ATB is one of two largest food retail chains in Ukraine by the volume of annual turnover (UAH 150 bln in Y2020) and number of stores (more than 1200 as of Y2020 end). Current market share of the company among Ukrainian food retailers is estimated at 25-30%.
The company operates in format of discounter with relatively small average trade area per 1 store (close to 500-600 sq m), narrow assortment, but relatively low prices, higher vs. Ukrainian average sales per 1 sq m and fast inventory turnover. Business model of ATB is quite similar to European food retailer Lidl.
ATB Corporation was established in Y1993 in Dnipropetrovsk (now - Dnipro) and firstly developed itself only in Dnipro region. In early 2000-s corporation made final decision on stores format, realized re-branding and started active expansion outside of its core region. Number of stores dynamics since that time is represented on the following chart:
Unlike other companies of Ukrainian food retail sector, strategy of ATB did not imply significant amounts of bank debt attraction. Apart from reinvested profits the company used open credit provided by its suppliers to finance its development.
Model works as follows: as tenor of open credit provided by suppliers exceeds inventory turnover by more than two times (assuming fast period of goods realization - inventory turnover - which is the case for ATB), each new store opening provides the company with additional funds for further development. The company prefers to purchase/construct its trade premises on its own (rental agreements are rare).
Payback period of one store is estimated at 6-7 years.
Two main conditions for smooth operating: fast inventory turnover and timely payments to suppliers. ATB has been perfect in both respects.
In addition to the right choice of financial model, format of discounter proved itself as absolutely right decision of the company owners. So, while many competitors faced a lot of problems following UAH devaluation and slump of Ukrainian population purchasing power in FYs2008-09, ATB continued its active development and only gained its market share during crisis times. Factually the company established itself as one of clear leaders of Ukrainian food retail market during financial crisis.
In FYs2010-2013 average annual rate of ATB Market chain growth made 20%, as a result in the end of Y2013 number of ATB stores grew by more than 2 times vs. Y2009 (more than 800 stores as of 31.12.13).
As the company quite actively developed in the East of Ukraine, ATB incurred significant losses because of Donbass conflict in FYs2014-15. 152 stores and large logistic center remained on the territory not controlled by Ukraine. General manager of ATB Corporation Boris Markov estimated total loss at about UAH 7.0 bln.
On the other side the company had good margin of safety - EBITDA of ATB Market in Y2015 alone made close to UAH 3.0 bln (taking into account financial results of related companies – more than UAH 4.0 bln), so it kept opening new stores (about 50 new stores in Y2015, more than 100 in Y2016).
In total during FYs2016-2020 ATB increased its chain from 723 store to 1201.
Last, but not the least, ATB tries to actively develop segment of private labels. According to Boris Markov, current private label share in total turnover of the company reaches 25%. Part of realized goods are produced by related companies (notably, meat-processing factory Favorit with net sales in Y2019 of UAH 3.4 bln – one of the largest meat-processing factory in Ukraine and confectionary factory Kviten (net sales of UAH 0.7bln)).
ATB Market is owned by three Ukrainian businessmen - Evgeniy Ermakov, Viktor Karachun and Gennadiy Butkevich.
ATB Corporation is not public company, so its financials are not publicly available. Below we present key financial figures of ATB-Market (operating company of the group), which are present in open sources, along with estimated by us important financial ratios. Other group entities are above-mentioned meat-processor Favorit, confectionary producer Kviten and asset-holders ATB-Invest, ATB-Torgstroy, LLC Elina.
EBITDA margin, %
Comments to available financial information:
- Net Sales in Y2020 grew by 19% y-o-y mainly due to new stores opening, while revenues of existing stores increased by 8% in nominal terms and by 3-4% in real terms (disregarding food inflation).
- In general ATB-Market has one of the highest sales per 1 sq m among Ukrainian food retailers (along with Fozzy Group), main reason - store format and aggressive pricing. We estimate monthly sales per 1 sq m of trade area of the chain in Y2020 at the level of about UAH 15k (excl.VAT) vs. about UAH 5.0k/sq m in Y2012 and UAH 8k/sq m in Y2015. Of course, growth is in nominal terms and is mainly related to inflation.
- Profitability of the company in Fys2016-16 has been quite stable (EBITDA margin at 4-5%), while in Fys2019-20 EBITDA margin increased to 9% (and looks rather high vs. market). One should note that ATB-Market pays rental fees to related asset-holding companies. According to our estimation they historically make 2-3% of turnover and decreased to 1-1.5% in FYs2019, which was one of the reasons of ATB Market EBITDA growth.
- Historically debt burden of the company has been low. Unlike many peers the company has not been involved into development of full-scale trade centers and has been focused solely on food retail business. As main source of its development, apart from reinvested income, the company used open credit provided by its suppliers.
- Factually this scheme is quite common for Ukrainian (and, of course, not only Ukrainian) food retail chains, but among food retailers of Ukraine, ATB created almost perfect business model: with Inventory Period of 30 days and Payables Period (average open credit provided by suppliers) at two times more.
- As per our estimates this model allowed the company to generate additional UAH 1-1.2bln of cash inflow in Y2020 (investments into new stores opening made up to UAH 5.0bln, so the company immediately after new store opening recovers 20-25% of invested funds).
As a summary we can define current financial standing of the company as quite good. Business model of ATB proved itself as good, especially in crisis times. Main risks for the chain are general country and political risk.