MAGNIT PJSC: Magnit Reports 10.5% Sales Growth in 3Q 2019
MAGNIT PJSC (MGNT)
Magnit Reports 10.5% Sales Growth in 3Q 2019Krasnodar, Russia (29 October, 2019): Magnit PJSC (MOEX and LSE: MGNT; the Company), one of Russia's leading retailers, announces its 3Q 2019 operating and unaudited financial results.
3Q 2019 key operating and financial highlights:
Jan Dunning, President and CEO of Magnit, commented: "I see clear signs of improvement in our business. Our convenience and drogerie formats continue to show positive LFL Sales. LFL Traffic, although still negative, is recovering with LFL Basket continuing its positive trend. In the third quarter we took a strategic decision to sell more than half of our passive matrix stock. It had a one-off negative effect on our EBITDA margin and LFL Sales but allowed us to clear up crucial space for our new assortment, a key component of our CVP. During the reporting period we achieved significant assortment improvements, launched the category management function and raised availability. These developments have not yet been evident in the LFL numbers but I am looking to the coming quarters with growing confidence."
Key events in 3Q and after the reported period:
FY 2019 Guidance Update
Operating results for 3Q 2019
LFL results 3Q 2019
9M 2019
Total net retail sales for the 3Q 2019 was RUB 333.0 billion or 9.1% growth YoY (10.1% growth YoY including VAT) driven by a combination of selling space growth of 17.2% and negative LFL sales growth of 0.7%. LFL sales growth declined from 1.7% in 2Q 2019 to -0.7% in 3Q 2019 on the back of (1) abnormally cold weather, (2) decelerating inflation, (3) clearance of passive matrix inventory and (4) strong base of 3Q18. Average ticket growth slowed down to 2.8% in 3Q 2019 due to stock sell-off campaign resulting in shelf deflation. This was offset by trading up and growing number of items per basket (for the first time in the last two years) driven by continued assortment improvements and promo enhancement. Net of VAT, average ticket continued to grow across all formats, including 3.4% in convenience stores, 0.5% in supermarkets and 1.1% in drogeries. LFL traffic dynamics in 3Q 2019 were under pressure from less customer visits due to cold weather. LFL traffic decline stood at -3.4%. September was the strongest month within the quarter demonstrating visible improvements in LFL traffic dynamics. 76.4% of total net retail sales was generated by the convenience segment. In 3Q 2019 Magnit opened 276 convenience stores (net) adding 123 thousand sq. m. Sales in the convenience format grew by 10.7% driven by selling space growth of 16.5% and LFL sales growth of 0.1% in 3Q 2019. LFL traffic stood at -3.4%. LFL average ticket growth continued to be strong and stood at 3.6% in 3Q 2019. Supermarkets account for 14.8% of the Group's net retail sales. During 3Q 2019 Magnit opened one supermarket- a revamped Cash&Carry store in Lipetsk with updated pricing system and new services for its customers. New supermarkets CVP is being piloted in one store in Moscow and a new superstore is soon to be opened in Krasnodar. Sales growth in this segment was -5.5% on the back of selling space growth of 1.0% YoY and negative LFL sales of 6.0%. Sales growth in the drogerie format (representing 8.6% of the total net retail sales) continued to accelerate and stood at 23.4% compared to 20.2% in 2Q 2019 driven by a combination of selling space growth of 34.1% and strong LFL sales growth of 3.7%. During 3Q 2019 Magnit opened 336 cosmetics stores and added 72 thousand sq. m. of selling space. LFL traffic improved from -0.7% in 2Q 2019 to 1.6% in 3Q 2019 due to the launch of the traffic-generating promo campaign while LFL average ticket growth decelerated from 4.5% to 2.1% correspondingly primarily on the back of passive matrix sell-off project. Magnit continued its renovation program with 424 convenience stores and 214 drogerie stores being redesigned during the third quarter. As a result, the share of refurbished and new stores was 67% for convenience and 48% for drogerie format.
Monthly operating results for 3Q 2019
Financial results for 3Q and 9M 2019 (IAS 17)
Total revenue in 3Q 2019 increased by 10.5% and stood at RUB 342.6 billion driven by 17.2% selling space growth (613 store additions) and -0.7% LFL sales growth. Gross Profit in 3Q 2019 stood at RUB 76.6 billion with margin of 22.4%. The impact of the inventory sell-off held in July-August on gross margin was 144 bps. Adjusted for this one-off factor, gross margin in 3Q 2019 was 23.8% - 31 bps higher YoY due to better commercial terms. Magnit continued to implement various initiatives aimed at shrinkage optimization. Due to better forecasting, replenishment and quality in fruits and vegetables, shrinkage started to gradually improve in 3Q 2019. Logistics costs are also improving on the back of savings in transportation and increased productivity in the distribution centers. EBITDA was RUB 19.8 billion with 5.8% margin down 124 bps YoY on passive inventory sell-off, LTI provisions and operating expense partially offset by improvements in commercial terms. The growth of operating expense YoY was driven by rental, utilities and maintenance costs partially mitigated by lower payroll, marketing, packaging and raw materials expense. Depreciation of assets in the 3Q 2019 was RUB 11.2 billion, 24.8% higher than in the 3Q 2018. Under the new IFRS 16 methodology, the Company has adjusted useful life of assets in line with the period of corresponding lease agreements. As a result, useful life of reconstructions has been decreased from 30 years to 10 years and depreciation has been recalculated accordingly. Net finance costs increased by 81.5% to RUB 3.8 billion compared to 3Q 2018 (RUB 2.1 billion) due to a combination of higher interest rates and higher average amount of borrowings compared to the previous year. The weighted average effective interest rate for 3Q 2019 was 8.0% (including the effect of subsidized debt). Income tax for 3Q 2019 was RUB 1.5 billion. Effective tax rate increased to 31.8% compared to 21.4% in 3Q 2018 due to higher share of non-deductible expenses. As a result, net income in 3Q 2019 decreased by 57.3% YoY and stood at RUB 3.3 billion. Net income margin decreased by 151 bps YoY to 0.9%. As of 30 September 2019 Net Debt was RUB 168.7 billion compared to RUB 137.8 billion as of December 31, 2018. The net debt increase was due to acceleration of redesign program and store openings. Company's debt is fully RUB denominated matching revenue structure. As of end of 3Q 2019 it was 67% long-term debt. Net Debt to EBITDA ratio was 2.0x.
Inventory Sell-off and Working Capital During 3Q 2019 Magnit sold passive matrix inventory for the total amount of RUB 16.7 billion. The impact was 144 bps YoY on EBITDA margin and 115 bps YoY on Net Income. These sell-out efforts enabled to reduce the share of passive matrix in total assortment from 40% down to 13% which is a manageable level for the Company to operate on a regular basis. Further steps include gradual optimization down to 8% without any material one-off impact on profitability. The management plans to release around RUB 20 billion from working capital by the year end compared to year end 2018. Due to the preparation activities for the high season, the current level of inventory does not yet reflect improvements in turnover days. The effect will be visible by year end. 2020 negotiation campaign with suppliers to improve commercial terms and extend payable days is ongoing. Inventory days turnover is expected to be lower in the 2H 2019 vs 2H 2018.
IFRS 16
Under the IFRS 16 methodology rent expense went down by RUB 15.6 billion bringing new EBITDA up to RUB 35.9 billion and EBITDA margin of 10.5%, which is 469 bps better versus IAS 17 result. Depreciation increased by RUB 10.7 billion and interest expenses grew by RUB 8.2 billion compared to IAS17. 3Q 2019 income tax compared to IAS 17 improved by 36.7% or RUB 0.6 billion, while profit before tax decreased by 58.3% or RUB 2.8 billion. New effective tax rate was 48.2% compared to 31.8% in 3Q 2019 pre-IFRS 16 driven by increased share of non-deductible expenses. As a result, IFRS 16 net income stood RUB 1.0 billion or 0.3% margin. It was RUB 2.2 billion and 65 bps lower compared to previous accounting methodology.
Note:
For further information, please contact: Dmitry Kovalenko Director for Investor Relations Email: [email protected] Office: +7 (861) 210-48-80
Dina Chistyak Director for Investor Relations Email: [email protected] Office: +7 (861) 210-9810 x 15101
Media Inquiries Media Relations Department Email: [email protected]
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 September 30, 2019, Magnit operated 38 distribution centres and 20,497 stores (14,507 convenience, 467 supermarkets and 5,523 drogerie stores) in 3,694 cities and towns throughout 7 federal regions of the Russian Federation. In accordance with the unaudited IFRS management accounts for 9M 2019, Magnit had revenues of RUB 1,000 billion and an EBITDA of RUB 63 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 opened 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] The number of stores does not include pharmacies. [3] During 2018 and 1H 2019 the Company extended list of expenses related to cost of sales, including expenses for the processing of goods at distribution centres (payroll, utilities, etc.). The Company applied changes retrospectively and recalculated comparable data for 2018. [4] Adjusted for the inventory sell-off and LTI expense. [5] Excluding VAT [6] Excluding VAT [7] Excluding VAT [8] 3Q 2018 numbers have been recalculated to be comparable with the 3Q 2019 approach, including new methodology of gross profit calculation. [9] Adjusted for the accident on Voronezh DC, costs related to the management structure, inventory sell-off and LTI expense. [10] Long-Term Incentive Program |
ISIN: | US55953Q2021 |
Category Code: | MSCU |
TIDM: | MGNT |
LEI Code: | 2534009KKPTVL99W2Y12 |
OAM Categories: | 2.2. Inside information |
Sequence No.: | 25595 |
EQS News ID: | 899027 |
End of Announcement | EQS News Service |
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