EUROTORG (FOOD RETAILER IN BELARUS) ANNOUNCES FY 2017 OPERATING RESULTS1

 

 

theretailchain by Retailtrend.it – Eurotorg , the largest food retailer in Belarus, today announces preliminary operating results for the fourth quarter (“4Q”) and full year (“FY”) ended 31 December 2017.

Operating highlights for FY 2017

• Net retail sales2 increased by 5.5% year-on-year (“y-o-y”) and reached BYN 3.57 bn (net retail sales in USD terms increased by 8.6% y-o-y and amounted to USD 1.85 bn3).

• As of 31 December 2017, the Company operated 500 stores with 278.5 ths sqm of total selling space.

• In 2017 Eurotorg added 47 new stores with 7.8 ths sqm of selling space4.

• In 2017 the Company further expanded its regional presence, entering 20 new cities and towns across

Belarus (143 covered as of 31 December 2017 vs. 123 as of 31 December 2016).

• Like-for-like (“LFL”) sales showed moderate growth of 1.1% in 2017, with a 7.5% decrease in LFL traffic offset by a 9.3% increase in the LFL average ticket.

Strategic highlights

0. • In 2017 Eurotorg continued its growth strategy and increased the number of its stores to 500.

0. • In line with the Company’s mid-term strategy of developing smaller format stores using leased space, the average selling space of stores opened by the Company in FY 2017 was 231 sqm, 92% of which were in leased premises.

0. • In August 2017 Eurotorg introduced the soft discounter segment to Belarus with the launch of a new store format under the Brusnichka brand. This new format is best tailored to customers’ current needs and will strengthen the Company’s existing “limited assortment” model with a long-term view to maintaining its position as the market leader. Brusnichka differs from core Euroopt formats by its more aggressive price positioning, characterised by a limited range of high-turnover products in the low and medium price segments, a lack of price promotions, and strong price-leadership communication. The new Brusnichka format will also maintain a lower number of SKUs (3.0 ths in Brusnichka vs. 7.0 ths in E+), with target store size of 300-350 sqm.

0. • Between August 2017 and December 2017, 125 stores previously operating under Euroopt brand (E-mini,

E+ and E++ banners) were rebranded as Brusnichka (91.2% of all Brusnichka stores), and 12 stores were opened in new locations. Store rebranding takes 2-3 days on average, with changes in a banner, look-and-feel, layout, product range and pricing, but no significant refurbishment.

0. • Based on preliminary results, the launch of Brusnichka has had a positive impact on Eurotorg’s overall performance: in 4Q 2017 sales and traffic density at Brusnichka stores exceeded the Company’s average by approximately 1.8x and 2.2x, respectively. In addition, rebranded Brusnichka stores5 demonstrated strong net retail sales growth of 68.2% y-o-y in 4Q 2017.

0. Numbers in this press release are preliminary and have not been reviewed or audited by the Company’s auditor.

0. Retail sales represent revenue from stores operating under the Euroopt and Brusnichka banners, net of VAT. This number differs from consolidated IFRS revenue, which also includes proceeds from wholesale, lease, and subsidiaries (Status Bank and others), and other revenue. In 2016 net retail sales of the grocery stores represented 93% of consolidated IFRS revenue.

0. Average exchange rate for 2017: 1.9318 BYN per 1 USD; 2016: 1.9885 BYN per 1 USD. Exchange rate as of 31 December 2017: 1.9727 BYN per 1 USD; as of

31. December 2016: 1.9585 BYN per 1 USD.

4. Net new stores and net selling space added.

5. 26 Brusnichka stores opened in August-September were included in the calculation base for 4Q 2017.	1

• In 2017 the Company continued to run its one-of-a-kind nationwide lottery game “Udacha v pridachu” and launched a new “Bonsticks” marketing campaign to further strengthen customer loyalty and brand awareness. The share of purchases with loyalty cards increased by 2.6 pp y-o-y in 2017 up to 73.7% of retail sales. The share of purchases with loyalty cards increased by 2.6 pp y-o-y in 2017, to 73.7% of retail sales.

Selling space and stores, by format

	4Q 2017	4Q 2016	Change (%)	2017	2016	Change (%)
Number of stores,	500	453	10.4%	500	453	10.4%
end of period (“e-o-p”)
E-mini	155	190		155	190
E+	116	167		116	167
E++	54	58		54	58
E+++	35	35		35	35
E++++	3	3		3	3
Brusnichka	137	–		137	–
Store openings, net	34	12	1.8x	47	15	2.1x
E-mini	-35	5		-35	–
E+	-38	4		-51	7
E++	-4	1		-4	3
E+++	–	2		–	5
E++++	–	–		–	–
Brusnichka	111	–		137	–
Selling space, ths sqm, e-o-p	278.5	270.7	2.9%	278.5	270.7	2.9%
E-mini	21.6	29.2		21.6	29.2
E+	50.5	71.6		50.5	71.6
E++	53.6	57.4		53.6	57.4
E+++	92.5	92.5		92.5	92.5
E++++	16.4	20.1		16.4	20.1
Brusnichka	43.9	–		43.9	–
Selling space added, net,	8.0	9.3	-13.5%	7.8	20.1	-61.3%
ths sqm
E-mini	-6.8	0.5		-7.6	-0.4
E+	-16.1	1.7		-21.1	2.6
E++	-3.8	1.2		-3.8	3.1
E+++	–	5.9		–	14.8
E++++	–	–		-3.7	–
Brusnichka	34.7	–		43.9	–

Key factors affecting retail chain development

• Eurotorg accelerated its expansion in 2017, adding 47 new stores, primarily in 4Q 2017.

• The Company added 7.8 ths sqm of net selling space in 2017 vs. 20.1 ths sqm in 2016. However, the number of new openings tripled y-o-y due to the following factors:
• • The Company refocused on the development of smaller format stores. The average selling space of newly-opened stores was 231 sqm in 2017 vs. 800 sqm in 2016,
  • 3.7 ths sqm of selling area at E++++ hypermarket in Minsk (Montazhnikov str., 2) was refurbished for warehouse purposes in 3Q 2017.

• In August-December 2017, the Company launched 137 Brusnichka stores with total selling space of 43.9 ths sqm. 125 out of 137 stores were opened in place of existing Euroopt stores, leading to a decrease in total selling space and number of stores in the E-mini, E+ and E++ formats in 2017.

Sales performance, by format

	4Q 2017	4Q 2016	Change (%)	2017	2016	Change (%)
Retail sales6, net, ths BYN	949,016	883,482	7.4%	3,568,233	3,382,598	5.5%
E-mini	92,100	113,242		439,505	443,048
E+	198,206	264,941		982,701	1,044,357
E++	164,139	174,424		685,532	688,068
E+++	271,039	270,188		1,053,572	984,700
E++++	58,303	60,687		226,467	222,425
Brusnichka	165,229	–		180,456	–
Retail sales, net, ths USD	476,773	455,873	4.6%	1,847,103	1,701,080	8.6%
E-mini	46,270	58,432		227,511	222,805
E+	99,576	136,709		508,697	525,198
E++	82,461	90,002		354,867	346,024
E+++	136,166	139,416		545,383	495,198
E++++	29,291	31,314		117,231	111,856
Brusnichka	83,009	–		93,413	–

Sales & traffic density

	4Q 2017	4Q 2016	Change (%)	2017	2016	Change (%)
Sales per 1 sqm per month,	1,153	1,107	4.2%	1,083	1,081	0.2%
BYN (net)
Sales per 1 sqm per month,	579	571	1.4%	561	544	3.1%
USD (net)
Average traffic per 1 sqm	3.20	3.26	-1.8%	3.16	3.44	-8.2%
per day

LFL performance7

	4Q 2017	4Q 2016	FY 2017	FY 2016
LFL sales growth	+3.9%	+4.0%	+1.1%	+1.9%
LFL traffic growth	-2.9%	-6.0%	-7.5%	-4.0%
LFL average ticket growth	+7.0%	+10.6%	+9.3%	+6.2%

Key drivers for FY2017 operating performance

5. • Retail sales increased by 5.5% in BYN (by 8.6% in USD) year-on-year in 2017, facilitated by new store openings while LFL sales moderate demonstrated growth of 1.1%.
   • Retail sales in the E-mini, E+ and E++ formats decreased in 2017 y-o-y due to 125 existing Eurotorg stores being rebranded to the new Brusnichka format.
   • Brusnichka stores demonstrated outstanding sales and traffic density results in 4Q 2017: BYN 2.0 ths (USD 1.0 ths) per sqm / month and 7.1 tickets per sqm / day, respectively.

5. Retail sales represents revenue from stores operating under the Euroopt and Brusnichka banners, net of VAT.

6. As of December 31, 2017, the LFL base included 440 stores (326 Euroopt stores and 114 Brusnichka stores). The Company has included Brusnichka stores opened in place of existing Euroopt stores in its LFL calculation to reflect the dynamics of the Company’s growth on a comparable year-on-year store basis taking into account that rebranding affected mainly the marketing positioning of a store and the banner. Adjusted LFL (excluding rebranded Brusnichka stores) for 2017: adjusted LFL sales growth -0.3%; adjusted LFL traffic growth -7.7%; adjusted LFL average ticket growth +9.3%.

• LFL traffic contracted by 7.5% in 2017 on the back of changes in consumer behaviour due to marketing campaigns encouraging them to buy more per visit and reduce the overall number of visits. The decrease in traffic was also influenced by “healthy” cannibalisation.

• LFL average ticket growth improved from 6.2% in 2016 to 9.3% in 2017, despite y-o-y food inflation slowing to 7.0% in 2017 from 10.4% in 2016. Effective marketing campaigns aimed at encouraging customers to increase the average basket per visit8 were a key driver of the increase in average ticket growth.