Detskiy Mir PAO — Detsky Mir — Investor Presentation (March 2018)
33 slides from Detskiy Mir PAO's investor presentation, March 2018
Slide 1: Detsky Mir – Investor Presentation
Detsky Mir – Investor Presentation #1 Russian specialized children’s goods retailer March 2018
Slide 2: Disclaimer
Disclaimer THIS DOCUMENT IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO SUBSCRIBE FOR OR PURCHASE ANY SECURITIES Certain information in this document is forward-looking, and reflect Detsky Mir’s current expectations and projections about future events, which reflect various assumptions mad
Slide 3: Agenda
Agenda 1 Detsky Mir at a glance 2 Summary performance post IPO 3 Our investment case re-cap 4 Financial results 3
Slide 4: Russia's Children Goods Retail Market Leader
Russia’s Children Goods Retail Market Leader 1 Combining Growth and Shareholder Returns Key Facts Strong Operating and Financial Results3 Detsky Mir is the undisputed #1 player in the specialized children’s Number of Stores #1 goods market in Russia 622 525 425 “Detsky Mir” is an iconic brand with 9
Slide 5: Delivering Strong Earnings Growth in the First Year Post IPO
2 Delivering Strong Earnings Growth in the First Year Post IPO Store openings 1 • 1041 new Detsky Mir branded stores Continuous expansion, exceeding initial openings opened in 2017 guidance by 50% in 2017 • Not less than 250 stores in the pipeline for 2018 - 2021 Like-for-like2 growth • 2 Affected b
Slide 6: Key Business Initiatives in 2017
2 Key Business Initiatives in 2017 Share of private labels in revenue Share of private labels has grown 2016 2017 in each of the four sales categories Share of private labels in the total sales increased Toys 8% 10% Mobicaro Enhancement of from 24% to ~27% Diapers 1% 4% the private label Focus
Slide 7: Our Top-Line Performance in Context of the Macro Environment
2 Our Top-Line Performance in Context of the Macro Environment Detsky Mir Total Sales1 Detsky Mir LFL Sales1 (y-o-y growth) (y-o-y growth) 26,8% 21,4% 11,2% 19,8% 19,8% 7,2% 6,1% 4,8% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2017 2017 2017 2017 2017 2017 2017 CPI Inflation2 Real Disposable Income Children’s Goo
Slide 8: Sustainable Profitable Growth Translating into Strong Cash Generation and Returns
2 Sustainable Profitable Growth Translating into Strong Cash Generation and Returns Market Leading LFL Growth… …As Well As Total Revenue Growth … …Growing Sales Density… 2017 (%) 2017 (%) Sales per sqm YoY Growth, 2017, % 2,7 7.2 25,5 21,9 19,2 5.4 12,2 2,3 0.9 (2,3) 3,0 2,3 6,4 (1,4) (3,2) (4,4) (5
Slide 9: Why Detsky Mir Is Very Different from the Food Retail?
2 Why Detsky Mir Is Very Different from the Food Retail? Leading Russian food retailers 2016 17% 8% (#1) Market share 2017 20% n/a Competition for Low High new locations Market structure Gap #1 to #2 4.0x1 1.1x (Revenue 2016) ROIC 61%2 18-29%4 2016 Average dividend yield 2017 (cash flow basis) 6.8%3
Slide 10: Detsky Mir - The Leader of the Attractive Russian Children's Retail Sector
3 Detsky Mir - The Leader of the Attractive Russian Children’s Retail Sector Experienced management team #1 player in a large, with well-established governance and supportive shareholders 6 6 1 1 fragmented market with attractive fundamentals Asset light Iconic, category sustainable business model p
Slide 11: #1 Player in a Large, Fragmented Market with Attractive Fundamentals
1 #1 Player in a Large, Fragmented Market with Attractive Fundamentals Steadily Growing Children Population Large and Growing Addressable Market 2011–2021F Russian Children Population (under 12 y.o., m) 2011–2021F Russian Children’s Goods Market (Nominal Prices, RUBbn) 21,7 22,2 22,6 22,8 23,0 23,2
Slide 12: Iconic, Category Defining Brand with Attractive Multi-Category Customer Proposition
2 Iconic, Category Defining Brand with Attractive Multi-Category Customer Proposition Leading Customer Proposition Bigger and Better Than Competition Stores in Total Number of Stores in Other Average Selling Poll: Prompted Brand Poll: Purchases in Net Store Moscow and Stores Regions Space per Store
Slide 13: Well-Defined Four-Pillar Growth Strategy: Taking over Whitespace
3 Well-Defined Four-Pillar Growth Strategy A Taking over Whitespace in Large and Small Cities Number of Stores (incl. ELC) Visible Expansion Pipeline 5781 DM stores 622 120 Cities with no DM Presence 65 Malls identified as priority locations for DM (in the cities of presence) 40 Replacing competitor
Slide 14: Four-Pillar Growth Strategy: Online Platform Development
3 Well-Defined Four-Pillar Growth Strategy (cont’d) B Continuous development of our online platform… Key achievements in 2017 133m website visits in 2017 (+37% YoY) New Composite Customer Service Level KPI introduced for 86% free traffic each delivery channel and call center Increased focus on U
Slide 15: Four-Pillar Growth Strategy: Exponential Growth in Online Metrics
3 Well-Defined Four-Pillar Growth Strategy (cont’d) B …Resulting in Exponential Growth Across All Key Metrics Accelerated Online Revenue Growth Russian Top-5 Online Children’s Goods Stores (RUB bn)1,2 In Jan-Feb-183 6.3% (Online Sales Volume in 2016, RUB bn, incl. VAT) Market share 0.2% 0.5% 0.6% 1.
Slide 16: Four-Pillar Growth Strategy: Competitive Pricing and Merchandising
3 Well-Defined Four-Pillar Growth Strategy (cont’d) Competitive Pricing and Effective Merchandising with Focus on Traffic Generating Categories Drive Strong C LfL Revenue Growth and Growing Gross Profit per sqm Competitive Pricing Effective Marketing Strong LfL Growth1 (%) and Merchandising 15.3% 14
Slide 17: Four-Pillar Growth Strategy: Execution Excellence
3 Well-Defined Four-Pillar Growth Strategy (cont’d) D Focus on Execution Excellence to Achieve Superior Operating Margins Adjusted EBITDA1 Improvement of 330bps in Adj. EBITDA1 margin since 2013 driven by: (RUBm) Store operation improvements Optimization of IT platforms and personnel 10 663 Re
Slide 18: Expansion Platform Designed for Future Growth
4 Expansion Platform Designed for Future Growth Strong Infrastructure Backbone Store Management and Rollout Distribution & Logistics IT Infrastructure Strict investment hurdles for store openings: Well-established import trade competencies and in- Set-up SAP system manages on-stock balances ̶
Slide 19: Asset Light Sustainable Business Model Providing Attractive Shareholder Return
5 Asset Light Sustainable Business Model Providing Attractive Shareholder Return Attractive New Store Economics and Disciplined A Roll-out… C …Resulting in Strong Returns1… Capex of c. RUB 13m per 1 standard DM store 2013 2014 2015 2016 2017 Strict investment criteria Revenue Growth 30% 26% 33%
Slide 20: Experienced Management Team With Well-Established Governance
6 Experienced Management Team With Well-Established Governance and Supportive Shareholders Highly Experienced Management… …With Strong Track Record… New Management New Stores Openings1 Team Vladimir Anna Farid Pavel 103 100 104 Chirakhov Garmanova Kamalov Pischikov 47 56 Chief Executive Chief Financ
Slide 21: Traffic-Led Revenue Growth
4 Traffic-Led Revenue Growth Exceptional Revenue Growth Trajectory… …Underpinned by Strong and Consistent Like For Like Growth1… (RUBm) 15.3% 14.6% 13.7% 97 003 12.3% 7.2% 79 547 4,8% 5,2% 60 544 8,3% 5,9% 45 446 12,2% 36 001 10,0% 8,9% 5,0% 6,0% -4,4% 2013 2014 2015 2016 2017 2013 2014 2015 2016 20
Slide 22: Relentless Focus on SG&A Optimisation Underpinning Margin Expansion
4 Relentless Focus on SG&A Optimisation Underpinning Margin Expansion …while Growing Sales Density Offsetting Declines in Gross Continuous Optimisation of Personnel Expense… Margin… Personnel per Store1 38,6% 38,0% 36,2% 34,1% 33,8% 26 24 22 48,6 49,7 49,9 51,1 20 45,5 18 2013 2014 2015 2016 2017 20
Slide 23: Converting Earnings Growth Into Strong Cash Flow Generation Profile
4 Converting Earnings Growth Into Strong Cash Flow Generation Profile… Comments Cash Flow (RUBm) Strong conversion of EBITDA into Operating Cash Flow and Free Cash Flow 2013 2014 2015 2016 2017 Limited working capital financing needs due to attractive payment terms / Adjusted EBITDA2 2,771 4,463
Slide 24: Imminently Shared with our Shareholders via Consistent Dividend Payments
4 …Imminently Shared with our Shareholders via Consistent Dividend Payments Flow Comments Adjusted Net Income1 (RUBm) Asset-light cash generative model underpinning significant dividend paying 5,7% capacity 3,7% 4,8% 3,2% 3,6% − Dividends as major differentiator from the majority of Russian high-
Slide 25: Conservative Financial Policy and Stable Leverage
4 Conservative Financial Policy and Stable Leverage Comments Leverage1,2 dynamics Commitment to a conservative financial policy Detsky Mir provided CJSC "DM-Finance" (Sistema’s subsidiary) with the loan to buy out 25% stake from Sberbank in 2013. Most of the loan − Fully RUB denominated debt to
Slide 26: Guidance Update
Guidance Update Near Term guidance at IPO 2017 fact Mid- to Long-Term guidance at IPO Updated guidance Store ~70 new stores >100 new stores opened 1 ~250 new stores in 2017-2020 ~70 new stores in 2018 Count (increased to 300 in Nov-17) At least 250 new stores in 2018-2021 Revenue Driven by sto
Slide 27: Appendix
Appendix
Slide 28: Top Management Compensation Structure Overview
Top Management Compensation Structure Overview Annual Compensation Structure CEO «CEO-1» Department Heads Fixed 50% 50% - 80% 70% - 85% Total 50% 20% - 50% 15% - 30% Variable incl. Financial1 25% 6% -17% 3% -9% Incl. Functional2 25% 14% -33% 10.5% - 21% Last LTI Programme New Equity-Based Compensati
Slide 29: Case Study: Gaining Market Share in Baby Food and Diapers Sales
Case Study: Gaining Market Share in Baby Food and Diapers Sales Baby Food Sales by Channel in Russia Comments Baby food and Diapers remain key categories for children’s goods stores as traffic generators 29,4% -2.2 p.p. 27,2% -2.8 p.p. 24,5% Only children’s goods specialized -0.9 p.p. 12,0% -0.8
Slide 30: Net Trade Working Capital Overview
Net Trade Working Capital Overview Focus on Constant Improvement & Optimization of NWC1,2 (RUB m) 26 440 24 796 8,0% 17 346 5,5% 4,3% 6,0% 11 124 4,4% 8 636 3,2% 4,0% 2,6% 173 d. 156 d. 150 d. 164 d. 3 855 1 457 144 d. 1 331 2 710 2 244 2,0% 143 d. 15 d. 11 d. 16 d. 18 d. 8 d. 0,0% 152 d. 142 d. 158
Slide 31: Robust Like-for-Like Performance
Robust Like-for-Like Performance Like-for-like revenue (in RUB)* Comments x.x% LFL turnover growth LFL number of tickets growth LFL average ticket growth Strong growth of the like-for-like sales was a result of competitive pricing policy marketing activities and improvements in merchandising Foc
Slide 32: Financial Performance Summary
Financial Performance Summary (RUBm, unless specified otherwise)1 Comments 2013 2014 2015 2016 2017 Number of stores 252 322 425 525 622 Strong support from both network expansion and LFL Detsky Mir stores 224 278 381 480 578 ELC stores 27 43 44 45 44 Sales growth Solid LFL Sales growth rates Se
Slide 33: Our Operating Performance vs Share Price Performance
Our Operating Performance vs Share Price Performance Share price performance since IPO Company’s performance in 2017 Share price performance +6.2% Sales 2017 +21.9% yoy RUB4.8bn, RUB Dividends paid in 2017: average dividend Adjusted EBITDA 2017 +30.0% yoy yield1 of 6.9% Total shareholders 13.1% Adju