LNTA.L Regulatory News (LNTA)

LENTA SALES AND OPERATING HIGHLIGHTS FOR THE SECOND QUARTER ENDED 30 JUNE 2017

St-Petersburg, Russia; 20 July, 2017 - 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 second quarter ended 30 June 2017.

2Q 2017 Operating Highlights:

· Total sales grew 16.3% in 2Q 2017 to Rub 85.6bn (2Q 2016: Rub 73.6bn);

· Like-for-like ("LFL")1 sales growth of (2.0%) vs. 2Q 2016;

· LFL traffic growth of (2.9%) combined with a 0.9% increase in LFL ticket;

· Seven supermarkets opened during the second quarter of 2017;

· Total store count reached 254 stores as at 30 June 2017, comprising 195 hypermarkets and 59 supermarkets;

· Total selling space increased to 1,173,416 sq.m as at 30 June 2017 (+27.1% vs. 30 June 2016); and

· Number of active loyalty cardholders2 increased to 11.5m (+23% y-o-y) with approximately 94% of transactions in the second quarter made using the loyalty card.

1H 2017 Operating Highlights:

· Total sales grew 16.7% in 1H 2017 to Rub 163.5bn (1H 2016: Rub 140.1bn);

· LFL sales growth of (1.8%) vs. 1H 2016;

· LFL traffic growth of (2.4%) combined with a 0.6% increase in LFL ticket;

· Lenta started expansion of its supermarket format in Novosibirsk with three stores opened in 1H 2017; and

· Four new hypermarkets and 11 supermarkets were opened during 1H 2017 while one supermarket was closed.

Material events in 2Q 2017 and after the reported period:

· Lenta completed placement of Rub 5.0bn 3-years bonds with semi-annual coupon and an interest rate of 8.7%;

· Lenta issued 98,217 new ordinary shares (491,085 GDRs) under Management Incentive Program (MIP) and Long-Term Incentive Program (LTIP)3. As a result share capital increased to 97,416,963 shares (487,084,815 GDRs);

[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

2 Cardholders who made at least 2 purchases at Lenta during the 12 months to 30 June 2017 are considered active

3 31,744 shares (158,720 GDRs) under LTIP are held as treasury shares

Lenta's Chief Executive Officer, Jan Dunning commented:

"Lenta continues to deliver rapid growth, with sales up by 16.3% in the second quarter of 2017 despite the challenging macro environment. Although growth in the reported quarter was slightly below the first quarter of this year we are encouraged by recent trends - after disappointing trading in April which was impacted by abnormally cold weather, growth in May was in line with the quarterly average while June results were very strong with a return positive LFL sales growth which has continued into July.

While Lenta continued gaining new customers ahead of sales, rapid expansion in the cities with existing presence resulted in higher cannibalization effects. These effects were especially visible in St.Petersburg due to the acquisition of Kesko's food retail business in late 2016. We are very happy with the performance of our new ex-Kesko stores - ramp-up is accelerating, reaching over 30% same-store sales growth4 in June, a clear demonstration of the attractiveness of Lenta's customer proposition. Of course, this growth also put additional pressure on our other stores in the region.

During the quarter the team launched several new initiatives to stimulate sales, including improvements in marketing and communications, category management and our loyalty program. We are pleased with the impact of these efforts, which helped deliver LFL sales growth in June back into positive territory and we hope to continue this momentum in the second half of the year."

Lenta Store Developments

In the second quarter of 2017, Lenta opened seven supermarkets: three leased supermarkets in Moscow, three leased stores in Saint-Petersburg and one owned supermarket store in Novosibirsk. Total number of stores reached 254 (195 hypermarkets and 59 supermarkets).

In the reported quarter Lenta added 5,815 sq.m of net selling space. Total selling space as at 30 June 2017 increased to 1,173,416 sq.m, up 27.1% year-on-year.

4 The stores acquired from Kesko are not included in Lenta's LFL panel. Calculation of same-store sales is made based on the period when the stores were owned by Kesko.

5 Within the reported period 

Lenta's Operating Performance

Continuing selling space additions partly offset by a slight decline in LFL sales resulted in overall sales growth of 16.3% for the second quarter of 2017. Total sales amounted to Rub 85.6bn in the quarter, compared to Rub 73.6bn for the same period last year.

Lenta continued to implement digital marketing activities to reach customers, with special offers tailored on an individual basis to enhance traffic and basket size. The number of active loyalty cardholders increased to 11.5m as at 30 June 2017 (+23% y-o-y) and the share of transactions made with the loyalty card was 94%, an approx. 2p.p increase y-o-y.

LFL sales growth of (2.0%) in the second quarter consisted of LFL traffic decline of 2.9% and average LFL ticket increase of 0.9%. LFL food sales declined by 2.0% and LFL non-food sales decreased by 1.3%.

Lenta continued gaining customers ahead of sales - the number of unique customers outpaced sales growth in both new and LFL hypermarkets and supermarkets. While new stores (not included in the LFL panel) demonstrated strong performance, LFL traffic in the reported quarter remained in a negative territory due to cannibalization effects. The Company efforts to gain new customers in older stores and increase frequency of visits of existing customers resulted in positive LFL sales growth in June.

The average LFL ticket growth improved vs the previous quarter despite shelf price deflation and stable number of articles in the basket which was compensated by increased trading up effects.

LFL growth of (2.0%) in 2Q 2017 was therefore due to a combination of factors - increase in the number of customers offset by cannibalisation from new Lenta stores and on-shelf deflation.

During the second quarter of 2017, three hypermarkets and nine supermarkets entered the LFL panel.

The average hypermarket ticket in the second quarter decreased to Rub 1,150 (-1.4% compared to the second quarter of 2016), which was below the LFL average hypermarket ticket growth of 0.8% reflecting the large share of stores in the ramp-up phase which are not included in the LFL panel. The average ticket in the supermarket format in the second quarter slightly decreased by 0.3% to Rub 540 compared to a 4.0% increase in the LFL average ticket.

Total customer traffic increased by 18.1% in the second quarter of 2017 compared with the same period of the previous year, comprising 17.7% growth in hypermarket traffic and a 22.8% increase in traffic at Lenta's supermarket format.

The supermarket format demonstrated positive LFL sales growth of 0.4% and its share of Lenta's total sales was 4.8% in the reported quarter. Lenta's supermarkets in combination with 13 hypermarkets operating in Moscow and the Moscow region continue to demonstrate very strong sales ramp-up dynamics with 22.4% y-o-y growth in total sales during the quarter - the share of this region in the Company's total sales was 10.7% in 2Q 2017.

Guidance

Lenta confirms its 2017 guidance to open about 30 new hypermarkets and about 50 new supermarkets with capex of Rub 30-35bn. Long-term growth targets for 2017-2020 remain unchanged.

The Company will report 1H 2017 IFRS financial results on 30 August, 2017. Based on preliminary management accounts, Lenta expects to achieve Adjusted EBITDA growth of around 14% for 1H 2017 and an Adjusted EBITDA margin of around 9.6% of sales compared to 9.8% for the same period of last year (a reduction of around 0.2p.p). EBITDA margins in LFL stores were slightly up, so the small decline in Lenta's EBITDA margin was a result of the Company's rapid expansion. Gross profit margin increased slightly, supported by better purchasing terms, partly offset by additional price investments. Continuing successful productivity measures in the like-for-like stores in the first half of the year more than offset additional investments in marketing and inflationary effects on utilities and communal payments. However, the higher number of new stores in the ramp-up phase will lead to a slight increase in SG&A costs as % of sales - this pressure is expected to ease in the second half of the year as new stores continue ramping up.

About Lenta

Lenta is the largest hypermarket chain in Russia (in terms of selling space) and the country's fifth largest retail chain (in terms of 2016 sales). The Company was founded in 1993 in St. Petersburg. Lenta operates 195 hypermarkets in 78 cities across Russia and 59 supermarkets in Moscow, St. Petersburg, Novosibirsk and the Central region with a total of approximately 1,173,416 sq.m of selling space. The average Lenta hypermarket store has selling space of approximately 5,700 sq.m. The average Lenta supermarket store has selling space of approximately 900 sq.m. The Company operates seven owned 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 45,689 people as of 31 December 2016.

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.

For further information please visit www.lentainvestor.com, 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.