05 March 2018. Moscow, Russia.– Detsky Mir Group ("Detsky Mir", "the Group" or "the Company") – Russia’s largest specialized children's goods retailer, announces its audited financial results in accordance with International Financial Reporting Standards (IFRS) for the full year ended 31 December 2017.

4Q 2017 FINANCIAL HIGHLIGHTS

• Group revenue increased by 19.9% year-on-year to RUB 30.4 bn;
• In accordance with the methodology of calculation of like-for-like comparisons, which would be closer to methodologies used in operating and financial reporting of publicly traded food retailers in Russia, like-for-like revenue at Detsky Mir stores in Russia grew by 7.2%[1], with the number of tickets growing by 14.1% and the average ticket size declining by 6.0%.
• Gross profit increased by 19.0% year-on-year to RUB 10.8 bn, with a gross margin of 35.4%;
• Selling, general and administrative expenses as a percentage of revenue[2]decreased year-on-year from 21.8% to 21.4% driven by increased operational efficiency;
• Adjusted EBITDA[3]increased by 22.9% to RUB 4.3 bn for 4Q 2017 from RUB 3.5 bn for 4Q 2016; adjusted EBITDA margin reached 14.1%, while EBITDA[4]amounted to RUB 4.2 bn;
• Adjusted profit for the period[5]rose by 26.9% year-on-year to RUB 2.6 bn, while profit for the period amounted to RUB2.5 bn;
• Net debt /Adjusted EBITDA ratio decreased to 1.0x as of 31 December 2017 from 1.4x as of 31 December 2016.

FY 2017 FINANCIAL HIGHLIGHTS

• Group revenue increased by 21.9% year-on-year to RUB 97.0 bn;
• In accordance with the methodology of calculation of like-for-like comparisons, which would be closer to methodologies used in operating and financial reporting of publicly traded food retailers in Russia, like-for-like revenue at Detsky Mir stores in Russia grew by 7.2%1, with the number of tickets growing by 12.2% and the average ticket size declining by 4.4%.
• Gross profit increased by 21.0% year-on-year to RUB 32.8 bn, with a gross margin of 33.8%;
• Selling, general and administrative expenses as a percentage of revenue2 decreased year-on-year from 23.7% to 22.8% driven by increased operational efficiency;
• Adjusted EBITDA3 increased by 30.0% to RUB 10.7 bn for FY2017 from RUB 8.2 bn for FY2016, adjusted EBITDA margin reached 11.0%, while EBITDA4 amounted to RUB 9.8 bn;
• Adjusted profit for the period5 rose by almost a half year-on-year to RUB 5.5 bn, while profit for the period amounted to RUB 4.8 bn;

Vladimir Chirakhov, PJSC Detsky Mir Chief Executive Officer, said:

“Detsky Mir Group had a successful first year in the status of a public company. The steady progress made by the company helped increase the appeal of Detsky Mir for business community.

Despite Russia's retail market being under pressure, Detsky Mir managed to meet the expectations of its shareholders: the company outperformed its retail chain development plan by opening 104 stores and achieved the highest growth of like-for-like sales among publicly-traded Russian retailers. As a result, Detsky Mir's consolidated revenue in 2017 increased by 22% to RUB 97.0bn, enabling the company to strengthen its leadership in the Russian children's goods retail market.   

Detsky Mir's sales volumes were also boosted by the successful implementation of projects aimed at improving online sales and resulting in a more than 50% increase in revenue from the e-commerce business. In 2017, Detsky Mir's online store had more than 133m visits and delivered more than 2.4m online orders. The share of Detsky Mir's online business in total revenue increased to 4.8%.

In 2017, the company continued to pursue its strategy aimed at enhancing operational efficiency, first of all, by improving productivity and cutting rental costs. Automation of business processes and introduction of new software enabled the company to cut time spent per transaction and reduce labour input per business process. As a result, selling, general and administrative expenses as percentage of revenue decreased by 0.9 p.p., with adjusted EBITDA margin reaching a record high of 11%.  

Moreover, thanks to its "asset light" business strategy, i.e. development of the retail chain on the basis of a rental business model, Detsky Mir managed to increase returns on invested capital to 86% in 2017.  

Detsky Mir increased its adjusted profit for the period by almost 50% to RUB 5.5bn and distributed RUB 4.8bn in dividends, a record-high amount.

The Company will continue acting as a consolidator of the children's goods retail market due to its unique and diversified product range, affordable prices and a well-developed online sales channel. Detsky Mir retail chain has considerable growth potential in Russia and Kazakhstan and we plan to open at least 250 more stores in the medium term. Our management will do its best to ensure that our shareholders get a high return on their investments in the company.”

Guidance

The company's management team plans to open at least 250 new Detsky Mir stores with a minimum IRR of 40% in the next 4 years. In 2018, the company expects that its like-for-like sales in Russia can grow faster than the children's goods market in general and remain at single digits due to an increase in the number of tickets. 

Another key strategic goal of the Group is boosting its operational efficiency and maintaining adjusted EBITDA margin at double-digit levels in the medium term.    

Within the framework of Russian accounting standards the company's management will recommend distributing the whole profit for the period as dividends according to the results of 2017.

Additional information is available on the Company’s corporate website www.corp.detmir.ru

***

Conference Call Information

Detsky Mir’s management will host a conference call today at 18:00 (Moscow time) / 15:00 (London time) / 10:00 (New York time) to discuss FY 2017 Audited IFRS Financial Results.

The dial-in numbers for the conference call are:

Russia

+7495 646 93 15

8 800 500 98 63 (toll-free)

UK

+44 207 194 37 59

0800 376 61 83 (toll-free)

USA

+1 646 722 49 16

8442 860 643 (toll-free)

PIN: 37 027 932#

The conference title: “Detsky Mir Group – FY 2017 Audited IFRS Financial Results”.

For additional information:

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([1]) Like-for-like average ticket growth, like-for-like number of tickets growth and like-for-like revenue growth based on the stores that have been in operations for at least 12 full calendar months.

([2]) Selling, general and administrative expenses exclude D&A expenses and adjusted for share-based compensation and cash bonuses under the LTI program

([3]) Adjusted EBITDA is calculated as profit for the period before income tax, FX loss, net finance expense, D&A; adjusted for share-based compensation and cash bonuses under the LTI program. See Attachment A.

([4]) See Attachment A for definitions and reconciliation of EBITDA to IFRS financial measures.

([5]) Adjusted for additional bonus accruals under the LTI program (together with related tax effects). See Attachment A.

(8) PJSC Sistema is a publicly-traded diversified Russian holding company serving over 100 million customers in the sectors of telecommunications, high technology, pulp and paper, radio and space technology, banking, retail, mass media, tourism and healthcare services. Founded in 1993. Sistema’s global depositary receipts are listed under the symbol SSA on the London Stock Exchange. Sistema’s ordinary shares are listed under the ticker AFKS on Moscow Exchange.

(9) RCIF is an equity fund established by the Russian Direct Investment Fund (RDIF) and China Investment Corporation (CIC), hold its stake in PJSC Detsky Mir through its funds: FLOETTE HOLDINGS LIMITED and EXARZO HOLDINGS LIMITED.