April 19, 2010. Moscow, Russia. Detskiy Mir Group - the largest children’s goods retailer in Russia - announces today its unaudited financial results under US GAAP for 2010.

Key financial results

Revenue in 2010 increased year on year by 8.0% (12.8%  in US$ terms) to 20 023 million rubles (US$ 659 mln).

Gross  revenue increased by 24.9% year on year to 8 524 million rubles (US$281 mln). Gross  margin  increased  by 5.8  percentage points in 2010 to 42.6%.

Selling general and administrative expenses (SG&A) decreased by 12.5% in 2010 to 7 317  million rubles (US$ 241 mln). SG&A as a percentage of revenues decreased by 8.5 percentage points to 36,5%.

OIBDA¹ reached 1 250 million rubles (US$ 41 mln) in 2010 compared to loss of 1 645 million rubles (US$ 52 mln) in 2009. OIBDA margin reached  6.2% in 2010.

Ney income reached 33 million rubles (US$ 1 mln) in 2010 compared to loss of 3 247 million rubles (US$ 102 mln) in 2009.

Group’s debt decreased by 52.4% during 2010 to 3 748 million rubles (US$ 123 mln).

Group’s operating cash flow reached 304 million rubles (US$ 10 mln) in 2010.

Key operating results

Company’s markets share equaled 5.6%.

The number of stores increased to 131 by the end of 2010, cumulative trading area reached  214.5 thousand sq. m.

The CEO of Detskiy mir Group George Kravchenko commented on the 2010 results: “It should be noted that the Company has successfully overcome the consequences of the financial crisis. The major achievements of the passed year were the enhanced efficiency and the financial stability of the business. The increased share of direct foreign goods purchases resulted in higher gross margin, while the cost optimization program brought overall profitability. Besides, with the support of JSFC Sistema, Sberbank’s equity injection allowed to substantially strengthen the financial position of the Company. Debt significantly decreased year on year by end 2010.

Our priorities for 2011 are the increase of market share and strengthening of our leadership on the toy market. One of the Company’s priorities is the development of relationship with worldwide toy brands and further product line enhancement through the exclusive supply of unique products. In general, the Company will be strengthening its position through the implementation of modern trade practices, the optimization of existing store formats and active store network expansion.

In December 2010 Detskiy mir launched online store of children’s goods, which has been successfully gaining revenues and attracting customers. The project has already received a number of well-deserved e-commerce rewards and is an interesting, promising and strategic project for Detskiy mir.”

Key financial and operating results

* Unaudited results

** Audited results

Net sales and gross profit

For the year ended December 31, 2010, net sales increased year on year by 8,0% to 20 023 million rubles (12,8% in US$ terms).

In 2010 gross margin increased year on year by 5.8 to 42.6%. The gross margin growth was achieved due to a decrease in overall goods purchasing prices as a result of increased share of direct goods purchases from South East Asia and Europe. Gross profit increased year on year by 24.9% to 8 524 million rubles.

OIBDA and Selling general and administrative expenses

OIBDA for the year ended December 31, 2010 increased to 1 250 million rubles compared to an OIBDA loss of -1 645 million rubles in the previous year. OIBDA margin in 2010 increased to 6.2%. 

The enhancement of operating efficiency is a strategic priority for Detskiy mir Group. Selling general and administrative expenses for the year ended December 31, 2010 decreased year on year by 12.5% to 7 317 million rubles. The share of selling general and administrative expenses as % of revenues decreased year on year to 36.5% from 45.1%. Cost optimization was a strategic management goal in 2010.

Net income and interest expense

Net income in 2010 increased to 33 million rubles compared to a net loss of -3 247 million rubles a year before.

Net interest expense of Detskiy mir Group in 2010 fell by 31.3% year on year to 702 million rubles. The decrease in interest expense is a result of interest rates cuts and debt reduction. Foreign currency fluctuations have not affected net income in 2010 in a material way.

Debt and financing

In December 2010 JSC Sberbank invested 3 400 million rubles as additional share capital into Detskiy mir Group in exchange for 25%+1 equity stake of JSC Detskiy mir Center.

As of December 31, 2010 total debt of Detskiy mir Group decreased by 52.4% year on year to 3 748 million rubles. The share of long term debt constituted 63.0%. As of end 2010 the Company’s interest bearing debt in foreign currency was negligent. Debt / OIBDA by end 2010 reached a comfortable level of 3.0x.

Group’s net debt calculated as long and short term debt less cash and cash equivalents decreased to 2 340 million rubles.

Capital expenditures

In 2010 Group’s capex for new stores openings and infrastructure projects was 92 million rubles including 30 million rubles invested on IT systems upgrades.

Operating cash flow

In 2010 operating cash flow increased to 304 million rubles compared to 43 million rubles in 2009.