Detsky Mir Grows Adjusted EBITDA 21.4% in 9M 2021

Moscow, Russia, 8 November 2021 – Detsky Mir Group (“Detsky Mir” or the “Company”, MOEX: DSKY), a multi-vertical digital retailer and the leader in the children’s goods sector in Russia and Kazakhstan, announces its unaudited financial results in accordance with International Financial Reporting Standards (IFRS) for the third quarter and nine months ended 30 September 2021.         

Q3 2021 Financial Highlights

• The Group’s gross merchandise value (GMV) increased 16.4% to RUB 49.5 bn (incl. VAT).
• Total online sales in Russia increased 43.7% to RUB 12.7 bn (incl. VAT);
  • the share of online sales in Russia stood at 27.0%.
• The Group’s revenue increased 14.0% to RUB 43.9 bn.
• Gross profit increased 14.5% to RUB 13.9 bn, with a gross margin of 31.7%.
• SG&A as a percentage of revenue increased 0.6 p.p. to 18.5%.
• Adjusted EBITDA increased 12.5% to RUB 5.8 bn;
  •  adjusted EBITDA margin was 13.3%.
• EBITDA totaled RUB 5.9 bn (+13.8% year-on-year).
• Adjusted net profit amounted to RUB 3.6 bn; net profit totaled RUB 3.7 bn.
• The net debt/adjusted EBITDA LTM ratio stood at 1.2x. Net debt was RUB 23.2 bn.
• Sales of private labels and direct imports in Russia totaled a record 53.0% of total sales (+4.0 p.p. year-on-year).
• The Company opened 85 new stores: 19 Detsky Mir branded stores in Russia, 2 Detsky Mir stores in Kazakhstan, 3 Detmir stores in Belarus, 34 Detmir Mini stores, and 27 Zoozavr stores.
• The total number of Group stores amounted to 1,014 (+25.2% year-on-year), across 418 cities and towns in Russia, Kazakhstan, and Belarus.
• The Group’s total selling space increased 10.3% to 947,000 sq. m, while the total floor space of stores amounted to 1,179,000 sq. m.
• Total warehouse space was 175,000 sq. m.

9M 2021 Financial Highlights

• The Group’s GMV increased 20.7% to RUB 131.0 bn (incl. VAT).
• Total online sales volume in Russia increased 42.7% to RUB 35.2 bn (incl. VAT);
  • the share of online sales in Russia was 28.2%.
• The Group’s revenue increased 18.9% to RUB 117.0 bn.
• Gross profit increased 20.8% to RUB 36.4 bn, with a gross margin of 31.1%.
• SG&A as a percentage of revenue increased 0.4 p.p. to 19.8%.
• Adjusted EBITDA increased 21.4% to RUB 13.4 bn;
  •  adjusted EBITDA margin was 11.4% (+0.2 p.p. year-on-year).
• EBITDA totaled RUB 14.2 bn (+33.6% year-on-year).
• Adjusted net profit for the period came in at RUB 8.0 bn (+111.5% year-on-year); net profit totaled RUB 8.8 bn.
• Sales of private labels and direct imports in Russia totaled 47.5% of total sales (+3.7 p.p. year-on-year).
• The Company opened 146 new stores: 39 Detsky Mir branded stores in Russia, 2 Detsky Mir stores in Kazakhstan, 7 Detmir stores in Belarus, 67 Detmir Mini stores, and 31 Zoozavr stores.

Q3 2021 Key Events

• Detsky Mir made a decision to strengthen its C-suite team, driven by the fast pace at which the Company’s new ambitious strategy, business verticals, and digital transformation are being implemented and deployed. Anna Garmanova, Chief Financial Officer (CFO) at Detsky Mir, left the Company effective 1 August 2021.
  Andrey Spivak took up the roles of CFO and Member of the Management Board from 16 August. Mr. Spivak has over 19 years of experience in retail and FMCG (Magnit, X5 Retail Group, Wrigley Ukraine, and Wrigley Russia). Sergey Li was appointed Chief Operating Officer (COO) and Member of the Management Board from 15 July. Mr. Li has over 17 years of experience in retail (M.Video–Eldorado, M.Video, Sulpak (Kazakhstan), and Philips). Another appointment was Mikhail Makhyanov, starting as Head of Investor Relations from 16 August. Mr. Makhyanov has more than 7 years of experience working at public companies and in capital markets (Polyus and Renaissance Capital).
• Maria Davydova ranked among the top three CEOs according to the updated ranking by Institutional Investor, a leading global financial periodical. The Detsky Mir team came second in both the overall ranking of management teams and among IR teams.
• Detsky Mir and PinUp Production released A Cozy Autumn with Detsky Mir! – a hygge style promotional video to support the new autumn collection.

Key Events After the Reporting Date

• 7 November 2021, the Board of Directors decided to recommend to the EGM (to be held by absentee vote with the final date for receipt of completed ballots on December 15, 2021) to approve an interim dividend for the nine months of 2021 totaling RUB 3.8 bn, representing a payment of RUB 5.20 per ordinary share. The Board also recommended that the EGM set the record date establishing eligibility to receive the dividend as 26 December 2021. The recommended amount of dividends represents 60% of adjusted RAS net profit for nine months 2021.  According to the Board of Directors and management, the recommended amount of interim dividends is at a comfortable level for the company amid higher market volatility and uncertainty around the timing and further restrictive measures on the back of COVID-19 pandemic in 2021. Management and the Board of Directors will discuss the final dividend payment based on the results of the fourth quarter, including the remaining part of retained earnings of previous periods.
• Starting from Q4 2021 the Company will adopt the changes in Russian Accounting Standards (RAS) in application to accounting of inventories. This change will bring RAS reporting closer to IFRS where the goods are reported at their actual cost, taking into account all discounts, bonuses provided by the suppliers. The company will adopt the standard and reflect it in the final RAS reporting for 2021. The effect on the RAS results (including RAS net profit) is subject to further assessment and will be reflected in the full year RAS accounts. This change will not affect the Company’s IFRS reporting.
• Detsky Mir won one of the most prestigious professional awards in e-commerce and omnichannel, Large Turnover 2021, in the Breakthrough of the Year category and was a finalist of its Grand Prix.
• Detsky Mir’s marketplace was recognized as the best niche marketplace in 2021 according to ECOM AWARDS, an e-commerce and retail professional award launched this year.
• The Company launched its third regional distribution center in the Novosibirsk Region. The fulfillment center, hosted by Russian Post, will ensure next-day delivery of at least 80% of online orders to Detsky Mir customers in the Siberian Federal District. At the fulfillment warehouse, Russian Post will be able to store simultaneously up to 200,000 SKUs from Detsky Mir’s product assortment, while shipping up to 90,000 online orders per month. The center will be able to handle goods of all categories, from diapers and toys to children’s furniture, strollers and pet supplies.

ESG Highlights

• Three thousand customers of the Zoozavr chain took part in a campaign to help homeless pets. More than 890 kg of pet food and treats for dogs and cats were collected, as well as over 150 items of essential goods, including hygiene products, toys, and pads.
• The Detsky Mir Charitable Foundation donated over RUB 1 m worth of warm outerwear, mattresses, and diapers, as well as toys, books, stationery, and arts and crafts supplies to large families in the Rostov, Yaroslavl, Ryazan, and Moscow Regions, along with the cities of Moscow and Saint Petersburg.
• Detsky Mir supported the Time for Good Deeds annual charity campaign. A donation worth about RUB 9 m included goods that children need: apparel, footwear, hygiene products, toys, books, and stationery.
• The Detsky Mir Charitable Foundation helped disadvantaged children to get ready to go back to school, collecting and donating more than 1.8 m goods through a charity campaign – stationery, exercise books, apparel, footwear, and kits for first-graders. Assistance was provided to more than 650,000 children in difficult life situations.
• The Detsky Mir Charitable Foundation supported social projects run by non-profit organizations and social institutions in eight Russian regions. A donation worth over RUB 2.2 m was distributed among several social institutions for children, non-profit and charitable organizations, families in difficult life situations, as well as organizations supporting homeless pets.
• Detsky Mir sent almost two tonnes of clothing and shoes for recycling year-to-date (in the first half of 2021).

Maria Davydova, CEO of PJSC Detsky Mir:

“We are delighted with our third quarter results, as the Group posted a 12.5% increase in adjusted EBITDA for the quarter and a cumulative year-to-date growth of 21.4%. Thanks to a bumper back-to-school season and a soaring share of private label and direct import sales, which hit a record 53.0% in Russia, we were able to maintain a strong EBITDA margin of 13.3% despite the expected increase in payroll costs driven by workforce shortages across the country.

We continue our robust market consolidation, with our total revenue up 18.9% for 9M 2021, to reaffirm our status as the absolute leader in the children’s goods market in Russia and Kazakhstan. Our standout success was the continuing strong growth in online sales: in the third quarter, total online sales in Russia grew 43.7%, while the share of online sales reached 27.0%.

We maintain our focus on leveraging our existing logistics, retail, and digital infrastructure and ramping it up to deliver strong performance in both the offline and online segments. In October we launched our third regional distribution center in Novosibirsk, which enables accelerated deliveries of all items ordered for our customers across the entire Siberian Federal District.

With a new lockdown imposed throughout Russia in early November to curb the spread of COVID-19, some of our stores made changes to their routine: from reducing their assortment and operating only as pickup points to the complete suspension of operations. Nonetheless, it was business as usual for most of our stores.

Due to the limited operations of our stores in early November amid COVID-19 and uncertainty about the future restrictions, the Company recommends to the shareholders to distribute 60% of the adjusted RAS net profit for 9 months of 2021 as interim dividends, that is, RUB 3.8 billion. However, the Company’s dividend policy remains unchanged and the final dividend recommendation will depend on the fourth quarter results.

We believe that last year’s results proved our omnichannel model to be highly resilient, and we are optimistic about how we will weather this crisis as we have the necessary capabilities and expertise to pivot to online and promptly respond to changes in our customers’ behaviors.”

View the full press release

For additional information:

 Julia Polikarpova        

Head of Public Relations        

Tel.: +7 495 781 08 08, ext. 2041        

upolikarpova@detmir.ru

Mikhail Makhyanov

Head of Investor Relations

Tel.: + 7 495 781 08 08, ext. 2315

mmakhyanov@detmir.ru