29 October 2018
Lenta announces buyback programme
St. Petersburg, Russia; 29 October 2018 – Lenta Ltd (“Lenta” or the “Company”), one of the largest retail chains in Russia, today announces a buyback programme for its Global Depository Receipts (“GDRs”).
The Board of Directors of the Company and management remain resolutely committed to high standards of corporate governance with a strong focus on efficient capital allocation to maximise shareholder value-creation.
The Company continues to see attractive opportunities for growth and consolidation in the yet immature Russian food retail market and believes that the Company’s robust business model will enable it to continue to grow market share and deliver attractive returns on investment. However, in the current weak economic and capital markets environment and with the cost of equity capital at elevated levels, the Company also believes its current market valuation understates the fundamental value of the business and that this provides an attractive opportunity for distributing cash to GDR-holders through a GDR buyback programme.
The Company expects to continue to grow selling space, but at a slower pace in the short term. Consistent with this, a significantly lower number of new organic store openings are expected for 2019, relative to the pace of expansion in 2018. The Company will nonetheless continue to consider value-accretive bolt-on acquisitions, should suitable opportunities arise. The Company’s primary focus will remain the efficiency of existing operations, together with stronger cash flow generation and returns. It is expected that this will result in the Company becoming free cash flow positive in 2019. At the projected level of capital expenditure on organic growth, the Board and management see an opportunity to distribute cash to GDR-holders through a buyback while maintaining a strong balance sheet with conservative leverage.
Approvals and terms
The Board has authorised the GDR buyback programme to be conducted between 29 October 2018 and 29 October 2019, under which total purchases of up to RUB 11.6 billion may be made, which corresponds to 10% of all the Company’s GDRs based on their quoted sale price as of the close of trading on 26 October 2018. It is anticipated that transactions will commence no later than 5 November 2018. Credit Suisse has been engaged to carry out the buyback by means of open-market purchases on the London Stock Exchange; it will in turn sell the GDRs it has purchased to Lenta LLC, the operating subsidiary of the Company. Application of the RUB 11.6 billion aggregate cap will be based on the rate of exchange commercially available to Lenta LLC when it makes payment to Credit Suisse. In making its purchases under the programme, Credit Suisse will be acting as principal and making its trading decisions independently of the Company and Lenta LLC. At recent trading volumes and the current price for Company GDRs on the London Stock Exchange, the authorised maximum amount for repurchases of RUB 11.6 billion would not be applied in full; however, the Company believes expending such amount would be an appropriate use of its capital if the value traded increases.
Credit Suisse has agreed to make the purchases of the GDRs on the London Stock Exchange in connection with the programme in accordance with certain pre-set parameters consistent with the MAR safe harbour price and volume standards. Information on the executed transactions will be reported on a regular basis. Upon acquisition of the GDRs by Lenta LLC, their underlying shares cannot be voted under the Company’s articles.
The Company’s Chief Executive Officer, Jan Dunning said:
“Our strong cash generation, conservative balance sheet and proven execution capability position us to return value to GDR-holders through GDR repurchases. We strongly believe that the current market valuation does not reflect the fundamental value of the business. The decision to launch a buyback programme demonstrates our confidence in the Lenta business model and underscores the commitment of the Lenta Board and management to maximize GDR-holder value creation and to ensure efficient capital allocation and attractive returns on capital invested. While we will slow expansion somewhat in 2019, we believe the fragmented structure of the Russian food retail industry and the strength of our business model will continue to offer Lenta attractive opportunities for long-term growth.”
Lenta is the largest hypermarket chain in Russia (in terms of selling space) and the country’s third largest retail chain (in terms of 2017 sales). The Company was founded in 1993 in St. Petersburg. Lenta operates 233 hypermarkets in 84 cities across Russia and 125 supermarkets in Moscow, St. Petersburg, Novosibirsk, Yekaterinburg and the Central region with a total of approximately 1,412,820 sq.m of selling space. The average Lenta hypermarket store has selling space of approximately 5,600 sq.m. The average Lenta supermarket store has selling space of approximately 800 sq.m. The Company operates seven owned distribution centres.
The Company’s price-led hypermarket formats are differentiated in terms of their promotion and pricing strategies as well as their local product assortment. The Company employed approximately 50,600 people as of 30 June 20181.
The Company’s management team combines a mix of local knowledge and international expertise coupled with extensive operational experience in Russia. Lenta’s largest shareholders include TPG Capital and the European Bank for Reconstruction and Development, both of which are committed to maintaining high standards of corporate governance. Lenta is listed on the London Stock Exchange and on the Moscow Exchange and trades under the ticker: ‘LNTA’.
A brief video summary on Lenta’s business and its Big Data initiative can be seen here.
For further information please visit www.lentainvestor.com, or contact:
PR and GR manager
Tel: +7 812 380-61-31 ext.: 1892
Anton Karpov & Victoria Afonina
Тel:+7 495 795 06 23
Forward looking statements:
This announcement includes statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements can be identified by the fact that they do not only relate to historical or current events. Forward-looking statements often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “expected”, “plan”, “goal”, “believe”, or other words of similar meaning.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances, a number of which are beyond the Company's control. As a result, actual future results may differ materially from the plans, goals and expectations set out in these forward-looking statements.
Any forward-looking statements made by or on behalf of the Company speak only as at the date of this announcement. Save as required by any applicable laws or regulations, the Company undertakes no obligation publicly to release the results of any revisions to any forward-looking statements in this document that may occur due to any change in its expectations or to reflect events or circumstances after the date of this document.
1 FTE (full-time equivalent). Average FTE for 1H2018 was 49,643 employee