Lenta Ltd. (LNTA;LNTR)
Lenta Ltd.: Correction: 1H 2019 IFRS Financial Results
28-Aug-2019 / 16:04 CET/CEST
Dissemination of a Regulatory Announcement, transmitted by EQS Group.
The issuer is solely responsible for the content of this announcement.
GENERAL TEXT AMMENT
The following amendments have been made to the '1H 2019 IFRS Financial
Results' announcement released on 28-Aug-2019 at 09:03(CET/CEST).
? Rental expenses as % for 1H 2019 under IAS 17 and IFRS 16 has been
changed to 1.5% and 0.3% respectively. The relevant figure of '% Change 1H
2019-1H 2018' has been changed to 0.0% (p.4).
? Adjusted SG&A for 1H 2019 under IAS 17 and IFRS 16 has been changed to
13.9% (p.4). The relevant figure of '% Change 1H 2019-1H 2018' has been
changed to 1.3% (p.4).
? EBITDAR for 1H 2019 under IAS 17 and IFRS 17 has been changed to Rub
19,235m and Rub 19,422m respectively (p.4). The relevant figure of '%
Change 1H 2019-1H 2018' has been changed to (3.8%) (p.4).
? EBITDAR margin for 1H 2019 under IAS 17 and IFRS 16 has been changed to
9.7% (p.4). The relevant figure of '% Change 1H 2019-1H 2018' has been
changed to (0.7%) (p.4).
? As a result, Adjusted SG&A as % of sales increased by 1.3.p.p to 13.9%
in 1H 2019 compared to 1H 2018. (p.4)
? Rental expenses increased by 6 bps to 1.5% of sales as a result of
indexation of rental fees linked to CPI. (p.4)
All other details remain unchanged.
The full amended text is shown below.
LENTA PUBLISHES REVIEWED IFRS FINANCIAL RESULTS FOR THE HALF YEARED 30
JUNE 2019
St. Petersburg, Russia; 28 August 2019 - 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 2019.
1H 2019 Financial Highlights:
? Total sales grew 3.1% in 1H 2019 to Rub 199.2bn (1H 2018: Rub 193.2bn),
including retail sales growth of 7.2% and wholesale decline of 62.2%;
? Gross margin of 22.5% (+0.6p.p vs. 1H 2018) increased as a share of
low-margin wholesales business declined in total sales, while retail
margin remained almost flat;
? SG&A rose to 19.1% of sales (+2.0p.p vs. 1H 2018) due to combined
effects of the higher personnel cost, rent expenses, rise in depreciation,
as well as increases in utility and communal costs;
? EBITDA of Rub 16.1bn, down 5.7% (1H 2018: Rub 17.1bn) with a margin of
8.1% (1H 2018: 8.9%);
? Non-cash expenses of c. Rub 10.2bn, including impairment of assets of
approx. Rub 9.0bn and depreciation from change in useful life of land
improvements of approx. Rub 1.2bn;
? Net interest expenses of Rub 4.7bn, an increase of 1.8% compared to 1H
2018 (Rub 4.6bn) as an increase in gross debt offset a decline in average
cost of debt;
? Net Loss[1] of Rub 4.5bn with negative Net Profit margin of 2.2%
compared to Net Profit of Rub 5.2bn in 1H 2018 with Net Profit margin of
2.7%;
? Net cash generated from operating activities, before net interest and
income taxes paid, of Rub 6.1bn compared to Rub 5.1bn in 1H 2018 with an
increase of 20.8% linked to movements in working capital;
? Capital expenditures of Rub 5.6bn, a decrease of 46.7% compared to 1H
2018 (Rub 10.5bn) due to slower pace of expansion;
? Net Debt of Rub 99.3bn as of 30 June 2019 vs. Rub 93.3bn as at the end
of 2018; and
? Net Debt/EBITDA of 2.7x compared to 2.6x as at 31 December 2018.
1H 2019 Operational Highlights:
? Three new hypermarkets and one supermarket were opened during the first
half of 2019 while one hypermarket and four supermarkets were closed;
? Total store count reached 377 stores at 30 June 2019, comprising 246
hypermarkets and 131 supermarkets;
? Total selling space increased to 1,472,937 sq.m as at 30 June 2019
(+5.0% vs. 30 June 2018);
? LFL retail sales growth[2] of 2.9% excluding VAT vs. 1H 2018. This is
the equivalent of LFL retail sales growth of 3.7% including VAT, due to an
increase in VAT from 1 January 2019;
? LFL average ticket increased by 0.7%;
? LFL traffic growth of 2.1%; and
? Number of active loyalty cardholders[3] increased to 15.2m (+13.5%
y-o-y) with around 97% of transactions in the second quarter made using
the loyalty card.
Events during and after the reported period:
? Severgroup LLC acquired a combined total of 78.73% of Lenta's issued and
outstanding voting shares from TPG, EBRD and minority shareholders upon
completion of the mandatory tender offer;
? The Board used its authority to fill the four vacated seats on the Board
with the nominees of Severgroup;
? On 2nd August 2019 Maxim Bakhtin has resigned as non-executive director
from Board of Directors of Lenta Ltd;
? The Board made a decision to appoint Tomas Korganas, Director for
Strategy and M&A of Severgroup, as Lenta's Non-executive Director with an
immediate effect; and
? The Company has received first tranche of Rub 0.5bn of insurance payment
related to the fire accident in Lenta store in St. Petersburg in November
2018.
Lenta's Chief Executive Officer, Herman Tinga said:
"In the first half of the year Lenta again proved its competitive strength
and ability to remain attractive for customers. We continued to see further
inflows of new unique customers to our stores from other market players,
both large federal and smaller regional retail chains. In addition, despite
continued intense promotional activity across the industry, we were able to
maintain our retail gross margins y-o-y. Against this, the macro and
consumer environment remained challenging with further pressure on customer
wallets, resulting in negative growth of real disposable household income
and a growing consumer debt burden. This combined with fast growth of
selling space in the industry and continuing price competition resulted in
lower visit frequency and smaller basket size. I continue to believe that
Lenta's leadership position in the hypermarket sector and its growing
customer base provide a very strong platform which will be beneficial for us
when the economic situation improves."
Lenta's Chief Financial Officer, Rud Pedersen commented:
"Lenta is entering a new period in its development, adapting to a
challenging macroeconomic and competitive environment and taking into
account the vision of our new strategic majority shareholder. After more
than five years of being growth focused in an underpenetrated market, we
have to change our focus to operating efficiencies across the entire
business. As Lenta's store base mature while the potential for further
organic expansion in our core hypermarket format becomes increasingly more
difficult, we must put additional efforts into supporting LFL sales growth
in our stores to create a strong platform for implementation of a new
strategy".
Store Network Development and Performance Review
Lenta opened three hypermarkets and one supermarket during 1H 2019, while
one hypermarket and four supermarkets were closed, taking the total number
of hypermarkets to 246 and supermarkets to 131. The Company did not enter
any new cities during the period and remained present in 88 cities[4] across
the country. Total selling space as at 30 June 2019 increased to
1,472,937sq.m, up 5.0% year-on-year.
Since the end of the reported period Lenta closed one leased hypermarket in
Novokuznetsk and three leased supermarkets[5], as a result of which total
store count reached 245 hypermarkets and 129 supermarkets with selling space
as at the date of this announcement at 1,467,974 sq.m.
In 1H 2019 the Company took a decision to run bottom-up store performance
review to identify stores which have low potential to reach expected
returns. As a result of this review the Company closed seven supermarkets
and may close up to nine hypermarkets.
Hypermarkets:
? Two hypermarkets were closed since the beginning of the year;
? Further seven hypermarkets may be closed subject to rent negotiation;
? Total selling space of these seven stores is 33,011 sq.m, which
represents 2.2% of total selling space and c. 1.2% of total sales in 2018;
? Total amount of impairment related to the above mentioned hypermarkets
of around Rub 1.6bn is reflected in the financial statements for 1H 2019.
Supermarkets:
? Seven supermarkets were closed since the beginning of the year and there
are no plans to make further closures in the format;
? Total selling space of these stores was 5,224 sq.m, which represented
0.4% of the Company's total selling space and 0.3% of total sales in 2018;
? Total amount of impairment related to the closure of the supermarkets is
not material and is reflected in the financial statements for 1H 2019.
Operating Performance
YoY growth 1Q 2019 2Q 2019 1H 2019
Total sales 6.0% 0.4% 3.1%
Retail sales 9.9% 4.7% 7.2%
LFL retail sales (excl.VAT) 5.0% 0.8% 2.9%
LFL traffic 3.8% 0.6% 2.1%
LFL ticket 1.2% 0.2% 0.7%
Lenta's total retail sales in 1H 2019 increased 7.2% compared to 1H 2018 due
to an increase in sales from new stores opened in 2019 and new stores opened
in 2018 which are not yet part of the like-for-like panel, supported by 2.9%
increase in like-for-like sales. Net selling space increased by 5.0% as of
30 June 2019 compared to 30 June 2018.
1H 2019 Financial Performance
IAS 17 IFRS 16
RUB 1H 2018 1H 2019 % Change IFRS 16 impact 1H 2019
(millions) 1H 2019 -
1H 2018
Total sales 193,220 199,211 3.1% - 199,211
Gross profit 42,319 44,855 6.0% 187 45,043
Gross margin 21.9% 22.5% 0.6p.p 0.1p.p 22.6%
SG&A, % of 17.1% 19.1% 2.0p.p (0.3p.p) 18.8%
sales
Adjusted 12.6% 13.9% 1.3p.p (0.0p.p) 13.9%
SG&A[6], %
of sales
EBITDAR[7] 19,986 19,235 (3.8%) 187 19,422
EBITDAR 10.3% 9.7% (0.7p.p) 0.1p.p 9.7%
margin
Rental 1.5% 1.5% 0.0p.p (1.2p.p) 0.3%
expenses, %
of sales
EBITDA 17,112 16,144 (5.7%) 2,680 18,824
EBITDA 8.9% 8.1% (0.8p.p) 1.3p.p 9.4%
margin
Operating 11,226 8,756 -22.0% 833 9,589
profit
before
impairment
Impairment (200) (9,005) 45.0x - (9,005)
Operating 11,027 (250) (102.3%) 833 583
profit/(loss
)
Profit 6,354 (4,829) (176.0%) (470) (5,299)
before
income tax
Net Profit 5,161 (4,453) (186.3%) (376) (4,829)
Net profit 2.7% (2.2%) (4.9p.p) (0.2p.p) (2.4%)
margin
Gross profit margin increased to 22.5% from 21.9% in the first half of 2018.
The positive effect primarily came from a substantial decline in a share of
a low-margin wholesales business in the Company's total sales. Retail margin
stood almost flat as an increase in promo share as % of sales in the first
half of the year by 2.p.p. y-o-y was mostly compensated by a combined effect
of better promo margin and better coverage of promo activities by suppliers.
Expansion of the Company's own production and increased volumes led to a
rise in related costs by 46 bps. Share of shrinkage marginally increased by
6 bps as a result of ongoing changes in procurement (including increases in
direct import operations and direct contracts with suppliers and farmers)
and higher share of fresh food categories.
Supply-chain cost as % of sales rose by 17 bps to 1.3% in 1H 2019 vs 1.1% in
1H 2018. This was mainly driven by higher fuel prices and increased
personnel expenses following an expansion of own truck fleet. Nonetheless
higher transport costs were largely offset by an increase in the share of
deliveries by own truck fleet, increase in supply-chain income and ongoing
improvements in transportation efficiency. The Company's average
centralization ratio increased to 60.5% from 55.6% in the first half of
2018.
Personnel costs as % of sales grew by 62 bps y-o-y due to lower sales
densities in the new stores opened in the second half of 2018, and one-off
expenses related to management compensation. Professional fees were higher
as % of sales by 30 bps due to an increase in consulting services, while
increased utilities, cleaning and communal costs by 34 bps were mainly
caused by a country-wide rise in tariffs.
As a result, Adjusted SG&A as % of sales increased by 1.3.p.p to 13.9% in 1H
2019 compared to 1H 2018.
Rental expenses increased by 6 bps to 1.5% of sales as a result of
indexation of rental fees linked to CPI.
Following the factors mentioned above, EBITDA in the first half of 2019
reached Rub 16.1bn and EBITDA margin stood at 8.1%.
Depreciation as % of sales increased by 66 bps y-o-y, which was mainly due
to the Company reviewed economic useful life of land improvements from 30
years to 7 years (as practice has proven that factual useful life of land
improvements does not exceed 7 years). Consequently, the Company recognized
additional non-cash expense of around Rub 1.2bn.
Total SG&A as % of sales increased to 19.1% in the reported period, up from
17.1% in 1H 2018.
In the reported period the Company's management took a decision to reassess
its impairment of assets. As at 30 June Lenta performed impairment test of
assets at the lowest level of aggregation of assets that is able to generate
independent cash Inflows, which is generally at the individual store level.
Impairment charge was made on 77 stores (38 hypermarkets and 39
supermarkets), including closed stores, stores that may be closed, plus two
projects under construction, and cover land, land improvements, buildings
and equipment. The Company recognised one-off non-cash impairment loss of
approximately Rub 9.0bn for 1H 2019.
Net interest expenses increased by 1.8% to Rub 4.7bn as an increase in gross
debt outpaced the reduction of the cost of debt. Overall, the
weighted-average effective interest cost decreased 37 bps from 8.84% for 1H
2018 to 8.47% for 1H 2019 through the combined effects of improvements in
the terms and conditions of major long-term loan facilities, debt repayments
and refinancing.
In the reported period the Company recognized Net Loss of Rub 4.5bn compared
to Net Profit of Rub 5.2bn in the first half of 2018. This was mainly due to
negative impact from above mentioned one-off non-cash items in the total
amount of Rub 10.2bn. The Company recognised a tax benefit in the amount of
Rub 376m in the first half of the year, which substantially reduced
effective tax rate to 7.8% from 18.8% in 1H 2018.
Cash Flow and Balance Sheet
Net cash generated from operating activities before net interest and income
taxes paid amounted to Rub 6.1bn compared to Rub 5.1bn in 1H 2018 (+20.8%).
This increase was mainly attributable to positive developments in working
capital. Inventory declined due to more efficient supply-chain processes and
increased centralization ratio. Lower decrease in trade payables this year
compared to 1H 2018 was due to better supplier conditions.
Capital expenditures in 1H 2019 were 46.7% lower than in 1H 2018 and
amounted to Rub 5.6bn, reflecting slower pace of store openings in the
reported period vs last year. At 30 June 2019 the Group has contractual
capital expenditure commitments in respect of property, plant and equipment
and intangible assets totalling Rub 6.7bn net of VAT (31 December 2018: Rub
11.5bn net of VAT).
RUB IAS 17 IFRS 16
(millions)
1H 2018 1H 2019 Change 1H IFRS 16 impact 1H 2019
2019 - 1H
2018
Cash flow 17,649 16,807 (4.8%) 2,680 19,487
from
operating
activities
Movements (12,569) (10,672) (15.1%) 74 (10,745)
in working
capital
Net (5,733) (5,064) (11.7%) (1,398) (6,461)
interest
and income
taxes paid
Net cash (653) 1,072 2.6x 1,209 2,281
flow from
operating
activities
Net cash (10,795) (5,814) (46.1%) 22 (5,792)
flow from
investing
activities
Net cash 2,091 41,907 20.0x (1,231) 40,676
flow from
financing
activities
Net (9,358) 37,165 5.0x - 37,165
increase/(d
ecrease) in
cash and
cash
equivalents
As of 30 June 2019, the Company had a gross debt of Rub 170.3bn and a cash
balance of Rub 71.0bn, giving Net Debt of Rub 99.3bn. In addition, Lenta had
Rub 70.8bn of undrawn short- and long-term facilities.
New long-term loan facilities with relatively low fixed rates were placed
early in the first quarter of 2019 and shortly after the closure of the
second quarter. These facilities enabled the Company to secure a lower cost
of debt with sufficient cash on hand to cover all of Lenta's refinancing
needs in 2019 and part of 2020. All of Lenta's debt is denominated in
Russian Rubles and unsecured. 79% of debt is long-term of which 35% is due
within one year. Average debt maturity is around 1.4 years.
RUB (millions) 30 June 31 December 30 June
2019 2018 2018
Gross debt 170,260 127,080 108,334
Long-term debt 87,064 106,341 83,452
Short-term debt 83,197 20,739 24,882
Cash and cash 70,969 33,805 4,944
equivalents
Net Debt 99,291 93,275 103,390
Net Debt/EBITDA 2.7x 2.6x 2.8x
As of 30 June 2019, Net Debt to EBITDA stood at 2.7x, Lease Adjusted Net
Debt to EBITDAR[8] at 3.6x and EBITDA to Net Interest at 3.8x. As of 31
December 2018, Net Debt to EBITDA stood at 2.6x, Lease Adjusted Net Debt to
EBITDAR at 3.3x and EBITDA to Net Interest was at 3.9x.
Impact of IFRS 16
Since 1 January 2019 Lenta has applied IFRS 16, which changes the accounting
principles for operating leases, using the modified retrospective approach
under which the prior year figures in the financial statement were not
restated.
Under IFRS 16, Lenta's gross profit increased by Rub 187m due to a reduced
supply chain cost by a respective amount related to an operating lease of
distribution centres. As a result, gross profit margin stood at 22.6% vs.
22.5% under IAS 17.
SG&A expenses decreased by Rub 645m mainly due to exclusion of lease
expenses of Rub 2.5bn under the new standard. At the same time, the Company
recognized additional depreciation of around Rub 1.8bn. Operating profit
before impairment amounted to Rub 9.6bn under IFRS 16 vs. Rub Rub 8.8bn
under IAS 17. Adjusted for impairment, operating profit was at Rub 583m
under the new standard vs. operating loss of Rub 250m under IAS 17.
Interest expenses under IFRS 16 increased by Rub 1.4bn related to interest
expenses on lease liabilities, while income tax benefit increased by Rub 93m
due to additional depreciation expenses. As a result, Net Loss under the new
standard reached Rub 4.8bn vs. Rub 4.5bn under IAS 17.
The net changes in cash position has not changed under IFRS 16 vs. IAS 17,
while the relevant reclassifications were made within the cash flow
statement.
Changes in Corporate Structure
Lenta's Board of Directors made a decision to establish a representative
office of Lenta Ltd. (holding company registered in the British Virgin
Islands) in Russia which would serve the purposes of representation of
Lenta's interests in the country.
As a result, Russia will be considered as the place of management and
control of the Company. The representative office is expected to be opened
in Saint-Petersburg in October 2019. Lenta's CFO, Rud Pedersen will be
appointed as the head of the representative office.
The appropriate application will be made to the Russian tax authorities for
the Company to be registered as a Russian tax resident.
This decision is aimed to rationalize corporate structure of the Group to
allow for a more optimal capital allocation, optimize cost of compliance and
improve corporate governance standards reflecting recent changes in Lenta's
shareholder structure.
The Company is considering further steps to optimize the Group's holding
structure and respective announcement will be made as and when this may be
required. Lenta does not expect any implications for GDR-holders and any
impact on financial results.
Guidance
The Company confirms hypermarket opening target for the full year of 2019 of
eight new stores on a gross basis. Lenta made a decision to revise
supermarket opening target from seven to three new stores on a gross basis.
The decision reflects challenging macroeconomic conditions and strict
approach to return requirement.
Company's full year guidance for capital expenditures has been revised from
Rub 15bn to Rub 17bn. This reflects actual expenditures in the first half of
the year and committed amount for the second half as well as additional
investments in supply chain capacity, centralized production facilities,
upgrades of IT-systems and digitalization, further development of Lenta's
"Hero categories" and other efficiency-related investments.
The full set of accounts for Lenta Ltd. for 1H 2019 and financial years of
2011-2018 are available at www.lentainvestor.com [1]
About Lenta
? Lenta is the largest hypermarket chain in Russia and the country's third
largest retail chain. The Company was founded in 1993 in St. Petersburg.
Lenta operates 245 hypermarkets in 88 cities across Russia and 129
supermarkets in Moscow, St. Petersburg, and the Siberia, Urals and Central
regions, with a total of approximately 1,467,974 sq.m. of selling space.
The average Lenta hypermarket store has selling space of approximately
5,500 sq.m. The average Lenta supermarket store has selling space of
approximately 800 sq.m. The Company operates 12 distribution centers.
? 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 50,509 people as of 30 June
2019[9].
? 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 Severgroup, which is
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 [2].
? For further information please visit www.lentainvestor.com [1], or
contact:
?
? Lenta Russian Media:
? Mariya Filippova
? Head of PR&GR NW Advisors
? Tel: +7 812 380-61-31 ext.:
1892
Victoria Afonina
? E-mail:
maria.filippova@lenta.com
?el:+7 495 795 06 23
E-mail: lenta@nwadvisors.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.
=---------------------------------------------------------------------------
[1] Net Loss equates to "(Loss)/Profit for the period" in the attached IFRS
Financial Statements
[2] Lenta'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 y-o-y performance
[3] Cardholders who made at least 2 purchases at Lenta during the 12 months
to 30 June 2019 are considered active.
[4] 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.
[5] Closed supermarkets were located in Moscow, St.Petersburg and Vladimir
and represented a combined total of 2,015 sq.m. of selling space.
[6] Adjusted SG&A is SG&A before rent paid on land, equipment and premises
leases, depreciation
[7] EBITDAR is EBITDA before rent paid on land, equipment and premises
leases
[8] Lease adjusted Net Debt calculated as Net Debt plus operating leases
multiplied by capitalization rate of 8.0x in accordance with credit rating
agencies approach
[9] FTE (full-time equivalent). Average FTE for 1H2019 was 51,470 employees
ISIN: US52634T2006, US52634T1016
Category Code: IR
TIDM: LNTA;LNTR
LEI Code: 213800OMCE8QATH73N15
OAM Categories: 1.2. Half yearly financial reports and audit reports/limited
reviews
Sequence No.: 18304
EQS News ID: 864811
End of Announcement EQS News Service
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