Magnit

Earnings Release • Jul 30, 2020

National Storage Mechanism | Additional information

MAGNIT PJSC (MGNT)

Magnit Reports 7.2% LFL Sales Growth and 7.9% EBITDA margin in 2Q 2020

30-Jul-2020 / 10:00 MSK

Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group.

The issuer is solely responsible for the content of this announcement.

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Magnit Reports 7.2% LFL Sales Growth and 7.9% EBITDA margin in 2Q 2020

Krasnodar, Russia (30 July, 2020): Magnit PJSC (MOEX and LSE: MGNT; the Company), one of Russia's leading retailers, announces its 2Q and 1H 2020 operating and unaudited financial results.

2Q 2020 key operating and financial highlights:

• Total revenue increased by 13.7% y-o-y to RUB 387.3 billion;
• Net retail sales reached RUB 379.2 billion representing 13.9% y-o-y growth;
• LFL[1] sales growth stood at 7.2%[2] on 24.7% average ticket growth and 14.0% traffic decline;
• The Company opened 177 stores[3] on gross basis (94 convenience stores, 82 drogeries and 1 supermarket). As a result of the ongoing efficiency improvement campaign and closure of another 143 stores (107 convenience stores, 35 drogeries and 1 supermarket), net store addition stood at 34, thus bringing the total store base as of June 30, 2020 to 20,894 stores;
• Addition of selling space amounted to 14 thousand sq. m., bringing total selling space to 7,290 thousand sq. m. (5.1% y-o-y growth);
• The Company redesigned 19 stores across all formats on the back of restrictions and strong sales momentum. As of June 30, 2020 the share of refurbished and new stores reached 71% of convenience stores, 24% of supermarkets and 54% of drogeries;
• Gross Profit margin of 24.4% - an increase of 58 bps y-o-y or by 16.5% to RUB 94.3 billion on improved commercial terms, lower promo activity combined with better promo coverage and higher promo margin, lower shrinkage, supply chain costs and favorable format mix.;
• EBITDA was RUB 30.5 billion with 7.9% margin having improved by 73 bps y-o-y and 182 bps q-o-q driven by gross margin dynamics and lower SG&A expenses;
• Net income increased by 101.5% y-o-y and stood at RUB 12.8 billion. Net income margin increased by 145 bps y-o-y to 3.3%.

Jan Dunning, President and CEO of Magnit, commented:

"Second quarter was another period of unprecedented challenges on the one hand, but new opportunities on the other. COVID-19 had an extraordinary impact on people and industries worldwide. Under these challenging circumstances, health and safety of our customers and colleagues remained our first priority.

Customer behaviour and demand patterns have been quickly changing throughout this quarter with preferences moving towards affordable offering, relevant assortment and service level. We were adapting to new buying trends and preparing for potentially lasting changes to continue growing in a new normal.

With each month of the quarter we have recorded positive customer response to our initiatives leading to further gradual improvement of sales densities in the old stores, growing loyalty, traffic inflow from other players and accelerating spend per visit despite less intense promo activity. This led to 13.9% retail sales growth driven by first of all LFL sales growth of 7.2% and to lesser extent by selling space growth of 5.1%.

All business segments improved significantly in the second quarter pushing up sales even further building on a strong start of the year. LFL sales growth in July continues to accelerate further making it the second strongest month of the year after March.

Continuous strict cost control combined with stronger gross margin improvements was pushing profitability to 7.9% - the highest quarterly level for the last three years. Ensuring sustainability of these qualitative enhancements will be one of our priorities going forward.

We have moved at speed to maintain our operations through this crisis, but had to make a deliberate swift decision to take a breath with expansion and refurbishment during pandemic to focus our efforts on satisfying customer demand and move out of the crisis into recovery even stronger. With business performance exceeding our original expectations and new opportunities arising in the market we are looking now into faster expansion going forward.

We now have a team of professionals in place to accelerate our digital transformation to increase the efficiency of our core business by renewing and upgrading retail technologies, developing IT infrastructure, advanced analytics, searching and implementing new solutions and optimizing business processes.

We are systematically reviewing all areas of cash generation and deployment in the rapidly changing environment, so that we can reallocate funds towards the best opportunities. Improvement of our balance sheet, working capital days and cash flow will build foundation that allows operating from a position of financial strength and flexibility resuming faster growth once the crisis subsides.

We are confident in a resilience of the business model and our ability to achieve continued success and growth over the long term".

Key events in 2Q 2020 and after the reported period:

• The AGM elected a new Board of Directors consisting of 9 members including 5 independent non-executive directors. For the third consecutive year Charles Ryan was elected a Chairman of the Board of Directors;
• Magnit paid dividends for FY 2019 in the amount of c. RUB 16 billion or RUB 157 per one ordinary share bringing the total dividend payment to RUB 31 billion (RUB 304 per ordinary share) in line with the previous year;
• Florian Jansen was appointed as Executive Director and became one of the three deputies of the CEO Jan Dunning. Florian is responsible for acceleration of the digital transformation;
• Two issues of the exchange-traded bonds in a value of RUB 10 billion and RUB 15 billion with an interest rate of 6.7% and 5.9% per annum correspondingly were placed on MoEx. Analytical Credit Rating Agency ACRA assigned credit rating AA (RU) to the both bond issues;
• Magnit became the main supplier for Yandex.Lavka dark stores in Moscow as part of a pilot project;
• Magnit presented a Sustainability Strategy called "Retail with Purpose". The Company has singled out five priority areas and, for the first time in Russian retail, has set up quantitative and qualitative targets and criteria of their implementation by 2025;
• Dmitry Ivanov has been appointed acting CFO of JSC Tander effective from 15 July 2020;
• The Company started piloting discounter concept with the first three stores under the new format opened in the regions; and
• Magnit reached an agreement to acquire long-term leasehold rights for the 89 stores currently operating under Evroros, Yablochko, and Tvoy brands in Murmansk and Murmansk region.

2Q and 1H 2020 Operating Results

Retail Sales

	2Q 2020	2Q 2019	Change	Change, %	1H 2020	1H 2019	Change	Change, %
Total Net Retail Sales, million RUB	379,174	332,853	46,321	13.9%	743,959	643,012	100,947	15.7%
Convenience Stores[4]	295,796	258,302	37,494	14.5%	575,591	495,777	79,813	16.1%
Supermarkets[5]	49,992	49,247	745	1.5%	100,955	96,999	3,956	4.1%
Drogerie Stores	30,876	25,029	5,847	23.4%	62,282	49,759	12,523	25.2%
Other Formats[6]	2,511	275	2,236	n/a	5,131	477	4,654	n/a
Number of Tickets, million	1,092	1,199	-107	-8.9%	2,287	2,255	31	1.4%
Convenience stores	920	1,021	-102	-9.9%	1,922	1,912	9	0.5%
Supermarkets	78	97	-19	-20.0%	168	188	-20	-10.6%
Drogerie Stores	87	79	8	9.6%	181	154	28	18.0%
Other Formats	7.5	1.0	6.5	n/a	15.9	1.7	14.3	n/a
Average Ticket[7], RUB	347	278	70	25.1%	325	285	40	14.1%
Convenience stores	322	253	69	27.2%	300	259	40	15.5%
Supermarkets	643	507	136	26.9%	602	517	85	16.4%
Drogerie Stores	356	317	40	12.6%	344	324	20	6.1%
Other Formats	326	266	60	22.7%	315	276	39	13.9%

Stores and Selling Space

	2Q 2020	2Q 2019	Change	Change, %	1H 2020	1H 2019	Change	Change, %
Number of Stores (EOP)	20,894	19,884	1,010	5.1%	20,894	19,884	1,010	5.1%
Convenience Stores	14,581	14,231	350	2.5%	14,581	14,231	350	2.5%
Supermarkets	472	466	6	1.3%	472	466	6	1.3%
Drogerie Stores	5,841	5,187	654	12.6%	5,841	5,187	654	12.6%
Store Openings (Gross)	177	829	-652	-78.6%	498	1,778	-1,280	-72.0%
Convenience Stores	94	479	-385	-80.4%	239	1,030	-791	-76.8%
Supermarkets	1	0	1	n/a	1	0	1	n/a
Drogerie Stores	82	350	-268	-76.6%	258	748	-490	-65.5%
Store Closures	143	168	-25	-14.9%	329	242	87	36.0%
Convenience Stores	107	157	-50	-31.8%	280	226	54	23.9%
Supermarkets	1	1	0	n/a	2	1	1	n/a
Drogerie Stores	35	10	25	250.0%	47	15	32	213.3%
Store Openings (Net)	34	661	-627	-94.9%	169	1,536	-1,367	-89.0%
Convenience Stores	-13	322	-335	-104.0%	-41	804	-845	-105.1%
Supermarkets	0	-1	1	n/a	-1	-1	0	n/a
Drogerie Stores	47	340	-293	-86.2%	211	733	-522	-71.2%
Total Selling Space (EOP), th. sq.m	7,290	6,936	355	5.1%	7,290	6,936	355	5.1%
Convenience Stores	4,956	4,777	179	3.7%	4,956	4,777	179	3.7%
Supermarkets	944	939	4	0.5%	944	939	4	0.5%
Drogerie Stores	1,350	1,208	142	11.7%	1,350	1,208	142	11.7%
Other Formats	41	11	29	n/a	41	11	29	n/a
Selling Space Addition (Net), th. sq.m	14	218	-204	n/a	52	511	-459	n/a
Convenience Stores	4	134	-130	n/a	4	333	-329	n/a
Supermarkets	-3	-1	-2	n/a	-5	-3	-2	n/a
Drogerie Stores	11	78	-67	n/a	47	172	-125	n/a
Other Formats	2	7	-5	n/a	5	8	-3	n/a

2Q and 1H 2020 LFL results

2Q 2020

LFL composition, %	Average Ticket	Traffic	Sales
Total	24.7%	-14.0%	7.2%
Convenience stores	26.3%	-14.3%	8.2%
Supermarkets	26.2%	-20.2%	0.7%
Drogerie Stores	12.1%	-2.5%	9.3%

1H 2020[8]

LFL composition, %	Average Ticket	Traffic	Sales
Total	13.9%	-5.6%	7.5%
Convenience stores	14.9%	-5.7%	8.3%
Supermarkets	15.9%	-11.6%	2.5%
Drogerie Stores	5.8%	3.0%	9.0%

Trading performance

Total sales in 2Q 2020 grew by 13.7% y-o-y and stood at RUB 387.3 billion.

Net retail sales in 2Q 2020 grew by 13.9% y-o-y and amounted to RUB 379.2 billion driven by a combination of 5.1% selling space growth and 7.2% LFL sales growth. For a second consecutive quarter net retail sales growth was outpacing selling space growth on strong LFL results leading to continuous improvement of sales densities starting from January 2020. Sales density of the Company overall demonstrated 1.7% improvement in 2Q 2020 q-o-q, while the main format - convenience store - improved by 2.2% q-o-q.

All regions of presence showed solid positive LFL sales with North-West, Siberia and Moscow outpacing the rest.

Despite no further stockpiling or extraordinary demand in any product category was observed starting from April, LFL sales growth in 2Q 2020 of 7.2% - was just slightly below reported in the 1Q 2020 and well above CPI of 3.2%. Contribution of mature stores continued to be the main driver of strong LFL performance.

The structure of LFL sales has changed with average ticket being the main driver in 2Q 2020 vs traffic in 1Q 2020.

The lockdown and restrictions implemented in the end of March forced consumers to stay in their catchment areas and change normal shopping habits. This had a negative impact on the frequency of visits resulting in LFL traffic decline of -14.0% in 2Q 2020 vs 4.0% growth in 1Q 2020 with gradual monthly improvement throughout the quarter. Negative traffic dynamics was overcompensated by strong LFL average ticket growth of 24.7% compared to 3.7% in 1Q 2020 driven by increased spending per visit on higher number of articles per basket, trading up effect, lower promo intensity and on-shelf inflation. Volume effect driven by the growing number of articles per basket was the strongest in April and started to ease in the following months compensated by gradual traffic recovery.

Incremental traffic recovery did not lead to softer LFL average ticket growth - it remained strong throughout the quarter indicating continued positive customer response to on-going operational improvements and initiatives.

2Q 2020 was the first full quarter of on-shelf inflation since September 2019 compared with deflationary environment of the previous quarter and last year.

Promo intensity was lower both q-o-q and y-o-y mainly due to low promo sensitivity of customers under lockdown environment and softer competition. Consumers followed one-stop shopping mission or reduced the number of stores visited, shifting to federal retailers with the best regular offering, safety procedures and proximity locations.

In 2Q 2020 there was upswing in sales of certain categories. After stocking up on dry goods and non-food items in March, since April there was a shift of demand from dry food into fresh food, especially fruits and vegetables.

Magnit cross-format loyalty program continued to gain popularity among customers. About 59 million cards have been issued since the start of the pilot in March 2019 with the number of active users exceeding 34 million. Company-wide, the share of tickets with the use of the loyalty card was 49% with penetration in sales reaching 66%.

Store network development and performance by format

Convenience segment generated 78.0% of total net retail sales in the reported quarter. In 2Q 2020 Magnit opened (gross) 94 convenience stores (compared to 479 in 2Q 2019) and closed 107 stores under the previously announced efficiency campaign, bringing the total number of convenience stores to 14,581 stores (41 stores (net) less vs. December 31, 2019). Selling space of convenience stores increased by 3.7% y-o-y to 4,956 thousand sq. m. as of June 30, 2020. Sales in the convenience format grew by 14.5% driven by selling space growth of 3.7% and LFL sales growth of 8.2% in 2Q 2020. Due to restrictions imposed in different regions of Russia LFL traffic decreased by 14.3% vs. 4.2% in the previous quarter. Negative traffic was overcompensated by strong LFL average ticket growth of 26.3% vs. 4.0% in 1Q 2020.

Supermarkets accounted for 13.2% of the Group's net retail sales. As of June 30, 2020 the total number of supermarkets remained flat vs previous quarter - 472 - on 1 store opening and one closure. Selling space of this format increased by 0.5% y-o-y and stood at 944 thousand sq. m. Supermarket was the most affected format in the lockdown environment and demonstrated 20% traffic decline as consumers stayed in their catchment areas and shopped in the nearest convenience stores. Strong LFL ticket growth of 26.2% driven by volume overcompensated negative traffic performance resulting in positive LFL sales for the second consecutive quarter (0.7% in 2Q 2020). A combination of 0.5% selling space growth y-o-y and 0.7% LFL sales growth resulted in 1.5% net retail sales growth in the supermarket format in 2Q 2020.

Share of the drogerie format in the total net retail sales stood at 8.1% in the reported quarter. During 2Q 2020 Magnit opened (net) 47 cosmetics stores (compared to 340 in 2Q 2019) and added 11 thousand sq. m. of selling space. Sales growth in the drogerie format in 2Q 2020 remained solid and reached 23.4% on the back of selling space growth of 11.7% and LFL sales growth of 9.3% - the strongest performance among all store formats. LFL traffic decreased by 2.5% and as just like in the case of the other segments was more than offset by strong LFL ticket growth of 12.1%.

Given recent changes in the consumer patterns and shift to proximity stores on the back of restrictions and strong sales momentum, Magnit redesign program has been limited to those stores that can be renovated and continue to fully operate. During 2Q 2020 12 convenience stores, 4 supermarket and 3 drogeries were redesigned resulting in the combined share of refurbished and new stores of 71% for convenience, 24% supermarkets and 54% for drogerie format. For more information on FY 2020 forecast - see guidance section.

2Q 2020 Monthly Operating Results

	April	Change	May	Change	June	Change
Total net retail sales, RUB million	124,937	15.0%	127,569	13.1%	126,668	13.6%
Convenience Stores	98,480	16.5%	99,286	13.1%	98,029	14.0%
Supermarkets	16,631	2.4%	16,845	2.4%	16,516	-0.3%
Drogerie Stores	8,958	15.5%	10,620	25.7%	11,298	28.0%
Other Formats	868	n/a	818	n/a	825	n/a
Number of tickets, million	337	-13.2%	368	-9.5%	387	-4.3%
Convenience stores	284	-13.9%	309	-10.8%	326	-5.2%
Supermarkets	24	-24.4%	26	-19.2%	28	-16.6%
Drogerie Stores	26	1.8%	30	12.0%	31	14.5%
Other Formats	2.5	n/a	2.5	n/a	2.5	n/a
Average ticket[9], RUB	371	32.5%	347	25.0%	327	18.7%
Convenience stores	346	35.4%	321	26.8%	301	20.3%
Supermarkets	695	35.5%	641	26.7%	600	19.5%
Drogerie Stores	348	13.4%	358	12.3%	362	11.8%
Other Formats	334	22.5%	323	22.6%	321	22.2%
Number of Stores (EOP)	20,891	n/a	20,904	n/a	20,894	n/a
Convenience stores	14,599	n/a	14,593	n/a	14,581	n/a
Supermarkets	472	n/a	471	n/a	472	n/a
Drogerie Stores	5,820	n/a	5,840	n/a	5,841	n/a
Store Openings (Gross)	93	n/a	58	n/a	26	n/a
Convenience stores	59	n/a	23	n/a	12	n/a
Supermarkets	0	n/a	0	n/a	1	n/a
Drogerie Stores	34	n/a	35	n/a	13	n/a
Store Closures	62	n/a	45	n/a	36	n/a
Convenience stores	54	n/a	29	n/a	24	n/a
Supermarkets	0	n/a	1	n/a	0	n/a
Drogerie Stores	8	n/a	15	n/a	12	n/a
Store Openings (Net)	31	n/a	13	n/a	-10	n/a
Convenience stores	5	n/a	-6	n/a	-12	n/a
Supermarkets	0	n/a	-1	n/a	1	n/a
Drogerie Stores	26	n/a	20	n/a	1	n/a
Total Selling Space (EOP), th. sq. m.	7,286	7.4%	7,291	6.6%	7,290	5.1%
Convenience stores	4,958	5.8%	4,959	5.1%	4,956	3.7%
Supermarkets	943	0.3%	942	0.2%	944	0.5%
Drogerie Stores	1,345	16.5%	1,350	14.5%	1,350	11.7%
Other Formats	40	n/a	41	n/a	41	n/a
Selling Space Added (Net), th. sq. m.	9.5	n/a	5.1	n/a	-0.9	n/a
Convenience stores	6.9	n/a	0.4	n/a	-2.8	n/a
Supermarkets	-3.9	n/a	-0.9	n/a	1.4	n/a
Drogerie Stores	5.6	n/a	5.0	n/a	0.3	n/a
Other Formats	0.9	n/a	0.5	n/a	0.3	n/a

Net retail sales in each month of the second quarter demonstrated strong double-digit results with April delivering the highest growth of 15.0%. On the back of continued slowdown of selling space growth, LFL became the key driver of the sales growth.

After continuous improvement during 1Q 2020, traffic declined in April due to lower frequency of visits on the back lockdown and restrictions. As they had been gradually lifted down traffic demonstrated progressive recovery in May and especially in June on the back of increased visit frequency and growing number of unique customers gained from other players and traditional retail. This improvement was not accompanied by similar deceleration of LFL ticket growth, which has been normalizing throughout the quarter but remained strong leading to further acceleration of LFL sales growth in July compared to 1Q and 2Q average.

Monthly trends have been affected by specific restrictions in the regions, home-dining effect, ban on international travel, later start of the domestic tourism in the Black Sea regions and warmer weather vs previous year.

Trading up effect demonstrated solid growth every consecutive month of the quarter driven by assortment and on-shelf availability improvements.

Financial results for 2Q and 1H 2020 (IAS 17)

million RUB	2Q 2020	2Q 2019	Change	1H 2020	1H 2019	Change
Total revenue	387,323	340,675	13.7%	763,361	657,917	16.0%
Retail	379,174	332,853	13.9%	743,959	643,012	15.7%
Wholesale	8,149	7,822	4.2%	19,403	14,905	30.2%
Gross Profit	94,337	80,989	16.5%	179,522	155,323	15.6%
Gross Margin, %	24.4%	23.8%	58 bps	23.5%	23.6%	-9 bps
SG&A, % of sales	-20.4%	-21.4%	103 bps	-20.5%	-21.7%	120 bps
EBITDA pre LTI[10]	30,482	24,870	22.6%	53,570	44,018	21.7%
EBITDA Margin pre LTI, %	7.9%	7.3%	57 bps	7.0%	6.7%	33 bps
EBITDA	30,476	24,313	25.3%	53,220	43,043	23.6%
EBITDA Margin, %	7.9%	7.1%	73 bps	7.0%	6.5%	43 bps
EBIT	18,676	12,571	48.6%	30,137	19,773	52.4%
EBIT Margin, %	4.8%	3.7%	113 bps	3.9%	3.0%	94 bps
Net finance costs	-3,497	-3,867	-9.6%	-7,274	-7,442	-2.3%
FX gain / (loss)	1,005	113	791.7%	-824	641	-228.6%
Profit before tax	16,185	8,816	83.6%	22,039	12,972	69.9%
Taxes	-3,342	-2,444	36.7%	-4,995	-3,388	47.4%
Net Income	12,843	6,372	101.5%	17,044	9,584	77.8%
Net Income Margin, %	3.3%	1.9%	145 bps	2.2%	1.5%	78 bps

Total revenue in 2Q 2020 increased by 13.7% and stood at RUB 387.3 billion. Net retail sales in 2Q 2020 grew by 13.9% y-o-y and amounted to RUB 379.2 billion driven by a combination of 7.2% LFL sales growth and 5.1% selling space growth.

Wholesale revenue in 2Q 2020 stood at RUB 8.1 billion with the growth rate decelerating from 58.9% in the previous quarter to 4.2% y-o-y driven by a decline in demand by HORECA related to restrictions environment, fluctuations on the wholesale pharmaceutical market following stockpiling in March and changes in regulation of tobacco sales. Share of wholesale segment in the total revenue decreased from 3.0% in 1Q 2020 to 2.1% in the reported quarter.

Gross Profit in 2Q 2020 increased by 16.5% to RUB 94.3 billion with a margin improvement by 58 bps y-o-y to 24.4% on improved commercial terms, lower promo activity in a combination with better promo coverage and higher promo margin, lower shrinkage and supply chain costs. Format mix had a positive impact on gross margin development with the share of high-margin drogerie format growing from 7.5% in 2Q 2019 to 8.1% in 2Q 2020 and the wholesale segment decreasing as a % sales.

Despite continuous increase of on-shelf availability supply chain costs demonstrated substantial improvement y-o-y on lower transportation costs and base effect driven by one-off costs related to the accident on Voronezh Distribution Center in 2Q 2019.

Shrinkage as a % of sales decreased further by 77 bps y-o-y driven by ongoing optimization of supply chain processes, renegotiation of quality standards with suppliers and other initiatives launched in 2019 despite growing share of fresh assortment and overall improvement of on-shelf availability.

SG&A costs demonstrated solid improvement by 103 bps to 20.4% as a percent of sales on lower marketing, depreciation and rent costs as well as positive operating leverage effect.

Personnel costs as a percent of sales slightly increased y-o-y reflecting one-off COVID-related expenses offsetting efficiency improvements. In April the Company made elevated payments to existing frontline personnel related to extra working hours and additional hiring to cover high demand in March partially compensated by increased productivity and lower staff turnover. Continuous improvement of staff turnover was driven by on-going automation of business processes, improved working conditions of in-store personnel including selective increase of compensation as well as higher retention rate.

Rental costs as a percent of sales decreased by 23 bps y-o-y driven by higher sales density, improvements of lease terms with landlords and lower store openings despite growing share of leased selling space to 77.4% in 2Q 2020 vs 76.3% a year ago.

Depreciation as a percent of sales reduced by 40 bps y-o-y in 2Q 2020 driven by operating leverage and slower expansion. During the reported quarter, Magnit renovated only 19 stores in total compared to 765 stores over the corresponding period of last year.

Lower promo intensity and smarter marketing strategies on the back of low promo sensitivity of customers under lockdown environment and softer competition resulted in the reduction of advertising expenses y-o-y.

Other lines including utilities, packaging, raw materials and other operating expenses[11] as a percent of sales remained under strict control supported by ongoing optimization initiatives and positive impact of operating leverage.

Total costs incurred as a result of the Company's response to COVID-19 in 2Q 2020 amounted to approx. RUB 1.5 billion and included additional payments to frontline personnel (reflected in staff costs), and safety procedures (reflected in other operating expenses).

As a result, reported EBITDA was RUB 30.5 billion with 7.9% margin having improved by 73 bps y-o-y and 182 bps q-o-q driven by gross margin dynamics and lower SG&A expenses. EBITDA pre-LTI was 7.9% - in-line with reported EBITDA due to partial release of accruals made last year in order to align with LTI threshold achievement.

Net finance costs in 2Q 2020 decreased by 9.6% y-o-y (or 23 bps as a percent of sales) to RUB 3.5 billion due to lower cost of debt compared to the previous quarter. As a result of unprecedented refinancing campaign starting from the beginning of the year cost of debt reduced to 6.3% (130 bps y-o-y or 50 bps q-o-q). This has also led to further improvement of the debt profile with increased share of long-term borrowings to 73% and longer debt maturity from 17 months to 21 months.

In the reported quarter the Company received FX gain in the amount of RUB 1.0 billion related to direct import operations.

Income tax in 2Q 2020 was RUB 3.3 billion. Effective tax rate has normalized to 20.6%.

As a result, net income in 2Q 2020 doubled (an increase of 101.5% y-o-y) and stood at RUB 12.8 billion. Net income margin increased by 145 bps y-o-y to 3.3%.

Financial results for 2Q and 1H 2020 (IFRS 16)

million RUB	2Q 2020	2Q 2019	Change	1H 2020	1H 2019	Change
Total revenue	387,323	340,675	13.7%	763,361	657,917	16.0%
Retail	379,174	332,853	13.9%	743,959	643,012	15.7%
Wholesale	8,149	7,822	4.2%	19,403	14,905	30.2%
Gross Profit	94,337	80,989	16.5%	179,522	155,323	15.6%
Gross Margin, %	24.4%	23.8%	58 bps	23.5%	23.6%	-9 bps
SG&A, % of sales	-19.0%	-20.5%	157 bps	-19.1%	-20.4%	136 bps
EBITDA pre LTI[12]	47,184	41,073	14.9%	87,240	75,070	16.2%
EBITDA Margin pre LTI, %	12.2%	12.1%	13 bps	11.4%	11.4%	2 bps
EBITDA	47,179	40,516	16.4%	86,891	74,095	17.3%
EBITDA Margin, %	12.2%	11.9%	29 bps	11.4%	11.3%	12 bps
EBIT	24,396	16,074	51.8%	41,803	28,618	46.1%
EBIT Margin, %	6.3%	4.7%	158 bps	5.5%	4.3%	113 bps
Net finance costs	-11,059	-11,826	-6.5%	-22,935	-23,551	-2.6%
FX gain / (loss)	1,097	113	873.1%	-920	641	-243.6%
Profit before tax	14,434	4,360	231.0%	17,948	5,707	214.5%
Taxes	-2,992	-1,503	99.1%	-4,177	-1,935	115.9%
Net Income	11,442	2,857	300.5%	13,771	3,772	265.1%
Net Income Margin, %	3.0%	0.8%	212 bps	1.8%	0.6%	123 bps

Balance Sheet and Cash Flows

Financial Position Highlights as of 30.06.2020 (IAS 17)

Million RUB	30.06.2020		31.12.2019
Inventories		219,236	218,874
Trade and other receivables		9,949	13,993
Cash and cash equivalents		21,149	8,901
Long-term borrowings		117,051	119,632
Trade and other payables		117,654	161,676
Short-term borrowings and short-term portion of long-term borrowings		91,542	64,578

Despite 16.0% sales growth in 1H 2020, ongoing improvement of on-shelf availability, increased share of drogerie format to 8.1% of net retail sales, supplier inflation and stock-up activities to cover increased demand in March-April 2020, inventories remained almost flat vs December 31, 2019 and stood at RUB 219.2 billion.

As a result of seasonal decline in the first half of the year related to payments to suppliers in January-February for large December volumes, lower buying volumes in the second quarter and higher share of fresh categories in sales, trade and other payable reduced by 27.2% compared to December 31, 2019 and stood at RUB 117.7 billion. Magnit continued working on improvement of account payables improving payment terms with suppliers in days.

Working capital management remains one of the key priorities of the Company. A number of ongoing initiatives, including optimization of receivables, electronic document flow, cross-functional projects aiming at reducing inventories, etc. will result in working capital improvement going forward predominantly through the reduction of inventory turnover in days.

	30 June 2020	31 March 2020	31 December 2019	30 June 2019
Gross Debt, RUB billion	208.6	218.9	184.2	198.3
Net Debt, RUB billion	187.4	192.2	175.3	181.4
Net Debt/EBITDA	2.0x	2.2x	2.1x	2.1x

Gross debt decreased by RUB 10.3 billion or 4.7% compared to March 31, 2020 and stood at RUB 208.6 billion as of June 30, 2020 due to repayment activities. Alongside with that, cash position remained strong totalling to RUB 21.2 billion. As a result net debt reduced by RUB 4.8 billion compared to March 31, 2020 and stood at RUB 187.4 billion as of June 30, 2020. Company's debt is fully RUB denominated matching revenue structure. Net Debt to EBITDA ratio was 2.0x as at 30 June 2020 vs 2.2x as at 31 March 2020.

Capex in 2Q 2020 decreased by 58% y-o-y and stood at RUB 5.0 billion on the back of slowdown of expansion program (177 store openings on gross basis in 2Q 2020 vs 829 in 2Q 2019) and decelerated redesign (19 stores in 2Q 2020 vs 765 stores in 2Q 2019). Total capital expenditures for the first six months of 2020 stood at RUB 12.2 billion vs RUB 22.3 billion in 1H 2019 (down by 45.2% y-o-y).

FY 2020 Guidance Update

Number of store openings (gross/net)	Original	New
Convenience Stores	~ 700/250	~ 600/150
Supermarkets	~ 12/6	2/-5
Drogerie Stores	~ 1,130/1,100	~ 550/480
Number of Redesigns
Convenience Stores	~ 900	~ 220
Supermarkets	~ 25	26
Drogerie Stores	~ 380	~ 80
CAPEX, RUB billion	60-65	45-50

Following certain restrictions imposed on a federal and regional levels due to the pandemic the Company reviewed its store opening and redesign program. The new plan implies around 600 organic store openings on net basis in 2020 (169 stores net have been already opened in 1H 2020). Adjusted store opening and redesign program is thoroughly consistent with the Company's intention to expand selectively following strict return requirements.

While the number of convenience store openings remains almost unchanged, development of the drogerie format has been scaled down significantly on the restrictions imposed in many regions of Russia on non-food retail due to pandemic as well as on continuous CVP fine-tuning and concept upgrade. As the expansion activity has been temporary suspended in the 2Q 2020, the opening of some supermarkets has been postponed to 2021 given their longer opening process.

The adjusted redesign program reflects management decision to keep the stores open due to better than expected sales performance.

The targeted program of store closures remains almost unchanged and includes units in different regions, which do not meet Company's profitability and return criteria. As current environment provides further scope for consolidation, the Company will continue seeking for small-to-medium size value-accretive M&A opportunities focusing on strengthening its positions in the existing regions.

Although the duration and impact of pandemic remain uncertain, the Company expects faster expansion in the next periods.

Capital expenditures projections for 2020 have been reduced to RUB 45-50 billon on lower investments in organic expansion and redesign while spending on efficiency projects focused on business development remains unchanged.

Efficiency of business operations and proper capital allocation are the key priorities of the Company in the current year. The management team will focus on balancing promo investments and obtaining better coverage by suppliers, continuous improvement of supply chain expenses, shrinkage, further optimization of SG&A costs and finance expenses. Improvement of the working capital and cash flow position will also be the key focus area for the second half of the year.

Note:

1. This announcement contains inside information disclosed in accordance with the Market Abuse Regulation effective from July 3, 2016.
2. Please note that there may be small variations in calculation of totals, subtotals and/ or percentage change due to rounding of decimals.

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 June 30, 2020, Magnit operated 38 distribution centres and 20,894 stores (14,581 convenience, 472 supermarkets and 5,841 drogerie stores) in 3,710 cities and towns throughout 7 federal regions of the Russian Federation.

In accordance with the unaudited IFRS 16 management accounts results for 1H 2020, Magnit had revenues of RUB 763.4 billion and an EBITDA of RUB 86.9 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 Magnit are qualified by this caution. Magnit does not undertake any obligation to update or revise any forward-looking statement to reflect any change in circumstances.

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[1] LFL calculation base includes stores, which have been operating for 12 months since its first day of sales. LFL sales growth and average ticket growth are calculated based on sales turnover including VAT.

[2] Since October 1, 2019 VAT on fruits and berries has been reduced from 20% to 10%. The estimated impact on LFL sales growth is 0.3%.

[3] The number of stores does not include pharmacies.

[4] Convenience Stores include convenience stores and small pilots such as Magnit City and Magnit Evening

[5] Supermarkets include Magnit Family supermarkets, superstores and Magnit Cash&Carry

[6] Other Formats include pharmacies and stores located at Russian Post offices

[7] Excluding VAT

[8] Excluding leap year effect, i.e. based on trading results of February 1-28, 2020

[9] Excluding VAT

[10] Long-Term Incentive Program

[11] Bank services and taxes other than income tax

[12] Long-Term Incentive Program

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ISIN:	US55953Q2021
Category Code:	MSCU
TIDM:	MGNT
LEI Code:	2534009KKPTVL99W2Y12
OAM Categories:	2.2. Inside information
Sequence No.:	78858
EQS News ID:	1105785

End of Announcement	EQS News Service

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