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Magnit reports 9.6% total sales growth, 5.2% LFL -3-

07/29/2021 | 03:00am EDT
              8.5% in 2Q 2021 partly offset by the increase of wholesale operations. Promotional intensity was slightly 
              higher y-o-y due to weal comparatives and normalizing shopping patterns, with different consumption 
26 bps        trends (including forward buying of dry food) in the same quarter of the last year. This resulted in a 
              gross profit margin reduction of 91 bps y-o-y, reflecting a strong comparative performance during the 
y-o-y         prior year, and one-off effects of the last year comparable period. 
reduction of 
shrinkage 
              Supply chain costs grew y-o-y due to a continued increase of on-shelf availability and higher 
              transportation costs driven by the increase in container shipping tariffs in the international and 
              domestic markets. 
 
              Alongside the growing share of fresh products and overall improvement of on-shelf availability, shrinkage 
              as a proportion of sales decreased further by 26 bps y-o-y. This was driven by ongoing optimization of 
              supply chain processes, renegotiation of quality standards with suppliers and other initiatives. 
 
              SG&A costs were controlled and remained almost flat y-o-y as a percent of sales (20.4%). This was 
              achieved as a result of lower rent costs and depreciation, partially offset by higher marketing costs and 
              negatively impacted by stores in the 'ramp up' phase. 
 
              Advertising expenses increased by 26 bps y-o-y on higher marketing activities including digital marketing 
              and loyalty campaigns. 
 
 
 
              Rental costs as a percent of sales decreased by 15 bps y-o-y driven by higher sales density, improved 
              lease terms with landlords and the closing of inefficient stores. This was achieved despite the increased 
              share of leased selling space to 78.7% in 2Q 2021 vs 77.4% a year ago. 
 
 
 
              Despite the acceleration in store openings (which started in 4Q last year) and their 'ramp-up' period, 
              depreciation as a percent of sales reduced by 10 bps y-o-y as most of the newly opened stores were 
              leased. 
 
 
 
              Personnel costs as a percent of sales decreased by 7 bps y-o-y thanks to continued productivity 
              improvements and on-going automation of business processes. 
 
              Repair and maintenance costs as a percent of sales increased by 6 bps y-o-y driven by acceleration of the 
              store refurbishment program (143 stores were refurbished in 2Q 2021 vs 19 in 2Q 2020) 
 
 
 
              Other costs including utilities, packaging and raw materials, bank and tax expenses remained broadly flat 
              as a percent of sales y-o-y. 
 
              As a result, EBITDA was RUB 30.3 billion with a 7.1% margin, driven by gross margin dynamics and strict 
              cost control. LTI expenses in the reported period stood at 0.08% of sales - as a result EBITDA margin 
              pre-LTI was 7.2%. EBITDA margin for the 1H 2021 was 7.0% with y-o-y improvement of 7 bps. 
 
              The Company increased its total debt by 97.3 billion in the reported quarter by means of long-term bank 
              loans and bond issuance to finance accelerated expansion and the upcoming acquisition of the Dixy retail 
              chain. This increase happened during the period of growing market rates. As a result, average cost of 
              debt increased to 6.4% (12 bps y-o-y or 49 bps q-o-q). Higher cost of debt and total amount of borrowings 
7.1%          were netted by the increase in interest income. This led to the decrease of net finance costs in 2Q 2021 
              by 20.2% (or 25 bps) y-o-y to RUB 2.8 billion. The Company's debt profile improved further through an 
ebitda margin increased share of long-term borrowings and record long debt maturity of 24 months (vs 21 months a 
in 2Q 2021    quarter ago). 
 
              In 2Q 2021 the Company reported FX gain in the amount of RUB 0.6 billion related to direct import 
              operations. 
 
 
 
              Income tax in 2Q 2021 was RUB 3.5 billion. Effective tax rate stood at 22.5%. 
 
 
 
              As a result, net income in 2Q 2021 decreased by 6.0% y-o-y and stood at RUB 12.1 billion. Net income 
              margin decreased by 47 bps y-o-y to 2.8%. Net income for 1H 2021 grew by 34.6% with a margin improvement 
              of 56 bps to 2.8%. 
 
 
 
 
 
2.8% 
Net income 
margin 
in 2Q 2021 Financial Position Highlights (IFRS 16) 
RUB mln                                                              30.06.2021 31.12.2020 30.06.2020 
Inventories                                                          199,744    205,949    219,236 
Trade and other receivables                                          12,329     8,564      9,949 
Cash and cash equivalents                                            129,370    44,700     21,149 
Long-term borrowings                                                 222,930    147,695    117,389 
Trade and other payables                                             165,973    184,325    138,461 
Short-term borrowings and short-term portion of long-term borrowings 42,560     18,392     91,204 
              Despite ongoing improvement to on-shelf availability, the 38 bps increase of share of drogerie format as 
              a percent of net retail sales, supplier inflation and total sales growth of 9.6%, inventories decreased 
11.2          by RUB 19.5 billion vs June 30, 2020 and stood at 199.7 billion. This was driven by a number of projects 
              launched in 2020 including the reduction of slow-moving items, assortment harmonization and IT solutions 
DAYS          aimed at better on-shelf availability and promotion forecasting. 
y-o-y 
optimisation 
of            Trade and other payables grew by RUB 27.5 billion vs June 30, 2020 and stood at RUB 166.0 billion driven 
inventories   by higher sales and increased payment days. Accounts receivables increased by RUB 2.4 billion vs June 30, 
[8]           2020 and stood at RUB 12.4 billion due to higher sales and improved commercial terms with suppliers. 
 

Debt Composition and Leverage

                        June 30, 2021 March 31, 2021 December 31, 2020 June 30, 2020 
IAS 17 
Total Debt, RUB billion 265.5         168.2          166.1             208.6 
Long-Term Debt          222.9         144.0          147.7             117.4 
Short-Term Debt         42.6          24.2           18.4              91.2 
Net Debt, RUB billion   136.1         161.7          121.4             187.4 
Net Debt/EBITDA         1.2x          1.4?           1.1?              2.0? 
IFRS 16 
Net Debt, RUB billion   498.9         522.8          479.0             538.8 
Net Debt/EBITDA         2.7x          2.8x           2.7x              3.3 
              Gross Debt increased by 57.8% within the reported quarter on the back of additional borrowings to finance 
              accelerated expansion and the acquisition of the Dixy retail chain and reached RUB 265.5 billion as at 
              June 30, 2021. Cash position substantially increased to RUB 129.4 billion as at June 30, 2021 compared to 
              RUB 6.6 billion as at March 31, 2021. As a result, Net Debt decreased by 15.8% q-o-q to RUB 136.1 billion 
              as at June 30, 2021. 
1.2x 
net debt/     The Company's debt is fully RUB denominated, matching revenue structure. The Net Debt to EBITDA ratio was 
ebitda        1.2x as at June 30, 2021 vs 1.4x as at March 31, 2021. 
as of June 
30, 2021 
(IAS 17)      Capex in 2Q 2021 more than tripled y-o-y and stood at RUB 17.2 billion. This was driven by the 
              acceleration of expansion program (519 store openings on gross basis in 2Q 2021 vs 177 in 2Q 2020). Total 
              capital expenditures for the first six months of 2021 stood at RUB 25.6 billion vs RUB 12.3 billion in 1H 
              2020 (up 2.0x y-o-y). Capex is expected to increase further in the second half of the year in line with 
              the calendarization of the store opening and redesign process with the latter accelerating further in the 
              second half of the year. 
 DIXY Acquisition 
              On July 22, 2021 Magnit completed the acquisition of DIXY retail chain with 2,477 stores in Russia (2,438 
              convenience stores under the DIXY brand and 39 superstores under the Megamart brand). The majority of the 
              convenience stores are located in Moscow and the Moscow region (1,319 outlets) and in St. Petersburg and 
              the Leningrad region (438 outlets). As part of the transaction Magnit has also acquired five distribution 
              centers and a fleet of approx. 700 trucks. The purchase price at closing amounted to Rub 87.6 bn. 
 
              The acquisition of the DIXY retail business is expected to significantly strengthen Magnit's competitive 
2,477         position in the Russian food retail sector. Strong exposure to the strategically important Moscow and 
              St.Petersburg regions will lead to a sharp increase in the Company's market positions in both capitals, 
stores added  including more than two-fold market share growth in both Moscow and St.Petersburg. Strong physical 
after dixy    presence in Moscow and St.Petersburg will provide substantial support to further development of Magnit's 
acquisition   e-grocery initiatives. Potential synergies in procurement, category management and various business 
              processes are expected to benefit the Company's customers and provide value accretion for its 
              shareholders. 
 
              The transaction has been approved by Magnit's Board of Directors on May 18, 2021[9]. Russia's Federal 
              Antimonopoly Service announced its clearance to the transaction on July 15, 2021. 
 

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