MAGNIT PJSC: Magnit Reports 10.5% Sales Growth in 3Q 2019

MAGNIT PJSC (MGNT) MAGNIT PJSC: Magnit Reports 10.5% Sales Growth in 3Q 2019 29-Oct-2019 / 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 10.5% Sales Growth in 3Q 2019 Krasnodar, Russia (29October, 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: Total revenueincreased by 10.5%to RUB342.6 billion. Net retail salesreached RUB 333.0billion representing 9.1% growth YoY. Wholesale revenue increased by 97.8% to RUB 9.6billion primarily driven by distribution of pharmaceutical products. LFL[1]sales growth stood at -0.7%on 2.8%average ticketgrowth and 3.4% traffic decline. The Company opened613 stores[2]on net basis (276 convenience stores, 1 supermarket and336drogerie stores). Total store base as of September 30, 2019reached 20,497 stores. Addition of selling space amounted to 207 thousand sq. m. (or 17.2% growth YoY). The Company redesigned424 convenience stores and 214drogerie stores. As of September 30, 2019 the share of refurbished and new stores reached 67% and 48% respectively. Gross Profit[3]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 was 23.8% - 31 bps higher YoYdue to better commercial terms. EBITDAwas RUB 19.8 billion with 5.8% margin down 124 bps YoY onpassive inventory sell-off, LTI provisionsand operating expense partially offset by improvements in commercial terms. Net income decreased by 57.3% YoY and stood at RUB 3.3 billion. Net incomemargindecreased by 151 bps YoY to 0.9%.   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: In 3Q Magnit sold more than half (RUB ~16.7 billion) of its passive matrix inventory, effecting EBITDA margin 144 bps and LFL sales 117 bps. EBITDA margin adjusted[4]pre sell-off was 7.4% and LFL Sales 0.49%. During 3Q 2019 Magnit appointed two members to its senior leadership team: Anna Bobrova as its HR Director and Andrey Bodrovas its Chief Investment Officer. Analytical Credit Rating Agency (ACRA) assigned credit rating AA (RU) to PJSC "Magnit" and its securities. The rating outlook is Stable. Magnit started to roll-out its unique multi-format loyalty program across Russia after the successful launch in three pilot regionsin 2Q 2019. As of today, the Company has over 6 million active card users. In the pilot regions the share of tickets with the use of the loyalty card was 46% with penetration in sales reaching 64%. Magnit launched a confectionary factory in its Industrial Park Krasnodar - KonditerKubani- the largest confectionary enterprise in the South of Russia. Magnit started to pilot its new store format - Magnit Vecherniy (Magnit Evening) offering wide range of liquor and low-alcoholic beverages and Private Label products. In September Magnit opened a revamped Cash&Carry store with the updated pricing model and new services for customers. Magnit launched its fruit and vegetables private label - Magnit Freshness. Most of the SKUs are produced by Magnit greenhouses located in the South of Russia. Exchange-traded bonds in a value of RUB 10billion with an interest rate of 6.9% per annum and 2.5-year duration will be placed on MoExon November 5th, 2019. FY 2019 Guidance Update   Previous New Number of store openings, net     Convenience stores 1,500 ~ 1,200 Drogerie stores 1,200 ~ 1,200 Pharmacies 2,000 ~1,200 Number of redesigns 2,000 ~ 2,300 EBITDA margin Sustainable vs FY 2018 6.5% CAPEX, RUB billion 70-75 70-75 Operatingresults for 3Q 2019   3Q 2018 3Q 2019 Change Change, % Total net retail sales, million RUB 305,249 332,965 27,716 9.1% Convenience stores 229,682 254,239 24,556 10.7% Supermarkets 52,142 49,263 -2,880 -5.5% Drogerie Stores 23,276 28,719 5,442 23.4% Other formats 148 745 596 401.7% Number of Stores (EOP) 17,392 20,497 3,105 17.9% Convenience stores 12,813 14,507 1,694 13.2% Supermarkets 457 467 10 2.2% Drogerie Stores 4,122 5,523 1,401 34.0% New Store Openings (NET) 482 613 131 27.2% Convenience stores 310 276 -34 -11.0% Supermarkets 0 1 1 n/a Drogerie Stores 172 336 164 95.3% Total Selling Space (EOP), th. sq. m. 6,092 7,143 1,051 17.2% Convenience stores 4,205 4,900 695 16.5% Supermarkets 931 941 10 1.0% Drogerie Stores 954 1,280 325 34.1% New Selling Space, th. sq. m. 148 207 59 40.2% Convenience stores 112 123 10 9.2% Supermarkets -2 2 3 -179.5% Drogerie Stores 37 72 35 93.6% Number of tickets, million 1,137 1,217 80 7.0% Convenience stores 960 1,028 68 7.1% Supermarkets 102 96 -6 -6.0% Drogerie Stores 73 90 16 22.0% Average ticket[5], RUB 269 274 5 1.9% Convenience stores 239 247 8 3.4% Supermarkets 509 512 3 0.5% Drogerie Stores 317 321 4 1.1%   Operatingresults for 9M 2019   9M 2018 9M 2019 Change Change, % Total net retail sales, million RUB 889,994 975,976 85,982 9.7% Convenience stores 673,330 750,016 76,686 11.4% Supermarkets 151,209 146,262 -4,947 -3.3% Drogerie Stores 65,049 78,477 13,428 20.6% Other formats 407 1,222 815 200.3% Number of Stores (EOP) 17,392 20,497 3,105 17.9% Convenience stores 12,813 14,507 1,694 13.2% Supermarkets 457 467 10 2.2% Drogerie Stores 4,122 5,523 1,401 34.0% New Store Openings (NET) 1,094 2,149 1,055 96.4% Convenience stores 688 1,080 392 57.0% Supermarkets 6 0 -6 -100.0% Drogerie Stores 400 1,069 669 167.3% Total Selling Space (EOP), th. sq. m. 6,092 7,143 1,051 17.2% Convenience stores 4,205 4,900 695 16.5% Supermarkets 931 941 10 1.0% Drogerie Stores 954 1,280 325 34.1% New Selling Space, th. sq. m. 337 718 381 113.0% Convenience stores 247 456 209 84.8% Supermarkets 1 -1 -2 -305.2% Drogerie Stores 90 244 154 171.2% Number of tickets, million 3,257 3,472 215 6.6% Convenience stores 2,755 2,940 185 6.7% Supermarkets 295 284 -11 -3.6% Drogerie Stores 206 243 37 17.9% Average ticket[6], RUB 273 281 8 2.9% Convenience stores 244 255 11 4.4% Supermarkets 513 515 2 0.4% Drogerie Stores 315 323 7 2.3%       LFL results 3Q 2019 LFL composition, % Average Ticket Traffic Sales Total 2.8% -3.4% -0.7% Convenience stores 3.6% -3.4% 0.1% Supermarkets 1.6% -7.4% -6.0% Drogerie Stores 2.1% 1.6% 3.7%   9M 2019   LFL composition, % Average Ticket Traffic Sales Total 3.7% -3.0% 0.5% Convenience stores 4.4% -3.0% 1.3% Supermarkets 1.6% -5.8% -4.3% Drogerie Stores 3.2% 0.4% 3.6%       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 tostock sell-off campaign resulting in shelf deflation. This wasoffset by trading up and growing number of items per basket (for the first time in the last two years) driven bycontinued 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 drogerieformat (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 72thousand 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 214drogerie 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 operatingresults for 3Q 2019   July YoY, % August YoY, % September YoY, % Total net retail sales, million RUB 114,735 9.4% 112,247 7.4% 105,983 10.5% Convenience stores 88,065 11.0% 85,266 8.8% 80,907 12.4% Supermarkets 16,818 -5.8% 16,884 -6.0% 15,561 -4.7% Drogerie Stores 9,687 26.9% 9,853 21.7% 9,179 21.6% Other formats 165 259.0% 245 373.8% 335 559.0% Number of Stores (EOP) 20,112 n/a 20,310 n/a 20,497 n/a Convenience stores 14,333 n/a 14,418 n/a 14,507 n/a Supermarkets 465 n/a 467 n/a 467 n/a Drogerie Stores 5,314 n/a  5,425 n/a  5,523 n/a  New Store Openings (NET) 228 n/a 198 n/a 187 n/a Convenience stores 102 n/a 85 n/a 89 n/a Supermarkets -1 n/a 2 n/a 0 n/a Drogerie Stores 127 n/a  111 n/a  98 n/a  Total Selling Space (EOP), th. sq. m. 7,007 17.3% 7,075 17.7% 7,143 17.2% Convenience stores 4,820 17.3% 4,855 17.3% 4,900 16.5% Supermarkets 937 -0.1% 942 0.9% 941 1.0% Drogerie Stores 1,236 33.8% 1,260 35.0% 1,280 34.1% New Selling Space, th. sq. m. 71 n/a 68 n/a 68 n/a Convenience stores 43 n/a 35 n/a 45 n/a Supermarkets -2 n/a 5 n/a -1 n/a Drogerie Stores 28 n/a  24 n/a  20 n/a  Number of tickets, million 409 5.0% 412 6.2% 396 10.1% Convenience stores 346 4.8% 347 6.2% 335 10.4% Supermarkets 33 -6.2% 33 -6.3% 31 -5.5% Drogerie Stores 30 21.4% 31 21.2% 29 23.5% Average ticket[7], RUB 281 4.2% 273 1.1% 267 0.4% Convenience stores 255 5.9% 246 2.5% 241 1.8% Supermarkets 513 0.4% 514 0.3% 509 0.9% Drogerie Stores 328 4.5% 321 0.4% 313 -1.5%     Financial results for 3Q and 9M2019 (IAS 17) million RUB 3Q 2019 3Q 2018[8] Change 9M 2019 9M 2018 Change Total revenue 342,583 310,112 10.5% 1,000,499 905,374 10.5% Retail 332,965 305,249 9.1% 975,976 889,994 9.7% Wholesale 9,618 4,863 97.8% 24,523 15,380 59.4% Gross Profit 76,609 72,860 5.1% 232,208 217,802 6.6% Gross Margin, % 22.4% 23.5% -113 bps 23.2% 24.1% -85 bps EBITDA adjusted[9] 25,290 21,742 16.3% 71,626 66,608 7.5% EBITDA Margin adjusted 7.4% 7.0% 37 bps 7.2% 7.4% -20 bps EBITDA pre LTI[10] 20,351 21,742 -6.4% 64,645 66,608 -2.9% EBITDA Margin pre LTI, % 5.9% 7.0% -107 bps 6.5% 7.4% -90 bps EBITDA 19,780 21,742 -9.0% 63,099 66,608 -5.3% EBITDA Margin, % 5.8% 7.0% -124 bps 6.3% 7.4% -105 bps EBIT 8,625 12,127 -28.9% 28,674 39,556 -27.5% EBIT Margin, % 2.5% 3.9% -139 bps 2.9% 4.4% -150 bps Profit before tax 4,767 9,690 -50.8% 18,015 32,151 -44.0% Taxes -1,514 -2,072 -26.9% -4,957 -6,769 -26.8% Net Income 3,253 7,618 -57.3% 13,058 25,383 -48.6% Net Income Margin, % 0.9% 2.5% -151 bps 1.3% 2.8% -150 bps   Total revenue in 3Q 2019increased by 10.5% and stood at RUB342.6 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-Auguston 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 transportationand 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, utilitiesand 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 reconstructionshas 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 toa combination ofhigher 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 30September 2019 Net Debt was RUB168.7billion 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 was2.0x.   30 September 2019 31 December 2018 30 September 2018 Net Debt, RUB billion 168.7 137.8 115.8 Net Debt/EBITDA 2.0x 1.5x 1.3x   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 daysis ongoing.Inventory days turnover is expected to be lower in the 2H 2019 vs 2H 2018.         IFRS 16 million RUB 3Q 2019 3Q 2018 Change 9M 2019 9M 2018 Change Total revenue 342,583 310,112 10.5% 1,000,499 905,374 10.5% Retail 332,965 305,249 9.1% 975,976 889,994 9.7% Wholesale 9,618 4,863 97.8% 24,523 15,380 59.4% Gross Profit 76,609 72,860 5.1% 232,208 217,802 6.6% Gross Margin, % 22.4% 23.5% -113bps 23.2% 24.1% -85 bps EBITDA adjusted 41,361 35,282 17.2% 118,749 107,683 10.3% EBITDA Margin adjusted 12.1% 11.4% 70 bps 11.9% 11.9% -2 bps EBITDA pre LTI 36,422 35,282 3.2% 111,769 107,683 3.8% EBITDA Margin pre LTI, % 10.6% 11.4% -75 bps 11.2% 11.9% -72 bps EBITDA 35,851 35,282 1.6% 110,222 107,683 2.4% EBITDA Margin, % 10.5% 11.4% -91 bps 11.0% 11.9% -88 bps EBIT 14,024 17,099 -18.0% 42,918 54,625 -21.4% EBIT Margin, % 4.1% 5.5% -142 bps 4.3% 6.0% -174 bps Profit before tax 1,990 7,846 -74.6% 7,973 26,128 -69.5% Taxes -959 -1,703 -43.7% -2,949 -5,564 -47.0% Net Income 1,031 6,143 -83.2% 5,024 20,564 -75.6% Net Income Margin, % 0.3% 2.0% -168 bps 0.5% 2.3% -177 bps   Under the IFRS 16 methodology rent expensewent 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 byRUB 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 2.8billion. New effective tax rate was 48.2% compared to 31.8% in 3Q 2019pre-IFRS 16driven 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: This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation which came into effect on 3 July 2016. 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: [e-mail] Office: [phone]   Dina Chistyak Director for Investor Relations Email: [e-mail] Office: [phone] x 15101   Media Inquiries Media Relations Department Email: [e-mail]       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 distributioncentres and 20,497 stores (14,507convenience, 467 supermarkets and 5,523drogerie stores) in 3,694 cities and towns throughout 7 federal regions of the Russian Federation. In accordance with the unaudited IFRS management accountsfor 9M 2019, Magnit had revenues of RUB 1,000 billion and an EBITDA of RUB63 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-offandLTI 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

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