23 Mar 2015 16:42
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LENTA LAUNCHES A PRIMARY CAPITAL INCREASE OF APPROXIMATELY $200 MILLION TO PROVIDE FINANCIAL FLEXIBILITY FOR ACCELERATED EXPANSION
St. Petersburg, Russia; 23 March 2015 - Lenta Ltd (LSE: LNTA / LNTR, MOEX: LNTA); "Lenta" or the "Company"), one of the largest retail chains in Russia, is pleased to announce the launch of a capital increase via an accelerated book build placement (the "Placing") of global depositary receipts representing newly issued shares in the Company raising approximately $200 million to further strengthen its balance sheet, providing additional financial flexibility to accelerate its new store expansion programme.
Rationale for the Placing
· Lenta is well positioned to capitalise on the opportunity afforded by current conditions to step up its store expansion plans in the under-penetrated Russian grocery retail market.
· The company's low price/low cost business model and distinctive price-led customer proposition continue to deliver rapid sales growth and robust returns on investment in both new and LFL stores, despite the challenging economic environment.
· Lenta has proven its capability to deliver rapid expansion, having opened 55 hypermarkets in the last two years including 31 new hypermarkets during 2014, which significantly exceeded guidance. The Company's dedicated development teams have also made substantial progress in building up Lenta's land bank and new store pipeline for 2015 and beyond. Lenta currently has 18 hypermarket sites in development and 16 further land plots in ownership, in addition to plots under negotiation and rental opportunities.
· Lenta believes the current challenging economic environment is likely to result in an increase in the availability of land plots in attractive locations, accompanied by a reduction in demand, and that this will create an opportunity to accelerate land plot acquisitions.
· Lenta has substantial undrawn debt financing available to it, but wishes to ensure that its prudent leverage goals do not impede the company from taking full advantage of the available opportunities. By further strengthening Lenta's balance sheet, a primary capital raise will provide additional financial flexibility to increase capital expenditure levels above previously announced plans. This will in turn allow the Company to accelerate development of its existing pipeline and to take advantage of more plentiful opportunities to accelerate the pace of new store openings in 2015 and subsequent years.
· Increases in capital expenditure beyond previously announced plans for 2015 are expected to be largely phased in the second half of the year and to be financed by a combination of cash on hand, increased cash flows as a result of the reduction in interest costs due to the repayment of high-interest bearing debt enabled by the capital increase and drawdown of existing undrawn credit lines.
· Projected net proceeds from the capital increase are equivalent to approximately 0.5x adjusted FY2014 EBITDA at current exchange rates. The specific use of the net proceeds will be to repay bank credit facilities extended to Lenta LLC and, to the extent short term lines are fully repaid, any excess amount would be held in cash for general corporate purposes, including increased capital expenditure.
· In addition to enhancing its financial flexibility, Lenta expects the proposed Placing will benefit its earnings per share as at current MosPrime rates, the effective annualised interest rate on the debt earmarked for repayment is approximately 18%.
· At current MosPrime rates, the average effective interest rate applicable as of April 1st on Lenta's remaining debt, following the capital increase and resetting of rates according to existing credit agreements, would be approximately 14%.
The accelerated bookbuilding process will be launched immediately following this announcement. The Company has had discussions with potential anchor investors, which may result in one or more anchor investors acquiring a substantial portion of the Placing.
Credit Suisse Securities (Europe) Limited, J.P. Morgan Securities plc and VTB Capital PLC are acting as Joint Global Coordinators and Joint Bookrunners in connection with the Placing. The timing of the closing of the process, pricing and allocations are at the discretion of the Company and the Joint Global Coordinators.
Lock-Ups
There will be a lock-up period of 90 days for the Company, Luna Inc. and the European Bank for Reconstruction and Development in relation to their respective shareholdings in the Company following the Placing.
Updated guidance:
Conditional upon successful completion of the Placing and the additional financial flexibility afforded by the capital increase, Lenta will be positioned to increase certain of its previously announced growth targets and therefore to update its 2015 guidance as follows:
· Lenta to open at least 25 new hypermarkets in 2015 versus previous guidance of 20-25
· Supermarket new openings target of 10-15 new stores in 2015 remains unchanged
· Total sales growth guidance remains 34-38%, as the incremental hypermarket openings will occur towards the end of the year, benefitting sales growth primarily in 2016
· Planned capital expenditure will increase by approximately RUB 5bn to around RUB 30bn for 2015, with the majority of the incremental capex deployed in 2H 2015. Capital expenditure might be further increased in the course of the year subject to market conditions and the availability of suitable opportunities.
Looking ahead, Lenta 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 has previously confirmed that the company is on track to meet its goal of doubling selling space over the three years to December 2016. The acceleration enabled by the capital increase is expected to result in this goal being comfortably exceeded.
Lenta's Chief Executive Officer, Jan Dunning said:
"Our low-price / low-cost business model, strong financial results and further acceleration of sales growth in early 2015 combined with our proven capability to deliver rapid new store expansion put Lenta in a strong position to capitalise on the growth opportunities in Russian food retail. The current economic environment provides a chance for us to grow even more quickly as our model is well-adapted to the needs of consumers facing pressure on household budgets and new store development opportunities are more plentiful.
The proceeds of the capital increase will strengthen our balance sheet and give us the additional financial flexibility to accelerate our store opening programme in 2015 and beyond.
With this further acceleration in new store openings we expect to comfortably exceed our target of doubling net selling space over the three years to December 2016."
***For further information, please visit www.lentainvestor.com, or contact:
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
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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 111 hypermarkets in 62 cities across Russia and 24 supermarkets in Moscow and the Moscow region, with a total of approximately 720,590 sq.m. of selling space. The average Lenta hypermarket store has selling space of approximately 6,300 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 35,100 people as of 31 December 2014.
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 and trades on the London Stock Exchange under the tickers 'LNTA' and 'LNTR' and on the Moscow Exchange under the ticker 'LNTA'.
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Credit Suisse, J.P. Morgan and VTB Capital are acting exclusively for the Company and no one else in connection with the Placing and will not regard any other person (whether or not a recipient of this press release) as their client in relation to the Placing and will not be responsible to anyone other than the Company for providing the protections afforded to their client.
Information contained herein is not an offer, or an invitation to make offers, to sell, purchase, exchange or otherwise transfer securities in the Russian Federation to or for the benefit of any Russian person or entity, except to the extent permitted under Russian securities laws. This document is not an advertisement in connection with the "placement" or "public circulation" (as both terms are defined under Russian securities law) of any securities and securities are not intended for "placement" or "public circulation" in the Russian Federation, in each case unless otherwise permitted under Russian securities laws. Neither securities nor a prospectus relating to such securities has been or will be registered with the Central Bank of Russia.
This document may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements may be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. By their very nature, forward looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward looking statements will not be achieved. As a result, actual future results may differ materially from the plans, goals and expectations set out in these forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.
Any forward-looking statements made by or on behalf of Lenta speak only as at the date of this announcement. Subject to its legal and regulatory obligations, neither the Company, nor any of its agents, employees or advisors intends or has any duty or obligation to supplement, amend, update or revise any of the forward looking statements contained in this document to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.
In no circumstances shall the provision of this document imply that no negative change may occur in the business of the Company after the date of provision of this document, or any date of amendment and/or addition thereto.