Clarification on the financial health of the company by “Azerbaijan Supermarket LLC”


October 18, Fineko/abc.az. Following the publication of Bravo financial information on various news sites as a result of the announcement relating to bond issuance prospectus it is important to provide clarification of the quoted numbers as well as the financial health of the company.


Modern food retail businesses require investment in store expansion and years to achieve positive bottom line results. Each store requires about 6-12 months to start delivering positive EBITDAs and requires approximately 18-24 months to reach cumulative EBITDA target.


It takes approximately 3-4 years to have positive inception-to date Net Profit (i.e. including depreciation charge). Thus considering our continuous investment in opening new stores, 71 stores today with 83k sq.m, compared to 7 stores with 20k sq.m at the beginning of 2018, the negative bottom line during those growth years is not a surprise for professional investors and analysts, but rather the result of an aggressive expansion strategy. The penetration of modern grocery in Azerbaijan is behind international benchmarks for developed and developing countries and this explains our growth strategy to grow and maintain our market share among modern grocery players.


For the last 3 years we see a positive trend in our EBITDA. In 2019 and 2020 we achieved positive EBITDAs, our 2020 EBITDA is 50% better than our positive result for 2019.


EBITDA margin (i.e. as a percentage of Revenue) is also increasing (approximately 20% better when compared to 2019 margin). This is mainly explained by better bargaining power with the suppliers as we grow, better sales margins, as well as achieving economy of scale and minimizing overhead costs. We still have room to grow our EBITDA margins to achieve best benchmarks and we have a number of initiatives being implemented to achieve our targets.


The losses reported in the prospectus are significantly exaggerated as a result of applying certain IFRS required accounting entries. This effect is mainly stemming from “accruing interest expense” on interest-free shareholder loans we have, as well as accruing long-term rent liabilities for future years’ leases in P&L.


These are not real costs of the businesses for the reported periods. Both of these adjustments have a positive effect on our asset size in the Balance Sheet but reflect negatively in our IFRS P&L statements. From a management accounting perspective as well as an operational perspective, these costs do not have any impact.


When it comes to the liabilities reflected in the prospectus, only about 20% of the liabilities are explained by real business liabilities. Our current assets (cash, inventory in the stores and main warehouse , etc) are almost double these liabilities which is a clear sign of a very strong operational liquidity position in the business. The rest of the liabilities are either debt to shareholders which is by nature is very close to equity and a tool used for better future liquidity management as well as liabilities created based on long-term lease agreements of our stores.


As mentioned earlier, we plan to use these funds to finance our expansion agenda. We are also planning to diversify our funding base to raise necessary funds from capital markets in addition to utilysing shareholder funds and cash generated from business. We believe this approach will also contribute to the development of local capital markets which is aligned with strategic road map of the Azerbaijani government.