September 1, 2011. Moscow, Russia. Detsky Mir Group, the largest children’s goods retailer in Russia, announces today its unaudited US GAAP financial results for the six months ended June 30, 2011.

Key financial and operational highlights

Revenues up 16.7% year on year (22.6% in US$ terms) to RUB 9,171 million (US$ 320 million) 

Gross profit up 9.9% year on year to RUB 3,371 million (US$ 118 million) with gross margin reduced by 2.2 p.p. to 36.8%

Selling general and administrative expenses (SG&A) up 13.5% year on year to RUB 4,002 million (US$ 140 million). SG&A decreased by 1.2 p.p to 43.6% as a percentage of revenue

OIBDA loss reached RUB 625 million (US$ 22 million) compared to loss of RUB 431 million (US$ 14 million) in the 1H 2010, due to seasonality factors, which is typical for the first half of the year

Net loss amounted to RUB 870 million (US$ 28 million) compared to net loss of RUB 1,125 million (US$ 37 million) in the corresponding period of 2010

Total debt down 49.0% year on year  to RUB 3,606 million (US$ 128 million) as of June 30, 2011

o  The number of stores was 130, whilst the total retail space reached 211.8 thousand sq.m as of June 30, 2011

Gennady Levkin, CEO of Detsky Mir Group, commented:

“Despite the first half of the year being seasonally weak for the retailing of children’s goods, Detsky Mir delivered a 16.7% increase in revenue and a 9.9% increase in gross profit year on year.  This demonstrates that we are delivering increased operational efficiency and financial sustainability - our key priorities for the remainder of 2011. Our key debt and profitability indicators also demonstrated positive dynamics: group’s debt decreased by 3.6% since the beginning of the year and by 49.0% since June 30, 2010 and the company’s net loss shrank to RUB 870 million compared to the loss of RUB 1,125 million in the same period of last year.

Our improved financial stability provides solid ground for the further dynamic expansion of our retail chain. Detsky Mir plans to accelerate the pace of its regional network expansion to compensate for the slowdown caused by the crisis. During next 18 months, the company plans to launch up to 50 new stores across Russia and increase total retail space by over 70 thousand sq.m. The latest concept for our newly opened stores will provide new visual and brand solutions, supported by improved merchandising and trading equipment. 

Our main goal is to deliver enhanced shareholder value. In line with this objective, we reject all investment projects that deliver returns on invested capital that are less than the cost of capital. Therefore, we aim to keep our recently optimised capital structure, maintaining our comfortable debt to profit ratio.

The operating efficiency of our existing stores will be improved through the optimization of business processes and cost reduction. The company’s product mix and pricing policies will be gradually improved and we will remain focused on customer satisfaction.”  

Key financial and operating results

* Unaudited results

Revenue and gross profit

Revenues were up 16.7% year on year to RUB 9,171 million for the six months ended June 30, 2011.

The gross profit increased by 9.9% year on year to RUB 3,371 million in the first half of 2011. Gross profit margin was down 2.2 percentage points year on year to 36.8% as a result of an increased marketing activity focused on promotion of low-margin goods. 

OIBDA and Selling, general and administrative expenses

Detsky Mir reported an OIBDA[1] loss of RUB 625 million for the six months ended June 30, 2011, compared to OIBDA loss of RUB 431 million in the corresponding period of 2010. The loss was mainly due to seasonality factors, which is typical for the first half of the year.

* Unaudited results 

Selling, general and administrative expenses (SG&A) increased by 13.5% year on year to RUB 4,002 million for the six months ended June 30, 2011, mostly due to the increased unified social tax expenses and the launch of regional expansion programme. SG&A did however decrease as a percentage of revenue to 43.6% in the first half of 2011 from 44.9% in the corresponding period of 2010.

Net income and net interest expense

Net loss reduced to RUB 870 million for the six months ended June 30, 2011, compared to the net loss of RUB 1,125 million (US$ 37 million) for the corresponding period of 2010. The decrease was mostly driven by interest expenses and debt reduction. Net interest expenses decreased by 64.7% year on year to RUB 141 million.  

Debt and financing

Total debt[2] decreased by 3.6% since December 31, 2010, and by 49.0% since June 30, 2010, and totalled RUB 3,606 million as of June 30, 2011. The long-term Liabilities accounted for 31.9% of the debt portfolio, while in July 2011 most of the short-term liabilities were refinanced until June 2014. Foreign currency denominated debt accounted for 7% of the Group’s revenue as of June 30, 2011.

[1] OIBDA represents operating income before depreciation and amortization

[2] Represents sum of short-term and long-term debt and finance lease liabilities