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Ozon raises GMV growth guidance to 120% YoY as order growth accelerates to a record 239% YoY in third quarter 2021

Ozon Holdings PLC (NASDAQ and MOEX: “OZON”, thereafter referred to as “Ozon” or the “Company”), a leading Russian e-commerce platform, announces its unaudited financial results for the third quarter ended September 30, 2021.

Alexander Shulgin, Chief Executive Officer of Ozon commented: “In Q3 our GMV more than doubled compared to last year. Given strong momentum year to date we raise our GMV growth guidance to 120% in 2021.

GMV growth accelerated in Q3. In addition, we optimized our investments to achieve greater efficiency. The result is higher gross profit, lower marketing spend, and Adjusted EBITDA, under like for like methodology, improving as a percentage of GMV in Q3 compared to Q2 despite a temporary surge in cost pressure from the new warehouse and last mile infrastructure. Last quarter we added a record amount of warehouse space reaching over 770 thousand sqm. We see encouraging returns on our investments, with improving unit economics. In preparation for the next leg of our development, we have already secured over 80% of the targeted new fulfillment space for 2022 which is pivotal to our medium-term growth. We also see continuous improvement in the cost per order on year-on-year basis – a testimony to the fact that our strategy to focus on high-frequency operations is paying-off.”

Third Quarter 2021 Financial and Operating Highlights
·       Gross merchandise value (GMV) incl. services increased to RUB 108.3 billion, compared to RUB 44.2 billion in Q3 2020, with growth materially accelerating to 145% year-on-year in Q3 2021 from 94% year-on-year in Q2 2021, and a notable 22% quarter-on-quarter growth.

·       Number of orders grew by a record 239% year-on-year to 56.2 million delivered in Q3 2021 from 16.6 million orders in Q3 2020. Ozon achieved a record high order growth in Q3 2021, on the back of a marked improvement in the cohort performance with a 50% higher order frequency, as well as an extremely strong growth in its customer base year-on-year. The number of orders increased by an impressive 37% quarter-on-quarter. As continuously improving cohorts augment order growth operating costs per order decline, leading to better unit economics.

·       Despite a lower average order value year-on-year, our GMV per user is up materially compared to Q3 2020 as a result of users engaging with the platform more often, leading to decreasing costs per order and greater returns on our investments in customer acquisition and infrastructure.

·       The Ozon platform attracted circa 1 million active users per month during Q3 2021 and, as a result, its customer base exceeded 21 million active users in Q3 2021, up 16% quarter-on-quarter. Whilst the 87% year-on-year growth in Q3 2021 marks the highest growth in active users in the last seven quarters, the Company also achieved greater marketing efficiency with sales and marketing expenses as a percentage of GMV declining to 6.0% in Q3 2021, compared to 6.4% in Q2 2021.

Daniil Fedorov, Chief Operating Officer of Ozon, said:In Q3 we set a new record with order growth of 239%, making it the seventh consecutive quarter with order growth exceeding 100%! And last week we reached a new milestone of 1 million orders per day! With much higher order volume, our operating expenses per order decreased in Q3 2021 compared to Q3 2020 despite unprecedented infrastructure expansion.

As we grow and develop, we aim to serve the communities that form part of our ecosystem. I am excited to share that in September Ozon launched its Charity Program that enables our buyers and sellers to make charitable contributions to non-profit organisations, as we aim to serve communities that we operate in.”  

·       The number of active sellers nearly quadrupled in the last twelve months exceeding 60,000. Close to 40,000 sellers joined the platform since the start of the year, attracted by a variety of fulfillment and delivery options, Ozon’s proprietary market and business analytics tools, a wider suite of advertising instruments and financial services that assist sellers in scaling their business faster. In Q3 2021 Ozon also launched sole proprietor sales on the platform, which should further boost the platform’s assortment.

·       The outstanding growth in the merchant base contributed to growing Share of Marketplace which edged up reaching 66.7% as a percentage of GMV incl. services, compared to 51.4% in Q3 2020.

·       In Q3 2021 Adjusted EBITDA was impacted by a one-off expenditure on an in-progress research and development project in the amount of RUB 370 million. Further the Company made an incremental adjustment to the estimate of an inventory valuation allowance of approximately RUB 500 million related to the recent clarifications issued by IFRS Interpretations Committee (IFRIC). Excluding the change in allowance and one-off expenditure, Adjusted EBITDA would have amounted to a negative RUB 10.4 billion.

As a percentage of GMV Adjusted EBITDA improved quarter-on-quarter to 9.6% in Q3 2021 compared to 10.3% in Q2 2021, adjusted for the impact of the aforementioned one-off expenditure on the research and development project  and the change in an inventory valuation allowance methodology. The improvement was largely driven by better gross profit and improved sales and marketing expense as a percentage of GMV. Fulfilment and delivery costs were higher quarter-on-quarter, following aggressive expansion of the infrastructure in preparation for the high season of 4Q 2021.

In 3Q 2021 Adjusted EBITDA was a negative RUB 11.3 billion, compared to a negative RUB 1.9 billion, corresponding to an Adjusted EBITDA as a percentage of GMV of a negative 10.4% in Q3 2021, compared to a negative 4.2% in Q3 2020. Although at the aggregate level operating costs have increased year-on-year due to our investments into infrastructure, marketing, and talent acquisition, the per order basis costs improved materially year-on-year, driven by the scale effect which stems from a significant uptick in the order frequency per active user year-on-year. The higher frequency should be the key driver of further dilution of the costs on per order basis in the future. During Q3 2021, the Company also deployed dedicated investments into the new verticals such as the quick commerce and Fintech.

·       Loss for the period amounted to RUB 14,018 million in Q3 2021, compared to RUB 3,879 million in Q3 2020.

·       The Company had cash and cash equivalents of RUB 116.5 billion as of September 30, 2021, compared to RUB 122.8 billion as of June 30, 2021.

Financial Outlook

The below forward-looking statements reflect Ozon’s expectations as of November 16, 2021, considering trends year to date and could be subject to change, and involve inherent risks which we are not able to control, for example the overall impact of the coronavirus pandemic and any ongoing or new potential disruptions caused by COVID-19. The below forecasts assume no further escalation of the COVID-19 pandemic and supply chain issues impact.

Based on the recent performance and current outlook:
·       Ozon raises its growth guidance for the Company’s GMV incl. services to 120% from 110% for Full-Year 2021, compared to Full-Year 2020.

·      Ozon reiterates its capital expenditure plans of between RUB 20 billion to RUB 25 billion for the Full-Year 2021.

Summary: Key Operating and Financial Metrics
The following table summarizes certain key performance metrics for the three months and nine months ended September 30, 2021. The information for the three months and for the nine months ended September 30, 2021 and September 30, 2020 respectively, has not been audited by the Company’s auditors.


Note that Adjusted EBITDA and Free cash flow are non-IFRS financial measures. See “Presentation of Financial and Other Information” section of this press release for a definition of such non-IFRS measures, a discussion of the limitations on their use, and reconciliations of the non-IFRS measures to the applicable IFRS measures. See the definitions of metrics GMV incl. services, Gross Profit, number of orders, number of active buyers, share of Marketplace GMV in “Other Key Operating Measures” section of this press release.

Key Highlights and Business Developments


Ozon e-commerce business achieved an outstanding GMV growth of 145% year-on-year to RUB 108.3 billion, compared to RUB 44.2 billion in Q3 2020. This represents a significant acceleration from Q2 2021 growth of 94%, and an increase of 22% quarter-on-quarter. The uptick in growth was bolstered by a record order growth of 239% year-on-year in Q3 2021. The step up in order frequencies stems from a greater convenience and higher quality of service on Ozon platform, reflected in improved NPS scores. The enhancements were achieved through a major expansion of the fulfillment and logistics services, which enabled Ozon e-commerce business to expedite delivery time and boost selection and availability of merchandise, especially in the regions. The value-added services provided to Ozon customers by the new verticals further bolstered user engagement.

Ozon Marketplace


In Q3 2021 Gross Merchandise Value of Ozon Marketplace increased by 217% year-on-year, with Marketplace (3P) as a percentage of GMV reaching 66.7%, compared to 51.4% in Q3 2020. The Marketplace growth has been boosted by an accelerated growth in the number of merchants on Ozon platform contributing to a greater choice for consumers. Wider assortment and better service coupled with strategic marketing investments enabled Ozon to grow its customer base by c. 80% year-on-year for the last seven consecutive quarters, with growth picking up to 87% in Q3 2021.

Sellers
The number of sellers grew 3.6x year-on-year and reached more than 60 thousand, as more large, small and medium size businesses leverage Ozon’s multi-million consumer audience and capabilities in terms of wide range of services, including fulfillment and logistics, various market analytics, video streaming, advertising tools, and financial services. One of the key differentiating factors for Ozon’s platform is the variety of marketplace models on offer (FBO, FBS, Storefront). The ability to customize the fulfillment and delivery solutions enables Ozon to cater for individual businesses’ needs and more sellers to use the platform.
Ozon Marketplace continues to operate with the new commission structure introduced in February 2021. The new structure offers distinct incentives to the sellers to utilize the regional fulfillment infrastructure, to engage with the platform more frequently and to drive higher turnover.

Launch of self-employed entrepreneurs’ sales

From October 2021 Ozon enabled sole proprietors, also referred to as self-employed entrepreneurs, to sell a wide range of goods that they produce on its platform. There is an estimated 2.7 million self-employed individuals in Russia. This initiative will further expand the assortment for Ozon customers who will be able to purchase unique handmade goods.

Ozon cross-border operations
Ozon cross-border business continues to gain scale. More than 3,000 cross-border sellers from 26 countries, including markets such as China, as well as South-East Asia and Europe already operate on Ozon platform and contribute over 6 million SKUs to Ozon’s assortment as of September 30, 2021.

Assortment
As a result of Ozon’s seller base nearly quadrupling in the last twelve months and improved content creation processes, the assortment on Ozon platform reached approximately 46 million SKUs, up from 9 million as of September 30, 2020.

Buyers
·       Number of active customers on Ozon’s platform increased by 87% year-on-year, reaching 21.3 million as of September 30, 2021, compared to 11.4 million as of September 30, 2020. The acceleration in the buyer base resulted from the customer acquisition through a strategic year-on-year step-up in marketing spend, coupled with organic growth as Ozon became the go-to shopping platform for consumers in Moscow and in the regions.

·       Annual order frequency of Ozon’s buyers increased significantly, up by 50% to 7.5 in Q3 2021, compared to 5.0 in Q3 2020. Over the past two years, order frequency doubled, as a result of higher repurchase rate across cohorts. Such uptick in the frequency is a testimony to our progress towards a high-frequency shopping model.

Ozon Fulfillment & Logistics
Fulfillment and logistics network expansion is a key prerequisite to fuel growth of Ozon’s e-commerce business.

·       Ozon expanded its total warehouse capacity by over 150% year-on-year. Our total warehouse space exceeded 770,000 sqm as of September 30, 2021 including over 420,000 sqm of fulfillment footprint. The new fulfillment facilities typically require several months to prepare for the large shipping volumes during the high season and to reach its steady state utilization level, therefore the cost pressure in Q3 2021 mounted.

·       Ozon currently operates fulfillment centers across Moscow, Moscow region, Tver, Saint-Petersburg, Kazan, Rostov-on-Don, Yekaterinburg, Novosibirsk, and Khabarovsk, enabling Ozon to increase speed of delivery, enrich assortment and availability of stock across Russia.

·       Rapid expansion of the Ozon logistics infrastructure makes Ozon one of the leading last mile network operators and logistics companies in Russia. Moreover, transformation of the last mile operations in the last 18 months has been pivotal to accelerating growth of Ozon’s e-commerce and also its quick commerce operations.

·       In the last twelve months Ozon nearly doubled the number of pick-up locations and more than quadrupled its sorting center capacity. This allowed Ozon to bring the goods closer to the consumer and improve speed and accuracy of the delivery time. In Q3 2021 the Ozon logistics business was able to process and deliver parcels with 98% on time delivery.

Significant expansion of the logistics network resulted in the temporary cost pressure during this year and in Q3 specifically as the new locations scale up over a course of several months after the launch. Excluding this effect, Ozon achieved a significant improvement in the unit economics of the offline pick-up points due to a strong volume growth and an introduction of the Ozon’s operations optimization and efficiency gains.

Third Party Logistics Services

·       Earlier this year Ozon began to offer its logistics services to third parties. Provision of services to third parties creates a new incremental profitable revenue source, improves utilization and enables faster ramp up for Ozon’s logistics infrastructure. In Q3 2021 the Company continued to expand its third-party logistics operations, with over 1,000 clients, including large international brands such as IKEA and Decathlon, already leveraging Ozon’s nation-wide network to deliver over 10,000 orders per day with good growth dynamics and best-in-class service quality and speed.

Ozon New Initiatives & Verticals

Ozon Financial Services

Ozon Fintech continued to demonstrate extensive growth in TPV driven by higher penetration among the existing customers as well as the new clients. In Q3 2021 Ozon Fintech completed the rebranding of Oney Bank LLC acquired in Q2 2021 into “Ozon Bank”. Ozon Bank will mostly focus on providing infrastructure and payment solutions deeply integrated with the core e-commerce platform. This should result in the seamless purchases for the buyers and efficient financial service operations for sellers on Ozon’s platform, which in turn boosts loyalty to Ozon’s platform and promotes Ozon’s financial solutions brand amongst B2B and B2C financial services providers outside of the platform.

B2C Initiatives
·       Ozon Card further strengthened its position among the top-3 payment methods on Ozon’s platform in Q3 2021 with c.1.6 million cards issued as of September 30, 2021. Ozon Card continued to drive consumer loyalty, reflected in the Ozon cardholders’ 1.6x higher order frequency over the last 12 months compared to the customers using other payment methods.

·       In September 2021 we piloted the combined Ozon Card and Ozon Premium loyalty points offering additional benefits and improving UX to the clients using both products. The initiative was successfully rolled out in October 2021 and we observe promising results so far.

B2B Initiatives
·       In Q3 2021 c.5 thousand sellers used Ozon’s Flexible Payment Plan, up 109% quarter-on-quarter. This product also allows Ozon’s sellers to arrange a payment schedule that fits their individual business needs. We see greater willingness to invest more into business growth by the SMEs utilizing this instrument for better working capital management.

·       In Q3 2021 Ozon Credit, the microcredit company founded in May 2021, started providing loans to the sellers operating on our platform. Ozon Credit leverages more than 40 different indicators, processed by machine learning, aiding Ozon with faster and more accurate credit scoring. Ozon Credit will enable to structure various lending products in accordance with the desired specifications of its customer base and merchants.

Ozon Express
Ozon Express is the Company’s quick commerce business, which offers one-hour delivery for over 20,000 SKUs including food and non-food assortment, such as FMCG, children’s goods and electronics. Ozon Express launched its initial pilot in Moscow in 2020 and rapidly proved its potential as we saw strong demand for our quick commerce solution among our customers. Following our success in Moscow, Ozon launched Express operations in St. Petersburg in Q2 2021.

·       In Q3 2021 Ozon Express started to scale its operations outside of Moscow and St. Petersburg by opening its first dark stores in Tver, Krasnodar and Rostov-on-Don, with the goal of unlocking the access to one-hour delivery service for over 20 million consumers.

·       As of September 30, 2021 Ozon Express launched  a multitude of FMCG products, such as coffee, snacks and other foods under its own private label, along with Ozon’s own ready-to-eat meals production.

Ozon Technology

In July 2021 Ozon launched an IT robotics laboratory in Innopolis, Kazan. The laboratory will focus on developing robotics and automation of fulfillment and logistics solutions. Introduction of robotics technologies should drive reduction in costs per order over time, as well as increase the productivity of the supply chain. Ozon launched a competition for the development of e-commerce robotization solutions “Ozon RoboFactory”, and aims to award top five authors with grants to further develop and implement their ideas with Ozon.

Ozon International Operations


CIS Expansion

Ozon continues its international expansion, that allows to further expand the total addressable market and grasping the opportunity in underpenetrated e-commerce markets. Ozon is on track to scale its operations in Belarus and opened its first sorting center in Minsk.  Ozon sales in Belarus have grown by approximately 10 times since the beginning of the year, whilst sales of sellers from Belarus on Ozon’s platform increased 5 times since March 2021. During Q3 2021 Ozon partnered with national post operator, which enabled buyers to pick orders in one of 3,000 offline pick-up locations across the country. In order to further enhance Belarus’ buyers shopping experience, Ozon launched its pick-up points franchising solution. 
In Q3 2021 Ozon entered Kazakhstan market with sorting centers in Nur-Sultan and Almaty. With over 19 million population, similar consumer profile and underpenetrated e-commerce market set to grow at 41% CAGR through to 2025 to US Dollar 12.2 billion, Kazakhstan offers an attractive opportunity for Ozon to offer its wide multi-category goods to the customers and suite of Ozon services to the local sellers.

Ozon Charity Program


In September 2021 Ozon launched its own charity program, Ozon Care. The Program enables sellers and buyers on our marketplace to make charitable contributions to reliable non-profit organisations.

The charities will be able to receive funds from the sales of charity gift cards, products with the Ozon Care label, sale of products by the charities themselves. The charitable foundations will gain access to millions of users, who will be able to combine charitable giving with shopping online. Charities will periodically share information on their social networks about the recipients of charitable assistance and how they were able to help them.

The Program includes the following six charities: Vera Hospice Charity Fund, Anton’s Right Here, the Leukaemia Foundation, the RAY foundation for homeless animals, the Upwards centre for equal opportunities and Movement Up foundation for children and adolescents. More information about Ozon Care charity program participants can be found on our website https://corp.ozon.com.

Elena Chernina, Ozon’s head of social projects, commented: “As part of our charity program, we decided to include a variety of social issues – from providing support for adult patients to helping animals. Like the Ozon marketplace, the Ozon Care program will function as a platform that brings together customers, sellers and non-profit organizations. Ozon customers can choose for themselves which charity to support, and sellers can make deductions from sales to verified charities.”

COVID-19 Impact


The number of new COVID-19 cases in Russia started to grow in September 2021 and reached a new record high in October. To prevent the spread of infection, the Russian Government introduced some restrictions, including limitations on the movement of citizens, on commercial activities and measures to stimulate vaccination of population. To provide the employees with the safe working conditions and to meet the government requirements, Ozon introduced the following measures:

·       Regular body temperature checks of the workers (telemetry), with the temporary suspension from work of those whose temperature is elevated.

·       Ensuring the availability and use of protective equipment - masks and gloves, disinfectants, bactericidal air recirculation systems.

·       Separation of workers’ flow, adherence to social distancing requirements.

·       Conducting testing of the employees using the PCR tests.

Measures to counter the spread of coronavirus also include remote working requirement for more than 30% of the office staff. Moreover, Ozon regularly arranges free vaccination with Sputnik V and Sputnik Light for its employees. Employees are alerted about the health and safety requirements associated with the coronavirus infection through the video campaigns, the audio messages, and the other materials as well as the webinars with doctors.

Contacts

Investor Relations
Maryia Berasneva-McNamara, Head of Investor Relations, OZON
ir@ozon.ru

Press Office
Maria Zaikina, Director of Public & Industry Relations, OZON
pr@ozon.ru
________________________________________________________________________

Disclaimer

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that reflect the current views of Ozon Holdings PLC (“we”, “our” or “us”, or the “Company”) about future events and financial performance. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements.

These forward-looking statements are based on management’s current expectations. However, it is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. These statements are neither promises nor guarantees but involve known and unknown risks, uncertainties and other important factors and circumstances that may cause Ozon’s actual results, performance or achievements to be materially different from its expectations expressed or implied by the forward-looking statements, including conditions in the U.S. capital markets, negative global economic conditions, potential negative developments in the COVID-19 pandemic, other negative developments in Ozon’s business or unfavorable legislative or regulatory developments. We caution you therefore against relying on these forward-looking statements, and we qualify all of our forward-looking statements by these cautionary statements.

These and other important factors could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release. Any such forward-looking statements represent management’s estimates as of the date of this press release. While Ozon may elect to update such forward-looking statements at some point in the future, Ozon disclaims any obligation to do so, even if subsequent events cause its views to change. These forward-looking statements should not be relied upon as representing Ozon’s views as of any date subsequent to the date of this press release.

This press release includes certain non-IFRS financial measures not presented in accordance with IFRS, including but not limited to Contribution Profit/(Loss), Adjusted EBITDA and Free Cash Flow. These financial measures are not measures of financial performance in accordance with IFRS and may exclude items that are significant in understanding and assessing our financial results. Therefore, these measures should not be considered in isolation or as an alternative to loss for the period or other measures of profitability, liquidity or performance under IFRS. You should be aware that the Company’s presentation of these measures may not be comparable to similarly titled measures used by other companies, which may be defined and calculated differently. See “Presentation of Financial and Other Information” in this press release for a reconciliation of certain of these non-IFRS measures to the most directly comparable IFRS measure.

This press release includes quarterly information for the three months and nine months ended September 30, 2021 and the three months and nine months ended September 30, 2020. This information has not been audited or reviewed by the Company’s auditors.

The trademarks included herein are the property of the owners thereof and are used for reference purposes only. Such use should not be construed as an endorsement of the products or services of the Company.


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