Belarus’s leading supermarket chain Eurotorg reports good 2017 IFRS results.

The pariah republic is opening up slowly as reforms reach it by osmosis and Eurotorg is the best example of the real business in Belarus that is slowly developing there as a result. In 2017 it debuted the republic’s first ever corporate debt on the international markets.

Eurotorg’s revenues increased 11% to $2.0bn in 2017, mainly driven by a 9% expansion in retail sales thanks to new store openings amid a moderate 1.1% expansion in like-for-like (LFL) sales, the company said in a statement on May 3. 

The LFL average ticket grew 9.3%, while LFL traffic fell 7.5%, which the company attributes to a combination of natural cannibalization and its marketing aimed at inducing customers to buy more goods per visit.

Below the top line, the positive trends seen in the 1H17 numbers spread to the full-year results. The gross margin improved to 26% from 23% in 2016 thanks to changes in supplier terms and growth of high-margin products in the sales mix. This helped boost EBITDA to $191mn (up 46% y/y), for a 9.4% margin, Sberbank CIB reports.

Free cash flow (FCF) was positive but small, totaling $26mn. Dragging on it was the $60mn of investments into working capital the company made to support margin expansion, though capex came in even below the guidance.

“The management confirmed its estimate that capex should be 2.0-2.5% of revenues in the medium term to support capital-light expansion through leased spaces and it does not expect major changes in working capital moving forward,” Sberbank CIB said in a note.

“The decent profitability allowed Eurotorg to lower net debt/EBITDA to 3.2, below its Eurobond incurrence covenant of 3.5. Adjusted for operating leases, net debt/EBITDAR fell to 3.5. After the Eurobond placement in October, liquidity has materially improved and less than $100mn of debt is due before 2021. Yet debt reduction remains a priority for the company, with leverage below 2.0 serving as a mid-term target. One way to reach that could be an IPO," Sberbank CIB adds. "For 2018, the management guides for low double-digit revenue growth, with nearly half of that coming from LFL sales growth amid a bigger selling space expansion than last year. We remain positive on the credit. The Eurotorg 22 is quoted around 101% of par with a YTM of 8.37% (Z-spread 550 bps),” Sberbank CIB says.

Eurotorg (aka Euroopt) is the largest food retailer in Belarus with around a 20% market share. While it has followed the classic development path of other Commonwealth of Independent States (CIS) supermarket chains it has been a pioneer at home in bringing modern business practises to Bealrus.

In January this year the company said it was expanding and will launch an online store for the Russian market. According to board member Andrei Matsiavin, possible investments in the project could reach $50-$80mn. Online operations in Russia already existed in 2015-2016, however Eurotorg was forced to halt them due to depreciation f the Belarusian ruble.