LNTA.L Regulatory News (LNTA)

LENTA SALES AND OPERATING HIGHLIGHTS FOR THE THIRD QUARTER

ENDED 30 SEPTEMBER 2015

St-Petersburg, Russia; 16 October, 2015 - 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 and nine months ended 30 September 2015.

3Q 2015 Operating Highlights:

· Total sales grew 29.3% in 3Q 2015 to Rub 62.8bn (3Q 2014: Rub 48.5bn);

· Like-for-like ("LFL")1 sales growth of 8.5% vs.3Q 2014;

· LFL traffic growth of 2.1% combined with a 6.2% increase in LFL ticket;

· Six hypermarkets opened during the third quarter of 2015;

· Total of 149 stores at 30 September 2015, comprising 122 hypermarkets and 27 supermarkets;

· Total selling space increased to 787,804 sq.m. as at 30 September 2015 (+38.3% vs. 30 September 2014); and

· Number of active loyalty cardholders2 increased to 8.0m (+33% y-o-y) with approximately 90% of transactions in the third quarter made using the loyalty card.

9M 2015 Operating Highlights:

· Total sales grew 32.1% in 9M 2015 to Rub 177.7bn (9M 2014: Rub 134.4bn);

· LFL sales growth of 10.4% vs. 9M 2014;

· LFL traffic growth of 3.7% combined with a 6.4% increase in LFL ticket;

· 14 hypermarkets and three supermarkets opened during the first nine months of 2015.

Material events in 3Q 2015 and after the reported period:

· Lenta issued two tranches of bonds on MoEx for a total amount of Rub 10bn with 10 years maturity and a coupon rate of 12.4%3 (both tranches rated "BB-" by Fitch Ratings);

· S&P Ratings Services upgraded the long-term credit rating of Lenta Ltd. and its main operating company Lenta LLC to "BB-" with a "stable" outlook;

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

· Lenta acquired three new stores and four land plots from O'KEY Group; one of the acquired stores opened in September and the other two will open before the end of 2015. New stores will be developed on the four land plots to open during 2016-2017.

Lenta's Chief Executive Officer, Jan Dunning commented:

"In the third quarter of 2015, Lenta again delivered strong growth, with total sales up 29% despite a high base for comparison. Lenta remains well positioned to win in a tough market environment generating strong 8.5% LFL sales and 2% LFL traffic growth despite continuing pressure on consumer incomes and decelerating food inflation. Further adjustments to our offer to meet evolving consumer needs, including intensified tailored promotions, resulted in an acceleration of sales growth in September with double-digit LFL sales growth.

We continued to benefit from effective cost management and further improvements in our supply chain, which together with improved supplier terms enabled us to absorb part of the effect inflation has on our customers without sacrificing profitability.

Returns on investment in new stores have remained consistently strong. Our new store pipeline has also continued to strengthen, enabling us to increase our hypermarket opening target for 2015 to at least 30 stores.

The upgrade of S&P's credit rating to 'BB-' with a stable outlook, assigned to Lenta in August and upgrade of Moody's credit rating to "Ba3" with a "stable" outlook in October, reflect our strong operational performance, robust profitability and improved financial position which enable the Company to grow its share of the Russian food retail market."

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

Lenta Store Developments

In the third quarter of 2015, Lenta opened six hypermarkets (three owned standard stores in Murmansk, Moscow and Novokuznetsk, two owned compact stores in Kemerovo and Volgograd and one leased compact store in Moscow), taking the total number of stores to 149 (122 hypermarkets and 27 supermarkets). The Company entered one new city in the third quarter of 2015 and is now present in 634  cities. Lenta added 36,359 sq.m. of new selling space in the reported quarter. Total selling space as at 30 September 2015 increased to 787,804 sq.m., up 38.3% year-on-year.

Lenta's Operating Performance

Continuing selling space additions and LFL growth supported overall sales growth of 29.3% for the third quarter of 2015. Total sales amounted to Rub 62.8bn in the third quarter, compared to Rub 48.5bn for the same period last year. 

In the third 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 8.0 million as at 30 September, 2015 (+33% y-o-y).

LFL sales growth of 8.5% in the third quarter was supported by LFL traffic growth of 2.1% and average LFL ticket increase of 6.2% due to inflationary effects partly offset by a reduction in the number of items per basket, changes in the product mix and increased promotions. LFL food sales increased by 10.0%, while LFL non-food sales growth remained negative. In addition to the effects of trading down, sales in the third quarter were also affected by the high base of last year, especially in July and August. Sales growth strengthened in September with double-digit LFL sales growth and robust LFL traffic growth; LFL ticket growth was impacted by decelerating inflation, however trading down stabilized - while growth in number of articles per basket and product mix still remained negative y-o-y, the dynamics have improved since July.

Lenta's expansion resulted in an increase in the number of new maturing stores included in the LFL store base for comparison. During the third quarter of 2015, six hypermarkets entered the LFL panel.

The average hypermarket ticket in the third quarter increased to Rub 1,122 (+3.1% compared to the third quarter of 2014), lower than the 6.3% increase in the LFL average hypermarket ticket due to the increase in the proportion of young stores. As of 30 September 2015 the share of selling space younger than three years increased to 60% compared to 52% as at 30 September 2014 and the share of stores operating for less than one year increased to 28% compared to 27% a year ago. The same trend was visible in the supermarket format, where the average ticket in the third quarter increased by 4.7% to Rub 531 compared to 9.0% increase in the LFL average ticket.

Total customer traffic increased by 26.6% in the third quarter of 2015 compared with the same period of the previous year, comprising 24.1% growth in hypermarket traffic and 64.8% increase in traffic at Lenta's supermarket format.

The supermarket format demonstrated LFL sales growth of 14.7% for the third quarter of 2015 and its share of Lenta's total sales increased to 3.8% in the reported quarter, up from 2.9% in the third quarter of 2014. Lenta's supermarkets in combination with seven 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 7.7% over the last two years.

Recent trading

Lenta's sales growth accelerated month-on-month from August to September 2015. While August was still impacted by the high base for comparison and negative quality of days effect, September sales growth was above the 3Q 2015 average with double-digit LFL sales growth. Sales growth for the first two weeks of October was in line with September, remaining significantly higher than the 3Q 2015 average and above the 9M 2015 average, again with double-digit LFL sales growth, underpinned by further improvements in traffic dynamics, reflecting stabilization of trading down effects and the successful efforts Lenta has made to adjust its offer to meet changing customer needs in this challenging environment.

Debt update

During the third quarter Lenta issued two tranches of bonds on MoEx for a total amount of Rub 10bn, both with 10 years maturity and a semi-annual coupon of 12.4% (the first tranche has a 2.5 year and the second a 3 year put option). The improvements in loan terms signed in 2015, combined with effect of continuing falls in MosPrime rates reduced the average cost6 of Lenta's debt portfolio from 13.9% in 2Q 2015 to 12.5% in 3Q 2015. The company projects the effective cost of debt to reduce further to 12.0% in 4Q 2015 (based on current MosPrime rates). Lenta's loan portfolio is fully denominated in Russian Roubles and 100%7 of it is long-term. Following the bond issues in the third quarter 73% of the portfolio is at fixed rates or hedged using swaps and caps.

Guidance

Lenta's new store development pipeline further strengthened enabling the Company to increase its store opening guidance for 2015 to open at least 30 hypermarkets. The supermarket opening target remains unchanged. Given the strength of the new store pipeline combined with strong cash generation, lower interest costs, decreasing financial leverage and longer debt maturities Lenta expects to further increase hypermarket openings in 2016 to at least 32 stores, exceeding the previous record number of 31 hypermarket 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 expects to comfortably exceed its goal of doubling selling space over the three years to December 2016. The Company confirms its capital expenditures are expected to be around RUB 35bn in 2015.

Given the volatile consumer and macro environment, the Company revises its 2015 sales growth guidance to 29-33%. The increased store opening guidance for 2015 will not provide meaningful contribution to 2015 sales as the incremental hypermarket openings will occur towards the end of the year, benefitting sales growth primarily in 2016 and subsequent periods.

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 122 hypermarkets in 638 cities across Russia and 27 supermarkets in the Moscow region, with a total of approximately 787,804 sq.m. of selling space. The average Lenta hypermarket store has selling space of approximately 6,200 sq.m. The Company operates six 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 30,6559people as of 30 June 2015.

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 on www.Lentainvestor.com/en/about/lenta-video.

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.