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.

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4Q 2019 Operating Highlights:

• Total sales declined by 1.4% in 4Q 2019 to Rub 117.9bn (4Q 2018: Rub 119.6bn), including retail sales flat at Rub 115.1bn (4Q 2018: Rub 115.1bn) and decline of 37.7% in wholesale;
• Like-for-like (“LFL”)¹ retail sales declined by 3.6%, excluding VAT, vs. 4Q 2018. This is equivalent to LFL retail sales decline of 3.1% including VAT, due to an increase in VAT from 1 January 2019;
• LFL retail traffic decline of 1.8% combined with LFL retail ticket decline of 1.9%;
• Lenta opened four hypermarkets during the fourth quarter of 2019, while one hypermarket was closed;
• Store count reached 380 stores as at 31 December 2019, comprising of 249 hypermarkets and 131 supermarkets;
• Total selling space increased to 1,489,497 sq.m as at 31 December 2019 (+1.5% vs. 31 December 2018); and
• Number of active loyalty cardholders² increased to 15.8m (+10.1% YoY) with around 97% of transactions in the fourth quarter carried out using the loyalty programme.

12M 2019 Operating Highlights:

• Total sales grew 1.0% in 12M 2019 to Rub 417.5bn (12M 2018: Rub 413.6bn), including retail sales growth of 4.0% to Rub 407.2bn (12M 2018: Rub 391.6bn) and a decline of 53.2% in wholesale sale;
• LFL retail sales growth of 0.1% excluding VAT vs. 12M 2018. This is the equivalent of LFL retail sales growth of 0.9% including VAT, due to the increase in VAT from 1 January 2019;
• LFL traffic growth of 0.0% combined with a growth of 0.1% in LFL ticket; and
• Eight new hypermarkets and three supermarkets were opened in 12M 2019, while three hypermarkets and seven supermarkets were closed during the same period.

Events in 4Q 2019 and after the reported period:

• The Company re-opened a hypermarket in St. Petersburg in a brand-new concept after a fire in November 2018. The layout of the store was designed to fulfil customers’ different shopping missions - daily, weekly, or occasional shopping. The store is equipped with various innovations, including contrast and shelf-lighting and price-checkers, while it has also introduced new service developments such as café and food services to ensure a superior customer experience.
• Lenta’s Board of Directors approved investments of around Rub 1.9bn into 29 supermarkets in Moscow with total selling space of ~24,000 sq.m. following signing of lease contracts with the ADG real-estate development back in 2017. The Company expects the stores to be opened during 2020-2021.
• Lenta has started the redomiciliation process following shareholder’s approval at the Extraordinary Meeting held on 22 October 2019. On 19 December 2019 the Company applied on to the Department of Registrar of Companies and Official Receiver (DRCOR) for continuance of the Company’s incorporation into Cyprus. The Redomiciliation will become effective upon the issue by the DRCOR of a certificate of temporary registration in Cyprus to the Company.
• Lenta also announced its intention to change the depositary appointed in connection with the Company’s global depositary receipt programme from Deutsche Bank Luxembourg S.A. to its affiliate Deutsche Bank Trust Company Americas. Accordingly, neither the Redomiciliation nor the change of depositary should affect the ordinary course of trading of the Company’s GDRs.

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.

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¹Lenta’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.