28 August 2019

1H 2019 IFRS Financial Results

St. Petersburg, Russia; 28 August 2019 – Lenta Ltd (“Lenta” or the “Company”), one of the largest retail chains in Russia, today announces its reviewed consolidated IFRS results for the half year ending 30 June 2019.

To download the full press release, click here.

1H 2019 Financial Highlights:

  • Total sales grew 3.1% in 1H 2019 to Rub 199.2bn (1H 2018: Rub 193.2bn), including retail sales growth of 7.2% and wholesale decline of 62.2%;
  • Gross margin of 22.5% (+0.6p.p vs. 1H 2018) increased as a share of low-margin wholesales business declined in total sales, while retail margin remained almost flat;
  • SG&A rose to 19.1% of sales (+2.0p.p vs. 1H 2018) due to combined effects of the higher personnel cost, rent expenses, rise in depreciation, as well as increases in utility and communal costs;
  • EBITDA of Rub 16.1bn, down 5.7% (1H 2018: Rub 17.1bn) with a margin of 8.1% (1H 2018: 8.9%);
  • Non-cash expenses of c. Rub 10.2bn, including impairment of assets of approx. Rub 9.0bn and depreciation from change in useful life of land improvements of approx. Rub 1.2bn;
  • Net interest expenses of Rub 4.7bn, an increase of 1.8% compared to 1H 2018 (Rub 4.6bn) as an increase in gross debt offset a decline in average cost of debt;
  • Net Loss1 of Rub 4.5bn with negative Net Profit margin of 2.2% compared to Net Profit of Rub 5.2bn in 1H 2018 with Net Profit margin of 2.7%;
  • Net cash generated from operating activities, before net interest and income taxes paid, of Rub 6.1bn compared to Rub 5.1bn in 1H 2018 with an increase of 20.8% linked to movements in working capital;
  • Capital expenditures of Rub 5.6bn, a decrease of 46.7% compared to 1H 2018 (Rub 10.5bn) due to slower pace of expansion;
  • Net Debt of Rub 99.3bn as of 30 June 2019 vs. Rub 93.3bn as at the end of 2018; and
  • Net Debt/EBITDA of 2.7x compared to 2.6x as at 31 December 2018.

1H 2019 Operational Highlights:

  • Three new hypermarkets and one supermarket were opened during the first half of 2019 while one hypermarket and four supermarkets were closed;
  • Total store count reached 377 stores at 30 June 2019, comprising 246 hypermarkets and 131 supermarkets;
  • Total selling space increased to 1,472,937 sq.m as at 30 June 2019 (+5.0% vs. 30 June 2018);
  • LFL retail sales growth2 of 2.9% excluding VAT vs. 1H 2018. This is the equivalent of LFL retail sales growth of 3.7% including VAT, due to an increase in VAT from 1 January 2019;
  • LFL average ticket increased by 0.7%;
  • LFL traffic growth of 2.1%; and
  • Number of active loyalty cardholders3 increased to 15.2m (+13.5% y-o-y) with around 97% of transactions in the second quarter made using the loyalty card.

Events during and after the reported period:

  • Severgroup LLC acquired a combined total of 78.73% of Lenta’s issued and outstanding voting shares from TPG, EBRD and minority shareholders upon completion of the mandatory tender offer;
  • The Board used its authority to fill the four vacated seats on the Board with the nominees of Severgroup;
  • On 2nd August 2019 Maxim Bakhtin has resigned as non-executive director from Board of Directors of Lenta Ltd;
  • The Board made a decision to appoint Tomas Korganas, Director for Strategy and M&A of Severgroup, as Lenta’s Non-executive Director with an immediate effect; and
  • The Company has received first tranche of Rub 0.5bn of insurance payment related to the fire accident in Lenta store in St. Petersburg in November 2018.

Lenta’s Chief Executive Officer, Herman Tinga said:
“In the first half of the year Lenta again proved its competitive strength and ability to remain attractive for customers. We continued to see further inflows of new unique customers to our stores from other market players, both large federal and smaller regional retail chains. In addition, despite continued intense promotional activity across the industry, we were able to maintain our retail gross margins y-o-y. Against this, the macro and consumer environment remained challenging with further pressure on customer wallets, resulting in negative growth of real disposable household income and a growing consumer debt burden. This combined with fast growth of selling space in the industry and continuing price competition resulted in lower visit frequency and smaller basket size. I continue to believe that Lenta's leadership position in the hypermarket sector and its growing customer base provide a very strong platform which will be beneficial for us when the economic situation improves.”

Lenta’s Chief Financial Officer, Rud Pedersen commented:
“Lenta is entering a new period in its development, adapting to a challenging macroeconomic and competitive environment and taking into account the vision of our new strategic majority shareholder. After more than five years of being growth focused in an underpenetrated market, we have to change our focus to operating efficiencies across the entire business. As Lenta’s store base mature while the potential for further organic expansion in our core hypermarket format becomes increasingly more difficult, we must put additional efforts into supporting LFL sales growth in our stores to create a strong platform for implementation of a new strategy”.

Store Network Development and Performance Review
Lenta opened three hypermarkets and one supermarket during 1H 2019, while one hypermarket and four supermarkets were closed, taking the total number of hypermarkets to 246 and supermarkets to 131. The Company did not enter any new cities during the period and remained present in 88 cities4 across the country. Total selling space as at 30 June 2019 increased to 1,472,937sq.m, up 5.0% yearon-year.

Since the end of the reported period Lenta closed one leased hypermarket in Novokuznetsk and three leased supermarkets5, as a result of which total store count reached 245 hypermarkets and 129 supermarkets with selling space as at the date of this announcement at 1,467,974 sq.m.

In 1H 2019 the Company took a decision to run bottom-up store performance review to identify stores which have low potential to reach expected returns. As a result of this review the Company closed seven supermarkets and may close up to nine hypermarkets.

Hypermarkets:

  • Two hypermarkets were closed since the beginning of the year;
  • Further seven hypermarkets may be closed subject to rent negotiation;
  • Total selling space of these seven stores is 33,011 sq.m, which represents 2.2% of total selling space and c. 1.2% of total sales in 2018;
  • Total amount of impairment related to the above mentioned hypermarkets of around Rub 1.6bn is reflected in the financial statements for 1H 2019.

Supermarkets:

  • Seven supermarkets were closed since the beginning of the year and there are no plans to make further closures in the format;
  • Total selling space of these stores was 5,224 sq.m, which represented 0.4% of the Company’s total selling space and 0.3% of total sales in 2018;
  • Total amount of impairment related to the closure of the supermarkets is not material and is reflected in the financial statements for 1H 2019.

To download the full press release, click here.

For further information please visit www.lentainvestor.com, or contact:

Lenta
Mariya Filippova
Head of PR&GR
Tel: +7 812 380-61-31 ext.: 1892
E-mail: maria.filippova@lenta.com

Russian Media:
NW Advisors
Victoria Afonina
Тel:+7 495 795 06 23
E-mail: lenta@nwadvisors.com

1 Net Loss equates to “(Loss)/Profit for the period” in the attached IFRS Financial Statements
2 Lenta’s stores are included in the LFL store base starting 12 months after the end of the month in which they are opened. The Company has not made any changes to the methodology of LFL calculation; both total sales growth and LFL sales growth are reported excluding VAT as the best measure to evaluate y-o-y performance
3 Cardholders who made at least 2 purchases at Lenta during the 12 months to 30 June 2019 are considered active
4 According to Lenta’s methodology for calculating number of cities of presence, since 1 May 2015 all cities located in Moscow
City and the Moscow region are shown as Moscow, and all cities located in the Leningrad region and St. Petersburg are shown as
St. Petersburg
5 Closed supermarkets were located in Moscow, St.Petersburg and Vladimir and represented a combined total of 2,015 sq.m. of
selling space