LNTA.L Regulatory News (LNTA)

LENTA SALES AND OPERATING HIGHLIGHTS FOR THE SECOND QUARTER

ENDED 30 JUNE 2015

St-Petersburg, Russia; 21 July, 2015 - 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 second quarter and first half ended 30 June 2015. 

2Q 2015 Operating Highlights:

· Total sales grew 30.4% in 2Q 2015 to Rub 60.4bn (2Q 2014: Rub 46.3bn);

· Like-for-like ("LFL")[1] sales growth of 8.6% vs. 2Q 2014;

· LFL traffic growth of 2.0% combined with a 6.4% increase in LFL ticket;

· Four hypermarkets and three supermarkets opened during the second quarter of 2015;

· Total of 143 stores at 30 June 2015, comprising 116 hypermarkets and 27 supermarkets;

· Total selling space increased to 751,447 sq.m. as at 30 June 2015 (+38.6% vs. 30 June 2014); and

· Number of active loyalty cardholders[2] increased to 7.6m (+33% y-o-y) with approximately 90% of transactions in the second quarter made using the loyalty card.

1H 2015 Operating Highlights:

· Total sales grew 33.8% in 1H 2015 to Rub 114.9bn (1H 2014: Rub 85.9bn);

· LFL sales growth of 11.5% vs. 1H 2014;

· LFL traffic growth of 4.7% combined with a 6.5% increase in LFL ticket;

· Eight hypermarkets and three supermarkets opened during the first half of 2015;

Material events in 2Q 2015 and after the reported period:

· Lenta has signed a Rub 37.3bn unsecured loan agreement with VTB Bank with a seven-year term replacing a secured loan with a maturity till 2018;

· Lenta has signed an amendment to Rub 4.6bn loan agreement with the European Bank for Reconstruction and Development (EBRD);

· The Company's effective cost of debt decreased from 16.6% in Q1 2015 to 13.4% in Q2 2015, and is projected to decrease further to 12.25% in Q3 2015 (based on current MosPrime rates)

· Fitch Ratings has assigned Lenta with long-term foreign and local currency Issuer Default Ratings of 'BB-' and a National Long-term rating of 'A+(rus)', both with a positive outlook.

Lenta's Chief Executive Officer, Jan Dunning commented:

"In the second quarter of 2015, Lenta once again delivered industry leading sales growth of 30% and remains well positioned to win in a tough market environment. Continuing pressure on consumer incomes, decelerating inflation and a high base for comparison led to a slowdown of year-on-year sales growth rates in the second quarter, compared to our performance in the first quarter.

Despite the challenging environment we expect to achieve significantly better profitability in the first half of 2015 compared to the same period of the previous year, with Adjusted EBITDA growth of around 45% and EBITDA margin improving by over 70 basis points. We have achieved this profitability improvement thanks to effective cost management and supply chain improvements, while absorbing part of the effect of inflation on our customers.

Our financial position strengthened further with a significant fall in leverage in the first half of the year through a combination of rapidly growing EBITDA and the new equity issue completed in March. We continue to work actively with our lenders and in the second quarter we managed to reduce cost of debt by 320bps vs the first quarter, with further decreases expected throughout the remainder of the year.

The 'BB-' Fitch rating with a positive outlook, recently assigned to Lenta, reflects Lenta's strong position in the modern food retail market in Russia, its resilient operational performance, robust profitability and the Company's ability to grow its share of the Russian food retail market."

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

Lenta Store Developments

In the second quarter of 2015, Lenta opened four hypermarkets (two leased compact stores in Tyumen and Magnitogorsk, one leased standard store in Nizhniy Tagil and one owned compact store in St.Petersburg) and three leased supermarkets in Moscow, taking the total number of stores to 143 (116 hypermarkets and 27 supermarkets). The Company entered one new city in the second quarter of 2015 and is now present in 62[3]  cities. Lenta added 23,839 sq.m. of new selling space. Total selling space as at 30 June 2015 increased to 751,447 sq.m., up 38.6% year-on-year.

Lenta's Operating Performance

Continuing selling space additions supported overall sales growth of 30.4% for the second quarter of 2015. Total sales amounted to Rub 60.4bn in the second quarter, compared to Rub 46.4bn for the same period last year. 

In the second quarter of the year Lenta continued to implement digital marketing activities to reach customers, with special offers tailored on an individual basis to enhance traffic. The number of active loyalty cardholders increased to 7.6 million as at 30 June, 2015 (+33% y-o-y).

LFL sales growth of 8.6% in the second quarter was supported by LFL traffic growth of 2.0% and average LFL ticket increase of 6.4% due to inflationary effects partly offset by a reduction in the number of items per basket, negative changes in the product mix and price investments. LFL food sales increased by 9.1%, while non-food sales declined slightly, reflecting the current pressures on household budgets. In addition to the effects of trading down, sales in the second quarter were also affected by the high base of last year (2Q was the strongest quarter of the 2014 with 39.1% sales growth) and the quality of days.

Lenta's expansion resulted in an increase in the number of new maturing stores included in the LFL store base for comparison. During the second quarter of 2015, two hypermarkets entered the LFL panel.

The average hypermarket ticket in the second quarter increased to Rub 1,134 (+3.6% compared to the second quarter of 2014), lower than the 6.4% increase in the LFL average hypermarket ticket due to the increase in the proportion of young stores. As of 30 June 2015 the share of selling space younger than three years increased to 60% compared to 51% as at 30 June 2014 and the share of stores operating for less than one year increased to 28% compared to 27% a year ago. The same trend was visible in the supermarket format, where the average ticket in the second quarter increased by 7.3% to Rub 570 compared to 8.0% increase in the LFL average ticket.

Total customer traffic increased by 27.4% in the second quarter of 2015 compared with the same period of the previous year, comprising 24.0% growth in hypermarket traffic and an 89.0% increase in traffic at Lenta's supermarket format.

The supermarket format demonstrated LFL sales growth of 17.1% for the second quarter of 2015. The supermarket format's share of Lenta's total sales increased to 4.0% in the quarter, up from 2.5% in the second quarter of 2014. Lenta's supermarkets in combination with five hypermarkets operating in Moscow and the Moscow region continue to demonstrate very strong sales ramp-up dynamics - the share of this region in the total Company's sales has increased from zero to 7.4% over the last two years.

Debt update

During the second quarter Lenta signed a new Rub 37.3bn unsecured loan agreement with VTB Bank, with improved terms on maturity and margin versus the existing facility with VTB which it replaced. Lenta also agreed an amendment to a Rub 4.6bn loan agreement with the European Bank for Reconstruction and Development. The improvements in loan terms, combined with effect of continuing falls in MosPrime rates reduced the average cost of Lenta's debt portfolio to 13.4% in 2Q 2015 from 16.6% in 1Q 2015. The company projects the effective cost of debt to reduce further to 12.25% in 3Q2015 (based on the current MosPrime rates). The new loan agreement with VTB has also significantly increased the average duration of the debt portfolio thereby reducing total debt principal repayments due in the next 3 and a half years to December 2018 by more than 40% compared to 6 months ago.

Guidance

Lenta maintains its plan to open at least 25 new hypermarkets and 10-15 new supermarkets in 2015 with around RUB 30bn of capital expenditures. Given the strength of Lenta's new store development pipeline, continued robust operating performance, attractive returns on new stores, lower interest costs, falling financial leverage and longer debt maturities, the Company expects to further increase hypermarket openings in 2016 to be broadly in line with the number of openings in 2014 and to maintain a similar or higher pace of expansion thereafter. The number of supermarket openings is also expected to increase in 2016. Lenta expects to comfortably exceed its goal of doubling selling space over the three years to December 2016.

Given the volatile consumer environment, the Company has put under review its full year sales growth guidance of 34-38%. Lenta will decide whether to revise guidance following 3Q 2015 results.

The Company will report 1H 2015 IFRS Financial Results on 27 August, 2015. Lenta expects to achieve strong profitability for 1H 2015 with Adjusted EBITDA growth of around 45% and margin of around 10.2%, 70bps higher compared to the same period of last year. EBITDA in 1H 2015 grew faster than sales, largely due to a significant reduction of SG&A costs as percentage of sales, driven by successful productivity measures and continuing supply chain improvements enabled by the opening of two new distribution centres.

About Lenta

Lenta is one of the largest retail chains in Russia and the country's second largest hypermarket chain (in terms of 2014 sales). The Company was founded in 1993 in St. Petersburg. Lenta operates 116 hypermarkets in 62[5] cities across Russia and 27 supermarkets in Moscow, with a total of approximately 751,447 sq.m of selling space as of 30 June 2015. The average Lenta hypermarket store has selling space of approximately 6,200 sq.m. The Company operates five owned 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 35,100 people as of 31 December 2014[6].

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'.

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.