Обзор OR Group: "Obuv Rossii" in a new version

Обзор OR Group: «Обувь России» в новом исполнении

OR Group was formed as a result of the rebranding of the Novosibirsk group of companies PJSC Obuv Rossii. OR Group shares have been traded on the Moscow Exchange since 2017, they have average liquidity - the second quotation list. The company's shares are currently at the bottom. Now its financial performance is improving and in the future may be of interest to investors..

About company

The core business of the group is represented as its own production of footwear, and selling your shoes and footwear from other manufacturers. Not so long ago, the company created its own ecosystem with a marketplace and trading platform.. It is the first Russian public company from the footwear and clothing segment.

History. Obuv Rossii was established as a shoe retailer in 2003. In 2004, the Westfalica network, the first brand of the company, already counted 30 shops, in the same year, the already functioning RosObuvTorg network was acquired.

Wholesale sales started in 2006. In 2007, the Emilia Estra brand and the shoe credit service were launched. Since the same year, Obuv Rossii has been in the rating of the largest companies in the Siberian Federal District., and the next year she became the winner of the regional competition "For the successful development of business in Siberia". Several less significant government and non-government awards were received in 2008 and 2009, and the number of stores in 2008 reached one hundred. In 2009, a new hire-purchase service was introduced, as well as an acquiring system.

In 2010 the company received the prestigious All-Russian Company of the Year award, and singer Valeria became the face of the Westfalika brand. There was another award the following year, a new brand "Westfalica Medicine" has appeared, as well as, what is not less important, the debut placement of bonds was carried out.

In 2012, there was an expansion of production capacity outside Novosibirsk: a shoe factory was opened in Cherkessk. The following year, the company acquired the status of OJSC, and the number of stores has reached 250. Microfinance service was introduced, and bonds began to be publicly traded on the stock exchange.

Since 2014, the Group of Companies has introduced online sales, opened another factory, launched two more brands: AllGo and Westfalica stores in flagship format. Yulia Kovalchuk became the face of the Emilia Estra brand. The Rossita shoe company was acquired, assortment of "Westfalica" began to be sold by catalogs. Deliveries of own products to China are increasing.

In 2015, the Group of Companies opened a new brand for the sale of children's shoes "Westfalica Kids", received several awards. The trend towards product diversification has begun, a line of homewear was introduced, financial services launched, Internet commerce was growing, a new factory was bought.

In 2016 and in subsequent years, the product lines were expanded. At the end of 2016, the revenue of the GC exceeded one billion rubles for the first time. Franchise programs are growing.

An initial public offering was carried out in 2017, the credit rating of the group of companies was increased. In subsequent years, the company implemented blockchain, a number of fintech varieties.

Since 2019, work has been underway to create offline marketplaces, online platforms. Rebranding began in 2020, which ended in 2021, as a result ticker changed from OBUV to ORUP at the Moscow Exchange. The composition of the founders and shareholders has not changed over the entire period of the GC's existence..

Composition of the group of companies. The structure of OR Group subsidiaries can be represented in a simplified form as in the table below.

And if you go into details, then the group structure can be divided into two levels. OR Group is a shareholder of Obuv Rossii companies, «OR», "Design Studio", MCC "Arithmetic". At the first level, OR is the second shareholder of Obuv Rossii and Design Studio, at the second level are the companies "EvaLink" - the share capital of "Obuv Rossii" and the NSCO "Payment Standard" - the share capital of the companies "OR" and MCC "Arithmetika".

OR Group structure

Primary occupation Equity share
OR Group Activity management Parent company
LLC "OR" Trade 100%
OOO Obuv Rossii Production 100%
Design Studio LLC Trade 100%
LLC RNCO "Payment Standard" Financial operations, except for banking 100%
LLC MCC "Arithmetika" Financial operations 100%
LLC "EvaLink" Production 100%
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Shareholders and key figures. The sole shareholder of the group is its founder and permanent director Anton Titov, who owns 50% shares. The rest of the shares are free-float. He is actually the only key figure in the leadership of the group., creating it on the basis of the Westfalika shoe company owned by his father.

The advantages of Titov Jr. include that, that he not only kept and continued his father's business, having received from him the opportunity to create a retail market for Westfalica products, but also significantly diversified it and received many awards at entrepreneurship competitions not only in Siberia, but also on a Russian scale. The manager's attitude to diversify production and sales is the company's strong point.

Geography of production and sales. Directly within the holding there are two production sites in the Novosibirsk region - in Novosibirsk and Berdsk, as well as a production site in Cherkessk. All of them belong to Obuv Rossii LLC, a member of the group of companies.

The sales geography is more extensive, the group currently owns 840 stores in 335 cities of Russia. Westfalica has the most extensive network - its stores are represented in all administrative districts of the country, the rest of the retail chains are mainly located in Siberia and the Urals.

What makes money

Brands. The production structure includes its own production, production of a partner company in China and retail. Own production is represented by brands:

  1. S-tep - men's and women's shoes, manufactured using German injection molding technology
  2. All.go - shoes made of ultra-light EVA material. Newly assortment of summer, beach and garden shoes have been extended with demi and winter boots.
  3. Medelista - sandals, sandals and demi-season shoes made of artificial materials.
  4. Pioneer of Arctic Travel - shoes for extreme polar conditions.

The production of Chinese partners commissioned by OR Group is represented by one brand: Snow Guard. He produces winter and demi-season clothing.

Retail is represented by the following store chains:

  1. Westfalika is the largest OR Group retail chain, has more than 540 shoe stores, clothes, bags, accessories, household goods, cosmetics, baby goods, small household appliances.
  2. "Pedestrian" - a chain of shoe supermarkets, presented in Siberia and the Urals. 46 shops.
  3. Emilia Estra - a chain of stores for youth women's shoes. 8 shops.
  4. Rossita - a chain of European footwear stores in Siberia and the Urals. 26 shops.
  5. Lisette - a chain of small shoe stores. 119 shops.

In the chain stores of the group it is presented as its own or partner products, and products of other manufacturers. In addition to sales in our own stores, another distribution channel - wholesale supplies. In addition to using genuine leather, the manufacture of shoes from eco-friendly artificial materials is widely used, which corresponds to the modern trends of the "green economy". Online sales and sales through the marketplace are widely used as sales channels - this is also a strong point of OR Group..

Revenue structure. At the end of the previous year, the OR Group trading platform was launched, and in 2020, it was she who provided the largest share of the proceeds of the GC. It was expected: stores were converted into marketplaces with the provision of half of the share of retail space in most of them to third-party suppliers.

An investor may be immediately struck by the phenomenal increase in the share of sales through the westfalika.ru marketplace.. Sure, this can be attributed to the restriction of the movement of potential buyers during the peak of the pandemic, but this also indicates that, that the top management of the company has successfully joined the general trend of development of marketplaces, fintech and other remote services. For investors, this is a positive sign - the company is keeping pace with world business standards..

In the first half of 2021, in general, revenue shares remained, however, the revenue of the Westfalika marketplace was more significant - albeit insignificantly - segment, than in the same period in 2020. But, sure, it did not show such a huge growth due to the stabilization of this business segment. Online sales have grown, unlike the previous two years, and this is a positive factor.

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OR Group revenue structure, billion rubles

2020 2019 Share in 2020 The change
Products and orders, processed by the OR Group trading platform 10,312 N/A 82,95% N/A
Revenue of the westfalika.ru marketplace 1,218 0,017 9,80% 7150,70%
Internet sales 0,901 1,014 7,25% −11,20%

OR Group's revenue structure for 6 months, billion rubles

1п2021 1п2020 Share in 1H2021 The change
Products and orders, processed by the OR GROUP trading platform 5,079 81,63%
Revenue of the westfalika.ru marketplace 0,738 0,277 11,86% 165,9%
Internet sales 0,405 0,301 6,51% 34,5%

Financial and operational indicators. The number of loyalty program participants has greatly increased in 2020. Number of stores, franchised, increased slightly, but the number of own stores and their area have decreased, which can be associated with a decrease in the purchasing power of the population due to the coronavirus while maintaining current rental rates.

OR Group operating indicators

2019 2020 The change
Loyalty program participants, million people 2,55 2,841 11,4%
Franchise 172 175 1,7%
Number of OR Group stores 908 840 −7,5%
DOS marketplace, thousand m2 61,9 56,4 −8,8%
Own shops 736 665 −9,6%

OR Group's operating indicators for 6 months

1п2020 1п2021 The change
Number of stores 859,00 809,00 −5,82%
Own shops 684,00 632,00 −7,60%
Franchise 175,00 177,00 1,14%
Sales area of ​​own stores, thousand m2 57,90 54,20 −6,39%
Loyalty program participants, million people 2,68 2,91 8,49%

In the second quarter of 2021, all indicators, except for the number of participants in the loyalty program and the franchise, decreased. This can be considered a negative factor in the activities of the Group..

The number of stores is decreasing: this can be attributed to the economic crisis. In general, this is offset by the increasing number of participants in the loyalty program.: possibly, that sales through marketplaces are growing. 2020 the year was extremely unlucky for the group of companies, What is associated with retail paralysis during the peak of the coronavirus.

OR Group financial results, billion rubles

2019 2020 The change
Profit for the period 1,687 0,563 −66,627%
Profit margin for the period 0,123% 0,052% −57,724%
Gross profit 7,562 6,231 −17,601%
Gross margin 55,2% 57,8% 4,710%
EBITDA 3,583 2,302 −35,752%
EBITDA, margin 26,1% 21,4% −18,008%

OR Group's financial results for 6 months, billion rubles

1п2020 1п2021 The change
Profit for the period −0,342 0,223 165,20%
Profit margin for the period −8,4% 5,1% 160,71%
Gross profit 2,379 2,659 11,77%
Gross margin 58,5% 61,1% 4,44%
EBITDA 0,381 0,947 148,56%
EBITDA, margin 9,4% 21,7% 130,85%

At the same time, in the first half of 2021, there was a significant increase in indicators. This can be attributed to the general economic recovery after the passed peak of the pandemic.. Nevertheless, the decline in the number of stores continued.. Previously, the company planned to expand the network, but later abandoned these plans.

Generally, given the indicators described, it could be considered, that the group of companies came out of the crisis and the shares should not be at the bottom for a long time, where do they stay.

Plans

The group of companies has developed a specific development strategy during the peak of the coronavirus, when online sales grew against the backdrop of store closures. Now she's not going to, seems to be, abandon this strategy even though security measures have been weakened.

The strategy includes primarily the development of the marketplace and online sales. There is also an expansion of the assortment on the website.. The practice of the first half of 2021 showed, that this direction of development leads to improved financial results.

Expansion of the range of products on the website and emphasis on e-commerce poses new logistical challenges for the group. The so-called "solid" stocks should be optimized - stocks of the assortment of the marketplace in warehouses, formed from own paid goods, as opposed to "soft" stocks, formed from goods, accepted for implementation with the condition of return in case of its impossibility.

Trade payables are currently growing higher than total inventories. If, within the framework of the optimization strategy for this side of the business, the group of companies manages to at least equalize these indicators, this will have a positive effect on the value of its shares.

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There are plans to further develop the line of children's shoes. In the summer of 2021, OR Group received a license to produce up to 100 thousand pairs of children's shoes per year. It will be produced by Obuv Rossii LLC, a part of the holding.. Competition in this segment is lower, than in the segment of adult footwear, since the production of children's shoes is more strictly regulated. Against the background of preferential taxation of the production of these goods and trade, this factor can positively affect the value of the shares of the group of companies..

In the plans of the group, announced at the end of 2020, the expansion of the chain of stores was not envisaged within the next three years. Therefore, the decrease in the number of stores observed in 2020 and in the first half of 2021 can not be considered a factor., which can negatively affect the attractiveness of shares of a group of companies for investors.

Another thing is how well OR Group will cope with its other plan to increase the efficiency of stores by increasing revenue per square meter and conversion in the absence of a strategy to increase their number..

Risks

OR Group risks are associated mainly with changes in development strategy and increased costs for production and sales organization. The strategy not to increase the number of stores is connected not only with plans to increase their efficiency, but also with the increased costs of their opening, that the group of companies itself does not hide. Finishing materials are growing in price, at the same time, the wages of builders also increased due to the, that during the pandemic a significant part of the migrant workers left the country. Leaving the company to the Internet will only partially solve the problem, as the cost of manufacturing footwear also increases, which gives the risk of reducing the marginality of the business.

The production of children's shoes - a new direction for the group - also carries certain risks. Considering that, that the license was purchased from a film studio, producing children's films and cartoons, brand sales, associated with specific films, will strongly depend on the release of new paintings.

Business marginality depends in this case on royalties, paid by the licensee to the licensor, high enough, because of what there was already a negative precedent: the company "Daughters-sons" refused to cooperate with Universal for this very reason.

Financial risks include the group's refusal to pay dividends on shares for 2020 due to the lack of net profit for this period.. Although the company is becoming profitable again, there is a possibility, that for the current year dividends will be paid. Usually, such decisions of the management of companies lead to a fall in their shares. The decision was made in May, but it can have negative consequences in the medium term too, until there is hope, that for 2021 dividends will be paid.

conclusions

OR Group showed a significant improvement in financial results in the first half of 2021 compared to the same period of the previous year and to the previous year as a whole. This could be a sign, that the company got out of the crisis, caused by the general decline in non-food retail in the country due to the pandemic.

Among the strengths of the company is the trend towards business diversification.: even the rebranding was carried out taking into account the fact, that OR Group has ceased to be exclusively a shoe company. Transition to the development of marketplaces, online shopping and avoiding unnecessary expenses for expanding the network of stores, as well as the introduction of fintech testify, that the top management of the group adequately assesses the current situation and adapts to it, showing flexibility. Because there is a possibility, that stocks will rise from the bottom, where they ended up, - Certainly, given that, that the group's plans will come true at least partially.

With all this, we can say, that the company got out of the state of falling financial performance. It gives rise to hope, that her securities will rise from the bottom. Therefore, it would be advisable for investors to monitor the further dynamics of the OR Group's business., to find the moment, when will it be possible to buy its shares.

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