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%
(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% -4-
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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EQS News ID: 1105785 End of Announcement EQS News Service
(END) Dow Jones Newswires
July 30, 2020 03:00 ET (07:00 GMT)
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