LNTA.L Regulatory News (LNTA)

LENTA SALES AND OPERATING HIGHLIGHTS FOR THE FOURTH QUARTER AND FULL YEAR ENDED 31 DECEMBER 2019

St-Petersburg, Russia; 24 January, 2020 - Lenta Ltd, (LSE, MOEX: LNTA / "Lenta" or the "Company") one of the largest retail chains in Russia, is pleased to announce its consolidated sales and operating results for the fourth quarter and twelve months ending 31 December 2019.

4Q 2019 Operating Highlights:

12M 2019 Operating Highlights:

Events in 4Q 2019 and after the reported period:

Lenta's Chief Executive Officer, Herman Tinga commented:

 "We are not pleased with our performance in 2019 and especially in the fourth quarter. It partly reflected ongoing changes in consumer behaviour and competitive environment. In the context of intensified competition, we saw an inflow of new customers, but at the same time our consumers visited our stores less frequently and bought fewer items. Low-inflationary environment combined with increased level of promotional activity in the industry also put pressure on retail business. On top of that, we faced internal challenges as our non-food sales declined, as our offer did not meet consumers expectations.

Having these challenges in mind, we focused our efforts on initiatives that allowed us to provide distinctive shopping experience and increase the attractiveness of Lenta's offering to different categories of consumers. These initiatives included broad-scale communication to customers through on-line and off-line channels, tailored promo-campaigns and in-store events. We saw positive impact on the performance of fresh food, which we define as a key category for differentiation from our competitors, continue into the fourth quarter. As we are in the process of shaping our new strategy, we will keep working on our offer, assortment, marketing and communication activities to improve our operating results in 2020.

While not everything went the way we wanted in the latest quarter, I am happy with our results in supermarket format. We delivered a strong total sales growth of 7.8% thanks to the efforts we made for improving our offering and communication with the customer in the format.

We were also proud to announce the re-opening of one of our hypermarkets in St. Petersburg in November, which represents a brand new vision of shopping space. We completely changed the layout of the store so it could meet the need of different shopping missions, made an accent on presentation of our power categories, filled the store with innovative equipment and provided customers with unique services. We believe these changes will help us to demonstrate solid traffic and basket size and pave the way for in-store improvements across the chain".

Lenta's Operating Performance

The Company's retail sales reached Rub 115.1 in the fourth quarter 2019 staying almost flat year-over-year. Total sales amounted to Rub 117.9bn implying a decline of 1.4% when compared to the fourth quarter of the previous year. Sales to wholesale customers declined by 37.7% year-over-year accounting for the difference between retail sales and total sales performance in the reported period.

Amid challenging environment, the Company has been working on a series of initiatives to ensure the distinctive attractiveness of Lenta's offering to customers. The Company has continued improving its assortment, including the launch of various private-label ranges of product in the fourth quarter. Lenta has carried out a number of distinctive initiatives in the areas of customer marketing, our loyalty programme and customer communication. This included a pilot of a new loyalty programme, various targeted promo-campaigns that offered additional discounts and cashbacks to customers, as well as extensive in-store communication.

The Company has also maintained its 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 15.8m as at 31 December 2019 (+10.1% YoY) while the share of transactions made with a loyalty card was 97%. Lenta's Mobile App, which launched in October 2018, has now attracted more than 4.8 million users. Lenta took further steps to enrich the Mobile App's functionality, delivering a better customer experience through enhancing personalized promo offerings. We expect these and other initiatives to increase customer loyalty, increase sales and lower marketing costs.

Hypermarket retail sales reduced by 0.7% in the fourth quarter on the back of a decline in LFL retail sales by 4.3% in this format combined with a growth in selling space of 1.9% year-over-year. The supermarket format's total retail sales rose by 7.8% in 4Q 2019 driven by a strong LFL sales growth of 4.7% which was partly offset by a 3.0% decrease in selling space. The supermarket share of Lenta's retail sales was 8.5% in the reported quarter, as opposed to 8.3% in the third quarter of 2019 and 7.9% in the fourth quarter of 2018.

Total retail customer traffic increased by 2.5% in the fourth quarter of 2019 compared with the same period in 2018, comprising 1.2% growth in hypermarket traffic and an 8.7% increase in retail traffic for Lenta's supermarket format.

During the reported period, one hypermarket and 11 supermarkets entered the LFL panel. LFL retail sales declined by 3.6% (excluding VAT) in the fourth quarter, representing a 1.8% decline in LFL retail traffic and a 1.9% decline in LFL retail ticket. LFL retail non-food sales decreased by 15.2% YoY (3Q 2019: -6.7% YoY). LFL retail food sales decreased by 1.8% (3Q 2019: 0.5% YoY).

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

LFL sales decreased by 4.3% in the hypermarket format, mainly impacted by declining traffic. Customer traffic growth in the LFL stores turned negative at 3.1% mainly due to a reduction in visit frequency which was not fully compensated by an increase in the number of new customers.

LFL average retail ticket growth in the format declined by 1.2% due to on-shelf deflation combined with the declining average number of items per basket that outweighed ongoing the trading-up effect in the fourth quarter. Lenta's hypermarkets continued to perform in a deflationary environment in the reported period due to more intensive promo-activity.

The supermarket format demonstrated strong growth with an increase in LFL sales of 4.7% in the fourth quarter. Higher traffic was the main driver for LFL retail sales growth thanks to a significant increase in new, unique customers to the format. Lenta continued working on tactical changes to the offering, such as extending the product assortment and changing marketing activities to enhance the attractiveness of stores to customers.

Lenta's supermarkets also operated in a deflationary environment in the fourth quarter as Lenta intensified promotional activity. Shelf price deflation combined with the lower average number of articles per basket resulted in a decline of 0.6% in the LFL retail ticket in the reported period.

The 3.6% fall in LFL retail sales in 4Q 2019 was therefore due to a combination of factors: an increase in the number of customers and ongoing trading-up effects were outweighed by on-shelf deflation, a lower frequency of visits and a reduced number of articles per basket.

4Q 2019 monthly operational results

Lenta Store Developments

Lenta opened four hypermarkets in the fourth quarter, including one owned compact hypermarket in Arkhangelsk with selling space of 5,237 sq.m. and two leased compact hypermarkets in Samara and Ufa with selling space of 4,389 sq.m. and 3,219 sq.m. respectively, and it re-opened a standard hypermarket in St. Petersburg with a selling space of 7,998 sq.m. The Company closed one leased hypermarket in Moscow.

During the reported period Lenta also opened two supermarkets, including one leased store in Moscow with 611 sq.m in selling space and one owned supermarket in Siberia with 700 sq.m in selling space.

As a result, in the reported period Lenta's total selling space increased by 17,850 sq.m when compared to the previous quarter. As at 31 December 2019 the total number of stores amounted to 380, including 249 hypermarkets and 131 supermarkets with total selling space of 1,489,497 sq.m, an increase of 1.5% year-over-year. Lenta retained its presence in 88 cities across the country.

Guidance

In the announcement of its 1H 2019 financial results, the Company stated it has been considering closing seven hypermarkets which have low potential to reach expected returns. During the reported period, one store was closed in Moscow. The Company decided not to close three hypermarkets as Lenta successfully completed rent negotiations that should have a positive impact on their profitability. The remaining three hypermarkets may be closed subject to rent negotiation. There are no plans to close other hypermarkets or supermarkets except for those mentioned in the respective announcement.

Lenta will provide details on its opening guidance and capital expenditure projections for 2020 following the publication of the FY 2019 financial results scheduled to be announced on 25 February 2020.

About Lenta

Lenta is the largest hypermarket chain in Russia and the country's fourth-largest retail chain. The Company was founded in 1993 in St. Petersburg. Lenta operates 249 hypermarkets in 88 cities across Russia and 131 supermarkets in Moscow, St. Petersburg, and the Siberia, Urals and Central regions, with a total of approximately 1,489,497 sq.m. of selling space. The average Lenta hypermarket store has selling space of approximately 5,500 sq.m. The average Lenta supermarket store has selling space of approximately 840 sq.m. The Company operates 12 distribution centers.

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 48,391 people as of 31 December 2019[3].

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 Severgroup, which is 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", and 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. 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 31 December 2019 are considered active.

[3] FTE (full-time equivalent). Average FTE for FY 2019 was 51,908 employees