M.Video-Eldorado Group’s EBITDA margin reaches 7.3% in 2019. Adjusted net income increases by 45% and reaches to RUB 11.2 billion in 2019

25.03.2020 01:12

  • Revenue increased by 3.6% year-on-year in 2019 to reach RUB 365,216 million.
  • Gross profit rose by 4.8% year-on-year and amounted to RUB 91,015 million, with gross margin up by 0.3 percentage points to 24.9% in 2019.
  • The Group’s EBITDA grew by 18.1% year-on-year and amounted to RUB 26,746 million (RUB 46,617 million under IFRS 16), while EBITDA margin increased by 0.9 percentage points year-on-year to 7.3% (12.8% under IFRS 16) in 2019.
  • Adjusted net income rose by 44.8% year-on-year to RUB 11,178 million (RUB 9,089 million under IFRS 16) in 2019.

M.Video-Eldorado Group President Alexander Tynkovan said: “Like everyone, we are very concerned by the current situation, and our thoughts are with all of the people who have been affected already. It is our responsibility to protect and support our employees and their families, as well as our customers and partners. We remain confident in the strength of our brand and our strategy, and believe that the strong results we were able to achieve in 2019 have laid a solid foundation for what is now clearly going to be a challenging 2020.

“M.Video-Eldorado Group demonstrated sustainable growth across key financial metrics, despite soft market conditions. EBITDA margin reached a record high for the past several years at 7.3%, and adjusted net income was RUB 11,178 million. The Company’s strong financial performance in 2019 is the result of the successful integration of two retail chains after the purchase of Eldorado, which was completed with unprecedented speed. In just over a year, the M.Video-Eldorado Group team succeeded in not only moving to a single legal entity and a joint IT system, but was also able to rebuild all key business processes from procurement to customer service, which provided additional synergies. As a result of the 2018-2019 integration and the synergies this achieved, in December 2019 a dividend of RUB 6 billion was paid.”

M.Video-Eldorado Group Chief Executive Officer Enrique Fernandez said: “The Group’s key focus in 2019 was the completion of all integration processes and our creation of an effective business model where each of the two brands and each function has its own role. We have completed the deployment of key projects – the m_mobile digital retail zones and free-standing digital boutiques, and a mobile app for salespeople (RTD). These projects define the Group’s current performance capability and lay the foundation for further business growth. Owing to the digitalisation of all business processes and customer authorisation not only on the website and through the mobile app, but also in stores, the Group is developing as an online business. Our model is evolving from omnichannel to ONE RETAIL, which is based not only on a single price, service and product line approach at all points of contact with customers, but also on data analytics, personalised promos, and in the future – personalised prices, as well as smartphone-based interaction with retailers. In 2020, despite the unclear outlook for the macro situation, our key focus remains unchanged and we will continue doing what we do best: serve our customers in the best way possible, providing essential technology and appliances for communication and connectivity, cooking food, doing household chores or for entertainment”.

The Group’s revenue increased by 3.6% year-on-year to RUB 365,216 million in 2019, driven by new stores, as well as growth in traffic and online sales for both brands.

The Company’s gross profit grew by 4.8% year-on-year and amounted to RUB 91,015 million, with gross margin increasing by 0.3 percentage points to 24.9% in 2019, as a result of increased efficiency in procurement, promo and assortment management.

EBITDA under IAS 17 grew by 18.1% year-on-year and amounted to RUB 26,746 million, while EBITDA margin increased by 0.9 percentage points year-on-year to 7.3% in 2019. This improvement was led mainly by gross profit and effective management of selling, general and administrative expenses, primarily personnel costs, which amounted to RUB 23,438 million and decreased as a percentage of revenue by 0.57 percentage points to 6.4% in 2019 from 7.0% in 2018. The integration with Eldorado and synergies resulting from optimisation of business processes, inter alia, enabled the group to reduce personnel costs.

In 2019, the Group opened 97 stores, 61 of which were in the second half of the year. As a result of these openings, lease costs under IAS 17 increased to RUB 21,335 million in 2019 from RUB 19,000 million in 2018, and as a percentage of revenue increased by 0.45 percentage points to 5.8%. This increase was partially offset by optimisation of lease rates.

Operating profit under IAS 17 increased by 17.1% year-on-year to RUB 19,699 million in 2019 due to the increase in EBITDA. Depreciation expenses under IAS 17 decreased to RUB 7,047 million in 2019 from RUB 7,862 million in 2018, due to one-off non-cash write-offs of assets and additional depreciation related to the fair price revaluation of acquired Eldorado assets. Excluding these one-off expenses, Depreciation expenses under IAS 17 rose to RUB 7,047 million in 2019 from RUB 5,833 million in 2018; as a percentage of revenue they increased by 0.3 percentage points year-on-year to 1.9% in 2019. The increase in depreciation expenses was mainly the result of active expansion.

The Group’s adjusted net income under IAS 17 increased by 44.8% year-on-year to RUB 11,178 million in 2019 compared to RUB 7,718 million in 2018 as a result of the business growth factors cited above.

As of 31 December 2019, the Group’s gross debt amounted to RUB 49,410 million; the Company's debt obligations are fully denominated in rubles. In 2019, the Group's gross debt decreased by 17.0%, and the gross debt / EBITDA ratio was 1.8x as of 31 December 2019, compared with 2.6x as of 31 December 2018. The net debt / EBITDA ratio as of 31 December 2019 remained at a comfortable level of 1.7x.

Impact of IFRS 16 on M.Video-Eldorado Group’s Financial Statements

The introduction of IFRS 16, which took effect on 1 January 2019, has affected the Group's EBITDA, operating profit and net income.

Impact on EBITDA

The Group's EBITDA is significantly higher in accordance with the new IFRS 16 standard, as the main part of rent &utilities expenses previously recognised as SG&A have been moved to interest expense in the income statement and to liabilities in the balance sheet.

Rent & utilities have decreased under IFRS 16 by RUB 17,190 million, and maintenance and other operating expenses before D&A decreased by RUB 2,681 million in the income statement under IFRS 16 in FY 2019.
This resulted in the Group’s EBITDA under IFRS 16 increasing substantially to RUB 46,617 million compared to RUB 26,746 million under the IAS 17 standard in FY 2019. The EBITDA margin under IFRS 16 amounted to 12.8%, an increase of 5.5 pp compared to the EBITDA margin of 7.3% under IAS 17 in FY 2019.