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Ladies and gentlemen, thank you for standing by, and welcome to the X5 Q4 and FY 2020 Financial Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Friday, 19th of March 2021.I would now like to hand the conference to the first speaker today, Head of Corporate Finance and IR, Natalia Zagvozdina. Thank you. Please go ahead.
Thank you very much. Good morning, good afternoon, ladies and gentlemen. Let me welcome you today at X5's 2020 Full Year Results and Fourth Quarter Call. The speakers today from our side will be CEO, Mr. Igor Shekhterman; and CFO of X5 Retail Group, Svetlana Demyashkevich.You can find the disclaimer at the last page of our press release as usual. The distribution of the results was [indiscernible] the usual sources this morning.Without further delay, I am passing the floor to our CEO. Igor, please?
Natalia, [Foreign Language] thank you. Good morning and good afternoon, ladies and gentlemen. Thank you for joining our call today. I would like to begin by concentrating on our response to the COVID-19 pandemic and the impact that it had on our business in last year. I will then give a brief overview of some of X5's main achievements in 2020 as well as our priorities.Let me start with our handling on the pandemic and how consumption pattern in Russia changed at the onset of coronavirus. The COVID-19 pandemic presented X5 multiple challenges. Food retail across the world faced many of the same challenges in 2020. Russia's national lockdown in May-July proved the resilience of our internal procedures, risk control and decentralized management model. It all suggested our capacity to keep up with growing consumer demand.At the start of the pandemic, we introduced new measures to boost workplace health and safety. For example, we provided emergency personal protective equipment to all employees. We arranged for 95 of our office personnel to start working remotely over the course of just 2 weeks. We introduced new mobile teams for our stores and logistics operation. These teams could quickly replace a full shift or team that had to quarantine if one worker tested positive for COVID-19, which enabled us to keep our logistic network and stores fully operational throughout 2020.Our online and express delivery channels saw a rapid rise in demand in 2020. To capitalize on this, we invested heavily into our online platform and express delivery services. We expanded our infrastructure by open [ 2-floored ] dark stores and increased our express delivery services area to full cover the city of Moscow. Today, our online delivery services are already available in 25 Russian regions. Across both Perekrestok Vprok and express delivery, we delivered 7.9 million on 1 quarter to over 1.4 million customers. We now expect express delivery contribution to X5 digital sales to continually support Perekrestok Vprok as well achieve short delivery times and attractive pricing can help us gain traction among our customers. Like-for-like sales increased by 5.5% in 2020. This was driven by higher average ticket, a constant focus on the quality of goods in our stores, attractive pricing as well as a new store concept. Over 12% of our stores were operating under the new concept by the year-end. In 2020, we added 1,500 new stores, and our selling space increased 8.3% year-on-year to 7.8 million square meters. And approximately half of this opening will replace less efficient food retail operator who were unable to continue running effectively in the pandemic.As a result of positive like-for-like and network expansion, we increased our off-line market share to 12.8%, growing our revenue at an accelerated pace compared with previous year. We continue to consolidate our position in the off-line food retail market in both proximity and supermarket stores.5Post proximity format, Pyaterochka, demonstrated particularly strong performance between late March and mid-July in the context of down and limited public mobility. The chain attracted new customers from traditional retail, hypermarket and supermarket format. Because of this, we are even more confident in our strategic decision to concentrate on expanding the proximity segment.Over the course of the year, customer loyalty continued to grow. Our loyal customer base increased by 16.5% and reached 47.3 million by year-end. This growth was fueled by new customer feedback features across our loyalty program and our new enhanced mobile app. This helped us get over 120 million customer rating for products in our store. Customers that actively use loyalty cards generate higher value for individuals and are typically more profitable for the company. So this puts us in an excellent position for the year ahead.Before I move on to X5 2020 results, I want to brief touch on the main market trends we saw in 2020. Last year, consumer behavior continued to shift towards even greater confidence. The total online grocery market in Russia increased by 314% to RUB 135 billion. Competition between online players grew, and express delivery from proximity stores became even more popular. Overall off-line food retailer rose by 1.8% in 2020, helped by higher stay-at-home consumption. This was also reflected in an estimated 30 -- 40% reduction in the HoReCa market.Food inflation began to rise significantly towards the end of the last year. It was 6.7% in December due to higher global inflation in fruit and vegetables prices and a weakened ruble. During the first 9 months of the year, it averaged just 3.3%. Hard discounters did extremely well in 2020 compared to weaker demand in higher-end supermarket and specialty store. This market segment doubled in value between 2018 and 2020.Consumer spending last year focused on staples like food, pharmaceutical, utilities, tile and bed products. The stay-at-home trend also led the higher spending on selected durable goods like consumer electronics, DIY products and home -- for home and garden. The food retail industry continued to consolidated. The share of the top 5 retailer rose from 33% in 2020 to 37% in -- sorry, from 33% in 2019 to 37% in 2020. Off-line retailer continued to be demonstrated by X5 and Magnit. Another trend of the last year is that almost all off-line players either expanded or launched their our own online delivery services.Now I want to summarize our key achievements in 2020 and progress of our online business in 2021. We maintained leadership in revenue growth against our main peers and [indiscernible] expanded the absolute revenue gap with each of our 5 closest competitor in off-line grocery. The vast majority of our store remained fully operational during the COVID lockdown and even managed to increase sales and delivery volumes from our supply chain. We achieved revenue growth above our internal budget targets and profitability in line with our budget. We managed to offset COVID-related cost of RUB 3.5 billion from high efficiency and the positive effect of digitalization of our business, which enabled us to deliver a solid EBITDA margin of 7.3%, which is in line with our strategic objective to remain above 7%.We grew the GMV of our online businesses faster than the grocery market and achieved market leadership in e-grocery. Our estimated market share is 12.6%. The GMV generated by express delivery from Pyaterochka and Perekrestok stores and the Okolo delivery aggregator in February 2021 totaled RUB 2.1 billion. By the end of February, our express delivery services were handling around 50,000 orders per day. Vprok handled between 12,000 and 15,000 orders per day during February.The online marketplace, Perekrestok Vprok, which is preliminary for stock-up shopping, reported a GMV of RUB 1.7 billion in February this year, up by 122% year-on-year basis. The share of digital sales in X5's total revenue exceeded 2% during the second month of 2021 and reached 4.5% in Moscow and Moscow region during the same period. We delivered stability and sustainable quality for in-store operation during the pandemic.We fully understand that investment into new businesses and where development are currently producing a negative effect on our consolidated margin. This is why we are in the process what is the best structure for our digital businesses. And I will come back with the solution later this year where are several options. We may consider attracting new investor or strategic partners when new businesses are set up as a separate company. This should enable us to continue investing accordingly in the development of our digital business in line with more aggressive action by our peers in e-grocery segment and also to reduce the stress on our consolidated financial results from new businesses, which we consider strategically important for us.We sustained positive momentum in personnel turnover and labor productivity. Turnover declined by 11 -- to 38%, and our average labor productivity improved by 3.3%. Our investment in price in 2020 were in line with our plans. We supported our customer throughout the pandemic with additional price investments and promos. Even when demand at our store peaked, this was the social responsibility thing and -- to do given the impact of the COVID pandemic on consumer income.We continue to roll out new concept and CVP in our proximity and supermarket format. We refurbished 583 Pyaterochka and 46 Perekrestok. By the end of the year, 13% of Pyaterochka and 12% of Perekrestok stores were operating under new concept. Like-for-like performance in new concept store is around 10% higher than for the old concept, and peers is 50% higher for new concept store.We continue transformation of X5 hypermarket format. The number of Karusel store has reduced by 35 in 2020. 25 of the store were transferred to the Perekrestok brand as large supermarkets. As of the year-end, 56 stores still operated as Karusel hypermarket.We launched stores in the promising market segment of hard discounters, an X5 new Chizhik brand. And every space of Chizhik is about 250 square meters, and it has around 660 SKU. We opened our first 4 pilot stores in last year, plus 1 in February this year. And the initial results are very, very optimistic. Our long-term target is for Chizhik to have a 60% share of private labels in assortment. This year, we plan to introduce around 300 private-label SKU for the format. During this year, we also plan to open up to 50 stores in this format.We launched express delivery mobile apps with Pyaterochka and Perekrestok with a total of 3.8 million downloads in last year. We launched Okolo, our delivery aggregator. Okolo will be developed further in this year by signing up HoReCa and nonfood FMCG retailer to the service.Our 5Post e-commerce delivery service successfully completed this year as a stand-alone business. It delivered 6.8 million e-commerce package in December alone. 5Post handled 1.5 million parcels. By the year-end, its network had 4,500 parcel lockers, plus nearly 12,000 delivery points at X5 store. In February this year, 5Post has already achieved positive EBITDA performance.We continued our digital transformation, which had a positive impact on last year EBITDA of RUB 7 billion. In this year, we expect the impact to be RUB 20 billion. We strengthened our focus on introducing new medium-term growth by achieving -- be achieved by 2023 as well as longer term is the aspiration for 2030. Among this, we aim to become carbon-neutral by 2050, decrease food waste and expand our basket of -- give the food drive while improving our disclosure of ESG metrics.We adopted an update dividend policy that envision interim dividend payment in 2020 and paid the first interim dividend payment based on our 9-month 2020 results in December. X5 Supervisory Board has just recommended payment of the second 2020 dividend in the amount of RUB 30 billion. Together with the interim dividend paid in December 2020, total dividends for the year will amount to RUB 50 billion.To conclude, let me highlight our priorities. In 2021, we will work on maintaining our market leadership while developing ourself as a client-centric and technology-advanced retailer. We will expand our retail footprint further in 2021. We plan to open up to 1,500 new stores. The majority will be in the proximity format, and the rest will be supermarket and hard discounter. We will continue testing various aspects of X5 hard discounter format and performance in relation to competitors.Given the recent success of our online businesses, we will develop a variety of new and digital initiatives. This will include a media platform that is already under development by our in-house team. We aim to launch an FMCG marketplace based on Perekrestok Vprok. [indiscernible][Audio Gap]subscription service for our customer this year. Alongside this, we will continue to expand our express delivery offering and broaden our customer engagement to cover more and more of the customer journey.Speaking more broadly, in 2021, we will be laying grounds for the X5 ecosystem. We will be adding media capability as well as offering financial services to our customer. We will look on expanding our ready-to-eat segment. We have set specific targets to grow the share of the ready-to-eat assortment at both Pyaterochka and Perekrestok format. A key area of focus in the coming year will be sustainability. This year, we will continue to work towards the growth of our sustainable development strategy for 2023 and 2030. We will also publish our first stand-alone sustainability report under GRI Standards. Our concentration on the efficiency of our operation and capital allocation discipline should support our annual dividend payment, which we expect to grow steadily.Now I would like to hand over to X5 Chief Financial Officer, Svetlana Demyashkevich. Thank you for your attention.
Thank you, Igor, and good morning and good afternoon, ladies and gentlemen. Let me start with the external environment, after which I will give an overview of our financials and provide you with some insights on key quarter-to-date results.In Q4 2020, food inflation accelerated noticeably and averaged 5.8% year-on-year compared to 4.3% in the third quarter, an average of 3.9% in 2020. In February, food inflation reached 7%. Periods of high food inflation volatility tend to be rather short, and we expect it will stabilize over the year.High food inflation resulted in regulatory actions. Price monitoring for socially important goods that started in December 2020 remains in effect until the end of March. Socially important goods account for slightly less than 5% of X5 turnover, and our pricing for this product has always been very competitive so we see low regulatory risks in this area.Real disposable income in Q4 2020 improved slightly but still remains in the negative area, around negative 1.7% year-on-year. It goes without saying that weak consumer income will continue to impact the sector in 2021, with stronger demand for low-price formats and market segments.Now a few words about X5 financial performance in Q4 and full year 2020. Revenue increased by 12.7% year-on-year in Q4 on the back of solid like-for-like sales, selling space expansion and ongoing store refurbishments. Refurbished stores continue showing like-for-like well in excess of comparable stores that still operate under the old concept. Digital business, Perekrestok Vprok express delivery and 5Post, net sales rose 362% year-on-year to around RUB 20 billion, which comprised 1% of consolidated full year revenue.Total revenue growth in 2020 exceeded our expectations and exceeded the budget. Our like-for-like sales competition by traffic and basket in Q4 continues to reflect the impact of COVID-19, with less frequent customer visits to stores and larger purchases per visit. On balance, X5 saw consumers trading up across all retail formats, which can be partially attributed to the lower share of wallet going to HoReCa segment as well as ongoing improvements to the variety and quality of the assortment across all our formats.However, in Q4, we did feel the need to support those customers who suffered from the rapid growth in food inflation. As you remember, our financial results for 9 months were very strong and notably above our budget. This is why in Q4, we decided to invest in our consumers and our personnel. Our investments were measured, tactical and included price investments in October and November, additional marketing expenses and bonuses to operating personnel for the full year result, mostly in Pyaterochka.While we did it in Q4, high food inflation was starting to affect customer confidence, and we decided it was timely, not only to support our loyal customers by more attractive pricing, but also to attract new clients in order to grow our market share. Marketing is vitally important as we aim to grow our market share, including through express delivery and smart positioning of our proximity format in one -- as one of the main drivers.Our additional bonuses to employees are in line with our strategy to dramatically increase engagement of our online personnel as well as productivity of our in-line personnel. In total, these 3 components of our investments in Q4 resulted in additional 86 basis point spend, with equal shares of 25% coming from commercial margins and marketing and 50% basis points coming from bonuses to store and logistics personnel. Once again, it was our conscious decision to do these investments, and our financial results allowed for it. Without this investment, our Q4 margin would have been 7%.Another comment I would like to make is the impact of our business profitability from new digital businesses that Igor talked about earlier. We consider investments in these new businesses as strategically important. They contribute positively to our growth, about 1 additional percentage point, and they do impact our margins. In Q4, our EBITDA margin would have been 21 basis points higher if we had no new businesses in 2019 and '20.Compounded with additional investments made in Q4, we had a total EBITDA impact of over 100 basis points on our quarterly margin, which implies 7.2% normalized profitability for the quarter, excluding online. For the full year, the impact of new businesses on the margin was 38 basis points, and our annual EBITDA margin would be close to 8% if we had no digital business investments and no technical investments in Q4.One-off costs related to COVID-19 also had an impact on our EBITDA in 2020. We estimate the amount to be around RUB 3.5 billion. At the same time, there was a positive impact as consumers traded up. It was especially visible in our Pyaterochka format as the HoReCa sector declined and we saw a more profitable category mix.As the company delivered 2020 financial results above the budget, both KPIs for 3-year LTI program that ended in 2020 were mapped. To remind everyone, these KPIs were for leadership in terms of revenue and EBITDA multiple against sector peers. In Q4, the reversal of accruals for LTI and share-based payments amounted to positive RUB 1.1 billion due to the actualization of LTI funds for participants who withdrew from the LTI program during the past years. Under the program, 50% of the total award is paid in 2021, subject to maintaining achieved targets until the end of 2020, while the other 50% is deferred to 2022, with the profitability threshold as a condition for deferred payout. The remaining accruals related to the second payment of the previous program will continue in -- until first quarter of 2022 and will total around RUB 1.5 billion.Depreciation, amortization and impairment costs decreased as a percentage of revenue by 16 basis points to 3.7% in fourth quarter. This was due to positive impairment effect primarily driven by the improving results of Pyaterochka, which is partially balanced by impairment related to Karusel, which is in process of transformation. The share of Karusel in X5 revenue and the number of stores are decreasing, driving down its negative impact on margins.In Q4 2020, net finance costs decreased by 20% year-on-year due to a decline in the weighted average effective interest rate on X5 total debt to 6.78%. This happened as a result of declining interest rates in Russian capital markets as well as actions taken by X5 to minimize interest expenses.In Q4, income tax expense grew by 36.6% due to distribution of our first interim dividend of RUB 20 billion by the group subsidiaries in December and an increase in the accrual of deferred tax liability as well as higher pretax profit, which reflected overall business growth.The company's net profit in Q4 increased by 221% to RUB 2.8 billion, while net profit margin increased by 34 basis points year-on-year to 0.5%. In 2020, net profit margin improved by 49 basis points year-on-year to 2%. At the end of Q4 2020, our net debt-to-EBITDA ratio was at 1.67. Going forward, we seek to maintain this ratio below 1.8, continuing to pay dividends.Now a few comments about our cash flows. Net cash flow generated from operating activities in Q4 was RUB 20.4 billion, which was affected by the higher dividend-related tax we paid. In 2020, net cash flows generated from operating activities increased by 26.9%, reflecting the business expansion and positive working capital trends. The smaller positive change in working capital in Q4 compared to 2019 was mainly due to the calendarization of procurement and sales during the year driven by changes in customer behavior, with a higher share of total purchases in second and third quarter and the lower share in fourth quarter compared to 2019. On balance, the company continues to operate with negative working capital, which supports its cash flows as the business continues to expand.Turning to CapEx. Net cash used in investing activities increased to RUB 25.6 billion in Q4 2020, slightly up year-on-year. This reflected high investments made into refurbishments and digital transformation, including the development of digital businesses and less in new openings compared to 2019. Approximately 33% of CapEx in Q4 went to expansion of our store base. The remaining CapEx included: refurbishments, at 9%; logistics, at 12%; IT, at 8%; maintenance, 15%; and other investments.Total CapEx in 2020 increased by 10.9% year-on-year to RUB 89.9 billion, with increased shares of spending on refurbishments, development of digital businesses and decreased spending on new openings as the number of new stores was lowered. But we managed to bring CapEx per new store in line with CapEx per store in our previous concept.On the back of good profitability, strong cash flow generation and solid balance sheet, the Supervisory Board has proposed to pay a final annual dividend in the amount of RUB 30 billion. Together with interim dividend we paid in December, total dividend for the year will amount to RUB 50 billion. This is 67% higher than in '19 -- than in 2019 in ruble terms.And finally, I will give a short update on the quarter-to-date results before we go to Q&A session. Year-to-date trading is strong and exceeding our budget plans. Pyaterochka and our digital businesses remain the core growth drivers. Net retail sales growth from the beginning of January to mid-March was above 11%. Like-for-like sales have risen for X5 by around 6%. At the same time, like-for-like sales in Pyaterochka accelerated from 7% in January to 7.4% in February. And our online sales are up 365% year-on-year.With that, I would like to conclude the discussion of our results, and thank you very much for your attention.
Operator, can we start Q&A, please?
[Operator Instructions] And your first question comes from the line of Henrik Herbst from Morgan Stanley.
I had 3 questions actually. Firstly, you mentioned a little bit about your pricing activity and sort of reinvestment in consumers in October and November. I was just wondering if you think that, that helped your like-for-like growth. Maybe you can talk a little bit about the sort of, I guess, return on your price activity and, more specifically, what you did. Was it sort of cutting headline prices? Or was it more promo activity? And what do you think about price elasticity on the back of that?Secondly, I was wondering if you could -- just to make sure I heard it right. You were saying that excluding the digital investment, your margins in Q4 would -- EBITDA margins in Q4 would have been around 8%. I'm not sure if I had that correctly. So maybe if you can just confirm. And then I was wondering how you think about that investment and drag on margins going into 2021.And then the last question is around the like-for-like sales or trends so far in Q1. It's quite encouraging to see your like-for-like growth accelerating into February. But maybe if you can give us some thoughts on, firstly, I guess, how margins progressed going into Q1. And then also how you think about the comps, I guess, from mid-March and time, comps are getting a little bit tougher from stockpiling as well. So that -- yes, that was it.
Well, thank you for all your questions. So to start with the price investments we did in October and November, mostly in Pyaterochka. And as I mentioned, not only price investments but also some marketing activities. And as you know, probably, it's our usual strategy in the fourth quarter of the year. It's a high season. It's the best opportunity to attract new customers and to significantly increase market share. So we usually use this opportunity during the fourth quarter of the year, if we have it, based on good results over the beginning of the year. And year 2020 was the exact -- this example. We had very high results in the first 3 quarters, and we felt that we do have the opportunity to invest, and that actually resulted in growth of our market share above our expectations.As you see, our market share grew by 1.5%. Actually, that's above our usual pace of growth of market share. Usually, annual growth is around 0.8%, maximum 1%. And this year allowed us, together with pandemic, online development and also visibility to invest and consolidated markets, to increase the growth in market share even further.It was done both through increase in promo activities and through some corrections in prices, which were in line with the market. Our promo activities starting from January decreased to a normalized level and actually now, even at the level or below compared to the beginning of last year. So maybe continuing with the trends of like-for-likes in January and February, as you understand, we did see the results of all these activities, including price investments, marketing activities and investments in our personnel. Because in January and February, we see not only increased like-for-like trends in Pyaterochka but also increased productivity and actually EBITDA margin above our expectations.So yes, it will be hard to say what will be the trend in the end of March because we will start to compare with one-off and unusual period of start of pandemic last year. But I think it will be the case for the core market. So we can discuss it in our April call when we discuss the results of the first quarter.So to comment on additional expenses in our digital businesses, yes, you're right. I would say that if we adjust our results or the spendings on investments in marketing, price, employment -- employees and also digital businesses, our EBITDA margin -- normalized EBITDA margin would be around 8%. So if we only talk about our digital businesses, overall, impact on margin is around 38 basis points.You are right that we do look further to our strategy to understand and to forecast what would be the impact of digital businesses going forward, and it's important question for us. That's why we concentrate a lot both on the efficiency of our core business, which gives opportunities to invest more in the new direction. And that's done through improved efficiency of our operations.As you see here, we do have significant improvements in our shrinkages, in our logistics costs, in the productivity of our personnel. We also improved a lot through our digital transformation. We improved both internal processes and our decision-making. So that all gives us the opportunity to invest more in our digital businesses, and it all perfectly balances in our budget for 2021. So we don't have any concerns here. We are staying in line with our expectations that we presented in our 3-year strategy. Our EBITDA margin is well above 7%; return on investment, increasing; debt level, staying less than RUB 1.8 billion. And we're still paying dividends. So I would say that this framework that we talked about during our Capital Markets Day in October is perfectly working for us.
I just could add to what Svetlana told that we are very focused on efficiency. And we did very good result, for instance, in efficiency of our shrinkages. And when we discuss the budget for this year, we even have better metrics to compare with the last year.
Can I just -- a very, very quick follow-up. When you say margins above expectations in Q1, does that mean margins are up year-over-year? I guess we still have a few weeks but...
So it's hard to say for the whole first quarter because of abnormal performance in the 2 last weeks of March, but the beginning of the year was pretty much in line with the performance that we had last year.
And next question comes from the line of Kirill Panarin from Renaissance Capital.
Two questions, please. Firstly, just to follow up on the earlier question on price investments in Q4. To be honest, I still didn't really understand what was the return on those extra investments. You mentioned market share growth of 1.5%. But what would that be? Or what would Q4 growth would be without those extra 50 basis points investments? And how do you quantify how much to invest in Q4? Or should we assume that every time you show strong results in the first 9 months, you then reinvest all the gains into prices? Or how do you find that balance between growth and margin? That's the first question.
Of course, we have very complicated and detailed processes on operational levels. Most of them now are fully digitalized. So for example, we have very modern operation for price efficiency and for deciding what price on each basket and in particular SKU in each particular store, depending on the data we get from our loyalty cards analyzed through our instrument that we created based on our big data and done by our big data team.So that's -- so when we look at the sensitivity of price investments, we can estimate what effect we can get in terms of additional like-for-likes, additional attraction of customers. And to be honest, when we started to discuss these price investments back in October, we had a forecast of the results until the year-end in terms of like-for-like growth of revenue. And actually, the result was even above our expectations.So that's why when we look at the performance for 2020, we are internally, as management, very happy with the result. And it was also confirmed by our Supervisory Board just recently that they're also very, very happy and confirm that the result is above the expectations.In addition to that, of course, it's not just stopping the same month or even the next month after your investment. It's a long investment. And we see the result of this investment still in January, February and March. So we are continuing to consolidate the market through that and to gain additional market share through that. And you also should remember what -- when you're looking at our like-for-like, it's based on very high base for the last several years. We never had this declining like-for-likes or negative like-for-likes as some of our competitors. So it's also very important to take this into consideration.So I think it's a very good result that we are still able to demonstrate such high like-for-likes on such high base. And this is the result of all our actions in terms of how we improve our CVP in our stores, the performance of our new concept, both in Pyaterochka and Perekrestok, improving our operational productivity in stores, improving our efficiency in logistics and shrinkages, et cetera, et cetera. So it's complex work and complex focus of whole management.
Okay. Okay. And just one more. Could you comment on your new LTI program that has been submitted for AGM approval? That's it for me.
Okay. We have 3 main metrics in our LTI program, 2 of them practically the same like it was in previous one: we have leadership as one of our metrics; the second is to be leading in multiple in accordance with our peers; and the last metric's related with ESG.
Next question comes from the line of Elena Jouronova from JPMorgan.
I had a follow-up question maybe, Svetlana, to you. So if I look at your results on a full year 2020 basis, it seems that you did not have any margin expansion, right? So if we strip out the effects of LTI accruals and reversals and Karusel one-offs, really your EBITDA margin was broadly the same, around 7%. And that was in a COVID year when, I think, globally food retailers, in general, had positive EBITDA margin dynamic, give or take. So I'm just wondering how to read this. Is the consumer environment and competitive environment actually more difficult in Russia than we thought? And so you basically end up reinvesting all the efficiency gains that the management team is working on in price to sustain high like-for-likes? Or was it simply the COVID unwind? Yes, so I just want to hear your thoughts on that because to be honest, on a full year basis, not achieving any EBITDA margin expansion in a year like last year was a bit of a surprise to me.
Thank you for your question. Well, first of all, we do have the positive development if we look at EBITDA margin for the full year. And it's improved by 0 -- by 200 basis points compared to 2019.If we add to that the effects of digital businesses -- investments in digital businesses, which actually almost doubled the effect on EBITDA -- the negative effect of the digital businesses almost doubled compared to 2019. Then you can see that the actual result improved significantly. And that's why we felt that during this COVID year, with this improved result based on higher revenue based on COVID's trends and HoReCa trends, we were able and we felt that it was a good idea to invest it now back into our customers and into our relationship with our customers.You know that it's our usual strategy, and that's actually how we win the competition for many years. And that's one of the factors why we become -- and we are still the leader. And we actually increased the gap with our competitors in absolute terms and in terms of market share because we are ready also to invest back into development of our CVP in services, into our customers, into price perception, et cetera. So we think in long term, it gives very good results.
Yes. I appreciate that. But doesn't it always also suggest that in a way, because your business is developing in this direction, with more digital and also, like because you want to have -- foster long-term relationship with your consumers, is it even possible for exploiting the current environment to achieve an EBITDA margin that is meaningfully above 7%?
Well, yes, if we stop investing in all kinds of new businesses and in faster growth than the market, then the EBITDA can be 8% and 8.5%. But that's our conscious choice for the longer-term strategy of the company because we understand that we need to be with the consumer. And we need to fulfill their expectations in terms of our new concepts, our personnel, our brands and our services that we provide, both off-line and online.
Okay. Understood. And maybe one clarification question on the LTI. I think you mentioned in your speech that the condition to pay the second threshold of LTI in 2020 is to maintain profitability at a certain level. And are you disclosing that level?
We're actually not disclosing this level, but it's in line with the previous program level. We always have this trigger, and it's at a comfortable level for us to do.
And finally, on the new LTI program. You no longer have that EBITDA margin KPI, right, because Igor mentioned market share leadership, multiple leadership and ESG. But on the multiples leadership, can you clarify how you're calculating that? Maybe some mechanics, trailing multiple EBITDA or PE or what and then from what time period until what time period you measure that.
Okay. Thank you for the question. We definitely have a trigger, depending on our EBITDA margin and profitability. But regarding the details of the question, regarding the multiple, we still will develop the mechanics. We just confirmed with the Supervisory Board the metrics. But later this year, we'll develop the mechanics, how we'll calculate it. But Elena, EBITDA margin trigger is actually in line with the previous program.
In line. All right. Understood. Final one is about hard discounters. I'm sorry if I missed that from the presentation speed, but can you share with us latest results for that format and thoughts about possible rollout?
Look, as I mentioned, we just opened 5 store at the moment. We will open additional 4 to 5 store in different region this year. I think as we opened just 5 store, it's quite early to give some results and some metrics. But the decisions regarding rollout will be made in December this year in the Supervisory Board on the result of the model we develop this year. The final decision will be made in December, but I hope it will approved by Supervisory Board and will start rollout from the next year.
And your next question comes from the line of Alexander Gnusarev from VTB Capital.
I suppose many of my questions have been asked -- answered by you, but I have just perhaps the last one. Talking about your year-to-date sales of 11%, could you somehow break them on a monthly basis, if that's possible?
Overall, growth is above 10% for all months, and it's in line with our expectations. So I wouldn't probably comment anymore in details on the...
We'll publish Q1 results in the middle of April. And of course, you'll see the dynamics by month.
Next question comes from the line of Maxim Nekrasov from Goldman Sachs.
I have a couple of questions. So the first one is on your capital allocation and basically -- could you remind us what are your CapEx expectations for this year and in the medium term? And also...
Sorry about that. Her -- his line's disconnected. The next question comes from the line of Marat Ibragimov from Gazprombank.
We can answer that capital allocation question. We can answer because it was the first question.
So actually, we are long-term planning to grow in CapEx not faster than our revenue. And as a framework also, we intended to hold our debt-to-EBITDA level at not more than 1.8, the maximum of 2.So in terms of openings, we are planning 1,400 Pyaterochka stores, 90 Perekrestok and 5,000 -- and 50 Chizhik stores altogether for the year 2021. Also in terms of the structure of our CapEx for new store openings, we're going to spend around 40% of our CapEx: refurbishments, around 15% to 20%; logistics, around 12%; maintenance, around 8% up to 10%; IT and renovations, 9%, 10%; and the rest are different items.So we are still going to pay dividends, which, as you know, accelerated in 2020 compared to 2019. So we are intended also to maintain this high level of both absolute numbers and dividend yield.
Next question comes from the line of Marat Ibragimov from Gazprombank.
I have a question on G&A costs. In particular, third-party services went up by almost 50% in the fourth quarter year-over-year. What is the reason for that? And how shall we model it going forward, this percentage of sales probably?
The major cause of this growth is the full year services for our express delivery. So it's in line with overall growth of express delivery and faster rollout. And I think we will be disclosing more and more, and you already can find a lot of disclosures on our new businesses in our annual report on unit economy. And we're also planning for a detailed event on our new businesses on the line, I think somewhere in May. So we can talk more about it in terms of unit economy and these increasing costs.And additionally, as I mentioned...
Another question on...
I'm sorry, and additionally, as I mentioned before, we also had increased marketing expenses in Pyaterochka in line with the price investments in fourth quarter as a strategy move to increase our market share and like-for-likes.
Okay. Got it. And another question on like-for-likes in supermarket. In Pyaterochka, like-for-like sales hit the negative territory once again, minus 0.2%. What's the reason for that? I understood that in the second quarter, some of the retail centers were closed, but what's the reason for a negative like-for-like? As we can see from the breakdown, this is largely driven by outflow of customers. And it looks quite surprising given your heavy investments in prices. Can you please elaborate on that?
Well, we should, of course, look separately at the trends in supermarkets and in proximity. They're very different, and it was the case throughout the year. So in Pyaterochka, actually, we grew above expectations. And we had inflows of customers due to the pandemic and suffering HoReCa. And actually, through additional price investments, we even accelerated this growth.Then in Perekrestok and supermarkets overall and hypermarket also and mostly supermarkets and hypermarkets located in the shopping malls, they were suffering from, first, 0 traffic that we had in the second quarter when they were closed. And then the traffic was starting to come in back in August and September. But unfortunately, in fourth quarter, as you remember, we had second wave of pandemic, and people were afraid to go to the shopping malls. That's why, again, we had decreased traffic in supermarkets. If you look at the performance of supermarkets not situated in the shopping malls, their performance is much better.We already see some positive trends in January, February and March in Perekrestok, positive like-for-like sales and -- both in shopping malls and nonshopping malls. But of course, if you look at the trends and the developments of the performance of this format, because of that, we are accelerating development of Perekrestok.Bystro, which is express delivery from Perekrestok. It's very popular with the customers. It's growing above our expectations, both in 2020 and continuing in 2021. And we are very happy with the performance of this new service for the customers.
I just wanted to remind you that practically 50% of our supermarket located in Moscow and Moscow region, and half of them in Moscow region and most colocated in the shopping center. And most of them was struggling until mid of January because of people don't come back to the shopping center and have very negative traffic. We just, in end of January and beginning of February, indicated that traffic started positive.
Okay. My last question is about your hard discounter. I understand that it is in rollout mode. You don't have final numbers. But what's your planned -- so-called planned IRR or return on invested capital in this particular format?
Actually, it's above return on investment that we have recently on Pyaterochka. And to remind you, on Pyaterochka, now return investment is above all the rest of our formats. So we do expect that Chizhik, if the pilot will be as successful as we planned in the project, then the financial model should have a return investment higher than all of our formats. And that's because of the smaller square meters of the stores and smaller CapEx on the stores and higher turnover and higher sales density.So we already see that in general, discounters even in Russia have higher sales [indiscernible] than in proximity format. And we do plan that our hard discounters should be leaders in that in terms of sales density per square meter.
But you don't disclose the absolute number. I guess it's around 20%, something like that, no?
No. At the moment, we don't disclose because we just started to find the most relevant operational model. And when we make decisions regarding the rollout, we will discuss it in more detail.
Next question comes from the line of Maxim Nekrasov from Goldman Sachs.
Just to follow up on your capital allocation and particularly on dividend. And the question is what is basically your dividend outlook and whether you see possibility to increase dividend payment in 2021 despite a quite high base.And my second question, more of a technical one, basically, what is your expectations regarding the tax rate? Effective tax rate, that has been quite high in the last couple of years.
Well, starting on dividends. It's early to say now. We now have dividends recommended by the Supervisory Board to the General Shareholders Meeting for the results of 2020. And based on the results of the first half of the year, we'll have a discussion with the Board on further interim dividends for 2021. So I think we'll be ready to share these expectations closer in the third quarter after the results of the second quarter.So on tax, as I commented in my speech, we had several factors, probably the biggest one being the payment of interim dividends in the end of last year. It was the first payment, and that's why it affected the comparatives. So it was the first one-off in the end of 2020 when we paid interim dividends. And that increased our tax rate.In addition to that, increased net profit also affected -- due to regional [indiscernible] also affected overall tax rate. And also, we had some accruals on our tax cases, just in line with our usual practice.
So should we assume a similar tax rate going forward as you probably continue paying dividends?
No. I would expect probably less than that because in this case, we had some one-offs. And it's always better to look at the performance of the whole year, not just...
Not separately, just for Q4.
Q4, yes.
Next question comes from the line of Maria Lukina from BCS Global Markets.
Sorry, if I missed. The question is on first quarter. Can you please once again comment on [indiscernible] and like-for-like performance? For example, what happens with the traffic now? Or which trends do you see? And what happens with the level of shrinkage?
So overall like-for-like sales are very positive as I commented earlier. So for example, in Pyaterochka, we have 7% in January, 7.4% in February. We still have the trends related to COVID pandemic, where lower traffic is compensated by higher check. And we still see trading up in all of our formats with high check and higher category mix leading supplier checks. So that's on like-for-like sales.And the second question was on...
Shrinkage.
On shrinkage, yes. Actually, we have very good results in January and February in shrinkages and decrease -- further decreased. Even after very good results of the last year, we saw a further decrease of shrinkages in January and February in Pyaterochka and stable or decreasing shrinkages also in Perekrestok, where it's already at very low level for several years in a row.So I think our management team is doing very good efforts in terms of decreasing shrinkages. A lot of projects focused on freshness, optimization of logistics, efficiency in operations. And that actually gives result in the systemic decrease.
Next question comes from the line of Artur Galimov from Sova Capital.
Great question from my side. What's your estimated impact from digital businesses on your full year EBITDA margin in 2021? And what could be a similar impact coming from increased payments to employees and price investments, even though we mentioned that balance of price investments were mostly ended by this quarter?
So overall, for 2021, we already balanced all the factors during our budgeting process. And we're expecting and forecasting EBITDA margin overall for both core business and digital and some of the investments we usually do, depending on the need in the particular year. So overall, EBITDA margin is well above 7%.So as we indicated in our strategy, we want to keep stable or increasing EBITDA margin while being able to invest in all directions that we find strategically important to invest. And in addition to that, we think that it's important that our market share should grow also above our competition and above the growth of the market. So that's our expectation. That's our business model for many years. We are ready to invest more in terms of CapEx and OpEx in order to grow faster and to sustain our long-term leadership on the market, both off-line and online.
Right. And could you possibly give some sort of breakdown of how you think EBITDA margin should develop for different parts of your online businesses, namely Vprok and express delivery for this year?
Yes. Vprok, being the oldest model in our online services, actually is coming to a positive EBITDA this year, a forecasted positive EBITDA. At the same time, in developing other parts, which being the marketplace and we consider it as a new business, it's also done inside of Vprok brand. But it comes with additional GMV and working with a large number of partners. And increasing significantly are the number of SKUs in the assortment for nonfood category. So this part of the business will give additional pressure on EBITDA margin, which is natural, being the first year for that.In express delivery, also it's still developing, and it's only the second year of the development. But the unit economy on express delivery is improving. And in 5Post, actually, we do expect it to become positive this year as was initially planned in the financial result.
We're also piloting on the basis of Pyaterochka this year. We started last year at that store that makes the profitability and unique proponent better. And after the pilot, we will make the decision regarding maybe transforming some of the Pyaterochka into dark stores.
For express delivery.
So yes, express delivery.
So just to add, unlike all of our competitors in online space, we are focused on the performance and on the efficiency, on the positive development of our unit economy. At the same time, we are conscious that to compete in such environment, we should be quite aggressive in terms of growth. So far, we are able to achieve both.
No question at this time. Please continue.
Well, on this, we will end today's call. Thank you very much for participating. If you have any follow-up, please address them to X5 through the usual IR contact. Thank you very much, and have a lovely day.
And that does conclude our conference for today. Thank you for participating. You may all disconnect.