LNTA.L Regulatory News (LNTA)

LENTA SALES AND OPERATING HIGHLIGHTS FOR THE THIRD QUARTER ENDED 30 SEPTEMBER 2019

St-Petersburg, Russia; 28 October, 2019 - 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 third quarter ended 30 September 2019.

3Q 2019 Operating Highlights:

9M 2019 Operating Highlights:

Events in 3Q 2019 and after the reported period:

Lenta's Chief Executive Officer, Herman Tinga commented:

"The third quarter of 2019 was another challenging period for the food retail industry. The market remained very price-competitive due to the weak macroeconomic environment combined with the rapid expansion of retail chains. Consumers continued to be price-sensitive with more options around for making daily grocery purchases, while the retail chains have been focused on driving customer traffic by enhancing promotional activity.

As a result of these market trends, Lenta saw a declining frequency of visits together with reduction in the average number of items in the basket. This affected our results in the third quarter as Lenta delivered retail sales growth of 2.9%, while LFL sales declined by 0.5%. At the same time we also faced seasonal factors such as cold weather, low demand for non-food and seasonal food items, which especially affected our sales in July and September alongside with the one less Sunday in September this year compared to the previous one. However, the launch of "Lenta Anniversary" and our traditional "Back to School" campaigns, alongside other promotions, helped us achieve better results in August.

Nevertheless, we have been working to enhance our shopping experience and client communication for both formats. We also continued working on the optimization of our logistics. In October we closed one leased distribution center in Moscow and replaced it with a new facility with total space of around 70,990 sq.m, which became the largest distribution center in Lenta's portfolio. Simultaneously, we are still in progress of shaping a new strategy, which should help us to open the door into a new era of Lenta's development.

And last but not least, I am pleased to announce that the Company is continuing to optimize the Group's holding structure. Along with our new representative office in St. Petersburg, shareholders approved the re-domiciliation of the Company's jurisdiction from British Virgin Island to the Republic of Cyprus at the EGM. This should pave the way for more optimal capital allocation going forward, while allowing us to realize efficiencies in the cost of compliance and improved corporate governance."

Lenta's Operating Performance

The Company's retail sales grew by 2.9% in the third quarter of 2019 driven by selling space additions. Total sales reached Rub 100.4bn implying a decline of 0.4% compared to the third quarter of the previous year. A significant decline of 55.0% in sales to wholesale customers accounts for the difference between retail sales growth and total sales growth in the third quarter. Lenta expects wholesales to decline YoY throughout 2019.

In response to a challenging environment, the Company has been working on implementation of a series of initiatives to increase the distinctive attractiveness of Lenta's offering to customers. The Company continued to improve its assortment, including the launch of various private label product ranges in the third quarter. The Company also carried out a number of distinctive initiatives in the areas of customer marketing, Lenta's loyalty program and customer communication. This included the launch of programs that offer cash-back options for new and existing customers, as well as the launch of a special card program for Lenta's professional customers (Lenta PRO).

The Company also maintained focus on its digital marketing activities, reaching new and existing customers with offers tailored to each individual, to increase both traffic and basket size. The number of active loyalty cardholders increased to 15.5m as at 30 September 2019 (+12.5% YoY) while the share of transactions made with the loyalty card was 97%. Lenta's Mobile App, which launch in the fourth quarter of 2018, has already attracted more than 3.5 million users. Lenta took further steps to enhance the Mobile App's functionality, delivering an even better customer experience. In the third quarter we have personalized our promo offerings, and facilitated access to our specialized Lenta clubs ("Super-childhood" and "Lenta bar") through the app. We expect these and other initiatives to result in increased loyalty, higher sales and lower marketing costs.

Hypermarket retail sales grew 1.5% in the third quarter, primarily driven by selling space growth of 4.1%, while LFL retail sales in this format decreased by 1.2%. The supermarket format's total retail sales rose by 21.3% in 3Q 2019 driven by a 6.5% increase in selling space and LFL retail sales growth of 9.3%. The supermarket format's share of Lenta's retail sales was 8.3% in the reported quarter, compared to 8.7% in the second quarter of 2019 and 7.8% in the fourth quarter of 2018.

Total retail customer traffic increased by 3.0% in the third quarter of 2019 compared with the same period in 2018, comprising 0.2% growth in hypermarket traffic and 18.7% increase in retail traffic at Lenta's supermarket format.

During the reported period, one hypermarket and 11 supermarkets entered the LFL panel. LFL retail sales declined by 0.5% (excluding VAT) in the third quarter, representing 2.0% decline in LFL retail traffic and 1.5% growth in LFL retail ticket. LFL retail non-food sales decreased by 6.7% YoY (2Q 2019: -5.7% YoY). LFL retail food sales increased by 0.5% (2Q 2019: 1.7% YoY).

Lenta has been winning new customers in both new and LFL hypermarkets and supermarkets with an ongoing growth of number in unique customers.

LFL sales decreased by -1.2% in the hypermarket format, mainly impacted by declining traffic. Customer traffic growth in the LFL stores turned negative at -3.3%, as the increase in the number of new customers did not fully compensate for the reduction in visit frequency. In response to declining traffic, the Company intensified its promotional activity in August and September, which eventually resulted in strong inflow of "cherry-pickers" with small tickets, a high share of promotional items in the basket and a very low visit frequency.

LFL average retail ticket growth in the format increased by 2.1% as a result of continuous trading-up effect, largely offsetting on-shelf deflation in the third quarter. Lenta's hypermarkets returned to a deflationary environment in the third quarter due to more intensive promo-activity and lower prices for seasonal items such as fruits and vegetables. Nonetheless, LFL ticket growth improved compared to the previous quarter, which was a result of a higher average number of articles per basket vs. 2Q 2019.

The supermarket format demonstrated strong growth with an increase in LFL sales of 9.3% in the third quarter. Higher traffic drove LFL retail sales growth from the significant increase in new, unique customers to the format. Lenta continued to work on tactical changes to the offering, such as extending the product assortment and changing marketing activities, to enhance the attractiveness of stores to customers. LFL retail ticket grew by 1.9% in the reported period as the trading-up effect and shelf price inflation largely compensated for a reduction in the average number of items per basket.

The 0.5% fall in LFL retail sales in 3Q 2019 was therefore due to a combination of factors: an increase in number of customers combined with strong trading-up effects offset by overall on-shelf deflation, lower frequency of visits and reduced number of articles per basket.

3Q 2019 monthly operational results

Lenta Store and Supply Chain Developments

In the third quarter of 2019 Lenta opened one new owned compact hypermarket in Moscow with 5,920 sq.m in selling space. During the reported period the Company closed one leased hypermarket and three leased supermarkets, meaning three store closures on a net basis.

As a result, in the reported period Lenta's total selling space was reduced by 1,290 sq.m compared to the previous quarter. As at 30 September 2019 the total number of stores amounted to 375, including 246 hypermarkets and 129 supermarkets with total selling space of 1,471,647 sq.m, an increase of 4.3% year-over-year. Lenta retained its presence in 88 cities across the country.

After the reported period the Company opened one leased supermarket in Moscow with selling space of 611 sq.m and one owned supermarket in Siberia with selling space of 700 sq.m. As at the date of announcement the Company operates 377 stores, including 246 hypermarkets and 131 supermarkets, with total selling space of 1,472,869 sq.m.

The Company continued working on the optimization of its logistics. After the reported period the Company closed one leased distribution center in Moscow with a space of 14,990 sq.m, which was replaced with a new facility with total space of around 70,990 sq.m. It has become the largest distribution center in Lenta's portfolio. The new warehouse has new features such as units with different temperature zones and additional services to enhance optimization in the Company's procurement and logistics (especially in fresh, frozen and fruits and vegetables categories). Other innovations include separate units aimed to serve Lenta's "power category" also to support their centralization and further development. This will also include space for own production (culinary, confectionary, meat processing, etc.) and central bakery to ensure common operational standards across the chain. In the end, extension of space should support volume growth.

Guidance

The Company reconfirms its guidance for full year 2019 of eight new hypermarket and three new supermarket openings as part of organic expansion. Lenta expects capital expenditures of around Rub 17bn.

About Lenta

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.

[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. The Company has not made any changes to the methodology of LFL calculation; both total sales growth and LFL sales growth are reported excluding VAT as the best measure to evaluate YoY performance

[2] Cardholders who made at least 2 purchases at Lenta during the 12 months to 30 September 2019 are considered active.

[3] FTE (full-time equivalent). Average FTE for 1H2019 was 51,470 employees