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3Q 2018 and 9M 2018 operating results

Released 08:00 18-Oct-2018

RNS Number : 4065E
Eurotorg Holding PLC
18 October 2018
 

 

 

 

EUROTORG ANNOUNCES 3Q 2018 AND 9M 2018 OPERATING RESULTS

 

18 October 2018

 

Eurotorg Holding Plc. ("Eurotorg" or the "Company"), the largest food retailer in Belarus, announces its unaudited operating results for the three months (3Q 2018) and nine months ended 30 September 2018 (9M 2018).

 

To optimise the Company's shareholding structure, and to consolidate offline grocery, e-commerce and drogerie businesses under a single common holding company, the Company's shareholders completed a reorganisation of the Company on 28 June 2018. Following the completion of this reorganisation, this and future financial and operating results disclosures by the Company will consolidate the above-mentioned business lines1.

 

The Company's online business comprises two e-commerce projects: E-dostavka.by and Gipermall.by.
E-dostavka was launched in 2014 and is the leading online grocery service in Belarus. It has a traditional hypermarket product range (excluding alcohol and tobacco) focused on high-quality service, such as fast
same-day deliveries, order accuracy and quality of goods. E-dostavka's main service areas are Minsk and other large cities. Gipermall.by is a nationwide online hypermarket, which was launched in 2016. It offers a wide range of dry food, soft drinks and non-food goods and can deliver anywhere in the country through its own courier service or the national postal service.

 

Magia is a chain of drogerie stores launched in January 2018, focusing on non-food items such as detergents and cleaning goods, beauty and perfume, personal care and household goods. As of 30 September 2018, 67 Magia stores with total selling space of 13.4 thousand square metres ("ths sqm") were in operation, predominantly in rented premises adjacent to existing Euroopt and Brusnichka grocery stores, thereby leveraging the strength of the existing brand and access to customers.

 

Operating highlights for 3Q 2018 and 9M 2018

§ In 3Q 2018 net retail sales2 increased by 19.2% year-on-year ("y-o-y") to BYN 1,050 mn (net retail sales in USD terms3 increased by 13.3% y-o-y to USD 513 mn). In 9M 2018 net retail sales increased by 14.0% y-o-y to BYN 2,986 mn (net retail sales in USD terms increased by 8.6% y-o-y to USD 1,487 mn).

§ In 3Q 2018 net retail sales4 from Eurotorg's offline grocery business increased by 13.3% y-o-y to BYN 998 mn (net retail sales in USD terms increased by 7.7% y-o-y to USD 488 mn). In 9M 2018 net retail sales from Eurotorg's offline grocery business increased by 12.0% y-o-y to BYN 2,935 mn (net retail sales in USD terms increased by 6.7% y-o-y to USD 1,462 mn).

§ As of 30 September 2018, the Company operated 677 grocery stores with total selling space of 306.0 ths sqm.

§ In 3Q 2018 Eurotorg added 50 net new grocery stores with 5.7 ths sqm of selling space. Since the beginning of 2018 the Company has added 177 net new grocery stores with 27.5 ths sqm of selling space.

§ In 3Q 2018 the Company further expanded its regional presence, entering 26 new localities across Belarus (251 localities covered as of 30 September 2018). Since the beginning of 2018, Eurotorg has entered 108 new localities across Belarus.

§ Like-for-like ("LFL") sales grew by 3.3% in 3Q 2018, driven by solid growth in the LFL average ticket of 6.6%, significantly above the food inflation (3.9%), and partially offset by negative LFL traffic of -3.0%. Some redistribution of LFL traffic in favour of an increase in the LFL average ticket in 3Q 2018 was due to the activation of marketing campaigns aimed at encouraging consumers to spend more per visit. In 3Q 2018, marketing activities ran for a total of 63 days compared to only six days in 3Q 2017.

 

§ Strong LFL sales growth of 5.0% in 9M 2018 was driven primarily by growth of the LFL average ticket (5.8%), and partly offset by a slight decrease in LFL traffic (-0.8%).

§ As of 30 September 2018, the Company operated 67 drogerie stores under the Magia banner with total selling space of 13.4 ths sqm. In 3Q 2018 net retail sales of the drogerie business reached BYN 8 mn (USD 3.9 mn).

§ On a combined basis, the Company's two online grocery services (E-dostavka.by and Gipermall.by) generated 0.9 mn orders and revenue of BYN 43.4 mn (USD 21.2 mn) in 3Q 2018. Revenue growth from the e-commerce businesses accelerated to 29.5% y-o-y in 3Q 2018, compared to 17.8% y-o-y in 1H 2018. Online grocery retail accounted for 4.1% of total net retail sales during the quarter.

 

Strategic highlights for 3Q 2018

§ Eurotorg accelerated its growth, with a 13.3% y-o-y increase in net retail sales from the Company's offline grocery business and a 19.2% y-o-y increase in total retail sales, which included the effect from the consolidation of the drogerie and e-commerce businesses.

§ The Company focused on the active expansion and transformation of its "E-plus" loyalty programme into a full-scale coalition loyalty program offering cardholders discounts at more than 1,400 stores, restaurants, beauty salons, health care centres, etc. operated by more than 70 partners. The Company intends to continue to expand the range of programme partners, which will further strengthen Eurotorg's unique customer proposition and increase the value of the "E-plus" loyalty card.

§ The Company took the next step towards its strategic goal of launching a marketplace model by giving third-party sellers access to Eurotorg's existing fulfilment and delivery infrastructure. The service has generated strong demand, particularly from smaller online stores that benefit from the ability to leverage Eurotorg's nationwide geographical reach and high-quality delivery services. Eurotorg will continue to develop its infrastructure, including the addition of pick-up points at Euroopt and Brusnichka stores and further integration into the broader omnichannel business model.

§ After the end of the reporting period, on 11 October 2018, Eurotorg confirmed its intention to float on the London Stock Exchange. The offering is expected to raise approximately USD 200 mn in primary proceeds to the Company. The Company intends to use the net proceeds to partially repay the foreign-currency debt, in line with its strategic objective of reducing its foreign-currency debt exposure. The total offering size is expected to be more than USD 300 mn.

§ In connection with its intended IPO on the London Stock Exchange, the Company significantly strengthened its corporate governance with the expected appointments to the Board of Directors of three Independent Non-Executive Directors with strong expertise in consumer sector and global digital and tech businesses: Piotr Nowjalis (member of the Board of Directors of CCC SA, Dino Polska SA, Synektik SA and Novaturas AB), Yulia Solovyeva (Director Business Operations EMEA Emerging Markets at Google Russia and an Independent Non-Executive Director of Lenta Ltd.) and Nick Katselapov (co-founder and Chief Business Development Officer of Wargaming Group).

§ Following the announcement of the IPO, S&P Global Ratings placed Eurotorg's 'B-' long-term credit ratings on CreditWatch with positive implications, indicating that the agency could raise the ratings by one notch in the event of a successful IPO and planned debt reduction. The agency cited "a more stable macroeconomic environment in Belarus than two to three years ago and also […] consistent execution of Eurotorg's strategy to extend its leading position in Belarus' food retailing market." S&P affirmed Eurotorg's short-term credit ratings at 'B'.

 

Eurotorg CEO Andrei Zubkou said: "The third quarter of 2018 was another period of strong operational growth for Eurotorg. During the quarter we completed the consolidation of our e-commerce and drogerie businesses, which helped drive net retail sales growth of 19.2%. Growth at our core grocery business accelerated, with net grocery retail sales increasing by 13.3% year-on-year during the third quarter, compared to an 11.4% year-on-year increase in 1H 2018. We also continued to pursue our asset-light expansion strategy to progress our store roll-out programme, targeting rural and smaller locations across Belarus. Since the beginning of the year, we have brought modern retail formats to more than 100 previously underserved communities across the country.

 

"Shortly after the end of the third quarter, we announced our intention to list on the London Stock Exchange - a landmark for Eurotorg and also for Belarusian corporates. As part of our preparations for the IPO and in line with our commitment to best international standards of corporate governance, we were also pleased to announce the expected appointments of three Independent Non-Executive Directors to the Board upon completion of the transaction. We look forward to working closely with them to realise Eurotorg's full potential as Belarus's first ever internationally listed company, as we seek to create value for all our stakeholders. In particular, the experience of these three high-calibre individuals in the retail, tech and digital industries will be invaluable for the Company as we continue to grow our market-leading profitable e-commerce operations."

 

Selling space and stores

 

 

 

3Q 2018

3Q 2017

Change

9M 2018

9M 2017

Change

 

 

 

 

 

 

 

 

Total number of stores,

end of period ("e-o-p")

744

466

59.7%

744

466

59.7%

Number of grocery stores,

e-o-p

677

466

45.3%

677

466

45.3%

 

Rural сonvenience
(E-minimarket)

106

6

 

106

6

 

 

Urban сonvenience
(E-market and Brusnichka)

444

346

 

444

346

 

 

Supermarket
(E-Super)

89

76

 

89

76

 

 

Hypermarket
(E-Hyper)

38

38

 

38

38

 

Number of drogerie stores, e-o-p

67

-

n.a.

67

-

n.a.

 

 

 

 

 

 

 

 

Total stores openings, net

79

6

13.2x

244

13

18.8x

Grocery store openings, net

50

6

8.3x

177

13

13.6x

Drogerie store openings, net

29

-

n.a.

67

-

n.a.

 

 

 

 

 

 

 

 

Total selling space,

ths sqm, e-o-p

319.3

270.5

18.1%

319.3

270.5

18.1%

Selling space of grocery stores, ths sqm, e-o-p

306.0

270.5

13.1%

306.0

270.5

13.1%

 

Rural сonvenience
(E-minimarket)

6.9

0.7

 

6.9

0.7

 

 

Urban сonvenience
(E-market and Brusnichka)

107.1

90.7

 

107.1

90.7

 

 

Supermarket
(E-Super)

79.7

70.2

 

79.7

70.2

 

 

Hypermarket
(E-Hyper)

112.2

108.9

 

112.2

108.9

 

Selling space of drogerie stores, ths sqm, e-o-p

13.4

-

n.a.

13.4

-

n.a.

 

 

 

 

 

 

 

 

Total selling space added, net, ths sqm

13.1

-2.6

n.a.

40.8

-0.2

n.a.

Selling space of grocery stores added, net, ths sqm

5.7

-2.65

n.a.

27.5

-0.25

n.a.

Selling space of drogerie stores added, net, ths sqm

7.5

-

n.a.

13.4

-

n.a.

                 

 

Key factors affecting development of the retail businesses in 3Q 2018

§ In 3Q 2018 Eurotorg added 50 net new grocery stores, compared to six grocery stores added in 3Q 2017. The Company also added 29 net new drogerie stores.

§ Eurotorg continued to focus primarily on smaller formats during the period, with all of the grocery stores added being convenience format stores in urban and rural areas.

§ The Company continued to pursue its strategy of capex-light expansion, with 89% of selling space at grocery stores opened in 3Q 2018 being in leased premises. All of the newly added Magia drogerie stores were opened either on leased premises or at existing retail facilities already owned by the Company.

 

Retail sales

 

 

3Q 2018

3Q 2017

Change

9M 2018

9M 2017

Change

 

 

 

 

 

 

 

 

Total retail sales, net, ths BYN

1,049,692

880,728

19.2%

2,986,111

2,619,217

14.0%

Grocery retail sales, net, ths BYN

998,274

880,728

13.3%

2,934,693

2,619,217

12.0%

 

Rural сonvenience
(E-minimarket)

18,943

1,830

 

35,427

4,599

 

 

Urban сonvenience
(E-market and Brusnichka)

430,325

353,133

 

1,298,513

1,045,177

 

 

Supermarket
(E-Super)

239,014

208,383

 

668,023

618,744

 

 

Hypermarket
(E-Hyper)

309,993

317,383

 

932,730

950,697

 

Drogerie retail sales6,

net, ths BYN

8,013

-

n.a.

8,013

-

n.a.

E-commerce sales6, net, ths BYN

43,405

-

n.a.

43,405

-

n.a.

 

 

 

 

 

 

 

 

Total retail sales, net, ths USD

512,971

452,863

13.3%

1,486,846

1,369,382

8.6%

Grocery retail sales, net, ths USD

487,843

452,863

7.7%

1,461,719

1,369,382

6.7%

 

Rural сonvenience
(E-minimarket)

9,257

941

 

17,645

2,404

 

 

Urban сonvenience
(E-market and Brusnichka)

210,294

181,578

 

646,766

546,440

 

 

Supermarket
(E-Super)

116,803

107,149

 

332,731

323,493

 

 

Hypermarket
(E-Hyper)

151,489

163,195

 

464,577

497,044

 

Drogerie retail sales, net, ths USD

3,916

-

n.a.

3,916

-

n.a.

Ecommerce sales, net, ths USD

21,211

-

n.a.

21,211

-

n.a.

                   

 

Sales and traffic density of grocery stores

 

3Q 2018

3Q 2017

Change

9M 2018

9M 2017

Change

 

 

 

 

 

 

 

Sales per 1 sqm per month, net, BYN

1,098

1,080

1.6%

1,116

1,076

3.8%

Sales per 1 sqm per month, net, USD

536

555

-3.4%

556

562

-1.2%

Traffic per 1 sqm per day, tickets

3.20

3.24

-1.1%

3.23

3.20

0.7%

 

LFL performance of grocery stores7

 

3Q 2018

3Q 2017

Change

9M 2018

9M 2017

Change

 

 

 

 

 

 

 

LFL sales growth

3.3%

-1.1%

4.4 pp

5.0%

0.1%

4.9 pp

LFL traffic growth

-3.0%

-8.0%

5.0 pp

-0.8%

-9.0%

8.2 pp

LFL average ticket growth

6.6%

7.5%

-0.9 pp

5.8%

10.0%

-4.2pp

 

Key drivers of 3Q 2018 operating performance

 

§ The pace of net retail sales growth at the Company's grocery stores accelerated to 13.3% y-o-y in 3Q 2018 from 11.4% in 1Q 2018 and 11.3% in 2Q 2018, driven by both active expansion of the retail chain and LFL sales growth.

§ Positive LFL sales growth in 3Q 2018 was supported by solid growth of the LFL average ticket, partly offset by slightly weaker y-o-y LFL traffic.

§ In 3Q 2018 there was some redistribution of LFL traffic in favour of an increase in the LFL average ticket due to the activation of marketing campaigns ("Alice in Wonderland" books, "Bonsticks-5" collectible toys) aimed at increasing the average ticket per visit. In 3Q 2018, marketing activities ran for a total of 63 days ("Alice in Wonderland" during July and August, "Bonsticks-5" during August and September) compared to only six days in 3Q 2017 ("Bonsticks-3" in late September). LFL traffic in 3Q 2018 was also influenced by the higher comparison base of 2H 2017, when soft-discount stores under the Brusnichka banner were launched.

§ In 3Q 2018 growth in the LFL average ticket significantly outperformed food inflation of 3.9% by 2.7 p.p.

 

Debt

 

As of

30 Jun 2018

As of

30 Sep 2018

Change

As of

30 Jun 2018

As of

30 Sep 2018

Change

 

BYN '000

BYN '000

USD '000

USD '000

Net debt

1,146,191

1,135,549

-0.9%

576,033

537,640

-6.7%

Total debt

1,276,593

1,311,019

 

641,568

620,718

 

Cash and

cash equivalents

130,402

175,470

 

65,535

83,078

 

 

§ In 3Q 2018 the Company continued to strengthen its financial position and reduced its net debt by USD 38.4 mn.

§ The Company continued to reduce its foreign-currency debt exposure. The share of local-currency funding in the debt portfolio increased to 33% as of 30 September 2018, compared to 18% as of 31 December 2017 and 23% as of 30 June 2018.

 

For further details, please contact:

 

Investor relations

Andrei Matsiavin

Eurotorg

Chief Strategy and Investment Officer

ir@eurotorg.by

+375 44 500 65 45

Katerina Sheleg

Eurotorg

IR manager

ir@eurotorg.by

+375 44 500 94 95

 

International Media

Denis Denisov

EM

denisov@em-comms.com

+7 985 410 3544

Peter Morley

EM

morley@em-comms.com

+44 7927 186 645

 

About Eurotorg

 

Eurotorg is the largest grocery retail chain in Belarus, with a market share of 19% in food retail sales (2017). The Company's business was established in 1993 in Minsk. As of 30 September 2018, Eurotorg operated 677 grocery stores under the Euroopt and Brusnichka banners in different formats (hypermarkets, supermarkets and convenience stores).

 

The Company's strategy, based on offering a focused assortment of high turnover products at market-leading prices, delivers a value proposition that is well-tuned to the needs of Belarusian consumers. Every day approximately 970,000 customers make purchases at Eurotorg stores across 251 localities in Belarus.

 

Eurotorg's store-based retail operations are complemented by its market-leading online grocery retail offering, represented by two services, E-dostavka.by and Gipermall.by. In 2018, the Company launched a chain of drogerie stores under the Magia banner. As of 30 September 2018, 67 Magia stores had been opened.

 

In 2017, the Company reported revenue of BYN 3.93 bn under IFRS (USD 2.04 bn based on the average National Bank of the Republic of Belarus exchange rate for 2017). In 2017, net retail sales of the grocery stores accounted for BYN 3.57 bn (USD 1.85 bn) with the share of 91.0% in total revenue under IFRS.

 

A brief video about Eurotorg's business can be viewed here.

 

 

1 Retail sales for the drogerie and e-commerce businesses are consolidated into the Company's total retail sales from the beginning of 3Q 2018. For 2017 and 1H 2018 retail sales of these businesses were not included in the Company's total retail sales, hence no year-on-year comparables for these businesses are available.

2 Retail sales represent revenue from grocery stores operating under the Euroopt and Brusnichka banners, drogerie stores and e-commerce, net of VAT. This number differs from consolidated IFRS revenue, which also includes proceeds from wholesale, lease, and subsidiaries (StatusBank and others), and other revenue.

3 Average exchange rate for 3Q 2018: 2.0463 BYN per 1 USD; 3Q 2017: 1.9448 BYN per 1 USD. Average exchange rate for 9M 2018: 2.0077 BYN per 1 USD; 9M 2017: 1.9127 BYN per 1 USD. Exchange rate as of 30 September 2018: 2.1121 BYN per 1 USD; as of 30 June 2018: 1.9898 BYN per 1 USD.

4 Retail sales from the offline grocery business represent revenue from grocery stores operating under the Euroopt and Brusnichka banners, net of VAT.

5 In 3Q 2017 selling space of grocery stores decreased as 3.7 ths sqm of selling area at the hypermarket in Minsk (2 Montazhnikov St.) was reconstructed, which was not fully offset by newly added selling space.

6 Retail sales for the drogerie and e-commerce businesses are consolidated only from the beginning of 3Q 2018, and hence retail sales of these businesses for the quarter are the same as for 9M 2018.

7 As of 30 September 2018, the LFL base included 459 grocery stores.


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3Q 2018 and 9M 2018 operating results - RNS