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Ladies and gentlemen, thank you for standing by, and welcome to the X5 Q4 and Full Year 2019 Financial Results. [Operator Instructions] For your information, this conference is being recorded today. Now I would like to hand the conference over to your speaker today, Natalia Zagvozdina, Head of Corporate Finance and IR. Please go ahead.
Thank you. Good morning, good afternoon, ladies and gentlemen. We apologize for the technical difficulties and long waiting plan for all trying to connect to this call. On behalf of X5, let me welcome you to the call dedicated to the fourth quarter and full year 2019 financial results. I would like to remind you that some of the information announced during this call may contain projections and forward-looking statements. Regarding future events or future financial performance of X5, you may find our formal disclosure in the press release. Our financial statements, the annual report and updated investor presentation were made public this morning through all the usual means of communications and are also available now on our website. Without further delay, let me pass the floor X5's CEO, Igor Shekhterman.
Thank you, Natalia. Good morning, and good afternoon, ladies and gentlemen. Thank you for your -- joining our call today. Before we start talking about the business matter, I would like to wish you all, your loved ones, your friends and family to stay in good health and to keep the good spirit in these turbulent times. I will begin our call today by concentrating on how we are responding to the current situation with coronavirus and the global market backdrop that has developed due to the low oil price. I will then highlight very briefly some X5 main achievements in 2019. After that, our CFO, Svetlana Demyashkevich, will provide more detail about our financials, give some color on year-to-date trading and our guidance for the year. Following our presentation, we will take your questions. Let me start with our observation regarding the last few weeks and how consumption patterns in Russia have been affected by coronavirus. Russia, as of yesterday, officially had over 100 cases of coronavirus. At this time, authorities have imposed certain international travel restrictions. Schools will be closed for next week. Precautionary measures are being taken at clinics. Mass public gatherings have been canceled, and travelers arriving from various destinations had been advised to observe a 14 days self-quarantine. A number of companies, including us, have provided employees with the necessary technical means to work remotely, hence, I am encouraging of requiring staff to do so. Thanks to our earlier focus on digital transformation, we already managed to shift 70% of all office employees to operate remotely, and we'll bring this number to 95% over the next week. Our business processes are running as normal. Also we see some additional pressure on our logistics at the moment. At this time, all of our stores continue to operate their usual hours. However, from the second week of March, in Moscow, in particular, we started to see an increase in stock up buying by our customers. Over the period of March 1 to March 18, our sales growth significantly accelerated to over 17%. We observe a more aggressive buying in general merchandise and food products in our stores, especially items with long shelf life such as canned meat, vegetables, pasta and cereals. This trend is even more pronounced in our online operation and is also more visible in Moscow compared to other cities and regions of our operations. Our commercial department has built up an extra supply of general merchandise and dry groceries at our 42 warehouses. And right now, it is more about efficiency of our logistics and more frequent stock ups for stores than about actual availability of the goods, which is not an issue. We also receive full support from the federal and Moscow governments and their assurance that all necessary assistance, including financials, will be provided to food retailers, if any difficulties in ensuring the supply of product to our stock will appear in the future. When public health issue, like coronavirus arrived, online and express delivery channel are in high demand, and X5 is a retailer that offers both. Today, we see a unique opportunity to acquire new customers in our online supermarket and express delivery and serve the community better. We can also redirect our investments into express delivery and add stores then offer the service at a faster pace. Thanks for -- to our significant investment into our online platform and delivering infrastructure last year, we are now able to handle the increase in demand for these services. The average number of Perekrestok.ru orders placed per day on the weekend of March 14, 15, jumped more than 90% compared to the previous week and exceeded 13,000 per day. Delivery time, therefore, increased from same- or next-day delivery to deliver in 4 to 5 days, as we are operating at full capacity and delivering over 8,000 orders per day. The average check-in online over the last weekend also increased significantly to nearly RUB 6,000 for newly placed order. This is 50% above the average check we have in December. We also see an increase in the number of SKUs per day for order by 1.3 items to 55 items. It was clearly related to stock up, a mission caused by growing coronavirus concern. We have also seen a related revenue increase on the event of March 14, 15 at Perekrestok.ru of 2.5x for placed orders compared with the 2 previous weekends. Our express delivery service is currently available from 50 Pyaterochka stores in Moscow, which cover 40% of households in a 2.2 kilometer radius. And next week, we launched the service in Kazan. Our average check for express delivery was around RUB 1,500 in February, and it jumped to nearly RUB 2,000 over the last few days. By the end of this year, this service should be available from more than 200 of our stores, fully covering Moscow and 6 additional cities. If the negative coronavirus situation developed in Russia, we may increase the number of stores, which -- with an express delivery option on nearly 300 locations. I will remind you that we have -- we remind you that Russia has 100 self-sufficiency in domestically produced grain, sugar, various cereals, poultry, pork, dairy products, eggs, fresh vegetables from greenhouses, sunflower and other vegetables oil. In this respect, the country will benefit from the import substitution trends of the past decade. As Russia's largest food retailer, with our own direct import operations, X5 should be able to secure alternative supplies at the best prices in the market given the scale of our operations to provide our customer with affordably priced products. Let me summarize this part of my speech by providing the list of measures we are undertaking at X5 to better deal with the coronavirus situation. X5 created a working group responsible for coordination of all business activities until situation is fully back to normal. We have increased delivery volume by 2 to 5 -- to 4 times for high demand categories from our DCs to our stores in order to meet increased demand. I already said that we currently have no shortage in high-demand goods, and we aim to increase our DC level inventories for the period of high demand. We have reallocated some of our truck fleet from the regions to Moscow, including the driver, to satisfy the need to replenish stores more frequently with increasing volume of goods as well as to provide our online operations with additional delivery capacities. In store, we changed the displays for high-demand categories, making them more readily accessible right from the pallets. We have increased the number of people working in stores, changed their schedules, including canceling all vacation for retail operation personnel. All cashier desks in our store operate at full-time to minimize customer waiting time. Our store workers are provided with disposable gloves and disinfectants. We expect to supply all of our store personnel with disposable masks later this week. Every 3 hours in all our stores, high-frequency used items such as door handles, trolley handles, are disinfected. We, as a site, feel well-prepared to support our customers and to ensure the availability of goods in our stores stay at normal levels at all times.Before I move from -- to X5 2019 results, I want to briefly touch on the main market trends we consider in last year. Last year, we continued to see a negative impact on sales densities across the market from the fast rollout of stores by the main players. In last year, Russia's top 7 retailers expanded their combined selling spaces by 10% in Moscow and the Moscow region and by 15% in other regions. Specialist retailers continued to grow at rates above market average. Promo activity remains elevated which limited private label growth across the market. The average check declined by 1.2% in last year across modern food retail chains, impacted by stagnating per capita income and by shifting consumption patterns towards day-to-day fresh purchases. The ready-to-eat segment, although still small, was growing 5x faster than off-line food retail. Online food retail has increased by 70% in 2019 to RUB 45 billion compared with 7% growth of -- in off-line food retail. Last year, we saw the entrance of tech players like Yandex and Sberbank into this market, with offers of new digital distribution model. We expect that between now and 2023, the Russian online food market will expand by 10x. Now I want to summarize our key achievements in the last year. We maintained leadership in revenue and like-for-like growth compared to our main peers. As a result, our food retail market share grew to 11.5% from 10% -- 10.7% a year ago. The number of active members of our loyalty card program increased by 8% to 40 million people. We currently generated more than 7.0 million data points on a daily basis from our loyalty programs. We started to focus more on customer feedback as a tool to define our assortment, especially for new private label product that we introduce. We already collected several million customer ratings on a monthly basis. By the end of this year, we should be receiving up to 10 million customer ratings on a daily basis. We have succeeded in making a X5 a more attractive employer, which is a key strategic advantage for a retailer. Personnel turnover decreased by 20 percentage points over the year to below 50% for the company, and we saw labor productivity increase by 6.9% year-on-year. We took the decision to transform X5 hypermarket format. This will enable us to focus on lower segments of the food retail market, where we see the most potential. It puts some short-term pressure on our financial results, but we are confident that it is the right decision for our long-term strategic goals. We are successfully developing new businesses. In last year, Perekrestok.ru became the 2 number -- #2 player in e-grocery. This was achieved in less than 2 years, and our online revenue increased 3.3x in 2019. We aim to make this business EBITDA-positive in 2021. Our parcel delivery business, 5Post, was established as a separate business unit. 5Post leverage X5's existing logistics and store infrastructure. 5Post and parcel lockers operated by our partner are currently delivering around 1 million parcels per month for picking in X5 stores, which is helping to bring additional traffic to our store. Just like our Perekrestok.ru business, we aim for 5Post to have positive EBITDA in 2021. We also launched last year express delivery from our network of proximity stores in Moscow, and we'll launch next week in Kazan. In addition to the short-term factors driving demand right now, we see growing demand from our customers for this service as they adapt to new technologies and competitive offers from technology player like Yandex and Samokat. In December 2019, our cost sustainability strategy for 2020-2022 was approved. This strategy establishes measures our sustainability target, which will be integrated in our overall business strategy. To conclude, let me highlight our priority. In 2020, we will work on maintaining our market leadership position, while keeping margins at a healthy level. Given the recent development related to coronavirus, we have established working groups, assessed key operating risk areas, developed emergency plans for our operations to provide a sustainable service to our customers. And in parallel, we will continue to rapid expansion of our online and express delivery service. At Perekrestok.ru, we see not only more than to float business growth in 2020, but also a high shares of new clients, which is currently rapidly growing due to the coronavirus situation. In June, we view -- we started Perekrestok.ru online sales in Nizhny Novgorod, where we will be using a former Karusel hypermarket as a dark store. And Moscow, we will have 4 dark stores for Perekrestok.ru by the end of the current year. We applied to tone and cash generation requirement for new businesses and the management has ROI target to ensure a balance between investment and return. A key area of improvement of our existing business in the coming years, will be the rollout of new Pyaterochka and Perekrestok concepts, including additional refurbishment. It is a recent adverse moment in ruble exchange rate and possible delays with the supply of equipment or input parts from China and other destination, we will be looking to renegotiate FX-linked CapEx contract or will consider postponing such investment if necessary. Now I would like to hand over X5 Chief Financial Officer, Svetlana Demyashkevich, and thank you for your attention.
Thank you, Igor. Good morning, and good afternoon, ladies and gentlemen. Let me start by adding some color to Igor's recap of the current environment. I will start by saying that internally, our processes and our finance function are well prepared to face potential challenges that the current situation related to coronavirus may cause. In addition, we have been offered full government support as Russian authorities want to ensure that food supply is uninterrupted across the retail industry, and X5 as a sector leader is considered a strategically important company during this period. Currently, all of our operations are running normally, except that we are witnessing increased pressure on our logistics and store replenishment operations due to increased demand for certain goods. Igor already discussed additional measures being taken regarding high-demand categories. Talking about macro environment, lower oil prices caused adverse exchange rate fluctuations and a higher cost of funding. However, X5 is well-placed to withstand the macro headwinds as we have a natural hedge against the weak domestic currency via higher food inflation and also because 100% of our borrowings are ruble-denominated, less than 2% of operating costs are FX-linked and less than 20% of CapEx is FX-linked. Budgeted FX CapEx is mostly for new stores and distribution centers' equipment, electronic prices tags, some spare parts for our transport and IT infrastructure as well as software. We make 4.3% of our food purchases via direct imports, while the largest purchasing volumes for multiple products are from domestic suppliers, and we should be able to get the best terms in volatile markets. Secondly, I would point out that we are also well-placed financially in the current situation as we, in anticipation of the potential negative macro changes, managed to secure a sizable amount of new long-term funding at a very attractive rate just before the oil price situation developed. It is currently difficult to estimate the potential impact of the coronavirus and macro situation on our absolute annual EBITDA as situation changes very rapidly. Internally, we have looked at several main scenarios regarding the oil price, ruble exchange and inflation in order to assess the potential impact on our operations and our future financial results. Our initial budget for 2020 had the oil price at $50 per barrel and RUB 65 to dollar exchange rate, a headline CPI of 3%, food inflation of 2.8% and nominal food retail trade growth of 5.5%. In our negative macro scenario, the oil price is at $30 per barrel, annual average; the ruble at RUB 75 to U.S. dollar; headline inflation is 4.4%; and food inflation of 5.3%. In this scenario, X5 remains profitable and continuous expanding and investing, although the pace of investment may be reconsidered and flowed. We will be looking to prioritize CapEx projects. We'll concentrate even more on efficiency of our operations in order to provide our customers with uninterrupted food supply. At the time, retailers as well as domestic food producers will likely receive the government support during the whole period. Finally, on the macro topic, let me remind you that in 2014 and 2015, when Russia went through a period of significant increase in key rates, extreme ruble exchange rate volatility, large retailers with significant operating efficiencies were able to maintain better performance through such periods compared to the smaller peers. Now I would like to highlight the main market trends observed in the fourth quarter of 2019. Food inflation at that period continued to slow and averaged around 3.5% year-on-year. A key factor driving the slowdown was the early and plentiful harvest of 2019 on the back of warm weather conditions. Demand for food products continued on a positive trend and reached plus 1.6% in real terms in the fourth quarter. Real disposable income also continued to grow at 1.1%, and consumer confidence over the fourth quarter improved. Against this improving macro backdrop, the food retail industry continues to consolidate, and the share of the top 5 retailers was 26% in the end of 2019. Now a few words about X5 financial performance in fourth quarter and full year 2019. Our trading was not easy over the last quarter due to the competition and the hypermarkets' increased promo activity. We did the same and were successful in not only keeping positive like-for-like traffic in our stores, but delivering the highest like-for-like growth rate among our larger competitors. The gross profit margin in fourth quarter declined slightly, driven by commercial margin as a result of targeted price investments. This was partially offset by successful measures to decrease shrinkage. Our efforts to further reduce shrinkage share will continue, but the impact on our gross margin will not be as visible as in 2019. This is primarily because the CVP update for our core formats will increase the share of fresh, which has the highest shrinkage level among all categories. We will aim to mitigate the structural change with high efficiency in our assortment plans, our product quality tracking, marketing and logistics. SG&A expenses were well under control in the last quarter. Our adjusted EBITDA margin for the fourth quarter was in line with our expectations at 6.7%. For the full year, our adjusted EBITDA margin grew in line with our internal target by 11% -- by 11 basis points year-on-year to 7.3%. This improvement was achieved due to our operational improvements, including measures that brought shrinkage down by 49 basis points and despite pricing pressure in the market. In the fourth quarter, we achieved a sustainable gap in EV/EBITDA multiple leadership over other listed peers and started to improve for the second part of our LTI. Our depreciation and amortization and impairment costs increased as a percentage of revenue, mainly due to impairment of noncurrent assets related to Karusel transformation. Net profit in 2019 under IAS 17 was impacted by a combination of one-off items: one, related to the Karusel transformation; and another to tax accruals related to previous periods, including a reorganization of certain X5 legal entities. The impact of our net profit from these 2 items was almost equal for the quarter, while for the full year, about 75% of the import was due to Karusel transformation and 25% due to taxes and X5 reorganization. Our financial leverage remained healthy at 1.7 under IAS 17, and we want to maintain this ratio below 1.8. Net cash flow generated in fourth quarter from operating activities was lower than a year ago, mainly due to a small increase in accounts payable due to the calendarization effect, and also a larger change in inventories as a result of low-base effect due to stock optimization last year. Approximately 49% of the quarterly CapEx went to expansion of our store base. The remaining CapEx included refurbishments at 9%; logistics, 7%; IT, 8%; maintenance, 14%; and other investments, around 13%. Total CapEx in 2019 decreased by 3% year-on-year to RUB 81 billion. Based on our solid financial results for the year, the Supervisory Board recommended a dividend for 2019 of RUB 30 billion. This is 20% higher than in 2018 in ruble terms and represents 82% payout ratio based on the adjusted net profit for the year. Finally, I will give a short update of the year-to-date results before we go to the Q&A session. Our net retail sales growth year-to-date, excluding VAT, is 14.6%. Like-for-like sales rose by 4%, driven predominantly by traffic. Turnover in online Perekrestok is up 2.3x year-on-year. As Igor said, in first 18 days of March, net retail sales growth accelerated to 17.2% from 13.3% in the first 2 months of the year. This may accelerate further, given the trading trends of the last several days. Originally, we plan to open up to 2,000 new stores in proximity and supermarkets in this year now before closings. In addition, we plan to refurbish 1,300 Pyaterochka stores and 30 Perekrestok supermarkets to update them to the new concept. However, the situation has changed due to increased uncertainty regarding overall consumption in the turbulent year. Moreover, our stores are currently seeing an increased inflow of customers and closing them for innovation would not be timely. In addition to that, part of CapEx is FX-linked. Therefore, we may have to slow the pace of openings, and especially renovations, until demand in our stores normalizes and we find ways to either renegotiate with suppliers to find alternative solutions in order to preserve healthy investment returns.Our EBITDA margin performance in 2020 will reflect food inflation trends, which is difficult to predict at the moment. We will continue to benefit from our market-leading position and our purchasing power, and of course, from our leadership in infrastructure. Our constant focus on efficiency of operations and the use of new digital solutions should provide support to our margins, while the recent increased inflow of customers to our stores as well as to our online and express delivery operations is also supportive for the short term margins outlook.We guided you at the Investor Day that 2020 CapEx may grow in line with the pace of our revenue growth. However, subject to changes in the environment, we will be carefully considering and prioritizing every investment project in order to preserve the required returns. I will conclude by saying that our constant focus on the efficiency of our operations and capital allocation discipline should support our annual dividend payment, which we expect to grow steadily. With that, I conclude the discussion of our results. Thank you for your attention, and we welcome your questions.
[Operator Instructions] We have a question coming from the line of Maria Kolbina from VTB Capital. [Operator Instructions] Our question comes from the line of Elena Jouronova.
I have a few questions. Firstly, regarding your different economic scenarios for this year. I appreciate it's tough to tell right now. But still, have you analyzed under the better case scenario, how could your dividend payment change? What would be the worst case for this year?
As I said, the dividend for 2019, the proposal for dividend in the amount of RUB 30 billion is proposed over year and subject to approval of general shareholders' meeting. And of course, it's hard to say about the dividend payment for this 2020, as you understand perfectly. We do have several scenarios internally, but honestly, they're changing every day. So we're in a very general mode. I think we'll be ready to discuss the potential dividend payments closer to our Capital Markets Day in October, and we'll give some guidance, I think. At the same time, our intention still stays to keep our debt-to-EBITDA ratio around 1.8 and keep growing the dividends payments steadily.
Okay. Another question I had was regarding the refurbishments of Pyaterochka stores. Can you share with us please, the latest data on what kind of average uplift in sales you're seeing post-refurb? And how many stores you have refurbished?
At the moment, actually, we are quite happy with the results of our reserve stores, and actually, we do have pilots going on already, both in Moscow and in the regions. Average uplift in like-for-like sales is around -- Yes. So average uplift in traffic is around 10%. And we will still continue to look at the situation depending on the region. And we also are quite happy that the NPS is increasing also together with refurbishments, and we can clearly see this difference.
And how many stores refurbished altogether?
More than 400 stores, 420-plus, and we continue to add them every day.
So not refurbish, but openings plus refurbish, around 400 stores of opening and refurbishment and new concept. And we did it in practically all region of the Russia and big and small city. And we have 4 different concept that we adapt in accordance, if it is a big town or if it's a small city. And in general, we are quite happy with the results.
And are you happy with the EBITDA accretion that you're seeing in the stores? Because on the one hand, higher NPS, higher revenue. But on the other hand, more fresh, more shrinkage. Overall, is this refurbishment proving to be EBITDA-accretive?
I could give you all the following comments. As you understand, the main driver of EBITDA is also the sales density. The sales density is very high. And when you compare that store to open a new concept in Moscow, I will tell you that EBITDA in Moscow are better and higher than the stores that have in -- old concept.
Okay. That's good to know. And if I may ask a few technical questions, Svetlana, I guess, they're for you. So Karusel -- lots of impairments coming from Karusel and frankly, some of that missed my forecast. Can you help us better forecast 2020? What sort of impairment should we assume in OpEx, meaning like part of depreciation? And how much in income tax. Can you help us -- can you guide us somehow, how should we think about impairments for 2020?
Well, I think, let me start on that. So overall, one-off tax effect that we see in 2019 is around RUB 5.5 billion, split around half and half in x effect from Karusel transformation. And effect from tax effects of previous periods related to reorganization of our legal structure. In terms of Karusel, I don't think that we do expect further significant tax effect. But in terms of impairments, it will depend also on the pace of transfers of stores and closures of stores within the transformation. There will be some additional impairment during 2020, and it will also depend on this pace. At the moment, we see very positive results of transformation of old Karusel into Perekrestok. And that, of course, increases our profitability in that respect. A lot of effect from liquidations of nonperforming stores is already included and accrued in 2019. And so we will, I think, disclose these effects transparently after -- in each quarter. But yes, there will be some effect in from this transformation, as we guided in September and October last year, when we talked about the transformation.
Okay. And the final technical question for me was on working capital. I read the explanation and heard it from you right now on the call about why you had working capital outflow in general for 2019? But again, that was quite surprising. So I want to make sure that going forward, you still expect to have broadly the same working capital turnover and no more cash outflow from working capital overall for this year. So there's nothing going on in terms of paying faster to suppliers in lieu of better discounts, nothing like that. Purely calendarization effect, which impacted your pay. Is that correct?
Yes, you're right that the biggest impact was from calendarization. And that's an effect which would not -- we will not see in 2020, just due to the neutral calendar. And another effect, it's much less but we will probably see it further, is our more efficient way of paying to suppliers, which also improves our payment discipline. And actually effects positively on our relationship with suppliers and our overall terms with suppliers. So I view it as a positive factor, actually. So other than that, we do not expect any significant adverse movements during this year.
[Operator Instructions]
Our next question comes from Sharat Dua.
Thank you very much for the explanation at the beginning of the call about some of the issues related to the virus. But I just wanted to make sure I fully understood a couple of those. So you're saying that your stores are all operating normally, but there are some shortages, and it's an issue for the DCs and logistics to sort out. If you could just help me understand what that actually means? And how soon do you think you'll get back to normal stock levels in the stores? What do you need to do to achieve that? Related to that, you mentioned potentially some funding from the federal government, what might that be used for? What sort of conditions will there be for such funding? And in relation to the stock that you keep, you mentioned Russia is self-sufficient in a whole number of core food items, but you also do import certain products. Can you give us a breakdown of what you source locally versus import? And how you're planning to -- or what your prospects are you think of maintaining the imports, given that this is a global issue?
Yes, thank you for your question. I would -- yes, operationally, our stores are performing and operating at normal operated usual hours and logistics works also as normal. We do have some pressure in terms of replenishment and just logistics and traffic in our stores because of the increased demand, which is natural to this situation of preparation to some guaranteed measures possibly. So at the same time, in terms of supply, we are quite confident, and we started to prepare earlier than the situation evolved, several weeks earlier, actually, looking at the situation in Europe. So we are quite confident that we'll be able to provide this uninterrupted supplies to our stores and that the stores will be still operating in the normal course of business. So in terms of imports and local supply, I think...
I have already mentioned in my speech that most of the products that we have in Russia, regardless of food and vegetables, we have quite good supply from the Russian greenhouses. We have import components from food and vegetables. But at the moment, we don't see the problem in our trucks, the direct import work in accordance with the program at the moment. Regarding your question, what kind of support could be from the federal government? So it's still in negotiation and discussing some potential area. But at the moment, just doing negations.
I would just like to add that in '14 and '15, we had examples of government support to agricultural producers, which actually allowed for this trend of substitution of local products. And we can expect that something similar might be provided to strategically important, at these times, retailers. But we will see, of course, it's too early to say, because we just started these discussions this week. So at our largest part of direct import comes from Ecuador, so 30%, it's bananas; then follows Turkey, it was 16%; and Serbia was 9%. The items that would procure from them, apart from bananas, are garlic, ginger, maybe bell peppers, broccoli, something shallots, the list is the usual. But among the import items, you can imagine there is olive oils, there are wines, there are certain kind of several crude product plus salmon. Actually, salmon is of the protein category, is the only large imported item for the market overall. So hopefully I redirect or replaced with similar other different products for the period.
What about the branded products from international brands?
The international brands are supplied domestically, actually. Henkel, Coke, Pepsi, Danone, Unilever, everyone has a production sites in Russia. And all the supplies come from the local factories, not cross-border.
Okay. Sorry, as I didn't get the second and third, so Ecuador was the #1 in banana, what were the other 2 countries you mentioned?
Turkey, 16%; Serbia, 9%; Belarus, 8%; Israel, 5%; and China, 5%. And then smaller countries with the smaller shares in the direct import. But overall share of our own direct import is 4.3%. So it's not that significant in terms of influence on our operations or our FX exposure
4.3% of total sales?
Yes.
Our next question comes from the line of Nikolay Kovalev.
Yes, I have 2 questions. First, on tax accruals and the second is on the capital expenditures. So basically, so half of RUB 5.5 billion already booked, but can you speak a bit more on for which year it accounted? And shall we anticipate more growth in the future and accelerate how much? And on category, basically, a clarification. So if you go for up to 2,000 openings and 1,300 refurbishments, which will be your CapEx in a base case? And at what level per store do you budget convenience and supermarket refurbishments?
So regarding tax accrual, the recent accrual that you see in the financials represents the calculation of probabilities of potential tax charges for several years when we have the transactions in our structure. And before the reorganization of these legal entities, the final one occurred. So whether we'll see further accrual or not will depend on the view on these transactions by the tax authorities. And also by the outcome of legal cases, which we perceived. So at the moment, all the probabilities actually are accounted for and accrued in our financials, which is also confirmed by the external auditor. So I think we are trying to be very conservative in that respect.
There are no more questions on the line.
Sorry, sorry. Another -- yes, another question was about the CapEx. So as I said, in our initial budget, with the new openings of the stores and refurbishments of Pyaterochka and Perekrestok stores in the new concept and also our investments in new technologies, in new businesses like Perekrestok.ru line, like 5Post delivery, et cetera, et cetera. So we expected that our CapEx will grow. At the same time, as I said, of course, with this changing situation, we will be considering all lines of CapEx very carefully and reprioritizing all the developments. And of course, the material directions of this reprioritization will be, first of all, openings. So we'll see how the demand will evolve. And refurbishments, because as I said, it will not be sensible now at the moment of high demand to close stores for refurbishments. So we will postpone probably these activities, at least in the cities where we see the development of the current situation. At the same time, we believe that we still need to invest in technology and to be prepared to the situation in the next economy. We already see that the economy is evolving and changing. For example, our developments in the recent years allows us, for example, to have -- by next week, 95% of employees to work from home. And it's not the common situation in most of the Russian companies, I would say. So we are quite advanced in that respect. And to ensure that the current situation will be the driver for the next changing on the customer behavior and a very effective that we did a lot of efforts last year in digital transformation that supports us to create the IT platform, that support us to create the good base that today, we can roll out very quickly our express delivery and our online business. And all our initiatives and efforts in digital transformation, even now we have reconsider it our priority. And within this year, we'll invest enough to proceed with our digital transformation. In respect of your question regarding the new concept and CapEx for refurbished Pyaterochkas. In average, we see CapEx higher around 15% than in the old stores. But at the same time, in terms of returns of investment, of course, we do expect that returns will not be decreasing as we see much higher sales densities and traffic in the stores. So rating all these factors together, we think that we have very successful results from the piloting of our new concept.
And we already mentioned regarding the risk of express delivery. Next week, we start in the region in Kazan, therefore -- the one moment -- the express delivery over the basis of same store. We will see the results and if the results in the region will be successful, when we have rollout in other cities of the Russia as well, we have a plan to the middle -- we may to start the rollout of express delivery on St. Petersburg.
Yes. I think it's actually very important to understand our this -- our new model of express delivery. We do performance at the moment from Pyaterochka, and we'll start doing it from Perekrestok in the nearest month. And it's a very scalable model because it doesn't need any additional CapEx. We just have a platform which is scalable for all our potentially 16,000 stores. And to cover Moscow, for example, we only need 130 stores. And we will have this number of stores already opened for express delivery by the end of May and might be even escalated in terms of speed due to the recent situation. So we are also quite happy that we started piloting this model last year. And we think that it will help the population in this current environment.
Next question comes from the line of Egor Makeev.
I have a couple of questions. So my first question is what impact on your margins, and particularly, gross margin, do you anticipate from the current surge and sales?
Of course, current situation has a positive impact on gross margin as it increases quite significantly our like-for-like sales and sales densities. But of course, it's very early to project now how the demands will evolve for the next coming months. So also we're trying to be quite conservative on such projections. Of course, we will be communicating it to you transparently during the next coming quarters.
Okay. Just to clarify, so the -- I mean the sales mix right now is far from normal, I suppose. So the gross margin on the sales mix is in line or better than the usual one? Is that correct?
Well, we don't see any adverse impact on gross margin at the moment. But of course, the situation is changing every day, and we are just monitoring the situation closely. Anyway, I think food retailers and X5 being in that segment and leading position in food retail and mass segment, of course, is well positioned among all players and industries, I would say, among most of players and industries in Russia.
Okay. And well, my second question is, do you consider entering new formats, for instance, hard discounters? Or it's off the table at the moment?
So we all the time considering a new initiative and new potential interesting business -- businesses. At the moment, since last 4 years, we look to the market and consider if the market's ready and prepared to the hard discount. First of all, there are 2 main components for the hard discount. It's high quality and portion of the private label as well. It should be a very efficient model from the project. At the moment, we're in the state of the pilot team. And in the end of this year, we'll make the decision in December regarding if we will open hard discount store next year. But now we're in a piloting stage.
Our next question comes from the line of Alexey Krivoshapko.
Congratulations on very good results in your report. I have just one question. Can you help us understand better your evolution of gross margin during this year? We understand that losses were regularly declining. At the same time -- addition to the year. At the same time, gross margin after these losses, which improved and to not adjusted, of course, basically has been slipping down from maybe higher, not so high levels of Q2. So as the year-end, and this also happened, despite the fact that we had less share of hypermarkets in the business. So what actually was your thinking in the commercial policy? Why did you kind of do these price investments? Who you were targeting and how do you measure the results of those double changes?
It's quite a complex question. And just probably to start with how gross margin was evolving during 2019. As you remember, it was higher expectations, I would say, in the first half of the year. So having the annual budget and annual management of our overall result and being happy with the overall EBITDA margin of 7-plus, as we already -- as we usually communicate, we were able to invest in prices and to answer to the competition evolving in the market and the third and fourth quarter of the year. So overall, we are quite happy with the performance of our gross margin, including commercial margin and also a very positive impact from shrinkages effect during last year. In this year, also probably, we should separate the normal environment that we are budgeted for in the end of last year. And in that respect, I would say that we do not expect significant changes in our gross margin and overall EBITDA margin in the budget was only affected by one-off effects from transformation of Karusel. At the same time, of course, it was affected overall results in our budget for 2020, was the expectation of lower inflation in 2020 compared to 2019. Now it's very hard to project what will be food inflation and overall inflation for this year. So I think we will build our scenarios and understand what's our prognosis close to the end of April, I hope, and we will monitor the situation in regular basis. In respect of shrinkages, I think we were down from the levels above the market, which we faced in -- end of 2017 and 2018, to the quite positive levels in Pyaterochka, Perekrestok that we see now. So we don't expect further significant decrease in that respect. But of course, we will be working on that further, and we have quite ambitious targets for the 4 months.
Next question comes from the line of Victor Dima.
Maybe I have missed it, but given the high demand that you're seeing in March, would it be fair to assume that going into sort of the second quarter as a situation comes down, do you expect to see a much more depressed level of like-for-like and then growth? And if so what would be sort of the normalized level? That's one -- that's question #1. And the second, I assume -- I understood it correctly that the online can breakeven 2021. What would be the key drivers for that in terms of unit economics, if you can name 2 or 3? And -- yes, that will be kind of a little bit of color on there?
I can start to answer the question from the last -- second question. We already have positive unit economic for some distribution sales for dark store that we have now online Perekrestok.
Yes. I think we already communicated from the start that we do expect that all our new businesses, including express delivery, online operations and our logistics operations, 5Post, should turn to positive profitability within medium-term. So as a company, we are not ready to invest for endless periods. It's not our strategy, it's not our policy. At the same time, we are quite happy with the pace of their growth. For example, Perekrestok Online grew by 3.3x during 2019 in the normal course of business. So yes, we do expect that online will turn profitable in 2021. And the drivers for that will be positive unit economy of dark stores with increasing density of deliveries and also with increasing average check. We do see both trends as expected, and we're quite happy with the dynamic, both in 2019 and beginning of 2020. Actually, we have very positive results from Perekrestok Online, even before the situation with the coronavirus. In January and February, average check was steadily growing, in line with the budget, and number of orders also was steadily growing in line with the budget. So your second question regarding demand. Well, again, I think food retail and being the proximity mostly, the biggest number of our stores being in proximity format actually ensures that people still will be -- we're still -- will be in demand. And even after people made supplies in current turbulent situation, still people continue to eat. And I don't expect that we'll have massive impact. But of course, it's hard to say, and we'll see how the situation will evolve, of course, it's not a usual situation for us. And we will communicate to you everything we know.
In April.
Yes. In April, actually, yes, that's right. I'm curious that's unclear. So I'm saying that, in April, we'll actually have a goal for the first quarter. By that, we'll have more understanding, I think, of the trends and of the situation. And of course, we'll be ready to share it.
Next question comes from the line of Kirill Panarin.
Two questions, please. So firstly, you talked about direct imports. Could you also tell us about the imported products, which you get by distributors? What is the share in sales for those? And second question, when you talked about different scenarios, can you elaborate on your margin expectations in the better-case scenario? Would it still be maintaining margin levels at roughly about 7%? Or what would be the drivers versus the base case, if you think it will be different in the better-case scenario?
Yes. So the share of direct imports of our internal direct imports at 4.3%. It's hard for us to estimate share of coming through distributors as we usually just buy the internal market and mostly in rubles. But we -- I think it's around 15%, something like that. So we still don't think that it will have a massive impact for our supply. And of course, this share massively decreased after the situation we had in '14 and '15. So we're quite confident now in terms of supply. And I can assure you that all major SKUs, which are socially important and important for people at this situation, are produced locally. So we're quite sure that we'll have enough supply for that. Yes. So the second question was about the -- how the EBITDA margin will evolve. So in the normal course of business, as we budgeted in the end of last year, as I said, we do not expect massive adverse impacts on our EBITDA margin, apart from some influence of -- one-off influence of transformation of Karusel. But we think, as we discussed in September and October, that it's very strategically important and right decision for us to transform our hypermarket format. And we believe that long term, it will allow us to increase our margins structurally. What we see already is that the performance of Karusel, which are transformed to Perekrestok format is better in terms of return on investment and EBITDA margin.
So just to clarify, apart from Karusel, if we talk about adjusted EBITDA margin, there shouldn't be a material change in your profitability profile due to the weaker ruble, lower oil price, potentially higher food inflation this year. Is that correct?
I was talking about normal course of business, which was budgeted and expected by us in the end of last year, beginning of this year. As I said earlier, it's very hard to prognose how the changes in macro environment and consumption will influence the situation with the margins. And of course, the first priority for us would be to provide uninterrupted supplies to the population. And also to secure our position as the food provider also for people. I hope that it will not significantly influence our situation in terms of margins. So far, we even have some positive impact.
Our next question comes from the line of Artur Galimov.
Just a small follow-up question on chain expansion and CapEx this year. Svetlana, you gave us 2 clear scenarios for macro situation, and it was a cost to exchange rates and brand side. So assuming that things will remain as we are, as we speak with RUB 80 per dollar and around $25 oil, what's the rough downgrade to the CapEx in store openings you would do? You didn't specify the exact number, but maybe you should give us some rough idea of the magnitudes, of the downgrade of store openings, or you would go for under this scenario this year?
It's a very right question. And of course, we also think about it internally, but it just too early to say now. I think we'll have more understanding and decisions made internally by the end of April when we have our -- another call for the first quarter. So far, I think that the expectation that the pace of renovations would probably slow down. And the first reason for that is that we don't want to close the stores where we see the higher demand at the moment. Other than that, we'll monitor the situation. On the positive side, we will probably have more opportunities in terms of the rent space. And also of course, as a leader with the highest efficiency and infrastructure and financial resources, we will have more opportunities for consolidation also. At the same time, as you see, of course, there are some negative factors related to some FX-linked CapEx of the equipment, and also it's a question for us, how to assess the demand and income of population for the coming mid-term for this year, and also long term. We'll work on that. And as soon as we have the answer, we will share it with you, of course.
So basically, to make it clear, I think your decision will largely depend on your estimated impact of the current developments on returns on invested capital from new openings, if ROICs tend to be lower, some downgrade decisions could be made, despite your previous comments that EBITDA margin shouldn't be largely affected by other factors -- by external factors other than impairments from Karusel transformation?
Of course, there are a lot of moving parts in the equation at the moment, but we still have our internal requirements for return investments and IRR levels. So when we make our investment decisions -- and you're completely right that we will not make any unreasonable investment decisions. All processes stay present. And if we don't see the opportunity for acceptable returns on these new stores, we will decrease our appetite, of course.
I would like to ask the operator to take 1 last question, and we will be happy to answer those questions that are not asked at this call off-line. Operator, please?
There are no more question online, please continue.
Ladies and gentlemen, thank you for your interest in our company and your participation in the call today. Please stay well. We wish you luck, and all the best. Thank you. Goodbye.
Thank you.
Thank you. Bye.
This concludes the conference for today. Thank you for participating. You may all disconnect. Speakers, please stand by.