Detsky Mir Group Adjusted EBITDA Increased by 20.5% YoY to RUB 2.3bn in Q1 2020

Moscow, Russia, 30 April 2020 – Detsky Mir Group (“Detsky Mir”, the “Group” or the “Company”, MOEX: DSKY), Russia’s largest specialized children’s goods retailer, announces its unaudited financial results in accordance with International Financial Reporting Standards (IFRS) for the first quarter ended 31 March 2020.

Q1 2020 Financial Highlights[1]

• Group unaudited revenue increased by 11.2% year-on-year to RUB 31.0 bn.
  • Online revenue[2] increased by 110.5% year-on-year to RUB 5.4 bn.
  • Revenue in Kazakhstan rose by 31.1% year-on-year to RUB 974 m.
• Like-for-like sales[3] at Detsky Mir stores in Russia and Kazakhstan grew by 4.0%. The number of tickets grew by 4.4%, while the average ticket decreased 0.4%.
• Like-for-like sales at Detsky Mir stores in Russia grew by 3.5%. The number of tickets grew by 3.9%, while the average ticket decreased by 0.4%.
• Like-for-like sales[4] at Detsky Mir stores in Kazakhstan increased by 25.7%.
• Detsky Mir opened 8 new branded stores[5] in Q1 2020. The Group had 846 stores[6] as of 31 March 2020.
• Total selling space increased by 10.2% year-on-year to approximately 847,000 sq. m.
• Gross profit increased by 12.4% year-on-year to RUB 9.1 bn, with a gross margin of 29.3%.
• SG&A as a percentage of revenue[7] decreased by 0.3 p.p. year-on-year, driven by increased operational efficiency.
• Adjusted EBITDA[8] increased by 20.5% year-on-year to RUB 2.3bn; the adjusted EBITDA margin improved by 0.6 p.p. to 7.3%. EBITDA[9] totalled RUB 1.9bn (+16.8% year-on-year).
• Adjusted net profit[10] amounted to RUB 15m. Net losses totalled RUB 255m.
• The net debt[11]/adjusted EBITDA LTM ratio improved to 1.6x as of 31 March 2020. 

Q1 2020 Key Events

• In February 2020, Detsky Mir launched Manu, a new private-label brand of diapers, in the children’s goods markets of Russia, Kazakhstan and Belarus. Developed in partnership with Unicharm, Japan’s largest diaper manufacturer, Manu offers premium Japanese quality for a medium price, giving it a competitive edge over other global brands.
• In March 2020, the Company’s Board of Directors approved the early termination of appointment of Vladimir Chirakhov as the Company’s CEO, to be succeeded by Maria Davydova, Deputy CEO of Commercial Activities since 3 April 2020. Vladimir Chirakhov was elected as Chairman of the Board of Directors of PJSC Detsky Mir.
• In March 2020, Detsky Mir was added to Russia’s list of systemically important companies. In implementing the Presidential Decree On the Announcement of a Public Holiday until the End of April, the Government approved a 23-category-strong list of essential non-food supplies. As diapers, baby pacifiers, feeding bottles and babycare products are included in the list, the decree provides a legal basis for the Detsky Mir retail chain to continue to provide essential supplies to the population while the country is on high alert.
• In March 2019, Expert RA rating agency reiterated Detsky Mir a long-term credit rating of ruA+ with a stable outlook.
• As part of its long-term incentive programme (LTIP), the Company repurchased 1,212,210 ordinary shares of Detsky Mir for RUB 90 m, representing 0.16% of the share capital of the Company.

Events after the Reporting Period

• As of 30 April 2020, the majority of stores operated by Detsky Mir in Russia remain open, with a total of 84 stores temporarily closed due to the spread of the coronavirus (COVID-19). Zoozavr and Detmir Pickup stores are continuing normal operation, while ELC and ABC stores are temporarily closed. In Kazakhstan, 36 stores have been temporarily closed, with pickup points set up at 12 closed locations so that customers are able to collect goods ordered from the Detsky Mir online store. The Belarusian retail chain Detmir is operating normally.
• Group unaudited revenue decreased by 33% year-on-year in first 27 days of April (-19% YoY last week), while online revenue rose by 3.5x year-on-year. The online share of Detsky Mir’s total sales in Russia reached 41%.
• In April 2020, Detsky Mir successfully issued its series BО-06 exchange-traded bond with a nominal value of RUB 3 bn and a coupon rate of 7.0% p.a. The put option is in 3 years.

Maria Davydova, PJSC Detsky Mir Chief Executive Officer, said:

“As with previous downturns, this crisis has confirmed that we have selected a highly effective business model, driven by our omnichannel and multi-category proposition. During the first quarter, we were able not only to increase the Company’s share across all our markets, but also to achieve explosive growth in the online segment.  We have also been keeping to our strategy of low prices to maintain traffic and improve operational efficiency. As a result, we have posted strong adjusted EBITDA growth, almost twice as high as revenue growth rates.

“However, in mid-March we faced with the impact of COVID-19 outbreak, rapidly unfolding in Russia and around the world and leading to a considerable drop in traffic across our stores. Detsky Mir is responding in a consistent manner to ensure employee and customer safety, as well as to maintain the necessary stock of essential goods. We have also significantly streamlined our operating expenses, including through temporary store closures in large shopping malls. Most of our Russian stores remain open to continue playing the important societal role of providing essential food and non-food products for children.

“Right now, we are placing a strong focus on e-commerce. In March, we boosted the share of our online revenue to 25%. Despite a higher demand for online shopping, our logistics and IT infrastructure are ready to absorb a twofold growth of the online segment. We are planning to expand our e-commerce presence by developing our children’s goods marketplace, increasing our product assortment in this category from 50,000 to 1 million SKUs.

“Maintaining financial stability is a top priority for the Company during the crisis. In March and April, we have refinanced more than RUB 11 bn of our short-term debt. We have also decided to increase the Company’s cash balances to RUB 10.8 bn so as to ensure business continuity in the event of a further economic or epidemiologic downturn in the country.

“We remain fully committed to the Company’s mid-term targets announced in early March: we are planning to open at least 300 stores with a 40% IRR and maintain our double-digit adjusted EBITDA margin. We also see strong potential in pursuing our new compact format of stores, with this segment tentatively estimated at 2,000 stores. However, our 2020 targets may be subject to change after the second quarter.”

View the full press release

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Conference Call Information

Detsky Mir’s management will host a conference call today at 16:00 (Moscow time) / 14:00 (London time) / 9:00 (New York time) to discuss the Company’s Q1 2020 unaudited IFRS Financial Results.

The dial-in numbers for the conference call are:

Russia

+7 495 283 98 58

UK

+44 203 984 98 44

USA

+1 718 866 46 14

PIN

288 543#

Online presentation 

Detsky_Mir_Webcast

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 and the Detmir Pickup retail chains, the ELC (Early Learning Centre in Russia) and the ABC retail chains, as well as the Zoozavr pet supplies retail chain. The Company operates a retail chain of 772 Detsky Mir stores located in 297 cities in Russia, Kazakhstan and Belarus, five Detmir Pickup stores, as well as 46 ELC, 12 ABC and eleven Zoozavr stores as of 31 March 2020. Total selling space was approximately 847,000 square meters

Detsky Mir Group’s shareholder structure as of the date of this announcement is as follows: PJSFC Sistema[12]  – 33.38%, Russia-China Investment Fund (RCIF) [13] – 9.0%, free-float – 57.62%. 

Lear more at www.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, impact of COVID-19 pandemic on macroeconomic situation on the markets of presence and financial results of Detsky Mir and its subsidiaries, as well as many other risks specifically related to Detsky Mir and its operations.

([1])The Company’s consolidated financial measures for 2019-2020 and related interim periods are based on proforma financial information prepared as if IFRS 16 ‘Leases’ had not been adopted, and thus do not represent IFRS measures.

([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 are based on stores in operation for at least 12 full calendar months.

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

([5]) In Q1 2020, Detsky Mir closed two stores.

([6]) Including 58 ELC and ABC stores, five Detmir Pickup stores as well as eleven Zoozavr stores.

([7]) Hereinafter, selling, general and administrative expenses is calculated as selling, general and administrative expenses adjusted for depreciation and amortization expenses, additional share-based compensation expense and cash bonuses under the LTI program.

([8]) Hereinafter, adjusted EBITDA is calculated as profit for the period before income tax expense, foreign exchange (loss)/gain, gain on acquisition of controlling interest in associate, finance expense, finance income, depreciation and amortization, adjusted for share-based compensation expense 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 net profit is calculated as profit for the period adjusted for the share-based compensation expense and cash bonuses under the LTI program. See Attachment A.

([11]) Hereinafter, net debt is calculated as total borrowings (defined as long term loans and borrowings and short-term loans and borrowings and current portion of long-term loans and borrowings) less cash and cash equivalents. Lease liabilities are not included in the calculation of net debt. Adj. EBITDA LTM is calculated as adj. EBITDA for the last 12-months period.

([12]) Sistema PJSFC is a publicly-traded diversified Russian holding company serving over 150 million customers in the sectors of telecommunications, children’s goods retail, paper and packaging, healthcare services, agriculture, high technology, banking, real estate, pharmaceuticals and hospitality.

([13]) RCIF, an equity fund established by the Russian Direct Investment Fund (RDIF) and China Investment Corporation (CIC), holds its stake in PJSC Detsky Mir through its funds: Floette Holdings Limited and Exarzo Holdings Limited.