Company Presentation. #1 Russian specialized children s goods retailer. May 2017

Transcription

1 Company Presentation #1 Russian specialized children s goods retailer May 2017

2 Disclaimer IMPORTANT: You must read the following before continuing. The following applies to this document, the oral presentation of the information in this document by Public Joint Stock Company Detsky mir (the Company ) or any person on behalf of the Company, and any question-and-answer session that follows the oral presentation (collectively, the Information ). In accessing the Information, you agree to be bound by the following terms and conditions. The Information is confidential and may not be reproduced, redistributed, published or passed on to any other person, directly or indirectly, in whole or in part, for any purpose. This document may not be removed from the premises. If this document has been received in error it must be returned immediately to the Company. 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3 Children Goods Retail Market Leader Key Facts #1 specialized children s goods retailer in Russia Detsky Mir is an iconic brand with 97% prompted awareness stores as of 31 March Detsky Mir branded stores in 171 Russian cities, 41 Early Learning Center ( ELC ) stores 12 Detsky Mir branded stores in 7 cities in Kazakhstan Diversified product portfolio comprising toys, fashion, products for newborns and other children s goods 2 Exceptional growth and return metrics: adjusted EBITDA CAGR of 44% and 2016 adjusted ROIC of 61% 3 c.156 million visits in 2016 Average store size of c.1,400 sqm, located in modern shopping malls with product range of 20,000 30,000 SKUs 11,653 employees as of 31 December Market capitalization (MOEX:DSKY) RUB 64.9bn 5 Market Positioning Structure of Children s Goods Retail Market in Russia (%) Other (incl. non-organized retail market) 11% Internet 8% General Food Retailers 40% #1 Specialized Stores 41% 32% 9% 8% 7% 4% 40% Other Players DM is the undisputed #1 player in the specialized children s goods market 2016 Market share of 44% 7 Revenue Breakdown 2016 Newborns 31% Fashion 25% Large items and other 2 11% RUB 79.5bn 6 Toys 33% Financial Snapshot CAGR Q Q 2017 Number of stores % Selling space, k sqm % Revenue, RUBm 36,001 45,446 60,544 79,547 30% 16,414 21,061 % growth 30% 26% 33% 31% 35% 28% % 12m trailing LFL growth % 14.6% 13.7% 12.3% 13% 11% % LFL growth based on calendar year % 13.7% 12.3% 10.8% 13% 11% Gross profit, RUBm 13,908 17,263 21,904 27,108 25% 5,479 6,462 % margin 39% 38% 36% 34% 33% 31% Adj. EBITDA, RUBm 11 2,771 4,463 6,185 8,203 44% 806 1,109 % margin 7.7% 9.8% 10.2% 10.3% 4.9% 5.3% Adjusted profit for the period, RUBm 12 1,153 1,685 2,189 3,826 49% Adjusted ROIC, % 3 56% 88% 78% 61% 4% 5% 1 Source: Children Goods Market in Russia report by Ipsos Comcon (December 2016) ( Ipsos Comcon report ). Poll was conducted in December Including large items, stationery, sports and seasonal goods 3 Calculated as operating profit divided by average capital invested (simple average of capital invested as at the respective dates). Capital invested is calculated as net debt plus total equity (deficit). Invested capital is adjusted for amounts receivable under a loan granted to CJSC DM- Finance, carrying amount of Yakimanka building and net book value of the building occupied by the Bekasovo DC in Operating profit is adjusted for LTI expense and for gain on sale of Yakimanka 4 Including ELC personnel 5 Market capitalization as of 31 March Consolidated revenue inlc. ELC 7 Based on Ipsos Comcon report of specialized channel volume (RUB200.0 Bn incl. VAT) for 2016 and assuming average VAT rate of 10% 8 The Group's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under US GAAP and IFRS 9 LfL growth includes only DM stores in Russia that have been in operations for at least 12 full calendar months. 10 LfL growth includes only DM stores in Russia that were in operations for one full prior calendar year 11 Adj. EBITDA is calculated as profit for the period before income tax, FX loss, gain on acquisition of controlling interest in associate, effect on disposal of subsidiary, net finance expense, D&A, adjusted for the one-off effect relating to disposal of the Yakimanka building in 2014, as well as share-based compensation and cash bonuses under the LTI program 12 Adjusted for one-off effects relating to disposal of Yakimanka building in 2014, impairment of goodwill in 2015 and expense under the LTI management program 3

4 Profit generator Traffic generator Profit generator Traffic generator Our Customer Proposition and Retail Concept Newborns Our retail concept Share in DM 2016 revenue: 31% Market share: 20% Key competitors General food/grocery retailers 5 1 Interactive emotive shopping experience for children and parents with visual merchandising One-stop children s shop with comprehensive assortment across categories Toys Share in DM 2016 revenue: 33% Market share ; 30% Key competitors: Specialised children s stores 4 Long-term bonding with customers through loyalty programmes 2 Affordable prices focused on middleincome families Large items Share in DM 2016 revenue: 4% Key competitors: Specialised children s stores Stationery and other Share in DM 2016 revenue: 7% Market share ; 5% Key competitors: Specialised children s stores Standardized store layout 3 Conveniently located in modern shopping-malls and densely populated residential areas Fashion (apparel and footwear) Share in DM 2016 revenue: 25% Market share ; 11% (apparel), 11% (shoes) Key competitors: Apparel and footwear retailers, sports goods retailers Source: Company data, Ipsos Comcon Newborns market share includes large items. Stationery & other market share is for stationery only 4

5 The Market Leader in an Attractive Specialty Retail Sector 1 #1 player in a large, fragmented market with attractive fundamentals >RUB 500bn market 3x the size by revenue of the second largest competitor in Iconic, category defining brand with attractive multicategory customer proposition 97% prompted brand awareness 3 Well-defined four-pillar growth strategy: (A) taking over whitespace; (B) growing e-commerce platform; (C) focus on traffic generation and (D) execution excellence 31% revenue growth in 2016 Double-digit LfL growth and EBITDA margin 4 Expansion platform designed for future growth Network of 525 stores 2 modern DCs 5 Asset light sustainable business model providing attractive shareholder return 2016 adjusted ROIC of 61% 1 c.100% dividend payout for the last 4 years 6 Experienced management team with well-established governance and supportive shareholders Proven execution track record 292 stores opened in Calculated as operating profit adjusted for LTI expense divided by average capital invested (simple average of capital invested as at 2015 and 2016). Capital invested is calculated as net debt plus total equity minus amounts receivable under a loan granted to CJSC DM-Finance 2 Detsky Mir stores only 5

6 1 #1 Player in a Large, Fragmented Market with Attractive Fundamentals Growing Birth Rate Drives Structural Changes in Russian Population with Growing Share of Children Large and Growing Addressable Market F Russian Children s Goods Market (Nominal Prices, RUBbn) 12,5 12,6 13,3 13,2 13,3 13,3 13, F Birth rate (per 1,000 inhabitants) Net Increase in Children Population (under 12 y.o.), m Source: Rosstat Children Population (under 12 y.o.), m With Proven Resilience in Downturn Times Compared to Many Other Retail Segments YoY, Nominal Growth in RUB terms (%) Source: Ipsos Comcon report Destky Mir is The Largest Specialty Children Goods Retailer with Rapidly Growing Market Share Detsky Mir Market Shares in Russia (%) 3,0% 3,7% 8,3% 1 32% 44% (14,1%) (10,0%) (5,6%) (4,9%) (3,7%) 14% 16% 6% 7% 8% 17% 10% 24% 13% 17% Consumer Electronics Furniture Fashion DIY Real GDP Children's Goods Nominal GDP FMCG Total Children s Retail Market Specialized Children's Goods Sales Channel Source: Rosstat, Ipsos Comcon report Source: Company data, Ipsos Comcon report 6

7 2 Iconic, Category Defining Brand with Attractive Multi-Category Customer Proposition Leading Customer Proposition Bigger and Better Than Competition Total Number of Stores (1Q17) Stores in Moscow and Moscow Region (1Q17) 1 #1 #1 Stores in Other Regions (1Q17) 1 Average Selling Space per Store (ths. sqm) Poll: Prompted Brand Awareness % Poll: Purchases in L12M 71% % 21% % 32% % 16% ,0 74% 16% % 20% Source: Company data, Ipsos Comcon report 1 Excluding ELC stores and Kazakhstan 2 New store roll-out: gross space 3 Deti + Zdorovy Malysh + Mama, entered into bankruptcy 7

8 3 Well-Defined Four-Pillar Growth Strategy A Taking over Whitespace in Large and Small Cities Number of Stores (Incl. ELC) Significant Long-Term Expansion Potential DM stores K cities with no DM Presence 90 Malls identified as priority locations for DM 25 Medium-term target locations in Kazakhstan 600+ Malls with no DM Presence 425 Moscow and Moscow Region Central Siberian Ural Volga Southern North-Western Kazakhstan Source: Company data 1 Only Detsky Mir branded stores as of 31-Dec-16 8

9 3 Well-Defined Four-Pillar Growth Strategy (cont d) B Growing e-commerce Platform with the Leading Online Market Position Key Achievements in Q Took the leading market position in 2016 and kept it in 1Q17 Revenue CAGR`11-16 of 133% (>1.8x - 1Q17vs1Q16) Price leadership across all categories Low marketing expense on the back of the iconic brand Profitable on standalone basis 2 Over 97m website visits in 2016 ( +27% in 1Q17vs1Q16) Double-digit conversion rate growth YoY (2016 2x growth) Product range - 40,000 SKUs Instore pick-up in all offline DM stores in Russia (468 stores as of 31 March 2017). Share of in-store pickup in # of orders c.50% Delivery to point 3 (922 points as of ) Home-delivery service largest ATV User Interface/Experience Evolution Now Accelerated Online Revenue Growth Underpinned by Launch of In-Store Pickup Function in All Opened Stores (RUBm) 1,4 0.2% Launched Online 0.5% 0.6% 1.0% 2.1% ,260 Russian Top-5 Online Children s Goods Stores (Online Sales Volume in 2016, RUBm, incl. VAT) 2, Q Q 2017 Online Revenue Launched In-store pickup 3.5% 3.0% 4.3% 491 Online as a % of Total Revenue 900 Since 2011 New version PC % Mobile % % % The omni-channel strategy leveraging Detsky Mir s existing store network throughout Russia Source: Company data, Ipsos Comcon Market Share (%) Source: Company data, Data Insight, Ipsos Comcon report % 1 The Group's consolidated financial statements for under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under US GAAP and IFRS 2 Based on management accounts 3 Incl. rented pick-up points (Boxberry + Ozon) 4 Including in-store pickup 5 Pilot version of the back to school site is completed. The Internet store is being further developed 9

10 3 Well-Defined Four-Pillar Growth Strategy (cont d) C Competitive Pricing and Effective Merchandising with Focus on Traffic Generating Categories Drive Double-Digit LfL Revenue Growth and Growing Gross Profit per sqm Product Segment Competitive Pricing Medium to medium-low prices Price leadership in trafficgenerating categories Discounts and loyalty programmes Gross Margin Traffic Generation Effective Marketing and Merchandising Innovative store concepts based on highly interactive formats Focus on best-in-class customer experience Powerful CRM driving marketing efforts Revenue Breakdown 3 (%) Double-Digit LfL Growth (%) 13.4% 15.3% 13.7% 14.6% 12.3% 13.7% 10.8% 12.3% 4,8 4,8 5,0 5,2 8,2 8,3 6,2 5,9 8,2 10,0 8,3 8,9 3,7 5,0 4,4 6,0 12,1 12,1 13,3 13,3 0,9 1,2 (1,9) (1,9) Q16 1Q17 Number of Tickets LFL Average Ticket LFL LFL growth based on calendar year Growing Gross Profit per sqm 4 (RUB 000) Number of Tickets LFL Average Ticket LFL 12m trailing LFL growth %13.5% 11.2%11.2% Newborns ,6 49,7 49,9 45,5 Toys Fashion Large items and other Source: Company Data ILfL growth includes only DM stores in Russia that were in operations for one full prior calendar year 2 ILfL growth includes only DM stores in Russia that have been in operations for at least 12 full calendar months 3 Retail revenue only 4 Calculated by dividing gross profit for the period by average selling space for the period (calculated in thousands of square metres as simple average of selling space as of the beginning and as of the end of the period) 10

11 3 Well-Defined Four-Pillar Growth Strategy (cont d) D Focus on Execution Excellence to Achieve Superior Operating Margins Improvement of 260bps in EBITDA margin driven by: Store operation improvements Optimization of IT platforms and personnel Reduction in SG&A as a % of revenue by over 730bps Personnel per Store and Rent Costs Reductions Adjusted EBITDA 2 (RUBm) ,1 12,8 11,7 10, Personnel per Store Rent & Utility Expenses as % of Revenue Adjusted EBITDA Margin (%) Adjusted SG&A Expenses as % of Revenue 1 31,0 9,8 10,2 10,3 28,2 7,7 25,9 23, Source: The Group's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under US GAAP and IFRS 1 Adjusted SG&A expenses are calculated excluding Depreciation and Amortisation and additional bonus payments under the LTI program 2 Adj. EBITDA is calculated as profit for the period before income tax, FX loss, gain on acquisition of controlling interest in associate, net finance expense, D&A, adjusted for the one-off effect relating to disposal of the Yakimanka building in 2014, as well as share-based compensation and cash bonuses under the LTI program 11

12 4 Expansion Platform Designed for Future Growth Store Management and Rollout Strong Infrastructure Backbone Distribution & Logistics IT Infrastructure Strict investment hurdles for store openings: Focus on high-traffic shopping centres Opportunistically consider standalone locations Flexible approach to store formats with size ranging from 600 to 2,000+ sqm Limited Capex per sqm due to asset-light business model with only 2 owned stores Well-established import trade competencies and inhouse customs department: Direct import contracts accounted for c.20% of 2015 revenue 2 modern DC in Moscow region of approximately 70,000 and 20,000 sqm Target centralization level 1 of 75% 2 is achieved Increasing importance of e-commerce as part of the omni-channel sales strategy Set-up SAP system manages on-stock balances IT-infrastructure is able to support up to 800 stores with in-store pickup function Detsky Mir and ELC Network of 525 Stores 2 Across Russia and Kazakhstan Imported goods Moscow Cities with over 1 million inhabitants Kazakhstan Cities with less than 1 million inhabitants Almaty Existing distribution centers 1 Centralization level measured as ratio of cost of goods delivered to DM stores directly from DM s DCs to the total cost of goods delivered to DM stores 2 As of 31 December 2016 Omsk Kazakhstan Siberian Ural Volga Southern Northwerstern Central Moscow 12

13 5 Asset Light Sustainable Business Model Providing Attractive Shareholder Return A Attractive New Store Economics and Disciplined Roll-out C Resulting in Strong Returns 1 B Capex of c. RUB 13m per 1 standard DM store Strict investment criteria IRR hurdle rate of 40% on 7-year cash flows (not accounting for terminal value) Total maturity period months Targeted EBITDA breakeven in 4 months after a store opening Payback period of years...supported by Well-Controlled Rental Costs Revenue Growth 30% 26% 33% 31% Selling space Growth 10% 22% 26% 21% Adj. EBITDA 2, RUBbn Capex, RUBbn (0.8) (1.9) (5.3) (1.7) Dividends, RUBbn (0.4) (1.9) (3.0) (4.4) D Primarily locations in high-traffic modern shopping malls Mostly more than 5-year rental agreements with fixed annual increases Unilateral termination rights for Detsky Mir and a Leading ROIC 5 in Global Retail Context CY (%) Adj. Net Debt 3 / Adj. EBITDA 2 1.8x 0.6x 1.7x 1.4x CROCI 2 46% 59% 58% 52% Adjusted ROIC 5,6 56% 88% 78% 61% Median: 20 Median: 25 Median: High Performance Specialty Retailers Russian Food Retailers Children s Goods Retailers Source: Companies disclosures and reporting 1 The Group's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under US GAAP and IFRS 2 Adj. EBITDA is calculated as profit for the period before income tax, FX loss, gain on acquisition of controlling interest in associate, net finance expense, D&A, adjusted for the one-off effect relating to disposal of the Yakimanka building in 2014, as well as sharebased compensation and cash bonuses under the LTI program 3 Adj. Net Debt is calculated as total borrowings (long term borrowings and short-term borrowings and current portion of long-term borrowings) less cash and cash equivalents adjusted for amounts receivable under the loan issued to CJSC DM-Finance 4 Calculated as Adjusted EBITDA divided by average gross capital invested (simple average of gross capital invested as at the respective dates). Gross capital invested is calculated as follows: (Total assets - DM-Finance loan - DC in Bekasovo - cash & cash equivalents - current liabilities excluding interest-bearing liabilities + Accumulated depreciation of fixed assets & intangibles) 5 Calculated as operating profit divided by average capital invested (simple average of capital invested as at the respective dates). Capital invested is calculated as net debt plus total equity (deficit) 6 Invested capital is adjusted for amounts receivable under a loan granted to CJSC DM-Finance, carrying amount of Yakimanka building and net book value of the building occupied by the Bekasovo DC. Operating profit is adjusted for LTI expense and for gain on sale of Yakimanka 7 Calendarized to December year end 8 Calculated using average Invested capital as of February 2016 and February Calculated using average Invested capital as of March 2016 and March Calculated using average Invested capital as of January 2016 and January

14 LfL Growth 3, % Revenue Growth 2, % New Stores 6 Experienced Management Team With Well-Established Governance and Supportive Shareholders Highly Experienced Management With Strong Track Record Vladimir Chirakhov Chief Executive Officer Anna Garmanova Chief Financial Officer Farid Kamalov Chief Operating Officer Pavel Pischikov E-Commerce Director Openings New Management Team Joined in 2012 Held senior positions at Korablik, M.video Joined in 2008 Held senior positions at Podruzhka, Understanding and Reconciliation Fund Joined in 2012 Held senior positions at MediaMarkt, Korablik, M.video Joined in 2017 Previously E-Commerce Director at Dochki-synochki ,3% 26,2% 33,2% 31.4% 15,1% 20,1% Maria Davydova Deputy CEO for Commercial Affairs Joined in 2013 Held senior positions at Enter, Svyaznoy, MDK, Arbat Prestige Maria Volodina Apparel and Footwear Commercial Director Joined in 2011 Held senior positions at Sela, Reebok Rus, Kira Plastinina, TJ Collection Tatiana Mudretsova Marketing Director Joined in 2014 Held senior positions at Osnova Telecom, Beeline, DDB and Publicis Vyacheslav Mikhnenko Head of Logistics Joined in 2012 Previously Operational Logistics Director at X5 and Chief Logistics Officer at Kopeyka ,9% 13,4% 13,7% 12,3% 10,8% 5,6% Supported by a Strong Governance Framework BoD of 10 members including 3 INEDs Established Audit, Strategy and Nomination and Remuneration committees 2 INEDs are members of each of the committees and a Prominent Shareholder Base 52.1% 14.3% Free Float 33.87% 1 Doesn't include ELC stores 2 The Group's consolidated financial statements for under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under US GAAP and IFRS 3 LfL growth in RUB terms. LfL growth includes only DM stores in Russia that were in operations for one full prior calendar year. 14

15 Strong Financial Performance Exceptional Revenue Growth Trajectory Underpinned by Strong and Consistent Like For Like Growth % 15.3% 13.7% 14.6% 13.7% 4,8 12.3% 4,8 5,0 5,2 8,3 8,2 8,2 10,0 8,3 8,9 10.8% 12.3% 6,2 3,7 5,0 4,4 5,9 6,0 13.2%13.5% 11.2%11.2% 12,1 12,1 13,3 13,3 0,9 1,2 (1,9) (1,9) Q16 1Q Q16 1Q17 Revenue (RUBm) Significant Margin Expansion with Scale Benefits Number of Tickets LFL Average Ticket LFL LFL growth based on calendar year Strong Cash Conversion and Financial Returns Number of Tickets LFL Average Ticket LFL m trailing LFL growth 7,7% ,8% 10,2% 10,3% ,9% 5,3% 72% 56% 64% 60% 88% 78% 7 79% 61% 67% 77% % 5% Q16 1Q17 Adjusted EBITDA¹ (RUBm) Adjusted EBITDA Margin (%) Q16 1Q17 Adjusted ROIC³ (Adj. EBITDA¹ - Adj. Capex²) / Adj. EBITDA Source: Company data. Note: The Company's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under GAAP vs IFRS. ¹ Adjusted for one-off items ² Adjusted for Bekasovo distribution center construction ³ Calculated as operating profit, adjusted for the effect of disposal of Yakimanka building in 2014 and LTI bonus payments, divided by average capital invested. Capital invested is calculated as Net Debt plus total equity(deficit) minus a loan granted to CJSC DM-Finance 4 Includes only Detsky Mir branded stores in Russia 5 LfL growth includes only DM stores in Russia that were in operations for one full prior calendar year 6 LfL growth includes only DM stores in Russia that have been in operations for at least 12 full calendar months 7 Represents ROIC with investment capital as adjusted to exclude the construction value of the Bekasovo distribution center, which was completed in 2015 and was not operational for most of the year 15

16 Growing Profitability Gross Profitability is Balanced by Double-Digit EBITDA Margin (RUBm) Q2016 1Q2017 Gross Profit Focus on Operating Costs Optimization Generates Substantial Profitability Improvements 2 (RUBm) 11, , ,709 18, ,627 4, Q2016 1Q2017 Rent & Utility Payroll Advertising & Marketing Other (Adjusted SG&A expenses² as % of revenue) ,6% 38,0% 36,2% 34,1% 33,4% 30,7% 9,8% 10,2% 10,3% 7,7% 4,9% 5,3% Q2016 1Q ,00% 35,00% 25,00% 15,00% 5,00% -5,00% 31.0% 28.2% 3,8% 25.9% 1,6% 3,8% 1,7% 3,0% 1,8% 12,5% 10,0% 9,6% 28.4% 25.4% 23.7% 3,8% 1,7% 3,5% 3,2% 1,4% 1,3% 10,1% 8,9% 9,3% 13,1% 12,8% 11,7% 10,3% 12,7% 11,2% Q2016 1Q2017 Adjusted EBITDA¹ Margin (%) Gross Profit Margin (%) Rent & Utility Payroll Advertising & Marketing Other Source: Company data. Note: The Company's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under GAAP vs IFRS ¹ Adjusted for one-off items 2 SG&A expenses exclude D&A expenses and adjusted for LTI bonuses 16

17 Strong Cash Flow Conversion Comments The increase in NWC significantly affected the decline in the Operating Cash flow. Due to the seasonality of the business it doesn't make sense to take in account for the dynamics of NWC in the 1st quarter. The share of purchases and sales of the fourth quarter in the total annual turnover is significant. Most of the goods purchased and sold in the 4th quarter are paid in the 1st quarter of the following year. The purchases increased by RUB 4.8bn in 4Q16 vs 4Q16, the Sales in purchase prices amounted to RUB 3.7bn, which had such a significant impact on NWC in 1Q17. At the same time Receivables Turnover Ratios 1 improved from 10 days to 9 days, as well as Inventory Turnover Ratios 1 decreased from 114 days to 110 days in 1Q17 vs 1Q16. Cash Flow Conversion³ (%) Cash Flow (RUBm) Q16 1Q17 Adjusted EBITDA 2 2,771 4,463 6,185 8, Changes in NWC (93) (1,640) (4,300) (407) (1017) (4,463) Cash Income Taxes Paid (477) 4 (657) (1,190) (1,468) (383) (600) Net Finance Expense Paid Other Operating Cash Flow (507) (795) (1,879) (1,812) (493) (417) , (58) Operating Cash Flow 2,025 1,492 (679) 4 5,801 ( 806) (4,429) Capital Expenditure (772) (1,945) (5,308) (1,747) (269) (253) 72% 64% 60% 79% 67% 77% DC Construction - (330) (2,842) Store Openings, IT & Maintenance (772) (1,615) (2,465) (1,747) (269) (253) Free Cash Flow 1,253 (453) (5,987) 4,054 (1,075) (4,682) Q2016 1Q2017 Source: The Group's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under US GAAP and IFRS. ¹ Days of Inventories / Receivables / Payables turnover calculated as corresponding metric divided by COGS / Revenue / COGS multiplied by 365 for FY numbers. The base of quarterly ratio is LTM Revenue. 2 Adjusted for one-off items ³ Calculated as (Adjusted EBITDA Adjusted Capex) / Adjusted EBITDA 4 Calculated as Income tax expense plus deferred tax income benefit 17

18 Sustainably High Returns to Shareholders Comments Detsky Mir offers a combination of sustainable growth and significant dividend paying capacity Dividends as major differentiator from the majority of Russian high-growth food retailers Dividend policy is to pay not less than 50% of consolidated IFRS net profit of the previous year More than 100% of consolidated net profit (under IFRS, corresponding to up to 100% under RAS) were paid as dividends historically The decision to pay dividends must be approved by the General Shareholders Meeting on a recommendation of the Board of Directors History of Dividend Payments Dividends (RUBm) 30% 26% 33% 31% Total Dividends, RUBm Revenue Growth, % Leverage Dynamics Dividends as % of Adjusted EBITDA Adjusted Net Debt (1) / Adjusted EBITDA (2) 1,8x 1,7x 1,4x ,6x As % of current previous year Adj. EBITDA 2 As % of current current year Adj. EBITDA Source: Company data Note: The Company's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under GAAP vs IFRS. 1 Adjusted net debt is calculated as total borrowings less cash and cash equivalent / adjusted for the loan issued to CJSC "DM-Finance" (Sistema s subsidiary) in Adjusted EBITDA is calculated as profit for the period before income tax, FX loss, gain on acquisition of controlling interest in associate, net finance expense, D&A, adjusted for the one-off effect relating to disposal of the Yakimanka building in 2014, as well as share-based compensation and cash bonuses under the LTI program 18

19 Conservative Financial Policy and Stable Leverage Comments Commitment to a conservative financial policy Fully RUB denominated debt to match RUB revenue Relationships with multiple Russian and international banks Leverage 2 as of 31-Mar-2017 is 1.9x of vs. 4.0x average covenant level across the loan portfolio The weighted average interest rate % (as of 31 March 2017) Most of the debt has fixed interest rate 31-Mar-17 Adj. Net Debt Calculation (RUBbn) Detsky Mir provided CJSC "DM-Finance" (Sistema s subsidiary) with the loan to buy out 25% stake from Sberbank in Most of the loan (RUB4,875m including interest) was repaid in January/February 2016 RUB1.1 bn has been fully repaid on February 27, ,3 (0.5) 15,8 15,8 No contingent off-balance sheet liabilities 31-March-17 Debt Repayment Schedule (RUBm) DM Debt Cash Net Debt Loan Issued to CJSC "DM-Finance" Adj. Net Debt Source: Company data Note: The Company's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under GAAP vs IFRS. 1 Adjusted Net debt is calculated as total borrowings less cash and cash equivalent / adjusted for the loan issued to CJSC DM Finance" (Sistema s subsidiary) on 3 July Exuding one-off effects related to the payment of bonuses under the long-term incentive scheme 3 Calculated on the basis of the weighted interest rates applying to the specified indebtedness (weighted by the principal amount of such indebtedness) as of the dates specified. 4 Including repayment of revolving lines that will be refinanced. 19

20 Appendix

21 Update on Performance for 2016 and Outlook Actual 2016 Near Term Mid- to Long-Term Store Count 525 as of YE, of which 12 in Kazakhstan and 45 ELC Store openings ahead of plan: opened 100 new DM stores, closed 1 DM store from an earlier relocation, opened 1 new ELC store ~70 new stores ~250 new stores in Revenue RUB 79.5bn Driven by store openings, LFL & ramp ups Driven by store opening, LFL & ramp ups LFL Revenue Growth 12.3% - 12m trailing LFL growth 10.8% - LFL growth based calendar year Double-digit, in line with 2016, including effect of new store ramp-ups and 103 new stores entering LfL panel in 2017 Slightly positive traffic growth, below inflation ticket growth, plus effect of new store ramp ups Gross Margin 34.1% Decline, but by less than 2016 vs 2015, as process of offline price reductions to match online is complete Stable Rent & Utility Expenses 10.3% as of revenue Further meaningful decline as % of revenue vs 2016, with virtually no rise in rent/sqm in a continued soft rentals market Rents/sqm rise first slightly above inflation then in line with inflation, so stable as % of revenue Personnel Expenses 8.9% as of revenue Further meaningful decline as % of revenue vs 2016, on operating leverage Stable to slightly declining as % of revenue EBITDA Margin 10.3% Double-digit supported by expectations of SG&A efficiency gains and new store ramp-ups more than offsetting the effect of lower gross margins Double-digit Source: Company data 21

22 Case Study: Baby Food Sales Baby Food Sales by Channel in Moscow and Moscow Region Comments Baby food remains a key category for children s goods stores as traffic generator 11,5% -1 p.p. 10,3% -0.5 p.p. 9,8% 10,0% -1 p.p. 9,2% 9,0% +4 p.p. 13,2% +4 p.p. 17,0% 16,1% +2 p.p. 18,1% 21,6% -2 p.p. 19,7% +2 p.p. 21,6% 20,2% p.p.. 20,7% Only children s goods specialized stores offer a full range of baby food products unlike hypermarkets which are focused on bestsellers SKU Detsky Mir gained market share away from all other channels -1 p.p. 57,9% 56,8% -5 p.p. -2 p.p. 51,6% 53,8% 52,0% Notably, Detsky Mir has particularly outperformed hypermarkets/supermarkets which have been the largest sales channel for baby food historically FY2014 FY2015 FY2016 Q Q Hyper/Supermarkets Standalone children's stores Detsky Mir Minimarkets Detsky Mir s share increased from 9.0% in 2014 to 17.0% in 2016 and from 16.1% in 1Q16 to 18.1% in 1Q17 Source: AC Nielsen Detsky Mir s share in the baby food market has almost doubled over 2 years 22

23 (15 Net Trade Working Capital Overview Focus on Constant Improvement & Optimization of NWC 1, ,8% ,2% ,5% 4,3% ,2% ,6% d. 173 d. 134 d d d. 144 d. 15 d. 11 d. 16 d. 18 d. 10 d. 9 d. 152 d. 142 d. 114 d. 158 d. 101 d. 176 d. (9 168) (10 993) (13 745) (16 718) (16 399) (25 215) Q2016 1Q2017 8,0% 6,0% 4,0% 2,0% 0,0% -2,0% -4,0% -6,0% -8,0% Inventories Receivables Payables NWC as % of Revenue Increase in trade working capital in 2015 mainly driven by Change of margin structure (shift from front to back thus higher retrobonuses thus increased AR) Company has opened new DC, initial fill-up resulted in inventory level growth Increase in number of new stores also resulted in inventory level growth Improvements in 2016 achieved via Improved logistics processes efficiency Improved AR: retro-bonuses are calculated and received on a monthly basis instead of quarterly effective beginning of 2016 Increase in trade working capital in 1Q 2017 mainly driven by Decrease of Payables Turnover Ratio due to the seasonality of the business: 4th quarter is historically the largest in terms of share of annual revenue, as well as sales increased by 25% in 4Q16 vs Q Most of the goods sold were paid in the first quarter of 2017 Nevertheless substantialy improved Receivables & Inventories Turnover Ratios Source: Company data. Note: The Company's consolidated financial statements for 2013 under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under GAAP vs IFRS. 1 Net trade working capital calculated as Receivables + Inventories Payables ² Days of Inventories / Receivables / Payables turnover calculated as corresponding metric divided by COGS / Revenue / COGS multiplied by 365 for FY numbers. The base of quarterly ratio is LTM Revenue. 23

24 1Q'13/ 1Q'12 2Q'13/ 2Q'12 3Q'13/ 3Q'12 4Q'13/ 4Q'12 1Q'14/ 1Q'13 2Q'14/ 2Q'13 3Q'14/ 3Q'13 4Q'14/ 4Q'13 1Q'15/ 1Q'14 2Q'15/ 2Q'14 3Q'15/ 3Q'14 4Q'15/ 4Q'14 1Q'16/ 1Q'15 2Q'16/ 2Q'15 3Q'16/ 3Q'15 4Q'16/ 4Q'15 1Q'17/ 1Q'16 Robust Like-for-Like Performance Like-for-like revenue (in RUR)* x.x% LFL turnover growth LFL number of tickets growth LFL average ticket growth 25.3% 5,4% 18.9% 18.0% 18.4% Comments Double-digit growth of the like-for-like sales was a result of competitive pricing policy marketing activities and improvements in merchandising Focus on attracting of new customers as result double digit LFL number of tickets growth in 1Q % 5,5% 5,6% 3,8% 14,6% 13.2% 8,3% 2,1% 8,9% 10,9% 18,9% 12.9% 3,5% 9,1% 14.0% 13.6% 9.0% 9,4% 8,5% 2,9% 6,0% 4,2% 4,8% 9,9% 7,7% 11.8% 12.4% 13.5% 14.1% 14.4% 3,0% 7,7% 8,0% 10,2% 12,1% 11,0% 3,8% 4,1% 1,2% 3,5% 8.8% 1,7% 7,0% 11.2% 13,3% -1,9% New openings under new store concept, attractive loyalty program and competitive prices are key factors supporting further likefor-like growth Like-for-like revenue growth for 1Q17 Children's retail 11,2% Food retail 7,3% Electronics Detsky Mir -4,8% -4,9% -1,7% -6,5% -9,8% Magnit Dixy X5 Okey Lenta M.Video LFL growth in 2013 LFL growth 2014 LFL growth 2015 LFL growth 2016 LFL growth 1Q2017 Total 15.3% 14.6% 13.7% 12.3% 11.2% Average ticket 4.8% 5.2% 8.3% 5.9% (1.9%) Number of tickets 10.0% 8.9% 5.0% 6.0% 13.3% Source: Company data, publicly available data with respect to other companies *LfL growth in RUB terms. LfL growth includes only DM stores in Russia that have been in operations for at least 12 full calendar months. Detsky Mir demonstrated attractive revenue growth rate (LFL +11.2%) for 1Q

25 Financial Performance Evolution (RUBm, unless specified otherwise) Q2016 1Q2017 Number of stores Detsky Mir stores ELC stores Selling space (k sqm) Revenue 36,001 45,446 60,544 79,547 16,414 21,061 % total sales growth 30.3% 26.2% 33.2% 31.4% 35.1% 28,3% % LFL sales growth % 14.6% 13.7% 12.3% 13.5% 11.2% Revenue per sqm (RUB thousand / sqm) Online sales ,260 2, Share of online sales 0.6% 1.0% 2.1% 3.5% 3.0% 4.3% Gross profit 13,908 17,263 21,904 27,108 5,479 6,462 Margin, % 38.6% 38.0% 36.2% 34.1% 33.4% 30.7% Gross profit per sqm (RUB thousand / sqm) Adjusted SG&A 5 11,155 12,807 15,708 18,884 4,666 5,345 % of revenue 31.0% 28.2% 25.9% 23.7% 28.4% 25.4% Adjusted EBITDA 6 2,771 4,463 6,185 8, ,109 Margin, % 7.7% 9.8% 10.2% 10.3% 4.9% 5.3% Adjusted Profit for the period 7 1,153 1,685 2,189 3, Margin, % 3.2% 3.7% 3.6% 4.8% 0.6% 0.7% Total Debt 5,922 9,716 18,359 14,638 13,574 16,325 Cash and cash equivalents (860) (1,670) (1,934) (2,445) Adjusted Net Debt 8 5,062 2,806 10,618 11,133 11,626 15,801 Adjusted Net Debt / Adjusted EBITDA 1.8x 0.6x 1.7x 1.4x 1.8x 1.9x Capex (772) (1,945) (5,308) (1,747) (269) (253) % of revenue 2.1% 4.3% 8.8% 2.2% 1,6% 1,2% Dividends paid (420) (1,856) (2,973) (4,427) - - Comments Sales growth Improved operating efficiency Superior EBITDA margins Capex Conservative financial policy Attractive returns for shareholders Strong support from both network expansion and LFL Steadily double-digit LFL rates Accelerated rate of new openings in 2016 (+100 stores) Slightly declining gross margin due to investment in price leadership to support traffic and LFL growth Over 720bps improvement in SG&A as % of sales over four years (-300bps 1Q17vs1Q16) Major SG&A optimisation measures implemented by the new management team since bps margin over four years (+40bps 1Q17vs1Q16) Double-digit EBITDA margin achieved in 2015 and maintained in 2016 Asset-light business model drives cash flow generation Leverage 8 as of 31-Mar-2017 is 1.9x vs. 4.0x average leverage covenant level across the loan portfolio The Company paid RUB 4.4bn in dividends to shareholders in 2016 The amount of dividends increased 11-fold from 2013 Source: Company data 1 The Group's consolidated financial statements for under US GAAP and under IFRS. For the line items and the periods presented, there was no difference between the calculation of numbers or presentation under US GAAP and IFRS 2 LfL growth in RUB terms. LfL growth includes only DM stores in Russia that have been in operations for at least 12 full calendar months 3 Calculated per average space for the period 4 Including in-store pickup 5 Adjusted SG&A expenses are calculated excluding Depreciation and Amortisation and additional bonus payments under the LTI program 6 Calculated as EBITDA, adjusted for the one-off effect relating to disposal of the building occupied by the Yakimanka Gallery in 2014, as well as additional share-based compensation expense 7 Adjusted for the one-off effect relating to disposal of the building occupied by the Yakimanka Gallery in 2014 (together with related tax effects), as well as additional bonus accruals under the LTI program 8 Adjusted Net Debt is calculated as Net Debt adjusted for amounts receivable under the loan issued to CJSC DM-Finance (Sistema s subsidiary), fully repaid on February 27,