LNTA.L Regulatory News (LNTA)

LENTA SALES AND OPERATING HIGHLIGHTS FOR THE FIRST QUARTER ENDED 31 MARCH 2019

St-Petersburg, Russia; 25 April, 2019 - Lenta Ltd, (LSE, MOEX: LNTA / "Lenta" or the "Company") one of the largest retail chains in Russia, is pleased to announce the Company's consolidated sales and operating results for the first quarter ended 31 March 2019.

1Q 2019 Operating Highlights:

· Total sales grew 6.0% in 1Q 2019 to Rub 99.0bn (1Q 2018: Rub 93.4bn), including retail sales growth of 9.9% to Rub 97.1bn (1Q 2018: Rub 88.3bn) and wholesales decline of 61.5%;

· Like-for-like ("LFL")1 retail sales growth of 5.0% excluding VAT vs. 1Q 2018. This is equivalent to LFL retail sales growth of 5.9% including VAT, due to the recent increase in VAT;

· LFL retail traffic growth of 3.8% combined with LFL retail ticket growth of 1.2%;

· One hypermarket was opened during the first quarter of 2019, while one hypermarket and four supermarkets were closed;

· Total store count reached 375 stores at 31 March 2019, comprising 244 hypermarkets and 131 supermarkets;

· Total selling space increased to 1,464,461 sq.m as at 31 March 2019 (+5.1% vs. 31 March 2018); and

· Number of active loyalty cardholders2 increased to 14.8m (+14.2% y-o-y) with around 96% of transactions in the first quarter made using the loyalty card.

Events in 1Q 2019 and after the reported period:

· Rud Pedersen joined the Company as Chief Financial Officer and became a Director of Lenta Ltd. by virtue of his CFO role;

· Ruslan Ismailov, who previously served as a Divisional Director was appointed as Supermarket Format Director;

· Severgroup LLC announced that it has agreed to acquire the equity interests in Lenta owned by TPG and EBRD. These represent approx. 34.44% and 7.47% of the voting rights respectively. The agreed price of US$ 3.60 per GDR is subject to the terms and conditions of separate conditional share purchase agreements, and;

· Lenta announced the termination of its share buyback programme. Since the initiation of the program, an aggregate of approx. Rub 980.8m has been returned to GDR-holders, through the purchase of 4,552,610 GDRs representing 0.93% of the share capital.

1 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

2 Cardholders who made at least 2 purchases at Lenta during the 12 months to 31 March 2019 are considered active

Lenta's Chief Executive Officer, Herman Tinga commented:

"Lenta delivered a strong retail sales performance in the first quarter of 2019 with total retail sales up by 10%, which was double selling space growth. Lenta's Like-for-like retail sales growth of 5% was the fastest we have seen in the last three years. Although the economic environment remains weak, we are encouraged by impressive inflows of new customers which enabled this acceleration in like-for-like sales. I am particularly pleased with the rapid progress in our supermarkets where like-for-like retail sales growth accelerated to 22% driven by 19% traffic growth. As expected, wholesales declined in the first quarter and we expect this trend to continue for the rest of 2019, weighing on total sales growth.

Although market conditions are still challenging, we see more and more signs that promotional activity in the market is stabilizing. Lenta's promotion share was flat in the first quarter - this led to modest on-shelf inflation in March after two years of shelf-price deflation.

Our expansion plans remain unchanged and are focused on selected projects with the most attractive returns. We also closed a small number of underperforming leased stores and expect this to have a positive effect on future profitability.

Whilst some changes may take place among our shareholders, I would like to stress that the Lenta team remains focused on our business and our customers. We have a clear strategy in place and are confident in delivering further improvements in 2019 and beyond."

Lenta Store Developments

In the first quarter of 2019, Lenta opened one owned compact hypermarket in Kazan with selling space of 5,232 sq.m. The company also decided to close one leased compact hypermarket in Moscow (5,044 sq.m selling space) and four leased supermarkets3. As a result of these store closures, Lenta's net selling space fell slightly in the reported quarter. Total selling space increased 5.1% y-o-y to 1,464,461 sq.m as at 31 March 2019.

After the end of the reported period the Company opened one supermarket in the Moscow region, bringing the total store count to 244 hypermarkets and 132 supermarkets with total selling space of 1,465,426 sq.m (+5.9% growth y-o-y) as at the date of the Announcement. Lenta retained its presence in 88 cities across the country.

3 Two supermarkets in Moscow, one in Noginsk (Moscow region), and one in Gatchina (Leningradsky region) with total selling space of 3,209 sq.m. were closed during 1Q2019

Lenta's Operating Performance

The Company's retail sales grew by 9.9% in the first quarter of 2019, driven by selling space additions and solid growth of LFL retail sales. Total sales reached Rub 99.0bn implying a 6.0% growth compared to the first quarter of the previous year. A significant decline of 61.5% in sales to wholesale customers accounts for the difference between retail sales growth and total sales growth in the first quarter. Lenta expects wholesales to decline y-o-y throughout 2019.

The Company continued implementing a series of initiatives to increase the distinctive attractiveness of Lenta's offering to customers. These initiatives included changes in assortment (including introduction of new private label product ranges), marketing, Lenta's loyalty program and customer communication.

The Company maintained focus on digital marketing activities to reach customers, with special offers tailored on an individual basis to enhance traffic and basket size. The number of active loyalty cardholders increased to 14.8m as at 31 March 2019 (+14% y-o-y) and the share of transactions made with the loyalty card was 96%. Lenta's Mobile App launched in the fourth quarter of 2018 has already attracted more than 1.8 million users. Lenta plans to continue to enhance the Mobile App's functionality to deliver an even better customer experience resulting in increased loyalty, higher sales and lower marketing costs.

Hypermarket retail sales growth was 6.9% in the first quarter, while selling space growth in the format was 3.9%. LFL retail sales growth in the hypermarket format improved to 4.0% in the reported quarter from 1.8% in the fourth quarter of the last year, offsetting slower selling space growth.

The supermarket format's total sales rose by 55.0% in 1Q 2019 driven by a 24% increase in selling space and significant improvement in LFL retail sales growth. The supermarket format's share of Lenta's retail sales increased to 8.8% in the reported quarter vs. 7.8% in the fourth quarter of 2018.

The average hypermarket retail ticket increased by 1.2% to RUB 1,101, while LFL average hypermarket retail ticket rose 2.2%. The average retail ticket in the supermarket format in the first quarter decreased by 1.8% to Rub 507 compared to a 2.3% increase in the LFL average retail ticket. In both formats, the difference between total and LFL average ticket growth reflects the impact of stores in a ramp-up phase which entered the LFL panel in the reported period.

Total retail customer traffic increased by 12.1% in the first quarter of 2019 compared with the same period of the previous year, comprising 5.6% growth in hypermarket traffic and a 57.8% increase in retail traffic at Lenta's supermarket format.

During the first quarter of 2019, 15 hypermarkets and 21 supermarkets entered the LFL panel.

LFL retail sales demonstrated notable growth of 5.0% (excluding VAT) in the first quarter. This represents a significant improvement compared to the previous quarter - largely driven by 3.8% growth in LFL retail traffic, the highest level since 2015. LFL food retail sales increased by 5.4% and LFL non-food retail sales by 1.8% y-o-y.

The increase in VAT rates announced by the government in 2018 was implemented during the current quarter. LFL retail sales including VAT increased by 5.9% - about 0.9% faster than LFL retail sales excluding VAT as a result of higher VAT rates.

Lenta continued to win new unique customers in both new and LFL hypermarkets and supermarkets. LFL retail sales growth of 4.0% in hypermarkets was predominantly driven by an improvement in traffic growth, while average ticket growth remained almost stable versus previous quarter. Customer traffic in the LFL hypermarkets increased by 1.7% y-o-y as a slight reduction in visit frequency was overcompensated by a significant increase in the number of new customers. LFL average retail ticket growth in the format remained almost unchanged at 2.2% as a result of a continuous trading-up effect which outweighed a decline in the average number of items per basket and impact of on-shelf deflation in the first quarter. Nonetheless, deflationary effects were at their lowest level over the last two years and in March the Company recorded on-shelf inflation for the first time since February 2017.

LFL retail sales growth in supermarkets in 1Q 2019 surged by 21.8%, compared to 7.6% in the previous quarter. Higher traffic continued to drive LFL retail sales growth as a result of significant growth of the number of new unique customers combined with slightly increased visit frequency. Lenta continued to work on tactical changes to the offering, such as extension of the assortment and changes in marketing activities, in order to enhance attractiveness of stores to customers. LFL retail ticket growth improved for the second consecutive quarter to 2.3% despite the effect of on-shelf price deflation.

LFL retail sales growth of 5.0% in 1Q 2019 was therefore due to a combination of factors: a notable increase in number of customers with overall lower frequency of visits combined with strong trading-up effects; partly offset by on-shelf price deflation and a reduction in the average number of items per basket.

Guidance

Lenta confirms its plans to open about 8 new hypermarkets in 2019 as part of its organic expansion. The Company is also scheduled to open about 7 new supermarkets. The Company expects capital expenditures of about Rub 15bn in 2019.

About Lenta

Lenta is the largest hypermarket chain in Russia and the country's third largest retail chain. The Company was founded in 1993 in St. Petersburg. Lenta operates 244 hypermarkets in 88 cities across Russia and 132 supermarkets in Moscow, St Petersburg, Central, Siberia and Ural with a total of approximately 1,465,426sq.m of selling space. The average Lenta hypermarket store has selling space of approximately 5,500 sq.m. The average Lenta supermarket store has selling space of approximately 800 sq.m. The Company operates twelve 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 45,759 people as of 31 December 20184. 

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.

4 FTE (full-time equivalent). Average FTE for 2018 was 43,283 employees

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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 Lenta'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 Lenta speak only as at the date of this announcement. Save as required by any applicable laws or regulations, Lenta 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.