Eurotorg reports strong 2018 results as Belarusian retail grows

Eurotorg reports strong 2018 results as Belarusian retail grows
Belarusian supermarket chain Eurotorg boosted revenue by 15.3% y/y to BYN4.5bn ($2.1bn) in 2018.
By bne IntelliNews April 30, 2019

The leading supermarket chain in Belarus Eurotorg (aka Euroopt) reported strong 2018 results that will bolster its chance of getting a mooted IPO away this year after postponing an attempt last year.

As bne IntelliNews reported with “The long march of Belarusian retail” in September 2018, Belarusian retail has come of age as a middle class appears and that has fed the rapid growth of Eurotorg.

Eurotorg CEO Andrei Zubkou, commenting on the company’s results, said: “2018 was a year of successful growth for Eurotorg. We set a new record for store openings, with 362 net new stores during the period, and continued to focus primarily on developing smaller-format stores in leased premises, in line with our capex-light expansion strategy."

The company’s revenue was up by 15.3% y/y and reached BYN4.5bn ($2.1bn), while revenue in dollar terms was up 9.4% y/y and net retail sales were up 8.6% in dollar terms and equal to $2bn.

The increase in revenues was largely driven by the new store openings and supported by moderate like-for-like (LFL) sales growth, the company said. Retail sales growth was also driven by the consolidation of Eurotorg’s e-commerce operations and pharmacy chain Magia in June 2018.

“The business also diversified during the year, with the consolidation from June of our drogerie chain, Magia, which had reached 100 stores by the end of 2018, as well as our e-commerce operations, and On a combined basis, two online grocery services generated 3.6mn orders in 2018, putting Eurotorg among the leading companies on this indicator not only in Belarus, but also in Eastern Europe. We achieved the significant landmark of 5% of total retail sales from e-commerce during the fourth quarter, and we expect e-commerce to continue growing rapidly for many years to come,” Zubkou said.

The gross margin remained strong at 26.2%, up 0.2 pp y/y, driven by growing share in total sales of high-margin categories, such as private label and non-food products, the company reports.

“In terms of Eurotorg’s financial results, revenue increased by 15.3% to BYN 4.5 billion. The gross margin remained strong at above 26%. Despite the rapid expansion of our store roll-out programme and new businesses put some pressure on the Ebitda margin, we were able nonetheless to maintain positive Ebitda dynamics during 2018 as a whole,” Zubkou said.

Selling, general and administrative expenses (SG&A) (excluding D&A) increased as a share of revenue by 1.3 pp to 17.8%, driven by growth in employee costs and rental costs on the back of accelerated expansion of the core retail business and consolidation of new businesses, as well as one-off costs related to the сompany’s IPO preparations.

Adjusted Ebitda grew by 7.1% y/y to BYN398mn ($195mn). Adjusted Ebitda margin decreased slightly, by 0.7 pp to 8.8%, due to higher SG&A on the back of an acceleration in the company’s store roll-out programme and acquisition of new businesses.

The net profit margin decreased by 1.1 pp mainly due to higher FX losses (the BYN weakened against the $by 9.5% y/y) and lower Ebitda margin. Adjusted for FX losses, the net profit margin increased by 0.1 pp to 3.0%.

Net working capital as percentage of revenue increased from -3.4% in 2017 to -5.2% in 2018 due to growing purchasing power.

Capital expenditures remained low at 2% of revenue despite accelerated expansion.

The company has also made inroads into reducing its debt.

“Successful deleveraging measures, supported by solid positive free cash flow, helped to reduce the Company’s net debt significantly during the year and improve the net debt/Ebitda ratio to 2.75x at the end of 2018, compared to 3.2x at the end of 2017. The Ebitda/interest expenses coverage ratio also improved to 3.0x at the end of 2018, compared to 2.7x at the end of 2017,” the company said.

Zubkou said: “We also made significant progress towards our strategic goal of reducing overall leverage and reducing the share of foreign-currency debt in the overall portfolio. During 2018 we reduced our net debt in dollars by more than 17%. The share of BYN-denominated debt more than doubled during the year, and accounted for 37% of the total as of 31 December 2018. Our efforts to optimise leverage were recognised during the year with positive actions from two international ratings agencies, S&P and Fitch Ratings. In 2019 we will continue to seek out opportunities to reduce indebtedness and further optimise our debt portfolio.”

In 2018 the sompany opened 362 net stores, bringing the total number to 862 as of December 31, 2018.

In the grocery segment the key focus remained on developing smaller formats: the average selling space of 262 grocery stores opened in 2018 was 138 sqm. Almost all of the newly added stores (248 out of 262) were opened in leased premises, in line with the company’s strategy of asset-light expansion.

The company launched the Magia pharmacy business in January 2018 and opened 100 stores with combined selling space of 17,000 sqm by the end of 2018. All of the Magia stores were opened either in leased premises or at existing retail space already owned by the company (e.g. in company-owned hypermarkets).

In 2018 the company further expanded its regional presence, entering 154 new localities across Belarus and focusing on mid-sized and small cities with a population of less than 50,000 (297 localities were covered as of December 31 2018).

Like-for-like (LFL) sales grew by 2.8% in 2018, driven by solid growth in the LFL average ticket of 5.6%, above food inflation (4.0% y/y), and partially offset by negative LFL traffic of -2.6%. Some of the decrease in LFL traffic was due to cannibalisation on the back of accelerated expansion, as well as due to the conversion of soft discounter stores under the Brusnichka banner back into Euroopt stores.

E-commerce, represented by two online grocery services ( and, was the group’s fastest growing segment during 2018, with the number of online orders increasing by 18.6% y/y to 3.6mn orders in 2018. Online grocery retail accounted for 5% of total net retail sales during 4Q18.

Zubkou said: “Looking forward, the macro environment in Belarus remains stable, with incomes continuing to increase. We expect the positive trends to continue to be supportive for the further growth of the retail segment and Eutorog’s business in particular, as the country’s dominant modern retail format player.”