LNTA.L Regulatory News (LNTA)

LENTA SALES AND OPERATING HIGHLIGHTS FOR THE FOURTH QUARTER AND FULL YEAR ENDED 31 DECEMBER 2015

St-Petersburg, Russia; 28 January, 2016 - 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 fourth quarter and twelve months ended 31 December 2015.

4Q 2015 Operating Highlights:

· Total sales grew 26.2% in 4Q 2015 to Rub 75.1bn (4Q 2014: Rub 59.5bn);

· Like-for-like ("LFL")1 sales growth of 6.1% vs. 4Q 2014;

· LFL traffic growth of 4.3% combined with a 1.8% increase in LFL ticket;

· 18 hypermarkets and five supermarkets opened during the fourth quarter of 2015;

· Total store count reached 172 stores as at 31 December 2015, comprising 140 hypermarkets and 32 supermarkets

· Total selling space increased to 882,383 sq.m. as at 31 December 20152 (+25.8% vs. 31 December 2014); and

· Number of active loyalty cardholders3 increased to 8.4m (+29% y-o-y) with approximately 92% of transactions in the fourth quarter made using the loyalty card.

FY 2015 Operating Highlights:

· Total sales grew 30.3% in 2015 to Rub 252.8bn (2014: Rub 194.0bn) in line with the Company's sales growth guidance;

· LFL sales growth of 9.1% vs. 2014;

· LFL traffic growth of 3.9% combined with a 5.0% increase in LFL ticket; and

· 32 hypermarkets and eight supermarkets opened during 2015 exceeding the Company's guidance of at least 30 hypermarket openings.

Material events in 4Q 2015 and after the reported period:

· Lenta opened a new distribution center ("DC") in Yekaterinburg in October - its first DC in the Ural federal district;

· Moody's Investors Service upgraded Lenta's credit rating to "Ba3", outlook "stable";

· In October 2015 Lenta successfully completed a primary capital increase of 21.1 million new GDRs via an accelerated bookbuild, raising gross proceeds of US$150 million;

· National Rating Agency (NRA) confirmed Lenta's National Scale Rating at "AА" with "positive" outlook;

· Lenta has signed an amendment to Rub 4.6bn loan agreement with the European Bank for Reconstruction and Development (EBRD) due December 2022 reducing the margin over 3M MosPrime;

· Lenta signed a Rub 5bn three-year revolving loan facility with Russian Agricultural Bank; and

· Lenta signed a Rub 7bn three-year unsecured loan facility with Rosbank at a fixed rate.

[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

2 After the adjustments to reported selling space described below

3 Cardholders who made at least 2 purchases at Lenta during the 12 months to 31 December, 2015 are considered active

Lenta's Chief Executive Officer, Jan Dunning commented:

"The fourth quarter of 2015 was the most challenging period of the year - for the industry and for us. We faced a very difficult economic environment and had a busy schedule with a lot of new hypermarket openings and the launch of our supermarket format in Saint-Petersburg. I am delighted to highlight that Lenta's team managed to open 32 hypermarkets in 2015 with 18 stores opened in the last quarter - this is a record high number of hypermarkets opened by the Company in a single year. We also successfully opened our first four supermarkets in Saint-Petersburg and will extend our geographical footprint while still continuing rolling out this format in Moscow.

The macro and consumer environment remained difficult with increasing pressure on customer incomes and continuing high inflation. Consumers continued trading down focusing on lower volume of purchases, being price-sensitive and promo-oriented. Combined with saving patterns and high base for comparison in the second part of November and December this led to a reduction of average basket size.

Lenta's pricing and offering proposition, including tailored promotions, continued to be attractive to customers and resulted in strong LFL traffic growth of 4.3% in the fourth quarter - well above the level of the third quarter and the first nine months period of 2015.

As a result, we were able to deliver strong full year sales growth of 30.3% on the back of 25.8% y-o-y selling space growth.

Based on the unaudited management accounts we expect Adjusted EBITDA margin for the full year of 2015 to improve compared to the result of 2014."

Lenta Store Developments

In the fourth quarter of 2015, Lenta opened 18 hypermarkets: four owned standard stores in Chelyabinsk, Kemerovo, Saint-Petersburg and Surgut, one leased standard store in Nizhniy Novgorod, eight owned compact stores in Chelyabinsk, Moscow, Krasnoyarsk, Kaluga, Orenburg, Saint-Petersburg, Ufa, Khanty-Mansiysk, four leased compact stores in Saransk, Tula, Stavropol and Irkutsk and one leased supercompact store in Penza. In the same period the Company opened an owned supermarket in Moscow and its first four leased supermarkets in Saint-Petersburg, taking the total number of stores to 172 (140 hypermarkets and 32 supermarkets).

Lenta strengthened its position in all key regions of presence (Moscow, Saint-Petersburg, North-West, Center, Volga, South, Ural and Siberia), the largest share is represented by Siberia with around 20% of total selling space as of December 31, 2015. In December Lenta opened the geographically most distant store in its network in Irkutsk, located approx. 5,700 km from Lenta's headquarters in Saint-Petersburg. The Company entered six new cities in the fourth quarter of 2015 and is now present in 694 cities. Out of the total 32 new hypermarkets opened in the year of 2015, 13 stores were opened in seven cities with more than one million inhabitants. Lenta added 101,425 sq.m. of new selling space in the reported quarter. Total selling space as at 31 December 2015 increased to 882,383 sq.m., up 25.8% year-on-year.

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 Within the reported period 

Adjustments to reported selling space

Lenta has made some adjustments to the selling space of the operating hypermarkets and supermarkets across the country which resulted in reduction of 6,824 sq.m. in selling space (-0.8%), giving total selling space of 882,383 sq.m. as of 31 December 2015 announced on the date of this report. These adjustments were related to store reconstruction, refurbishment, renting out excess selling space to third parties or turning it into production areas to support centralization of own in-store produced food. As a result of these measures selling space was reduced at some stores, but increased at others. The most significant change in the selling space was related to the standard format hypermarket in Vladimir (acquired in December 2014) where selling space was brought in line with Lenta's business concept - from 9,058 sq.m to 6,252 sq.m. All the changes are reflected on the Company's website at http://www.lentainvestor.com/en/about/lentas-geography/our-hypermarkets and http://www.lentainvestor.com/en/about/lentas-geography/our-supermarkets.

Lenta's Operating Performance

Continuing selling space additions and LFL growth supported overall sales growth of 26.2% for the fourth quarter of 2015. Total sales amounted to Rub 75.1bn in the fourth quarter, compared to Rub 59.5bn for the same period last year. 

In the fourth 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 8.4 million as at 31 December, 2015 (+29% y-o-y) and the share of transactions made with the loyalty card has increased to 92%.

LFL sales growth of 6.1% in the fourth quarter was supported by LFL traffic growth of 4.3% and average LFL ticket increase of 1.8%. While LFL traffic growth came well above the result of the previous quarter and the nine months period of 2015, LFL basket was under pressure due to the combined effects of continuing high inflation (14.1% of on-shelf inflation in 4Q 2015 - almost unchanged vs 3Q 2015), falling real household income, a further reduction in the number of items per average basket, weak sales of non-food seasonal articles due to unusually warm weather, negative changes in the product mix (reduction of average price per article) and increased share of promotions. Especially during the December pre-holiday period customers traditionally buy a higher number of more expensive articles. However this also offers a greater opportunity to save on price and quantity of articles compared to the rest of the year, which consumers did.

LFL food sales increased by 7.7%, while LFL non-food sales growth remained negative. In addition to the trading down effect, sales in the fourth quarter were also affected by the high base of last year, especially in the second half of November and in December - customers were abnormally stocking up in late 2014, doing upfront purchases of dry food and especially non-food articles due to the sharp depreciation of the local currency.

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

The average hypermarket ticket in the fourth quarter decreased to Rub 1,232 (-0.7% compared to the fourth quarter of 2014) compared with the 1.9% increase in the LFL average hypermarket ticket reflecting the trading down effect and promo sensitivity of the customers. Lenta noted a significant increase in the number of new customers with lower ticket sizes coming for promotions; loyal customers increased the frequency of visits as well, but continued saving on volume. This effect was much stronger in the new stores which have not yet gained a large base of loyal customers. The same trend was visible in the supermarket format, where the average ticket in the fourth quarter decreased by 1.4% to Rub 588 compared to 1.7% increase in the LFL average ticket.

Total customer traffic increased by 27.6% in the fourth quarter of 2015 compared with the same period of the previous year, comprising 26.5% growth in hypermarket traffic and a 41.6% increase in traffic at Lenta's supermarket format.

The supermarket format demonstrated LFL sales growth of 7.7% for the fourth quarter of 2015 and its share of Lenta's total sales increased to 3.7% in the reported quarter, up from 3.4% in the fourth quarter of 2014. Lenta's supermarkets in combination with eight 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 almost zero to 8.7% over the last two years.

Guidance

Lenta confirms its 2016 expansion target to open at least 40 new hypermarkets, significantly more hypermarkets than it has ever opened in a single calendar year. Looking ahead, Lenta expects to maintain a similar or higher rate of growth in 2017 and beyond.

Lenta expects that as a result of 2015 expansion and further acceleration of growth the Company will significantly exceed its previously communicated goal of doubling selling space over the three years to December 2016.

Supermarket opening guidance as well as total 2016 capex guidance will be published after FY 2015 financial results announcement.

Given the volatile consumer and macro environment, the Company will not provide 2016 sales growth guidance.

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 140 hypermarkets in 69 cities across Russia and 32 supermarkets in Moscow and St. Petersburg, with a total of approximately 882,383 sq.m of selling space. The average Lenta hypermarket store has selling space of approximately 6,100 sq.m. and the average supermarket has selling space of approximately 1,000 sq.m. The Company operates six 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 38,414 people as of 31 December 20156.

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.

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

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.

6 FTE (full-time equivalent). Average FTE for 2015 was 31,307 employees.