Krasnodar, Russia (30 April, 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:

Total revenue¹ increased by 10.1% from RUB 289.7 billion in 1Q 2018 to RUB 319.0 billion in 1Q 2019.
Net retail sales growth was 8.9% reaching RUB 310.6 billion.
Wholesale revenue increased by 105.8% up to RUB 6.6 billion primarily driven by contribution from SIA Group.
LFL² sales growth reached 0.6% composed of 4.2% growth of average ticket and 3.5% traffic decline.
The Company opened 875 stores³ on net basis (482 convenience stores and 393 drogerie stores) compared to 277 stores (158 convenience stores, 1 supermarket and 118 drogerie stores) opened in 1Q 2018. Increase of store openings YoY is attributable to a shift in calendarization during the year. Total store base reached 19,223 stores as of end of 1Q 2019.
Addition of selling space in 1Q 2019 amounted to 293 thousand sq. m. (or 15.2% growth YoY) compared to 75 thousand sq. m. in 1Q 2018.
During the quarter the Company completed redesigns of 518 convenience stores and 182 drogerie stores (compared to 150 convenience stores and 10 drogerie stores in 1Q 2018) bringing share of stores operating under new concept to 58% and 31% respectively.
Gross Profit margin⁴ in 1Q 2019 improved versus previous quarter by 29 bps to 23.8%. Margin contraction of 55 bps vs previous year was a result of a combination of higher share of low marginal wholesale segment in total sales, 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 and more efficient logistics.
EBITDA in 1Q 2019 was RUB 19.1 billion with 6.0% margin. Decline of 107 bps YoY was driven by gross margin dynamics and operating expenses increasing as percentage of sales. Higher productivity in LFL stores and reduced marketing expenses were not enough to offset the combination of: (1) the impact of incoming pressure from new stores in the ramp up phase; (2)

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 growth are calculated based on sales turnover including VAT.

³ The number of stores does 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.

accrued LTI provisions; (3) one off compensation to new Management Board member; (4) increased cleaning and electricity expenses; (5) higher rent costs due to added leased space.

Depreciation of assets in the 1Q 2019 was RUB 11.5 billion, 31.6% higher than in the 1Q 2018 driven by a review of useful life of assets to match the depreciation to the length of the lease agreements in line with IFRS16.
Net finance costs increased by 51.7% to RUB 3.6 billion compared to 1Q 2018 (RUB 2.4 billion) due to higher debt and increased market rates. The weighted average effective interest rate5 for the quarter 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 RUB 182.6 billion compared to the end of 2018 of RUB 137.8 billion. Net Debt growth is attributable mostly to payments of dividends for 9 months 2018, completion of a buyback program for LTI purposes, acceleration of redesign program and store openings. Net Debt / EBITDA ratio as of end of 1Q 2019 was 2.1x.

Key events in 1Q and after the reported period:

During the 1Q 2019 Management Board was extended to 10 members with Jan Dunning (President), Vladimir Sorokin, Jyrki Talvitie joining the Company and Maria Dei being promoted to the Management Board.
Magnit launched a unified brand for its family of stores. Magnit’s proximity stores, Family and Family+ supermarkets, drogerie and pharmacy stores will come together under single branding unified by the slogan “Let’s bring families together!”.
The Company completed a buyback program launched in September 2018 in accordance with previously announced information on 1 March 2019.
The Company commenced and completed an additional buyback in early April in the total sum of RUB 607 million.
Magnit launched its cross format loyalty program in the end of 1Q 2019. The pilot started in Yaroslavl, Chelyabinsk and Kostroma regions. With the new loyalty program customers will be able to spend bonuses across all formats of Magnit family of stores.
The Board of Directors recommended to pay dividends for the results of 2018 reporting year in the amount of RUB 17.0 billion, which accounts for RUB 166.78 per one ordinary share.

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

Jan Dunning, President of 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 traffic trends with stable positive ticket dynamics on 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.”

Magnit announces 1Q 2019 results in line with its expectations