DETSKY MIR GROUP ADJUSTED EBITDA INCREASES BY 20.6% TO RUB 5.3BN IN H1 2019

Moscow, Russia, 26 August 2019 – Detsky Mir Group (“Detsky Mir”, “the Group” or “the Company”, MOEX: DSKY), Russia’s largest specialized children’s goods retailer and a Sistema company (LSE: SSA, MOEX: AFKS) announces its unaudited financial results in accordance with International Financial Reporting Standards (IFRS) for the second quarter and the first half ended 30 June 2019.          

Q2 2019 FINANCIAL HIGHLIGHTS[1]

• Group unaudited revenue increased by 16.3% year-on-year to RUB 28 bn.
  • Online revenue[2] increased by 70.8% year-on-year to RUB 2.7 bn.
  • Revenue in Kazakhstan rose by 46.6% year-on-year to RUB 766 m.
• Like-for-like sales[3] at Detsky Mir stores in Russia and Kazakhstan grew by 6.7% year-on-year. The number of tickets grew by 8.5% while the average ticket price decreased by 1.7%.
• Like-for-like sales at Detsky Mir stores in Russia grew by 6.2% year-on-year. The number of tickets grew by 7.8% while the average ticket price decreased by 1.4%.
• Like-for-like sales[4] at Detsky Mir stores in Kazakhstan increased by 38.4% year-on-year.
• Detsky Mir opened 17 new branded stores[5] in Q2 2019. The Group had 760 stores as of 30 June 2019.[6]
• Total selling space increased by 10.3% year-on-year to approximately 777,000 sq. m.   
• Gross profit increased by 12.8% year-on-year to RUB 9.5 bn, with a gross margin of 33.9%.
• SG&A as a percentage of revenue[7] decreased by 1.0 p.p. year-on-year, driven by increased operational efficiency.
• Adjusted EBITDA[8] increased by 16.0% year-on-year to RUB 3.5 bn; the adjusted EBITDA margin was 12.4%. EBITDA[9] totalled RUB 3.4 bn (+18.8% year-on-year).
• Adjusted net profit[10] increased by 16.8% year-on-year to RUB 2.0 bn. Net profit totalled RUB 1.9 bn (+20.8% year-on-year).
• The net debt /adjusted EBITDA ratio stood at 1.9x as of 30 June 2019.

H1 2019 FINANCIAL HIGHLIGHTS1

• Group unaudited revenue increased by 16.2% year-on-year to RUB 55.9 bn.
  • Online revenue increased by 72.3% year-on-year to RUB 5.3 bn.
  • Revenue in Kazakhstan rose by 53.1% year-on-year to RUB 1.5 bn.
• Like-for-like sales at Detsky Mir stores in Russia and Kazakhstan grew by 6.9%. The number of tickets grew by 8.3% while the average ticket price decreased by 1.3%.
• Like-for-like sales at Detsky Mir stores in Russia grew by 6.4%. The number of tickets grew by 7.6% while the average ticket price decreased by 1.2%.
• Like-for-like sales at Detsky Mir stores in Kazakhstan increased by 37.4%.
• Detsky Mir opened 23 new branded stores[11] in H1 2019.
• Gross profit increased by 13.2% year-on-year to RUB 17.6 bn, with a gross margin of 31.5%.
• SG&A as a percentage of revenue decreased by 1.1 p.p. year-on-year, driven by increased operational efficiency.
• Adjusted EBITDA increased by 20.6% year-on-year to RUB 5.3 bn; the adjusted EBITDA margin improved by 0.3 p.p. to 9.5%. EBITDA totalled RUB 5.0 bn (+21.4% year-on-year).
• Adjusted net profit increased by 14.2% year-on-year to RUB 2.5 bn. Net profit totalled RUB 2.2 bn (+14.8% year-on-year).

EVENTS AFTER THE REPORTING PERIOD

• In August 2019, the company launched express delivery service (last mile delivery) for a charge of RUB 99 for orders placed via Detsky Mir’s online store. Today this service is available in Moscow, St. Petersburg and 15 other major cities in Russia, while the time of delivery to the customer has been reduced to just several hours.  
• In August 2019, Detsky Mir launched in-store pickup in the Republic of Kazakhstan. Online customers will be able to pick up their orders at any retail stores of the chain in Kazakhstan 60 minutes after placing an order. 

Vladimir Chirakhov, PJSC Detsky Mir Chief Executive Officer, said:

“Detsky Mir continues to grow revenue through consolidation of the children’s goods market. In the first half of 2019, we increased the revenue growth rate to 16.2% year-on-year, with consolidated unaudited revenue coming in at RUB 55.9bn.

“Turnover increased after new stores were opened and reached full capacity. At the same time, we managed to significantly boost our customer base. The number of transactions in Detsky Mir’s like-for-like stores in Russia and Kazakhstan rose by 8.3%.

“We are growing our e-commerce segment in line with our omni-channel business model, with in-store pickup accounting for about 85% of total online sales. In the first half of 2019, online revenue increased by 72.3% year-on-year to RUB 5.3bn.

“A top strategic priority for Detsky Mir is operational efficiency. Thanks to a 1.1 percentage point reduction of SG&A expenses as a percentage of revenue, the Company managed to offer its customers a broad assortment at highly affordable prices and also to improve its adjusted EBITDA margin by 0.3 percentage points to 9.5% in the first half of 2019.

“The Company continues to generate strong cash flow despite increased debt, which is related to investments in the logistics infrastructure and working capital. Adjusted net profit increased by 14.2% year-on-year in the first half of 2019. Net profit came under pressure from rising interest expenses and forex losses. 

“At the end of Q2, Detsky Mir paid final dividends for 2018 in the amount of RUB 3.3bn, representing a dividend yield of more than 10%. Looking ahead, we plan to maintain high business growth rates and to continue paying significant dividends to shareholders.

“Rapid growth of the business, a stable financial situation and the exit of many players from the retail market have allowed us to adjust our previous goal for expansion of the retail chain in 2019: we now plan to open 90 stores versus the previously planned 70 stores.”

View the full press release

Conference Call Information

Detsky Mir’s management will host a conference call today at 17:00 (Moscow time) / 15:00 (London time) / 10:00 (New York time) to discuss the Company’s H1 2019 unaudited IFRS Financial Results.

The dial-in numbers for the conference call are:

Russia

+7 495 646 93 15

UK

+44 207 194 37 59

USA

+1 646 722 49 16

PIN

227 092 47#

For additional information:

Detsky Mir Group (MOEX: DSKY) is a multi-format retailer and Russia’s largest specialized children’s goods retailer. The Group comprises the Detsky Mir retail chain, ELC (Early Learning Centre in Russia) and the ABC retail chains, as well as the Zoozavr pet supplies retail chain. The company operates a network of 688 Detsky Mir stores located in 258 cities in Russia,

Kazakhstan and Belarus, as well as 51 ELC and 15 ABC stores as of 30 June 2019. The Zoozavr retail chain comprises six stores. Total selling space was approximately 777,000 square meters.

In accordance with the audited Financial Statements under IFRS, Group revenue amounted to RUB 110.9 bn for FY 2018, adjusted EBITDA totalled RUB 12.7 bn and adjusted profit amounted to RUB 7.2 bn.

Detsky Mir Group’s shareholder structure as of the date of this announcement is as follows: PJSC Sistema  – 52.10%, Russia-China Investment Fund (RCIF) – 14.03%, other shareholders owning less than 5% of the shares – 33.87%. 

Lear more at detmir.ru, elc-russia.ru, ir.detmir.ru

Disclaimer

Some of the information in these materials may contain projections or other forward-looking statements regarding future events or the future financial performance of Detsky Mir. You can identify forward looking statements by terms such as “expect”, “believe”, “anticipate”, “estimate”, “intend”, “will”, “could,” “may” or “might” the negative of such terms or other similar expressions. Detsky Mir wishes to caution you that these statements are only predictions and that actual events or results may differ materially. Detsky Mir does not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in projections or forward-looking statements of Detsky Mir, including, among others, general economic conditions, the competitive environment, risks associated with operating in the Russian Federation, rapid technological and market change in the industries Detsky Mir operates in, as well as many other risks specifically related to Detsky Mir and its operations.

([1]) Excluding the effect of the new IFRS 16 (“Lease”) accounting standards.

([2]) This channel includes online orders at www.detmir.ru, including in-store pick-up.

([3]) Hereinafter like-for-like average growth, like-for-like number of tickets growth and like-for-like revenue growth based on stores in operation for at least 12 full calendar months.

([4]) Calculated in the national currency of Kazakhstan (tenge).

([5]) In Q2 2019, Detsky Mir closed three stores.

([6]) Including 66 ELC and ABC stores, as well as six Zoozavr stores.

([7]) Hereinafter, selling, general and administrative expenses exclude D&A expenses and are adjusted for share-based compensation and cash bonuses under the LTI program

([8]) Hereinafter, adjusted EBITDA is calculated as profit for the period before income tax, FX loss, net finance expense and D&A; adjusted for share-based compensation and cash bonuses under the LTI program. See Attachment A.

([9]) Hereinafter, see Attachment A for definitions and reconciliation of EBITDA to IFRS financial measures.

([10]) Hereinafter, adjusted for additional bonus accruals under the LTI program (together with related tax effects). See Attachment A.

([11]) In H1 2019, Detsky Mir closed eight stores.