LNTA.L Regulatory News (LNTA)

LENTA PUBLISHES AUDITED IFRS FINANCIAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

St. Petersburg, Russia; 18 February 2016 - Lenta Ltd ("Lenta" or the "Company"), one of the largest retail chains in Russia, today announces its audited consolidated IFRS results for the year ending 31 December 20151.

2015 Financial Highlights:

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

· Adjusted EBITDA2 of RUB 28.1bn, up 31.4% (2014: RUB 21.4bn) with a margin of 11.1% (2014: 11.0%);

· Gross margin of 22.3% (-0.2 p.p. vs. 2014) slightly decreased due to additional price investments in the second half of the year;

· SG&A decreased to 14.3% of sales (0.2 p.p. lower vs. 2014) thanks to continuous operational improvements and increased productivity which more than offset rising share of leased stores and associated rental expenses and increased depreciation expenses;

· Capital expenditures of RUB 31.4bn, a decrease of 10.7% compared to 2014 (RUB 35.1bn) linked to lower investments in land acquisition;

· Net cash generated from operating activities, before net interest and income taxes paid, of RUB 25.9bn compared to RUB 23.5bn in 2014 (an increase of 10.2%) primarily driven by EBITDA growth;

· Net interest expenses of RUB 9.3bn, an increase of 36.2% compared to 2014 (RUB 6.8bn) primarily due to higher interest rates and;

· Net Profit3 of RUB 10.3bn, up 13.4% (2014: RUB 9.1bn) with a margin of 4.1%; and

· Net Debt of RUB 53.5bn as of 31 December 2015 (Net debt/Adjusted EBITDA of 1.9x).

2015 Operational Highlights:

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

· Total number of hypermarkets at 31 December 2015 was 140, with 32 supermarkets in operation, selling space was c. 882,383 sq.m. (+25.8% vs. 31 December 2014);

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

· Like-for-like ("LFL")4 sales growth was 9.1% for 2015;

· LFL average ticket increased by 5.0% in 2015;

· LFL traffic increased by 3.9% in 2015; and

· The number of active loyalty cardholders5 increased by 29% y-o-y to a total of 8.4mm as of 31 December 2015.

Material events after the reported period:

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

· Opened two hypermarkets (in Grozny and Ufa) since the beginning of the year.

[1] Certain amounts do not correspond to the IFRS financial statements for the year ended 31 December 2014 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

3 Net 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

5 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 said:

"Lenta continues to deliver industry-leading sales growth and profitability against the back-drop of a challenging consumer and macro environment.

Lenta was Russia's fastest growing large retailer in 2015 for the third consecutive year. We improved profitability despite additional price investments made in the second half to support traffic growth by reducing the effects of inflation on our customers. Adjusted EBITDA grew by over 31% and EBITDA margin improved by around 0.1 p.p to 11.1%. Our suppliers rewarded us for delivering strong growth and this enabled us to become even more competitive. I am especially delighted that the increase in profitability was enabled by sustainable operational improvements - productivity driven by optimization of processes and further development of our supply chain infrastructure. We see room for further efficiency improvements and will continue to drive synergies from the increasing scale of the business.

We substantially strengthened our balance sheet through a combination of the growth in profitability and the additional equity issues in 2015. We also significantly improved the maturity profile of our debt while benefiting from the fall in Mosprime rates and reduced margins under our major long-term loan facilities. Given Lenta's healthy financial position and strong business performance we are well positioned to further accelerate our expansion. Our new store pipeline is stronger than ever and we continue to be confident in achieving our guidance to open at least 40 hypermarkets in 2016".

Store Developments and Supply Chain

Lenta opened 32 hypermarkets and eight supermarkets during 2015, taking the total number of hypermarkets to 140 and supermarkets to 32. The Company entered 11 new cities in 2015 and was present in 69 cities6. Total selling space as at 31 December 2015 increased to 882,383 sq.m., up 25.8% compared to the end of 2014.

Since the beginning of 2016 the Company has opened two hypermarkets in Grozny and Ufa, increasing the total store count to 174, including 142 hypermarkets in 70 cities and 32 supermarkets in Moscow and Saint-Petersburg. Total selling space as at 18 February 2016 reached 891,995 sq.m.

Lenta continues to invest significantly in its supply chain: a new DC was opened in Yekaterinburg in the fourth quarter of 2015. Lenta has also started construction of a new owned dedicated DC for supermarkets in the Moscow region which will open later this year. The average centralisation ratio increased to 46.1% in 2015 from 39.7% in 2014.

Operating performance

Lenta's total sales in 2015 increased 30.3% compared to 2014 due to an increase in sales from new stores opened in 2015, new stores opened in 2014 that are not yet part of the like-for-like panel and a 9.1% increase in like-for-like sales. The increase in sales from new stores was due to the acceleration in new store openings in 2014 and 2015, with a 25.8% increase in net selling space as of 31 December 2015 compared to 31 December 2014.

The macro and consumer environment remained difficult with increased pressure on customer incomes and continued high inflation. Consumers continued to be price-sensitive and promo-oriented, both trading down and reducing their volume of purchases. While total sales growth and LFL sales growth were slower in the second half of the year, Lenta total sales growth for the full year was in line with guidance.

6 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.

Financial Performance

Lenta demonstrated strong overall performance during the year, with industry-leading sales growth and an increase of the Adjusted EBITDA margin of 0.1 p.p to 11.1%. The increase in profitability was achieved thanks to improved supplier terms, effective cost management and supply chain improvements partly offset by price investments which absorbed part of the impact of inflation on Lenta's customers.

Net profit grew by 13.4% to Rub 10.3bn in 2015 driven by EBITDA growth partly offset by increased interest expenses and higher depreciation. While the net profit margin of 4.1% was primarily affected by the elevated growth in interest expenses, it was supported by an effective tax rate of 20.1% - slightly below the normalised level of 22%.

Income Statement Highlights

7 Adjusted SG&A is SG&A before rent paid on land, equipment and premises leases, depreciation and one-off non-operating costs

8 Adjusted EBITDAR is Adjusted EBITDA before rent paid on land, equipment and premises leases

Gross margin decreased slightly by 0.2 p.p to 22.3% - while Lenta continued to benefit from increased supply chain efficiency and improved supplier terms, the positive effect of these trends was partly offset by further investments in pricing and promotions to contain the effects of inflation on customers (the share of promo sales went up to 33.4% as % of total sales in 2015). A notable reduction of average distance for goods transportation (by 29.1% to 635km/pallet in 2015 vs 896km/pallet in 2014) and a higher centralization ratio led to the decrease in supply-chain cost as % of sales to 1.3% in 2015 from 1.6% in 2014 despite hypermarket openings in some remote locations (for example, in Murmansk and Irkutsk). Despite the high share of young stores in the portfolio, successful operational efforts resulted in a reduction in shrinkage as a % of sales.

Operational improvements resulted in a notable reduction of SG&A expenses as % of sales to 14.3% (0.2 p.p lower y-o-y) despite growing expenses related to expansion. SG&A costs were affected primarily by increased depreciation and rent expenses due to new store openings and infrastructure additions. Leased selling space increased by 62.3% y-o-y, reaching 19% of total selling space. Operational improvements and cost saving measures resulted in a reduction of Adjusted SG&A as % of sales in 2015 compared to 2014 of 0.6 p.p - to 10.9% vs 11.6%. An even more impressive reduction in total SG&A as % of sales was seen in the LFL store base opened before 31 December 2014: 1.5p.p. lower vs 2014.

As a result of the factors described above, Adjusted EBITDA in 2015 grew faster than sales and reached RUB 28.1bn (+31.4% vs 2014) with an Adjusted EBITDA margin of 11.1%.

Net interest expenses rose 36.2% to RUB 9.3bn due largely to increased market rates in the first half of the year and partially due to a slightly higher average level of borrowing to fund the store opening programme and supply-chain development. Lenta's weighted-average cost of debt in 2015 increased to 13.7% (+152bps vs 2014), while the average MosPrime rate increased 328bps for the same period. The Company managed to reduce its cost of debt throughout the year - from 17.5% in the first quarter to 12.3% in the fourth quarter - mainly due to the combined effects of continuing reductions in MosPrime rates, improvements in the terms and conditions of its major long-term loan facilities and debt repayments following the primary capital increase in March. The Company projects the effective cost of debt to remain almost unchanged in 1Q 2016 at around 12.2% (based on current MosPrime rates).

Net income increased by 13.4% to RUB 10.3bn. The effective tax rate increased from 17.0% in 2014 to 20.1%. A change in the tax treatment of shrinkage made in 2014 and retrospectively applied on 2011-2013 resulted in large one-off effects in 2014.

9 One-off expenses and income in 2015 and 2014 were professional services fees primarily incurred in connection with optimisation of the group corporate legal structure, development of employee incentive plans and cost and income related to Lenta's public offerings carried out in March 2014, March and October 2015

[1]0 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

Cash Flow and Balance Sheet

Net cash generated from operating activities before net interest and income taxes paid amounted to RUB 25.9bn compared to RUB 23.5bn in 2014.

Capital expenditures in 2015 were 10.7% lower than in 2014 and amounted to Rub 31.4bn, mainly reflecting lower investments in land acquisition as a large amount of pre-investments in land were made in previous years. This was however partially offset by slightly higher investments in future store openings. Capital expenditures were funded primarily by strong operating cash flow and to a lesser extent by the proceeds from primary capital increases in March and October 2015.

As of 30 December 2015, Net Debt to Adjusted EBITDA stood at 1.9x and Adjusted EBITDA to Net Interest was at 3.0x. As of 31 December 2014, Net debt to Adjusted EBITDA stood at 2.8x and Adjusted EBITDA to Net Interest was 3.1x. All of Lenta's debt is denominated in Russian Roubles and 100%11 of it is long-term with an average maturity of around 2.9 years. In addition to its total drawn debt of RUB 76.1bn, Lenta had RUB 45.3bn of undrawn short- and long-term facilities and a cash balance of RUB 22.5bn as at 31 December 2015. Following the close of the reported period the Company signed a Rub 7bn three-year fixed rate unsecured loan facility with Rosbank, which increases the share of long-term fixed rate debt in the portfolio. Headroom against leverage and other covenants in Lenta's loan agreements remains substantial.

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. The number of supermarket openings is also expected to increase in 2016. Looking ahead, Lenta expects to maintain a similar or higher rate of growth in 2017 and beyond.

Lenta expects that as a result of its successful expansion in 2014-2015 and further acceleration of growth in 2016, the Company will significantly exceed its previously communicated goal of doubling selling space over the three years to December 2016.

The Company expects capital expenditure of RUB 45-50bn in 2016.

The full set of accounts for Lenta Ltd. for financial years of 2015, 2014, 2013, 2012 and 2011 are available at www.lentainvestor.com 

About Lenta

Lenta is the fifth largest retail chain in Russia and the country's second largest hypermarket chain (in terms of 2015 sales). The Company was founded in 1993 in St. Petersburg. Lenta operates 142 hypermarkets in 70 cities across Russia and 32 supermarkets in Moscow and St. Petersburg, with a total of approximately 891,995 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 201512.

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.

1[1] Assuming no exercise of the put option under 01-03 bonds series in March 2016

[1]2 FTE (full-time equivalent). Average FTE for 2015 was 31,307 employees.

For further information please visit http://www.lentainvestor.com/en/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.