LNTA.L Regulatory News (LNTA)

LENTA PUBLISHES REVIEWED IFRS FINANCIAL RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2014

St. Petersburg, Russia; 4 September 2014 - 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 20141.

1H 2014 Financial Highlights:

· Total sales grew 38.3% to RUB 85.9bn (1H 2013: RUB 62.1bn);

· Adjusted EBITDA2 of RUB 8.1bn, up 21.8% (1H 2013: RUB 6.7bn) with a margin of 9.5% (1H 2013: 10.7%);

· Gross margin of 21.4% (+0.2 p.p. vs. 1H 2013) due to improved supplier conditions;

· SG&A increased to 15.1% as a percentage of sales (+1.9 p.p. vs. 1H 2013) as the proportion of recently opened stores increased (14 hypermarkets out of 21 in 2013 were opened in the fourth quarter and additional five hypermarkets in 1H 2014) leading to higher pre-opening expense;

· Capital investments of RUB 11.8bn, an increase of 42.0% compared to 1H 2013 (RUB 8.3bn) linked to a larger pipeline of new store openings in 2014, pre-investments in store opening programme for 2015-2016 and the construction of new distribution centres ("DCs");

· Net cash generated from operating activities, before net interest paid, of RUB 3.6bn compared to RUB 0.6bn in 1H 2013 driven by EBITDA growth and net working capital improvement;

· Net interest expenses of RUB 2.9bn, an increase of 48.4% compared to 1H 2013 (RUB 2.0bn) due to additional borrowing in the reporting period and interest rates increase;

· Net Profit3 of RUB 2.7bn, up 4.9% (1H 2013: RUB 2.6bn); and

· Net Debt of RUB 51.0bn as of 30 June, 2014.

1H 2014 Operational Highlights:

· Five hypermarkets and four supermarkets opened during first half 2014;

· Total number of hypermarkets at 30 June, 2014 was 82. Including 14 supermarkets, selling space was c. 543,800 sq.m. as of 30 June 2014 (+37.2% vs. 30 June 2013);

· 37% increase in the number of active loyalty card holders y-o-y to a total of 5.7mm as of 30 June, 2014;

· Like-for-like ("LFL")4 sales growth was 13.8% for 1H 2014;

· LFL traffic increased by 6.1% in 1H 2014; and

· LFL average ticket increased by 7.3% in 1H 2014.

1 Certain amounts do not correspond to the IFRS financial statements for the six months ended 30 June 2013 and reflect adjustments made as detailed in Note 2 of the IFRS financial statements

2 Adjusted EBITDA is reported EBITDA as set out in Note 6 of the IFRS financial statements adjusted for non-recurring one-off items such as changes in accounting estimates and one-off non-operating costs and income

3Net Profit equates to "Profit for the year" in the attached IFRS Financial Statements

4 Lenta's stores are included in the LFL store base starting 12 months after the end of the month they are opened

Lenta's Chief Executive Officer, Jan Dunning said:

"We're delighted that Lenta continues to drive rapid expansion and industry-leading like-for-like sales growth.

These results show that our pace of growth has accelerated further as we push on with our store opening plans and extend Lenta's geographic and format reach in the under-served Russian market. We have added 37% to our total selling space in a year and are fully on track with the targets we set for new store growth at the time of the IPO.

With so many new and immature stores in our portfolio - more than half of our selling space is less than three years old - it is pleasing to report significant growth in cash generated from operations, despite having a large proportion of our stores in their ramp-up phase. Customers are responding well to our price investments and operating improvements, rewarding us with strong sales growth in both new and existing stores."

***

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

Lenta

Anna Meleshina, Director of Public Relations and Government Affairs

+7 812 363 28 53

Anna.Meleshina@lenta.com

Albert Avetikov, Director of Investor Relations

+7 812 363 28 44

Albert.Avetikov@lenta.com

Store Developments

Lenta opened five hypermarkets and four supermarkets during the first half of 2014, taking the total number of hypermarkets to 82 and supermarkets to 14. Total selling space as at 30 June 2014 increased to 543,800 sq.m., up 37.2% compared to the end of 1H 2013. Since the beginning of the year the Company has opened ten hypermarkets and six supermarkets, increasing the total store count to 103, including 87 hypermarkets in 50 cities and 16 supermarkets in Moscow and the Moscow region. Total selling space as at 4 September, 2014 reached 571,300 sq.m.

To ensure the sustainability of Lenta's accelerated expansion, the Company has further expanded its store development team which has resulted in a significant increase in the pipeline of opening compared to year-end 2013, strengthening our confidence in our ability to open 24 hypermarkets and 15 supermarkets in 2014 and to double our total selling space over the 3 year period to December 2016.

Lenta continues to invest significantly in its supply chain, with two new DCs scheduled to be opened in the second half of 2014 in Rostov and Togliatti. Lenta is also pleased to announce that the construction of a new DC in Yekaterinburg (Urals) has also been agreed.

Operating performance

Lenta accelerated its sales growth during 1H 2014 to 38.3% versus 35.0% in 2H 2013. LFL growth accelerated to 13.8% from 12.0% in 2H 2013. LFL growth was supported by the inclusion of stores opened in 2012 to the LFL-base and older stores across all regions.

Financial Performance

Lenta demonstrated a strong overall performance during the first six months of the year, with a growth in sales and profit. However, as expected, this was held back by the planned increase in SG&A as a percentage of sales, linked to the large number of new, immature stores in the portfolio, as well as significant investments in the store opening programme and supply chain infrastructure and associated increase in interest expenses.

Selling space growth of 37.2% coupled with further improvements made to the customer offering resulted in total sales growth of 38.3%.

Income Statement Highlights

Gross margin rose by 0.2 p.p. to 21.4% driven by better supplier conditions and ongoing supply chain efficiency improvements. The increase in gross margin allowed Lenta to invest further in promotions and lower prices for customers thereby strengthening its price position. The higher share of new stores which have not yet reached their maturity also resulted in an expected increase in stock losses. We believe that continuing ramp-up of the respective new stores towards optimum performance levels and increasing store management experience in these immature stores will help to reduce the rate of increase in stock losses in the second half of the year.

Increased investments in store roll-out (14 out of 21 hypermarkets were opened in the fourth quarter of 2013) resulted in a higher overall proportion of stores in their ramp-up phase with associated higher SG&A as a percentage of sales compared to mature stores. As expected, this led to an increase in total SG&A base. As of 30 June 2014, the share of selling space younger than three years increased to 51% compared to 33% as of 30 June 2013. Nevertheless, the cost base of the stores opened before 2013 improved by 0.2 p.p., emphasising the good underlying progress on store costs. With the young stores ramping up further in the months ahead, Lenta expects a better trend in the second half of the year.

As a result, Adjusted EBITDA and operating profit both grew slower than sales. Adjusted EBITDA of RUB 8.1bn (+21.8% vs 1H 2013) with a 1H 2014 EBITDA margin of 9.5% in line with the guidance provided by the Company.

1 One-off expenses and income in 1H2014 and 1H2013 were professional services fees primarily incurred in connection with optimisation of the group legal structure, development of employee incentive plans and cost and income related to Lenta's IPO in March 2014

2 Reported EBITDA (as set out in Note 6 of the IFRS financial statements) includes all operating income and expenses excluding interest, tax, depreciation and amortisation as well as certain other expenses

The Company reassessed its accounting of property, plant and equipment with respect to capitalization of land lease expenses. Land lease expenses incurred during period of a new store construction had previously been recognized in profit and loss. Since 1 January, 2014 lease expenses incurred during construction period are to be capitalized as part of the cost of a building under construction.

Net interest expenses rose 48.4% due to increased borrowings required to fund future expansion. Despite an increase in the Mosprime rate of 234bps[1] in the course of the first six months of the year, Lenta's average cost of debt increased by only 22bps over the period of 1H 2014, as a result of hedging programs we have in place, as well as the impact of additional low-priced long-term financing and the use of a larger proportion of short-term credit lines.

Pre-tax profit rose by 10.3% to RUB 3.6bn and net profit increased by 4.9% to RUB 2.7bn. The effective tax rate grew from 21.9% to 26.5% as a result of tax benefits of RUB 100m recognised in 1H 2013 and the increase of stock losses in 1H 2014, which are only partially deductible.

Cash Flow and Balance Sheet

Net cash generated from operating activities before net interest paid amounted to RUB 3.6bn compared to RUB 0.6bn in 1H 2013. This is due to an increase in EBITDA and considerably lower taxes receivable (VAT).

Lenta increased capital expenditure by 42.0% to RUB 11.8bn during 1H 2014 (from RUB 8.3bn in 1H 2013) reflecting the increase in new store openings, investments in the future pipeline and additional supply chain capacity. This increase was funded by a combination of strong operating cash flow and increased net debt which was supported by additional long-term loan agreements signed with EBRD (RUB 4.6bn) and Sberbank (RUB 10bn) during the course of 1H 2014.

The business retains a healthy balance sheet that is strongly asset-backed by Lenta's large number of owned stores (representing 89% of the selling space as of 30 June 2014), its ownership of three DCs and its commitment to own 80-85% of the store base going forward. As of 30 June 2014, Net debt to Adjusted EBITDA stood at 2.8x and Adjusted EBITDA to Net Interest was 3.4x. As of 31 December 2013, Net debt to Adjusted EBITDA stood at 2.4x and Adjusted EBITDA to Net Interest was 3.8x. All Lenta's debt is denominated in Russian Roubles and over 84% of it is long-term. In addition to its current borrowings of RUB 54.0bn, Lenta had RUB 31.6bn of undrawn short- and long-term facilities (of which RUB 19.6bn long-term) and a cash balance of RUB 2.9bn as at 30 June 2014.

Guidance

Given first half openings and progress in the construction of new stores, Lenta confirms its initial guidance of 24 hypermarket and 15 supermarket openings in 2014 with an increase in net selling space of 30%. Looking further ahead, we have also made good progress in building our new site pipeline and maintain our long-term target to double net selling space over the three years to December 2016.

Lenta notes recent trade restrictions in Russia for selected product categories and is in the process of readjusting its product offering in compliance with new regulations. Notwithstanding the above, the Company maintains its full year sales growth guidance in the range of 34-38%.

The full set of accounts for Lenta Ltd. for 1H 2014 and for the financial years of 2010, 2011, 2012 and 2013 are available at www.lentainvestor.com 

About Lenta

Lenta is one of the largest retail chains in Russia and the country's second largest hypermarket chain (in terms of 2013 sales). The Company was founded in 1993 in St. Petersburg. Lenta operates 87 hypermarkets in 50 cities across Russia and 16 supermarkets in Moscow and the Moscow region, with a total of approximately 571,300 sq.m. of selling space. The average Lenta hypermarket store has selling space of approximately 6,400 sq.m. The Company operates four hypermarket 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 27,800 people as of 31 December 2013.

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, the European Bank for Reconstruction and Development and VTB Capital Private Equity, all of whom 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'.

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.