O'KEY GROUP REPORTS 8.5% EBITDA MARGIN IN FY 2020
O'KEY Group S.A. (LSE, MOEX: OKEY, the “Group” or the “Company”), one of Russia’s leading food retailers, today announces its financial results for the full year of 2020 based on audited consolidated financial statements.
All materials published by the Group are available on its website, okeygroup.lu.
All results are presented under IFRS 16 unless stated otherwise.
FY 2020 Financial Highlights
· Total Group revenue increased by 5.6% YoY to RUB 174,341 mln
· O`KEY revenue rose by 0.8% YoY to RUB 148,341 mln, driven by 2.5% LFL retail revenue growth
· DA! revenue soared by 45.2% YoY to RUB 26,000 mln, led by 27.8% LFL revenue growth and selling space expansion
· Group gross profit increased by 5.4% to RUB 39,288 mln, and gross margin amounted to 22.5% in FY 2020
· Group EBITDA grew by 5.5% YoY to RUB 14,832 mln, and EBITDA margin stood at 8.5%
· DA! discounters EBITDA improved to positive RUB 784 mln in FY 2020 from negative RUB 215 mln in FY 2019, driven by strong revenue performance and efficiency growth
· Group’s operating profit grew by 2.8% YoY to RUB 5,039 mln in FY 2020
· Group’s net debt position improved slightly YoY to a 3.6x interest-bearing liabilities to EBITDA ratio, as of December 31, 2020
Armin Burger, O’KEY Group CEO, commented:
“In 2020, all sectors of the economy faced unprecedented instability and challenges. And I am all the more pleased to report the solid financial results delivered by O’KEY Group over the year. Our business model based on clearly positioned and complementary formats – modern O’KEY hypermarkets, DA! discounters, and a well-established e-commerce platform – enables us to cover all customer segments, and leverage the synergies. Our revenue grew by 5.6% YoY to RUB 174 billion, and Group EBITDA reached RUB 14.8 billion with an EBITDA margin of 8.5%.”
“O’KEY hypermarkets showed sustainable operational and financial results. The revenue of O’KEY hypermarkets grew to RUB 148 billion, while EBITDA stood at RUB 14.0 billion with an EBITDA margin of 9.5% in 2020. In 2020, we introduced a new hypermarket concept, which is based on both O’KEY’s own innovations and best international practices aimed at strengthening O`KEY’s market positioning and improving the economics of selling space utilisation. Within the next few years, we plan to expand our new hypermarket concept across our key regions, starting with five to seven stores in 2021.”
“DA! discounters remained the main driver for the Group and once again showed excellent results, with 45.2% revenue growth. As expected, DA! broke even and delivered positive EBITDA in 2020. During the year, we opened 18 discounters net of closures in Moscow and the Moscow Region, which brought the total number of stores to 118 and increased selling space by 16% YoY. Being focused on our strategic goals, we will continue expansion of the discounter business, and expect to open 30 to 40 new DA! stores in 2021, carefully selecting locations for every one of them. We expect that the share of discounters in the Group revenue will keep growing, thus supporting the Group’s overall growth and increasing operational profitability.”
“Our strategic target is to deliver the best price-quality ratio in the market in all our formats. We believe that the right strategy in action will allow us to fully capitalise on the opportunities in a changing market landscape.”
For more details, please refer to the Group’s Q4 2020 Trading Update
 In the reporting period, the Group has reclassified certain expenses relating to in-store deli from selling, general and administrative expenses to cost of goods sold. For comparison purposes, the respective changes in the presentation have been applied to the FY 2019 profit and loss statement. The changes do not have any effect on EBITDA or net income.
Group retail revenue rose by 5.9% YoY to RUB 172,738 mln in FY 2020. This growth was driven by strong LFL performance of DA! and their selling space expansion, supported by O’KEY’s positive LFL performance.
Rental income decreased by 17% (or by RUB 329 mln) YoY to RUB 1,603 mln in FY 2020, mainly due to leaseholders’ businesses shutting down during the pandemic.
In FY 2020, total Group revenue increased by 5.6% YoY to RUB 174,341 mln.
Group gross profit
In FY 2020, the Group gross profit rose by 5.4% YoY to RUB 39,288 mln, primarily driven by retail revenue growth.
Group gross margin decreased by 0.1 pp YoY to 22.5%, on the back of a decline in rental income and higher shrinkage costs, as a percentage of revenue. However, this was offset by more efficient procurement and lower logistics costs, as a percentage of revenue.
Rental income, as a percentage of total revenue, declined by 0.2 pp YoY, as explained above.
In FY 2020, shrinkage costs grew, as a percentage of revenue, by 0.2 pp YoY, primarily due to the cancellation of returns to suppliers of products with a shelf-life of less than 30 days. As the new regulation was enacted in June 2019, it resulted in a lower comparable base of 2019 vs 2020. Besides, the total share of ‘fresh’, ‘ultra-fresh’ products, and fruit and vegetables, as the key categories of the company’s customer proposition, was up by 0.7 pp YoY to 46.4% of O`KEY’s net retail revenue in FY 2020.
Commercial margin improved by 0.2 pp YoY in FY 2020, driven by constant assortment optimisation and customer proposition enhancement, as well as operational and commercial synergies between the two formats.
Logistic costs, as a percentage of revenue decreased by 0.1 pp YoY, due to the ongoing logistic processes optimisation.
Group SG&A expenses increased by 3.2% YoY to RUB 32,792 mln in FY 2020. However, SG&A expenses as a percentage of revenue decreased by 0.5 pp YoY to 18.8% in FY 2020.
Personnel costs, as a percentage of revenue, dropped by 0.1 pp YoY to 7.8% in FY 2020, mainly due to the increased efficiency of store operations and a ramp-up in the DA! business, partially offset by extra bonuses to store staff during the pandemic.
Communication and utilities expenses increased by 3.0% YoY to RUB 3,720 mln, but reduced as a percentage of revenue by 0.1 pp YoY in FY 2020, resulting from the revenue growth.
Advertising and marketing expenses declined as a percentage of revenue by 0.2 pp YoY, as the Group revised the advertising activities in response to the consumer behaviour change. The mix was optimised from traditional media towards a higher share of digital and personal communication, reflecting the customers’ consumption shifts during the pandemic.
Operating tax expenses increased by 26.9% YoY to RUB 735 mln, and by 0.07 pp YoY, mainly as a result of an increase in cadastral value of the property owned, as well as the store expansion programme.
Materials and supplies expenses increased by 39.3% YoY to RUB 435 mln, and by 0.06 pp YoY, mainly due to RUB 141 mln pandemic-related expenses for sanitary measures and protective materials bought for our stores and offices in FY 2020.
The Group brought variable lease expenses, as a percentage of revenue, down by 0.1 pp YoY in FY 2020, thanks to the rent rate re-negotiations, as well as temporary rental deductions received during the lockdown.
Depreciation and amortisation (D&A) expenses stood almost flat YoY, and decreased, as a percentage of revenue, by 0.2 pp YoY in FY 2020.
Group EBITDA and EBITDA margin
Group EBITDA grew by 5.5% YoY to RUB 14,832 mln in FY 2020, led by revenue growth and cost savings. Group EBITDA margin remained flat YoY at 8.5% in FY 2020.
DA! EBITDA turned to positive RUB 784 mln in FY 2020, compared to negative RUB 215 mln in FY 2019.
O’KEY EBITDA reduced by 1.6% YoY and amounted to RUB 14,048 mln in FY 2020. The decline was driven mainly by the drop in rental income and less non-cash gains from the lease agreement modification (according to IFRS 16) recognised in FY 2020 as compared to FY 2019.
Other operating expenses and operating profit
Group other operating expenses amounted to RUB 1,457 mln in FY 2020, compared to RUB 569 mln in FY 2019. The increase was attributable primarily to the disposal of non-current assets related to the store and land plots portfolio revision and optimisation in the reporting period. This amounted to a net loss of RUB 485 mln in FY 2020, compared to a RUB 47 mln gain in FY 2019.
Additionally, a one-off gain of RUB 377 mln from the lease agreement modification was received in FY 2019. In FY 2020, the gain amounted to only RUB 56 mln, as the main effect from the IFRS 16 standard implementation was recognised in FY 2019. Both items have a non-cash nature.
Group operating profit rose by 2.8% YoY to RUB 5,039 mln in FY 2020, on the back of EBITDA growth partially offset by the increase in other operating expenses.
Group finance costs, foreign exchange and net profit
A substantial part of interest costs was attributable to non-current lease liabilities (accounted for under IFRS 16). Net finance costs decreased by 1.6% YoY to RUB 4,884 mln in FY 2020, led mainly by lower interest expense on lease liabilities due to a decrease in the lease liabilities amount, and by a decline in the weighted average interest rate in FY 2020.
In FY 2020, net foreign exchange loss amounted to RUB 1,787 mln, compared to a RUB 938 mln gain in FY 2019. The loss mainly related to intragroup USD-denominated loans, and to lease contracts nominated in foreign currencies, while losses from import operations had a relatively small impact on the Group results.
The Group recorded a net loss of RUB 1,444 mln in FY 2020, compared to a RUB 747 mln net profit in FY 2019. The loss is mostly attributable to the aforementioned foreign currency loss in FY 2020.
Net cash from operating activities amounted to RUB 11,946 mln in FY 2020, compared to RUB 11,078 mln in FY 2019. The increase was largely a result of the retail revenue growth and efficient working capital management.
Net cash used in investing activities amounted to RUB 3,755 mln in FY 2020, in comparison with RUB 1,352 mln cash used in FY 2019. In 2020, the Group invested over RUB 1,800 mln (excluding VAT) in the development of its hypermarket business and over RUB 1,900 mln (excluding VAT) in the expansion of its discounter operations. In 2019, the Group sold two land plots and received cash proceeds totalling RUB 1,553 mln, partially offsetting its capital expenditures in the respective period.
Net cash used in financing activities amounted to RUB 5,988 mln in FY 2020, compared to RUB 12,922 mln in FY 2019. The decline was mainly attributable to long-term loans advanced repayments in FY 2019.
Net increase in cash amounted to RUB 2,202 mln in FY 2020, versus a RUB 3,196 mln cash decrease in FY 2019.
As of December 31, 2020, the Group had RUB 12,400 mln of undrawn, committed borrowing facilities available in Russian roubles on a fixed and floating rate basis until March 2021 – November 2024, in respect of which all conditions have been met. Proceeds from these facilities may be used to finance operating and investing activities if necessary.
Group financial position remained stable during the reporting period. As of December 31, 2020, the total interest-bearing liabilities (net of cash) to EBITDA ratio reduced to 3.6x from 3.7x as of December 31, 2019.
As of December 31, 2020 and during the twelve-month period then ended, the Group complied with all of its loan covenants.
Group audited IFRS report
Group audited report, including the full set of audited IFRS financial statements, can be found at https://okeygroup.lu/investors/result-center/ifrs-statements/.