Lenta Ltd 3Q&9M 2016 sales and operating results

TIDMLNTR TIDMLNTA

RNS Number : 0291N

Lenta Ltd

20 October 2016

LENTA SALES AND OPERATING HIGHLIGHTS FOR THE THIRD QUARTER ENDED 30 SEPTEMBER 2016

St-Petersburg, Russia; 20 October, 2016 - 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 2016.

3Q 2016 Operating Highlights:

--      Total sales grew 20.2% in 3Q 2016 to Rub 75.4bn (3Q 2015: Rub 62.8bn); 
   --      Like-for-like ("LFL")(1) sales growth of 4.3% vs. 3Q 2015; 
   --      LFL traffic growth of 0.1% combined with a 4.2% increase in LFL ticket; 
   --      Eight hypermarkets opened during the third quarter of 2016;

-- Total store count reached 197 stores as at 30 September 2016, comprising 155 hypermarkets and 42 supermarkets;

-- Total selling space increased to 963,370 sq.m. as at 30 September 2016 (+22.3% vs. 30 September 2015); and

-- Number of active loyalty cardholders(2) increased to 9.8m (+23% y-o-y) with approximately 93% of transactions in the third quarter made using the loyalty card.

9M 2016 Operating Highlights:

--      Total sales grew 21.3% in 9M 2016 to Rub 215.5bn (9M 2015: Rub 177.7bn); 
   --      LFL sales growth of 4.9% vs. 9M 2015; 
   --      LFL traffic growth of 1.4% combined with a 3.4% increase in LFL ticket; 
   --      16 hypermarkets and 10 supermarkets opened during 9M 2016.

Material events in 3Q 2016 and after the reported period:

--      Lenta has opened one hypermarket in Taganrog in October 2016.

Lenta's Chief Executive Officer, Jan Dunning commented:

"We are pleased with the results of the third quarter of 2016 - 20.2% sales growth with 4.3% LFL sales growth despite our own high base for comparison of the third quarter of 2015, the rapid fall in food inflation since the beginning of the year, and continuing pressure on customer purchasing power.

In this challenging environment, customers continue to be price sensitive and bargain oriented. Lenta's low price, value led proposition is well positioned for this. For example, this has led to a record high penetration of promotional sales in the total basket even though Lenta's overall promotional activity remained stable. We have also noticed further stabilization of purchasing trends with gradual improvement in the average number of articles per basket and average price per article as well as non-food sales growth.

We successfully continued expansion of our hypermarket format with eight stores opened in the third quarter. Since the beginning of the year we have opened 16 hypermarkets of which 11 stores have been opened in big cities with population of more than one million inhabitants.

We are well on track to deliver at least 40 new hypermarkets this year, and expect to beat our ambitious target to double selling space in the three years to December 2016. We have already secured all the sites required to meet our hypermarket opening goals for 2017 and have started working on the 2018 pipeline."

(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 September 2016 are considered active

Lenta Store Developments

In the third quarter of 2016, Lenta opened eight hypermarkets: one leased compact store in Saint-Petersburg, five owned compact stores in Volgograd, Chelyabinsk, Novokuznetsk and Omsk (two stores), one leased compact and one leased supercompact store in Moscow, taking the total number of stores to 197 (155 hypermarkets and 42 supermarkets).

Lenta added 40,508 sq.m. of new selling space in the reported quarter. Total selling space as at 30 September 2016 increased to 963,370 sq.m., up 22.3% year-on-year.

As        As        Net     Change     As        As        Net     Change 
                        at        at      change     (%)       at        at      change     (%) 
                        30        30                           30        30 
                       Sep       Sep                          Sep       Sep 
                        3Q        3Q                           9M        9M 
                       2016      2015                         2016      2015 
 Number 
  of stores            197       149       48      32.2%      197       149       48      32.2% 
     hypermarkets      155       122       33      27.0%      155       122       33      27.0% 
     supermarkets      42        27        15      55.6%      42        27        15      55.6% 
 
 Number 
  of new 
  stores(3)             8         6         2      33.3%      26        17         9      52.9% 
     hypermarkets       8         6         2      33.3%      16        14         2      14.3% 
     supermarkets       0         0         0       0.0%      10         3         7       2.3x 
 
 Total selling 
  space (sq.m.)      963,370   787,804   175,566   22.3%    963,370   787,804   175,566   22.3% 
     hypermarkets    922,951   758,477   164,474   21.7%    922,951   758,477   164,474   21.7% 
     supermarkets    40,419    29,327    11,092    37.8%    40,419    29,327    11,092    37.8% 
 
 Total selling 
  space added 
  (sq.m.)(3)         40,508    36,359     4,149    11.4%    88,687    86,654     2,033     2.3% 
     hypermarkets    40,508    36,359     4,149    11.4%    81,779    83,890    -2,111    -2.5% 
     supermarkets       0         0         0       0.0%     6,908     2,765     4,143    149.9%

(3) Within the reported period

Lenta's Operating Performance

Continuing selling space additions and LFL growth supported overall sales growth of 20.2% for the third quarter of 2016. Total sales amounted to Rub 75.4bn in the quarter, compared to Rub 62.8bn 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. The number of active loyalty cardholders increased to 9.8m as at 30 September, 2016 (+23% y-o-y) and the share of transactions made with the loyalty card remained stable at 93%.

LFL sales growth of 4.3% in the third quarter was supported by LFL traffic growth of 0.1% and average LFL ticket increase of 4.2%. LFL food sales increased by 4.8% and LFL non-food sales increased by 1.1%, remaining positive for the second quarter in a row.

LFL average basket growth improved for the third consecutive quarter despite y-o-y deceleration of food inflation. In the reported quarter this was supported by a moderate pick-up in on-shelf inflation (to 4.0% in 3Q 2016 from 3.2% in 2Q 2016) in line with the country-wide trend, which still remained below official food inflation (6.5% in 3Q 2016 vs 5.6% in 2Q 2016). Trading down has stabilized since the beginning of the year - the average number of items per basket improved q-o-q for the third quarter in a row but remained slightly negative y-o-y. Changes in the product mix (change of average price per article) were in positive territory for the second consecutive quarter.

During the third quarter of 2016, six hypermarkets and one supermarket entered the LFL panel.

LFL       LFL        LFL        LFL       LFL        LFL 
                  sales     average    traffic    sales     average    traffic 
                  growth    ticket     growth     growth    ticket     growth 
                            growth                          growth 
                 3Q 2016   3Q 2016    3Q 2016    9M 2016   9M 2016    9M 2016 
 
 Lenta total 
  (%)             4.3%       4.2%       0.1%      4.9%       3.4%       1.4% 
 hypermarkets     4.3%       4.2%       0.0%      4.9%       3.5%       1.3% 
 supermarkets     4.4%       3.4%       1.0%      5.2%       2.3%       2.9%

The average hypermarket ticket in the third quarter increased to Rub 1,100 (+2.2% compared to the third quarter of 2015), which was lower than the 4.2% increase in the LFL average hypermarket ticket, reflecting the high proportion of young stores in the ramp-up phase with lower average tickets. The average ticket in the supermarket format in the third quarter decreased by 1.7% to Rub 523 compared to a 3.4% increase in the LFL average ticket.

Total customer traffic increased by 17.6% in the third quarter of 2016 compared with the same period of the previous year, comprising 15.7% growth in hypermarket traffic and a 40.0% increase in traffic at Lenta's supermarket format.

The supermarket format demonstrated LFL sales growth of 4.4% for the third quarter of 2016 and its share of Lenta's total sales increased to 4.4% in the reported quarter, up from 3.8% in the third quarter of 2015. Lenta's supermarkets in combination with 11 hypermarkets operating in Moscow and the Moscow region continue to demonstrate very strong sales ramp-up dynamics with 37.7% y-o-y growth in total sales during the quarter - the share of this region in the Company's total sales was 8.3% in 3Q 2016.

3Q                                             9M         9M 
                       2016    3Q 2015   Net change   Change (%)     2016       2015     Net change   Change (%) 
 
 Sales (Rub, 
  million)            75,420    62,753       12,667        20.2%    215,506    177,650       37,856        21.3% 
     hypermarkets     72,105    60,346       11,759        19.5%    205,790    170,602       35,188        20.6% 
     supermarkets      3,315     2,407          908        37.7%      9,717      7,048        2,668        37.9% 
 
 Average 
  ticket (Rub)         1,100     1,076           24         2.2%      1,103      1,086           17         1.6% 
     hypermarkets      1,159     1,122           37         3.3%      1,158      1,129           29         2.5% 
     supermarkets        523       531           -9        -1.7%        549        563          -14        -2.4% 
 
 Customer 
  traffic

(MORE TO FOLLOW) Dow Jones Newswires

October 20, 2016 02:52 ET (06:52 GMT)

(million)             68.6      58.3         10.2        17.6%      195.4      163.6         31.8        19.4% 
     hypermarkets       62.2      53.8          8.4        15.7%      177.7      151.1         26.6        17.6% 
     supermarkets        6.3       4.5          1.8        40.0%       17.7       12.5          5.2        41.3%

Debt update

All of Lenta's debt is denominated in Russian Roubles and 93% of it is long-term with an average maturity of around 2.7 years. In addition to its total drawn debt of Rub 77.2bn, Lenta had Rub 46.4bn of undrawn short- and long-term facilities and a cash balance of Rub 2.1bn as of 30 September 2016. The average effective interest rate on Lenta's drawn debt in 3Q 2016 decreased to 11.71% from 12.33%(4) in 2Q 2016 (a reduction of 62bps vs a decrease in the average 3M MosPrime rate of 40bps). Based on the current MosPrime level and actions taken to optimize Lenta's loan portfolio, the average effective cost of debt is projected to decrease to 11.35%(5) in 4Q 2016. The Company will continue to seek additional opportunities to reduce the average cost of debt in the current year.

(4) Excluding one-off items: IFRS adjustments on amortized transaction costs and prepayment fee under partial repayment of VTB Bank loan

(5) Average effective cost of debt doesn't include commitment fee under VTB loan

Guidance

Lenta confirms its 2016 expansion target to open at least 40 new hypermarkets, significantly more hypermarkets than it has ever opened in a single calendar year. The number of supermarket openings in 2016 is expected to be at least double 2015. Looking ahead, Lenta expects to maintain a similar or higher rate of growth in 2017 and beyond.

Lenta expects that as a result of its successful expansion in 2014-2015 and further acceleration of growth in 2016, the Company will significantly exceed its previously communicated goal of doubling selling space over the three years to December 2016. Capital expenditures in 2016 are expected to be Rub 45-50bn.

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 2015 sales). The Company was founded in 1993 in St. Petersburg. Lenta operates 155 hypermarkets in 72 cities across Russia and 42 supermarkets in Moscow and St. Petersburg, with a total of approximately 963,370 sq.m of selling space. The average Lenta hypermarket store has selling space of approximately 6,000 sq.m. The average Lenta supermarket store has selling space of approximately 1,000 sq.m. The Company operates six owned 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 34,134 people as of 30 June 2016(6) .

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'.

(6) FTE (full-time equivalent). Average FTE for 1H2016 was 33,758 employees

A brief video summary on Lenta's business and its Big Data initiative can be seen here.

For further information please visit http://www.lentainvestor.com/en/or contact:

Lenta                               David Westover 
  Anna Meleshina,                     Senior Director 
  Public Relations &                  +44 207 282 2886 desk 
  Government Affairs                  +44 7768 897722 mobile 
  Director                            David.westover@citigatedr.co.uk 
  Tel: +7 812 363 28 
  53                                  Marina Zakharova 
  E-mail: anna.meleshina@lenta.com    Director 
                                      +44 207 282 1079 desk 
  Anastasia Kuznetsova,               +44 7774 256545 
  Corporate Communications            Marina.zakharova@citigatedr.co.uk 
  Manager 
  el:+7 (812) 336 39 
  97 
  E-mail: a.kuznetsova@lenta.com

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.

This information is provided by RNS

The company news service from the London Stock Exchange

END

TSTKMMZGVGGGVZG

(END) Dow Jones Newswires

October 20, 2016 02:52 ET (06:52 GMT)