MAGNIT PJSC (MGNT) MagnitAnnounces 1Q 2019 results in line with its expectations
Krasnodar, Russia (30April, 2019):Magnit PJSC (MOEX and LSE: MGNT), one of Russia's leading retailers announces its operating and unaudited financial 1Q 2019 results prepared in accordance with IFRS. Please note the Company will continue to provide analysis of financial metrics using pre-IFRS 16 approach during 2019 in order to support smooth and transparent transition of the market to the new reporting standard. Respective financial data with IFRS 16 implication is disclosed further in the text. Key operating and financial highlights for 1Q 2019:
Key events in 1Q and after the reported period:
JanDunning, Presidentof Magnit, commented: "Our results for the first quarter were on budget and in line with our previous messaging and guidance for 2019. The results also reflect the stage of transformation we are in, as we dismantle and rebuild the whole customer value proposition. Breaking down the quarter we see that we had a very challenging January and February, with some one-offs and as we had a push to change assortment, getting rid of old and introducing new. This work is still not complete but we have already started to see better trends in sales, LFL's and traffic in March and April."
Olga Naumova, Magnit's Chief Executive Officer, said: "Magnit sales growth for the first quarter 2019 exceeded 10% on the back of positive LFL sales growth for the second consecutive quarter with an EBITDA margin of 6.0%. While we are pleased to report positive LFL sales growth the target is to achieve positive traffic dynamics across all formats while maintaining strong ticket growth. This is essential to achieving the ambitious targets we have set ourselves for the transformation of Magnit. We are pleased to see our core convenience format showing improvements through LFL. We are moving in line with internal forecasts and expect stronger improvements in the second half of the year. March and April trends look promising highlighting sound improvement in traffictrends with stable positive ticket dynamicson the back of improved product mix. Strategic projects are on track either at pilot or at integration stage. As a result, we reiterate our guidance to deliver sustainable EBITDA margin for full year 2019."
Operatingresults for 1Q 2019
1Q 2019LFL results
Total net retail sales for the 1Q 2019 was RUB 310.6 billion or 8.9% growth YoY(which is 9.5%growth YoY including VAT) driven by a combination of selling space growth of 15.2% and LFL sales growth of 0.6%. Increased YoY number of openings is purely the result of shift in calendarization with the plan to even store openings during the year. LFL dynamics for the total store network was a result of negative traffic -3.5% offset by average ticket growth of 4.2%. We continue adjusting assortment and expanding higher price categories which is appreciated by our customers and reflected in positive assortment mix (trade up) - the main driver of LFL average ticket growth.Average ticket (net of VAT) in the 1Q 2019 was higher YoY across all formats, including 4.9% in the convenience format, 0.1% in supermarkets and 2.8% in drogerie stores. 4Q 2018 trends continued during the first two months of the 1Q 2019due to promotional campaigns launched for November 2018 - February 2019 period. March and April results look encouraging and we are pleased to see improving traffic trends. Sales growth in the convenience format was 10.3% driven by selling space growth of 15.7% and LFL sales growth of 1.1% accelerated from 0.3% in the 4Q 2018. Although traffic growth remained negative -3.6%, the average ticket growth accelerated to 4.9% due tostrong trading up as a result of assortment changes, improved availability in the stores and service level of own and external deliveries. Sales growth in supermarkets was -1.6% on the back of selling space growth of 1.8%. Supermarkets LFL sales growth declined to -3.2% (from -0.7% in 4Q 2018) due to traffic decline to -4.5% (from -1.8% in 4Q 2018) on the back of average ticket growth of 1.3%. The new CVP for the format was approved late March and it is currently being piloted before the full scoperoll-out acrosssupermarket stores. Sales growth in the drogeriesegment was 18.1% driven by a combination of selling space growth of 26.6% and LFL sales growth of 3.3%.LFL traffic growth was 0.1% and average ticket growth was 3.2%. Magnit continues its renovation program with 518 convenience stores and 182drogerie stores redesigned during the first quarter. As a result, the share of stores operating under new concept reached 58% for convenience and 31% for drogerie format.
Monthly operatingresults for 1Q 2019
Financial results for 1Q2019
Total revenue for 1Q 2019amounted toRUB319.0billionor 10.1% driven by:
Gross Profit in 1Q 2019 stood at RUB 75.9 billion with margin of 23.8%. We note improvement of margin versus 4Q 2018 by 29 bps despite the fact that traditionally gross margin in the 1Q is the weakest for retailers.Margin contraction of 55 bps versus previous year was a result of higher share of wholesale segment in total sales (2.1% vs 1.1% in 1Q 2018), sell off of slow-moving assortment accumulated in 2017 and first half of 2018 and higher shrinkage, offset partially by improved commercial terms from suppliers, increased share of drogerie segment (7.8% vs 7.2% in 1Q 2018) and more efficient logistics. EBITDA in 1Q 2019 was RUB 19.1 billion and 6.0% margin down 107 bps YoYdriven by gross margin dynamics andincreased as a percentage of sales operating expenses. With high number of new store openings share of stores in the ramp up phase increased creating additional pressure on SG&A expenses. Increased productivity in LFL store base was more than offsetby accrued LTI provisions and one off cash compensation to the President of Magnit, Jan Dunning.Elevated utilities expense was driven mainly by increased rates on cleaning services and indexation of electricity rates in the middle of previous year, partly mitigated by internal measures focused on energy consumption reduction. Higher rental costswere driven by growing share of leased selling space (75.6% in 1Q 2019 versus 71.9% a year ago) while ongoing efforts on contract terms improvement helped to drive down rental costs per sq. m. of selling space. Depreciation of assets in the 1Q 2019 was RUB 11.5 billion, 31.6% higher than in the 1Q 2018. With new IFRS 16 in place the Company has revised useful life of the assets bringing it in line with the period of respective lease agreements. As a result, useful life of reconstructionswas decreasedfrom 30 years to 10 years and depreciation recalculated accordingly. Net finance costs increased by 51.7% to RUB 3.6 billion compared to 1Q 2018 (RUB 2.4 billion) due to higher interest rates in combination with higher average amount of borrowings compared to previous year.The weighted average effective interest rate for 1Q 2019 was 7.8% (including the effect of subsidized debt). Income tax for 1Q 2019 was RUB 1 billion. Effective tax rate increased to 22.5%compared to 21.1% in 1Q 2018 due to higher share of non-deductible expenses. As a result, we achieved net income of RUB 3.5 billion and margin of 1.1% in 1Q 2019 went down YoY by 52.2% and 145 bps respectively. As of 31 March 2019 Net Debt was RUB182.6billion compared to RUB 137.8 billion atthe end of 2018.The net debt increase wasdue topayments of dividends for 9 months 2018, completion of a buyback program for LTI purposes, acceleration of redesign program and store openings. Company's debt is fully RUB denominated matching revenue structure. As of end of 1Q 2019 it was 59% long term debt. Net/Debt to EBITDA ratio was 2.1x. IFRS 16 implications IFRS 16 equalizes presentation of leased assets with owned assets. Thus, rent expenses were replaced with depreciation and interest payments. The lease capitalized is reduced on straight line basis but interest is charged on outstanding lease liabilities, thus interest is higher in the earlier years and decreases over time. As a result, the impact on the net income depends a lot on average lease maturity - the higher maturity of the store is, the lower interest charges are. As Magnit leased store base is relatively young, with an average of 3.5 years, the impact on net income is high but will decrease significantly going forward. Share of lease contracts with rental periods of 10 years or over is about 80%, while share of contracts with at least half of duration left is almost 75%. Due to the above changesrent expensewent down by RUB 14.8 billion bringing new EBITDA up to RUB 34.0 billion and EBITDA margin of 10.7%, which is 466 bps better versus IAS 17 result. Depreciation increased byRUB 9.5 billion and interest expenses grew by RUB 8.1 billion. 1Q 2019 income tax compared to IAS 17 improved by 49.8% or RUB 0.5 billion, while profit before tax decreased by 61.5% or RUB 2.8 billion. New effective tax rate was 29.2% compared to 22.5% in 1Q 2019pre-IFRS 16driven by increased share of non-deductible expenses. As a result, IFRS 16 net income stood RUB 1.2 billion or 0.4% margin. It was RUB 2.3 billion and 72 bps lower compared to previous accounting methodology.
Note:
For further information, please contact: Dmitry Kovalenko Director for Investor Relations Email: dmitry_kovalenko@magnit.ru Office: +7 (861) 210-48-80
Dina Chistyak Director for Investor Relations Email: dina_chistyak@magnit.ru Office: +7 (861) 210-9810 x 15101
Media Inquiries Media Relations Department Email: press@magnit.ru 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 March 31, 2019, Magnit operated 38 distribution centres and 19,223 stores (13,909convenience, 467 supermarkets and 4,847drogerie stores) in 3,077 cities and towns throughout 7 federal regions of the Russian Federation. In accordance with the audited IFRS results for 2018, Magnit had revenues of RUB 1,237 billion and an EBITDA of RUB 90 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 Magnitare 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]Since 2019 the Company reviewed revenue composition and reclassified income from advertising services and rental income from respective cost centres into revenue line. Changes were applied retrospectively and had impact on all ratios calculated as percentage of revenue. [2] LFL calculation base includes stores, which have been opened for 12 months since its first day of sales. LFL sales growth and average ticket growthare calculated based on sales turnover including VAT. [3]The number of storesdoes not include pharmacies. [4]Note during 2018 and 1Q 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.), penalties for goods for resale, cost of sales for promo campaigns.The Company applied changes retrospectively and recalculated comparable data for 2018. [5]Interest expense, including respective fees, divided by average gross debt (including subsidized debt) calculated as the average amount of debt at the end of the month preceding to reporting period and of each month of the reporting period [6]Excluding VAT [7]1Q 2018 data was recalculated to be comparable with the 1Q 2019 approach, including new methodology for gross profit calculation. |
ISIN: | US55953Q2021 |
Category Code: | MSCU |
TIDM: | MGNT |
LEI Code: | 2534009KKPTVL99W2Y12 |
OAM Categories: | 2.2. Inside information |
Sequence No.: | 8428 |
EQS News ID: | 805121 |
End of Announcement | EQS News Service |