restrictions imposed on a federal and regional levels due 
to the pandemic the Company reviewed its store opening and redesign program. 
 The new plan implies around 600 organic store openings on net basis in 2020 
(169 stores net have been already opened in 1H 2020). Adjusted store opening 
  and redesign program is thoroughly consistent with the Company's intention 
            to expand selectively following strict return requirements. 
 
    While the number of convenience store openings remains almost unchanged, 
development of the drogerie format has been scaled down significantly on the 
    restrictions imposed in many regions of Russia on non-food retail due to 
   pandemic as well as on continuous CVP fine-tuning and concept upgrade. As 
     the expansion activity has been temporary suspended in the 2Q 2020, the 
  opening of some supermarkets has been postponed to 2021 given their longer 
            opening process. 
 
      The adjusted redesign program reflects management decision to keep the 
            stores open due to better than expected sales performance. 
 
The targeted program of store closures remains almost unchanged and includes 
   units in different regions, which do not meet Company's profitability and 
          return criteria. As current environment provides further scope for 
   consolidation, the Company will continue seeking for small-to-medium size 
value-accretive M&A opportunities focusing on strengthening its positions in 
            the existing regions. 
 
  Although the duration and impact of pandemic remain uncertain, the Company 
            expects faster expansion in the next periods. 
 
    Capital expenditures projections for 2020 have been reduced to RUB 45-50 
billon on lower investments in organic expansion and redesign while spending 
   on efficiency projects focused on business development remains unchanged. 
 
 Efficiency of business operations and proper capital allocation are the key 
     priorities of the Company in the current year. The management team will 
       focus on balancing promo investments and obtaining better coverage by 
      suppliers, continuous improvement of supply chain expenses, shrinkage, 
 further optimization of SG&A costs and finance expenses. Improvement of the 
  working capital and cash flow position will also be the key focus area for 
            the second half of the year. 
 
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 June 30, 2020, Magnit operated 38 distribution centres 
  and 20,894 stores (14,581 convenience, 472 supermarkets and 5,841 drogerie 
       stores) in 3,710 cities and towns throughout 7 federal regions of the 
            Russian Federation. 
 
 In accordance with the unaudited IFRS 16 management accounts results for 1H 
    2020, Magnit had revenues of RUB 763.4 billion and an EBITDA of RUB 86.9 
     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 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. 
 
[2] Since October 1, 2019 VAT on fruits and berries has been reduced from 
20% to 10%. The estimated impact on LFL sales growth is 0.3%. 
 
            [3] The number of stores does not include pharmacies. 
 
[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 
 
[12] Long-Term Incentive Program 
 
ISIN:           US55953Q2021 
Category Code:  MSCU 
TIDM:           MGNT 
LEI Code:       2534009KKPTVL99W2Y12 
OAM Categories: 2.2. Inside information 
Sequence No.:   78858 

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