M.video · RUS:MVID
M.video — Investor Day (March 2018)
52 slides from M.video's investor day presentation, Mar 22, 2018
Slide 1: PJSC M.Video Investor Day
nepsbie: i AM Gugeo 25" PJSC M.Video Investor Day March 22, 2018 MOEX, Moscow, Russia nepBbie~ CANBDOPADO Ml fugeo*> W CAPMAP reynna
Slide 2: Content & liability disclaimer
Content & liability disclaimer The information contained in this presentation or enclosed herewith is provided and intended for informational purposes only and should not be relied on for any investment decisions. The information provided in the presentation includes assumptions and financial inform
Slide 3: Agenda
Russian CE Market Update M.Video FY 2017 audited M.Video 4Q & FY 2017 Operational Highlights IFRS results M.Video FY 2017 Key Financial Highlights Transaction Summary Eldorado acquisition Strategic Rationale by M.Video Financial Rationale Combined Business Strategy Q&A session 3
Slide 4: The market has stabilized, M.Video share was flat YoY
The market has stabilized, M.Video share was flat YoY M.Video Total Market Share, % Market YoY (Quarterly), % CAGR’15-17A +5.9% Total CE Market CAGR’18F-20F + 4.5% 17.3% 17.0% 17.0% 17.1% 16.8% 15.8% +15 +12 +8 +6 +5 +5 -13 -2 -1 -0 -16 -19 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 M.Video YoY -5.5% 13.3%
Slide 5: M.Video considerably gained share in growing online market reaching record-high 14%
M.Video considerably gained share in growing online market reaching record-high 14% M.Video Online Market Share, % Market YoY (Quarterly), % CAGR’15-17A +13.8% Online CE Market 16.6% CAGR’18F-20F + 15.4% 14.1% 11.6% 11.3% 10.2% 10.4% +17 +20 +24 +3 +12 +10 +3 +16 +11 +16 +1 -17 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Slide 6: Digital: M.Video grew with the market, category still underpenetrated
M.Video grew in Digital with the market, but the category still underpenetrated and attractive forecast -1,1% vs Reforecast 5,0% vs Reforecast -0,5% vs Reforecast 1,2% vs Reforecast -2,0% vs Reforecast 4,9% vs Reforecast 12,7% vs Reforecast 1,5% vs Reforecast ctual -31,3% vs Actual -0,9% vs Actual -
Slide 7: In online M.Video greatly outperformed the market in all categories
In online M.Video greatly outperformed the market in all categories thanks to effective OMNI-strategy forecast -1,1% vs Reforecast 5,0% vs Reforecast -0,5% vs Reforecast 1,2% vs Reforecast -2,0% vs Reforecast 4,9% vs Reforecast 12,7% vs Reforecast 1,5% vs Reforecast ctual -31,3% vs Actual -0,9% vs A
Slide 8: Agenda
Russian CE Market Update M.Video FY 2017 audited M.Video 4Q & FY 2017 Operational Highlights IFRS results M.Video FY 2017 Key Financial Highlights Transaction Summary Eldorado acquisition Strategic Rationale by M.Video Financial Rationale Combined Business Strategy Q&A session 8
Slide 9: M.Video 4Q & FY 2017 operational highlights
M.Video 4Q & FY 2017 operational highlights FY 2017 Stores & Space Growth 4Q & FY 2017 Sales, RUB bn (VAT incl.) +4.7% +8.2% 234 895 937 216 +26 +18.6% 398 424 65 77 Number of stores, eop Total space, '000 sq m, eop 4Q FY FY 2016 FY 2017 2016 2017 9
Slide 10: M.Video 4Q & FY 2017 LFL sales highlights
M.Video 4Q & FY 2017 LFL sales highlights 4Q 2017 Like-for-Like Stores Sales FY 2017 Like-for-Like Stores Sales +13.1% -0.3% +12.7% +5.3% -1.2% +4.1% 205 26.3 67 7.9 8,442 7,800 4Q 2017 FY 2017 Number of checks Average check Turnover Number of checks Average check Turnover mln of transactions RUB, V
Slide 11: M.Video record growth in online reaching 16% of total sales
M.Video record growth in online reaching 16% of total sales 4Q & FY 2017 Online Sales, RUB bn (VAT incl.) 2014-2017 Online Sales Share in Total Sales +41.3% 67.9% 72.1% 37 66.5% 67.0% 16% 26 +68.5% 12% 11% 14 9% 8 4Q FY 2014 2015 2016 2017 2016 2017 OBS Share in Total Sales Pick-up share in OBS Note
Slide 12: M.Video strategic projects launched in 2017 added incremental revenue
M.Video strategic projects launched in 2017 added incremental revenue Added Revenue 2017 (RUB bn) # of authorizations 714 thousand # of Omni-baskets sent Tablet-based in-store sales +2.4 235 thousand # of cards issued (Real Time Dealing) 205 thousand Accessories penetration rate Shop-i
Slide 13: Agenda
Russian CE Market Update M.Video FY 2017 audited M.Video 4Q & FY 2017 Operational Highlights IFRS results M.Video FY 2017 Key Financial Highlights Transaction Summary Eldorado acquisition Strategic Rationale by M.Video Financial Rationale Combined Business Strategy Q&A session 13
Slide 14: M.Video FY 2017 key financial highlights
M.Video FY 2017 key financial highlights Revenue (net of VAT), RUB bn Gross Profit, RUB bn CAGR’15-17 +10.7% 424 24.1% 23.4% 23.5% 398 378 +8.2% +8.4% 198 183 162 42.9 46.5 38.9 2015A 2016A 2017A 2015A 2016A 2017A № of Stores Gross Margin, % 14
Slide 15: M.Video showed best EBITDA margin over 3 years, solid Net Income
M.Video showed best EBITDA margin over 3 years, solid Net Income EBITDA, RUB bn Net Income, RUB bn 5.6% 6.0% 3.0% 3.5% 5.5% 2.8% +14.0% +25.4% 11.8 10.3 8.8 7.0 5.5 4.5 2015A 2016A 2017A 2015A 2016A 2017A EBITDA Margin, % Net Margin, % 15
Slide 16: M.Video Net Margin improvement factors in FY 2017
M.Video Net Margin improvement factors in FY 2017 - 0.48pp +0.64pp 3.5% +0.17pp +0.05pp +0.22pp 3.0% -0.10pp Net Margin Gross Margin Personnel Lease D&A Other OPEX Other Net Margin 2016 Operating 2017 Income Promos fully One-off LTIP Rates re- High base of M.Credit offset by vesting; negotiations; N
Slide 17: It's time to take next step in M.Video's strategic development
It’s time to take next step in M.Video’s strategic development Achievements Headwinds Stable market share 17% Russian CE market is maturing, the Record 14% market share in online growth has slowed down to 5 - 6% Online sales grew +41% YoY In spite of M.Video strategic initiatives, Share
Slide 18: What's next? New ambitious goals 2018+
What’s next? New ambitious goals 2018+ PUBLIC COMPANY “ONE RETAIL” CONCEPT IMPLEMENTATION BUILDING A WINNING RUSSIAN MARKETPLACE 18
Slide 19: Agenda
Russian CE Market Update M.Video FY 2017 audited M.Video 4Q & FY 2017 Operational Highlights IFRS results M.Video FY 2017 Key Financial Highlights Transaction Summary Eldorado acquisition Strategic Rationale by M.Video Financial Rationale Combined Business Strategy Q&A session 19
Slide 20: Transaction summary
Transaction summary M.video Management LLC buys 100% in Eldorado LLC Acquisition cost Up to RUB 45.5 bn Financing sources Cash and Debt of c. RUB 40.0 bn Deal timing In Q2, 2018 Condition EGSM approval on April 13, 2018 Legal merger In Q1, 2019 of M.Video Management & Eldorado LLC 20
Slide 21: High-level structure of Eldorado acquisition
High-level structure of Eldorado acquisition PJSC M.video 1 M.Video Management 100% LLC takes c. RUB 40 bn 1 loan to acquire 100% M.video 2 interest in BOVESTO LTD Management SAFMAR M.Video Management LLC GROUP 2 LLC acquires 100% in BOVESTO LTD from 100% SAFMAR GROUP for up Financing BOVESTO LTD to
Slide 22: Eldorado LLC integration key milestones
Eldorado LLC integration key milestones 28 May’18 13 Apr’ 18 Q2 2018 By Q1 2019 Buyback EGSM Acquisition merger closed One legal entity EGSM to approve the deal. Closure of the 45 days share buyback deal. Start of at RUB 401/share Integration 22
Slide 23: One legal entity is necessary for business efficiency
One legal entity is necessary for business efficiency Combined • Market leader 1 procurement and stock management • Easy stock relocation • Common warehouses Lower maintenance • Elimination of functions duplication 2 costs for single legal entity • Elimination of possible transfer pricing risks • IT
Slide 24: Agenda
Russian CE Market Update M.Video FY 2017 audited M.Video 4Q & FY 2017 Operational Highlights IFRS results M.Video FY 2017 Key Financial Highlights Transaction Summary Eldorado acquisition Strategic Rationale by M.Video Financial Rationale Combined Business Strategy Q&A session 24
Slide 25: Russian Electronics retail is maturing and it is right time to take the lead in its consolidation
Russian Electronics retail is maturing and it is right time to take the lead in its consolidation 69% 53% 52% MediaMarkt & Saturn 49% 48% 40% Yamada Denki 20% M.Video Best Buy 17% Groupe Casino 27% 24% Bic Camera 11% DNS Expert 15% 16% Edion Magazine Luiza 11% Apple 13% Eldorado 22% 9% Apple. 7% Máq
Slide 26: Russian CE market today: DNS is making visible progress
Russian CE market today: DNS is making visible progress + = 25.9% 17.1 15.0 8.8 8.1 6.0 5.5 4.8 3.3 Russian CE market RUB 1,228 bn 3.3 Market Shares are based on M.Video internal estimates Market Value is based on GFK forecast 2017 2626
Slide 27: Complementarity in sales structure and operations make Eldorado a great M&A target
Complementarity in sales structure and operations make Eldorado a great M&A target for M.Video Sales by Product Category Sales by Region M.Video M.Video Years on the market Eldorado Eldorado 25 24 15% № of Stores 31% 21% 21% 424 415 16% Average Selling Space 49% 27% 37% 1,600 1,400 Average Ticket AV
Slide 28: M.Video is strongly positioned in high-end segment, while Eldorado in mass-market
M.Video is strongly positioned in high-end segment, while Eldorado – in mass-market Sales structure 2017, % Market (17/16 YoY), % 40% Mass Market 47% 7.8% & Medium 30% Upper- 1.8% 35% Medium 30% 18% High-End 5.8% Source: GFK 2017 28
Slide 29: Combined business strong fundamentals: 839 Stores in 200 Cities
Combined business strong fundamentals 839 Stores in 200 Cities 2017 HIGHLIGHTS 119 DCs across Russia Net Revenue NORTH 70 198 304 106 Market Share MOSCOW 176 CENTER 17.1% 25.9% 8.8% URAL FAR EAST 120 22 Online Market Share 98 14.1% 22.7% 8.6% SIBERIA Number of Stores VOLGA 130 SOUTH 115 424 839 415
Slide 30: The main goal of acquisition is to create an undisputable market leader
The main goal of acquisition is to create an undisputable market leader Strengthening of market position of the combined business, by serving wider customer audience: from mass-market to high-end Improving operational and financial performance of two companies, 1+1>2 due to coordinated development,
Slide 31: Agenda
Russian CE Market Update M.Video FY 2017 audited M.Video 4Q & FY 2017 Operational Highlights IFRS results M.Video FY 2017 Key Financial Highlights Transaction Summary Eldorado acquisition Strategic Rationale by M.Video Financial Rationale Combined Business Strategy Q&A session 31
Slide 32: The acquisition will bring RUB 18 bn synergies over 3 years
The acquisition will bring RUB 18 bn synergies over 3 years Source of synergies Positive effect on EBITDA Logistics 2.0 Marketing 1.6 IT 0.3 Finance 1.2 Rent 1.2 Maintenance 0.2 Personnel 0.9 SG&A 7.4 Procurement 10.6 Total synergies 18 The information provided is based on M.Video’s expectations whi
Slide 33: Combined EBITDA Margin of 6+% sustainable from 2019+
Combined EBITDA Margin of 6+% sustainable from 2019+ 6%+ 5%+ 5.0% Synergies, RUB bn 7 7 EBITDA, RUB bn EBITDA Margin, % 15 4 2017A 2018E 2019E 2020E The information provided is based on M.Video’s expectations which are indicative and cannot be considered as an official guidance 33
Slide 34: Group financial forecasts 2018E-2022E
Group financial forecasts 2018E-2022E Revenue (net of VAT), RUB bn EBITDA, RUB bn CAGR’17-22F 8+% CAGR’17-22F 14+% 1050+ 6%+ 839 450+ 5%+ 30+ 5.0% 304 19 15 2017A 2018E 2019E 2020E 2021E 2022E 2017A 2018E 2019E 2020E 2021E 2022E Pro-forma Pro-forma Revenue, RUB bn № of stores EBITDA, RUB bn EBITDA M
Slide 35: Group debt portfolio 2018E-2022E
Group debt portfolio 2018E-2022E Total Debt & Total Debt/EBITDA Net Debt & Net Debt/EBITDA 2.6 1.5 0.6 0.9 47 28 27 28 -11 0.0 21 19 0 9 -0.7 2017A 2018E 2019E 2020E 2021E 2022E 2017A 2018E 2019E 2020E 2021E 2022E Pro-forma Pro-forma Total Debt, RUB bn Cash (eop) Total Debt/EBITDA Net Debt, RUB bn N
Slide 36: Agenda
Russian CE Market Update M.Video FY 2017 audited M.Video 4Q & FY 2017 Operational Highlights IFRS results M.Video FY 2017 Key Financial Highlights Transaction Summary Eldorado acquisition Strategic Rationale by M.Video Financial Rationale Combined Business Strategy Q&A session 36
Slide 37: Merge strategy: One company – Two brands
Merge strategy: One company – Two brands 8.8% ONE COMPANY 17.1% Group ONE OPERATING BUSINESS MODEL market share 25.9% TWO BRANDS Business EBITDA Market 1 Model 2 Margin 6% 3 Share 2018 2019 2020+ Centralization of Sustainable EBITDA CE market share 30+% operations keeping 2 margin 6%+ brands Source:
Slide 38: Adhering to best corporate governance standards
Adhering to best corporate governance standards One Company One Model AGM Two brands Capital Structure Pension fund “Buduschee” 9.4% SAID GUTSERIEV Chairman of the Board of Directors Pension fund “Doverie” 5.8% 14 members Board of Directors Free Float 42.3% SAFMAR Group of which Other 57.7% 4 27.1%
Slide 39: Consistency in leadership – the team in place
Consistency in leadership – the team in place One Company ALEXANDER TYNKOVAN MANAGEMENT One Model Founder, President BOARD Two brands Management Board Chairman PAVEL BREEV BILAN UZHAHOV Vice-President Vice-President Management Board Member Management Board Member 25 years with M.Video ENRIQUE FERNAN
Slide 40: Two competing brands with one merged back office
Two competing brands with one merged back office One Company One Model ENRIQUE FERNANDEZ Group CEO Two brands Management Board Member Front functions remain separate for each brand Back office functions merge CENTRAL TEAM Marketing Marketing Commerce & Finance IT Development E-Commerce E-Commerce Pr
Slide 41: M.Video efficient model to be rolled-out on Eldorado business
M.Video efficient model to be rolled-out on Eldorado business One Company Efficient Eco-System OMNI One Model Procurement Two brands Target Margin Mobile Assortment Stores Working Capital Internet 1 Best assortment = endless online shelf 2 Best price guarantee = price match online 3 Best service = a
Slide 42: Two brands strategy 2018+
Two brands strategy 2018+ One Company One Model Two brands “One Retail” Re-start Strategic Initiatives + 600 m2 Customer Value Proposition Customers Evolution Re-concept Strategy of Two Brands Footprint Maximization Re-design “As big as we can” “As big as we need” 4242
Slide 43: Two brands differentiation and market positioning
Two brands differentiation and market positioning One Company One Model Two brands “One Retail” Best deal Uniqueness Leader Promo-oriented Center of competence Affordability Shopping Simplicity Top-level customer service experience Fast deal Location Best locations Proximity locations 43
Slide 44: M.Video digital transformation to ONE RETAIL
M.Video digital transformation to ONE RETAIL One Company One Model Two brands 2014 2015-2017 2018 till 2022 OMNI channel CONVERGENCE strategy % mobile phone store m_mobile M.Broker RTD 235% 85% +3% % accessories approval revenue penetration rate internet STRATEGIC projects ONE RETAIL 44
Slide 45: Top-10 public consumer electronics retailers worldwide by revenue
M.Video & Eldorado joint business is in Top-10 public consumer electronics retailers worldwide by revenue USD million 42,200 25,200 2017 №10 13,500 14,200 12,200 7,100 8,400 5,200 6,000 6,000 K's Edion Bic Camera FNAC Gome Dixons Yamada Ceconomy Best Buy Darty Carphone Denki Source: companies data a
Slide 46: Combined company to have best-in-class EBITDA Margin by 2019+
Combined company to have best-in-class EBITDA Margin by 2019+ 2017 2019 №4 №2 7.0% 6.0% 6%+ 5.4% 5.0% 5.0% 4.5% 3.6% 3.7% 1.5% 1.7% Ceconomy Gome Bic Camera Edion Yamada FNAC Darty Dixons Best Buy K's Denki Carphone Source: companies data as reported for 2017, Thompson Reuters 4646
Slide 47: Joint business to bring additional value to all stakeholders
Joint business to bring additional value to all stakeholders Reliable long-term Best products for collaboration reasonable price Exclusive all-Russia Healthy competition contracts Suppliers Customers Total Quality Technologies for unique Management customer experience In top-10 best Market leadershi
Slide 48: Agenda
Russian CE Market Update M.Video FY 2017 audited M.Video 4Q & FY 2017 Operational Highlights IFRS results M.Video FY 2017 Key Financial Highlights Transaction Summary Eldorado acquisition Strategic Rationale by M.Video Financial Rationale Combined Business Strategy Q&A session 4848
Slide 49: APPENDIX I. M.Video Statement of Profit & Loss
APPENDIX I. M.Video Statement of Profit & Loss 12m 2017 12m 2016 Change YoY % of % of RUBm RUBm RUBm % Revenue Revenue Revenue 198 197 183 219 14 978 8.2% Cost of Sales 151 670 76.5% 140 284 76.6% 11 386 8.1% Gross profit 46 527 23.5% 42 935 23.4% 3 592 8.4% SG&A 40 754 20.6% 37 351 20.4% 3 403 9.1%
Slide 50: APPENDIX II. M.Video SG&A Expenses
APPENDIX II. M.Video SG&A Expenses as % of as % of 12m 2017 12m 2016 revenue revenue RUBm % RUBm % Payroll and related taxes 12 538 6.3% 11 415 6.2% Lease expenses 8 885 4.5% 8 621 4.7% Advertising & promotional expenses 3 827 1.9% 3 521 1.9% Utilities, maintenance & other property operating costs 2
Slide 51: APPENDIX III. M.Video Statement of Financial Position
APPENDIX III. M.Video Statement of Financial Position 31.12.2017 31.12.2016 Change RUBm RUBm RUBm % Assets Non-current Assets 23,663 18,959 4,704 24.8% Fixed assets 7,936 8,127 (191) -2.4% Intangible assets 7,999 6,145 1,854 30.2% Other non-current 7,728 4,687 3,041 64.9% Current assets 97,862 81,34
Slide 52: APPENDIX IV. M.Video Cash Flow Statement
APPENDIX IV. M.Video Cash Flow Statement 12m 2017 12m 2016 Change YoY RUBm RUBm RUBm % Operating CF Operating cash flows before movements in WC 11,816 10,238 1,578 15.4% Inventory change (7,118) (1,044) (6,074) 581.8% Trade payables 11,413 8,123 3,290 40.5% Others (8,389) (1,996) (6,393) 320.3% Inte