25 February 2020
FY 2019 IFRS Financial Results
St. Petersburg, Russia; 25 February 2020 – Lenta PLC (“Lenta” or the “Company”), one of the largest retail chains in Russia, today announces its audited consolidated IFRS results for the year ending 31 December 2019.
2019 Financial Highlights:
- Total sales grew 1.0% to Rub 417.5bn (2018: Rub 413.6bn), including retail sales growth of 4.0% to Rub 408.0bn (2018: Rub 392.2bn) and wholesales decline of 55.5%;
- The gross margin of 22.0% (+0.5 p.p. vs. 2018) increased on the back of a slightly higher retail margin and a positive impact from a declining share of low-margin wholesale business in total sales;
- SG&A increased to 18.3% of sales (1.6 p.p. higher vs. 2018) mostly due to higher personnel expenses, higher depreciation linked to a reassessment of the economic useful life of land improvements and an increase in rental costs linked to the indexation of rental fees;
- EBITDA of Rub 34.0bn, down 6.2% (2018: Rub 36.2bn) with a margin of 8.1% (2018: 8.8%).
- Non-cash expenses of approx. Rub 14.1bn, including impairment of assets of approx. Rub 11.8bn and depreciation from a change in useful life of land improvements of approx. Rub 2.3bn;
- Net interest expenses of Rub 9.3bn, an increase of 1.9% compared to 2018 (Rub 9.1bn) as an increase in gross debt offset a decline in the average cost of debt;
- Net Loss1 of Rub 2.1bn due to non-cash expenses, with a negative Net Profit margin of 0.5% compared to Net Profit of Rub 11.7bn in 2018 with Net Profit margin of 2.9%;
- Net cash generated from operating activities, before net interest and income taxes paid, of Rub 42.8bn compared to Rub 32.4bn in 2018 with an increase of 32.1% due to movements in working capital;
- Capital expenditures of Rub 14.1bn, a decrease of 36.1% compared to 2018 (Rub 22.1bn) mainly due to the slower rate of expansion compared to the prior year, tight control over expenses and changes in the phasing of payments for some planned non-expansion projects;
- The Company generated a positive free cash flow of Rub 17.0bn in 2019;
- Net Debt of Rub 77.1bn as of 31 December 2019 vs. Rub 93.3bn as at the end of 2018 and Rub 99.3 as at 30 June 2019;
- Net Debt/EBITDA of 2.3x compared to 2.6x as at 31 December 2018 and 2.7x as at 30 June 2019.
2019 Operational Highlights:
- Eight new hypermarkets and three supermarkets were opened in 12M 2019, while three hypermarkets and seven supermarkets were closed during the same period;
- Total number of stores was 380 as at 31 December 2019, comprising 249 hypermarkets and 131 supermarkets with a selling space of 1,489,497 sq.m (+1.5% vs. 31 December 2018);
- Lenta has changed its approach to recognizing wholesale and retail sales and revised sales figures from these two channels for 4Q/FY 2018 and 4Q/FY 2019. The revision did not affect total sales growth of the Company.
- Like-for-like (“LFL”)2 retail sales growth of 0.1% excluding VAT. This is the equivalent of LFL retail sales growth of 0.9% including VAT, due to the increase in VAT from 1 January 2019;
- LFL average ticket growth of 0.1% and flat LFL retail traffic in 2019;
- The number of active loyalty cardholders3 increased by 10.1% y-o-y to a total of 15.8m as of 31 December 2019;
- Lenta opened a new distribution center in Moscow with total space of 70,990 sq.m and extended its warehouse in Novosibirsk, bringing its total space to 71,837 sq.m. Both facilities contain new features, which will optimize the Company’s procurement and logistics in addition to support centralization and further development of Lenta’s “hero categories”.
Events after the reported period:
- On the 21st of February Lenta received a certificate of temporary registration in Cyprus following its application to the Department of Registrar of Companies and Official Receiver. As a result of the Redomiciliation becoming effective, the Company is now named Lenta PLC, has adopted a new memorandum and articles of association, and entered into a new deposit agreement with Deutsche Bank Trust Company Americas. All the relevant announcements can be viewed on the Company’s website at www.lentainvestor.com
Lenta’s Chief Executive Officer, Herman Tinga said:
“2019 presented a challenging economic and operating environment, but we took measures to increase our resilience to adapt to changing market conditions. The year was also a turning point for us at Lenta, both in terms of changes in our shareholder structure and an evolution of our strategy. We continued to slow our previously rapid expansion with a clear focus on store performance and returns. As a result, our overall selling space grew by just 1.5%, and we also closed a few unprofitable hypermarkets. This, along with the subdued macroeconomic environment, aggressive competition, higher promo-activity, and some misses in our non-food performance hit our EBITDA margin in 2019, which declined to 8.1% from 8.8% in the previous year.
In the current environment, our hypermarkets faced the greatest challenges. This was especially visible in the third and the fourth quarter with declining LFL sales – a result of fewer visits by consumers along with a lower number of items purchased per basket. Nonetheless, we retained our strong position in the market and as evidence we see a further inflow of new customers who chose Lenta for grocery shopping. Our priority for this year is to offer customers a better shopping experience, improved assortment and enhanced customer communication to achieve positive trends in the performance of our core business.
Finally, I am satisfied with the work of our supermarkets over the past year. This format had been a significant challenge for us in 2018. However, we appointed a dedicated team and implemented a number of initiatives to better our customer value proposition. As a result we saw material improvements in EBITDA which remained positive throughout 2019. I am confident in the prospects of this format, although it still represents a relatively small part of our business.”
Lenta’s Chief Financial Officer, Rud Pedersen commented:
“In 2019 we worked on initiatives to achieve operational efficiency and improve our cash flow. Our efforts started to pay off as we saw some improvements in the dynamics of our SG&A in the second half of the year due to optimizing the headcount, our marketing costs and other operating expenses. Our team also achieved good results in managing working capital, which, along with tight control over capital expenditures, resulted in a strong free cash flow of around Rub 17bn. Considering the new stage of the Company’s development and our own efforts, we maintain our target to remain free-cash-flow positive and deliver value to our shareholders.
Improving our cash flow and performance across all formats remains our key priority for the current year, albeit we do not exclude potential opportunities to further strengthen our position in the market. This can include expansion in existing and new formats and further exploration of the online market.”
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 they are opened
3 Cardholders who made at least 2 purchases at Lenta during the 12 months to 31 December 2019 are considered active