Lenta : 1H2018 IFRS Financial Results

St. Petersburg, Russia; 29 August 2018 - Lenta Ltd ('Lenta' or the 'Company'), one of the largest retail chains in Russia, today announces its reviewed consolidated IFRS results for the half year ending 30 June 2018.

To view the full press release, click here.

1H 2018 Financial Highlights:

• Total sales grew 18.2% to Rub 193.2bn (1H 2017: Rub 163.5bn);
• Adjusted EBITDA of Rub 17.1bn, up 9.5% (1H 2017: Rub 15.6bn) with a margin of 8.9% (1H 2017: 9.6%);
• Gross margin of 21.9% (+0.17 p.p vs. 1H 2017) increased as higher supply chain costs and shrinkage were overcompensated by better supplier terms, while in-store production result remained almost flat;
• SG&A rose to 17.2% of sales (+1.3 p.p vs. 1H 2017) despite continuing successful productivity measures in the like-for-like stores, due to combined effects of the higher cost per FTE, rent expenses, rise in depreciation and increases in utility and communal payments;
• Capital expenditures of Rub 10.8bn, an increase of 8.4% compared to 1H 2017 (Rub 10.0bn) linked to additional investments in supermarkets;
• Net cash generated from operating activities, before net interest and income taxes paid, of Rub 5.1bn compared to Rub 7.3bn in 1H 2017, a decrease of 30.1% linked to movements in working capital;
• Net interest expenses of Rub 4.6bn, a decrease of 14.8% compared to 1H 2017 (Rub 5.4bn) primarily due to lower cost of debt;Net Profit of Rub 5.2bn, up 14.9% (1H 2017: Rub 4.5bn) with a flat margin of 2.7%; and
• Net Debt of Rub 103.4bn as of 30 June 2018 (Net Debt/Adjusted EBITDA of 2.8x).

1H 2018 Operational Highlights:

• Two new hypermarkets and 17 supermarkets opened during the first half of 2018;
• Total store count reached 346 stores as at 30 June 2018, comprising 233 hypermarkets and 113 supermarkets
• Total selling space increased to 1,403,145 sq.m as at 30 June 2018 (+19.6% vs. 30 June 2017);
• Like-for-like ('LFL') sales growth of 4.8% vs 1H 2017;
• LFL average ticket increased by 3.7%;
• LFL traffic growth of 1.1%; and
• Number of active loyalty cardholders increased to 13.4m (+16% y-o-y) with approximately 96% of transactions in the first half made using the loyalty card.

Events during and after the reported period:

• The Company launched a new private label range ('Bonvida') for professional customers;
• Lenta opened its own dedicated vegetable storage in the Ryazan Region with a total area of 6,786 sq.m;
• Lenta launched a co-branded loyalty programme with Raiffeisenbank which combines the existing Lenta loyalty programme benefits with the bank's bonus point cashbacks; and
• Lenta issued 91,302 new ordinary shares (456,510 GDRs) under Management Incentive Program (MIP) and Long-Term Incentive Program (LTIP). As a result share capital increased to 97,508,265 shares (487,541,325 GDRs);

Lenta's Chief Executive Officer, Jan Dunning said:

'We again delivered strong set of financial results for the first half of the year with Adjusted EBITDA margin of 8.9% and stable Net Income margin despite the challenging macro and consumer environment. We were very pleased to achieve an improvement in gross margin without any loss of competitiveness which we consider as a sign of our growing scale and improvements in our procurement processes. This didn't fully compensate expectedly higher personnel costs and rental expenses which were the key factors weighing on profitability. We expect that in the second half of the year the trajectory of the gross profit development will continue and upward pressure on SG&A will ease as our store network matures.

This makes us confident that Lenta will be able to sustain strong growth and market-leading profitability in 2018'.

Store Developments and Supply Chain

Lenta opened two hypermarkets and 17 supermarkets during 1H 2018, while one supermarket was closed , taking the total number of hypermarkets to 233 and supermarkets to 113. The Company did not enter any new cities during the period and remains present in 84 cities across the country. Total selling space as at 30 June 2018 increased to 1,403,145 sq.m, up 19.6% year-on-year.

Since the end of the reported period Lenta opened four new supermarkets, including the Company's first supermarkets in Novokuznetsk and Tomsk, as a result of which total store count reached 233 hypermarkets and 116 supermarkets with selling space as at the date of this announcement at 1,405,973 sq.m.

Lenta continues developing its logistics. The company added 22,000 sq.m of warehouse space during 1H 2018 to support volume growth. This includes a new 6,786 sq.m owned vegetable storage and packing facility was opened in Ryazan in July to ensure Lenta can provide increased volumes of high quality locally produced vegetables year-round at competitive prices.

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

Lenta
Mariya Filippova
PR and GR manager
Tel: [phone] ext.: 1892
E-mail: [e-mail]

Russian Media:
NW Advisors
Anton Karpov & Victoria Afonina
Тel:[phone]
E-mail: [e-mail]

To view the full press release, click here.

¹ Adjusted EBITDA is reported EBITDA as set out in Note 3 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
² Net Profit equates to 'Profit for the period' in the attached IFRS Financial Statements
³ Lenta's stores are included in the LFL store base starting 12 months after the end of the month they are opened
⁴ In May 2018 the Company closed one leased supermarket in Moscow with selling space of 721 sq.m.
⁵ 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.