Euroopt reported on income, debt and advertising costs in 2017

In 2017, the revenue of the Eurotorg group of companies (the key asset is 500 Euroopt and Brusnichka stores) increased by 8.1% compared to 2016 and reached 3.93 billion rubles (or in dollars by 11.3% , to $2.04 billion). This follows from the message of Eurotorg, which presents the consolidated results of the company's work in accordance with international financial reporting standards (IFRS).

The company's net retail sales increased by 5.7% to 3.6 billion rubles ($1.86 billion), mainly due to the opening of new stores.

Solid gross margin growth of 2.7 p.p. from 23.3% in 2016 to 26% in 2017 was due to the acceleration of settlements with suppliers (which made it possible to obtain more favorable purchasing conditions) and an increase in the share of high-margin goods in sales, the report notes.

Thanks to a 54.5% increase in operating profit and a 28.5% reduction in net finance costs, Eurotorg's net profit in 2017 amounted to 102.5 million rubles ($53.1 million) compared to a net loss of 42.7 million rubles a year earlier.

At the same time, net profit margin in 2017 amounted to 2.6% of revenue, and in 2016 - minus 1.2% of revenue.

— In 2016-2017, the average profitability of Eurotorg was about 0.8% both under IFRS and national accounting standards. This level of profitability corresponds to the realities of the food retail business in Belarus, while abroad, companies tend to have much higher profitability: in particular, the average net profit margin for 2016-2017 the leaders of the Russian market: the Magnit company - 4.1%, the Lenta company - 3.6%, and the leaders of the Polish market - more than 4% over the same period, - Andrey Zubkov, CEO of Eurotorg, commented on the data.

Eurotorg's administrative and selling expenses (excluding depreciation) as a percentage of revenue increased by 0.4 p.p. to 16.5% mainly due to an increase in marketing and advertising expenses (by 0.5 p.p. to 1% of revenue, i.e. up to 36.7 million rubles) against the backdrop of an aggressive marketing strategy. Growth in marketing and advertising spending was fully offset by a significant increase in revenue from marketing services provided to suppliers, the report said.

In 2017, Eurotorg significantly strengthened its financial position mainly due to the successful placement of Eurobonds in the amount of usd 350 million in October. This made it possible to optimize the repayment schedule, reduce the cost of borrowings (the average interest rate decreased by 1.1 percentage points as of December 31, 2017) and increase the share of unsecured financing (from 20% to 56%). In addition, Eurotorg increased the share of debt denominated in Belarusian rubles in the structure of the debt portfolio by 16.3 percentage points. from 2.1% to 18.4%.

Based on the results of refinancing debt maturing in 2018-2020. the debt structure in the context of short-term/long-term debt improved significantly, while the share of short-term loans decreased from 41.5% to 2.3% of the total debt in the amount of 1.366 billion rubles.

EBITDA showed a significant growth of 44.4% and reached RUB 371.7 million, while the EBITDA margin increased to 9.5% (against 7.1% in 2016), mainly due to the growth of the gross margin.

The net debt/EBITDA ratio improved significantly and stood at 3.2x as of December 31, 2017 compared to 4.7x a year earlier. The EBITDA/interest coverage ratio reached 2.7x vs. 1.9x at the end of 2016.

Meeting these targets made it possible to pay dividends in the amount of $10 million (19.3 million rubles).

“All these factors, combined with the expected positive growth outlook for the Belarusian economy, the acceleration of real wage growth and the fundamentals of the Belarusian food retail market, create a solid basis for the successful further implementation of our strategy. We plan to continue pursuing a low capex growth strategy with a focus on opening small format stores in leased space. In addition, the company is exploring all strategic options, including entering the capital markets in the near future, including the possibility of an IPO, depending on market conditions,” said Andrey Zubkov.