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Strengthening
Expanding
Improving
Annual Report and Accounts 2015
Lenta is a price-led, distinctive
hypermarket business in Russia led
by a highly experienced management
team. Lenta has a compelling,
integrated business model and
is well positioned to grow in Russia’s
dynamic food retail market.
Lenta is now Russia’s number one hypermarket
operator by selling space. In 2015 we ranked fifth
by total sales – and were the country’s fastest
growing food retailer for the third year running.
Strategy in action
Strengthening
We continued to identify and take advantage of
the numerous opportunities for sustainable growth
across key regions in the Russian market.
+
Read more on page 02
Expanding
We accelerated our store roll-out programme
and were Russia’s fastest growing large retailer
for the third year running.
+
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04
Lenta Annual Report and Accounts 2015
Strategy in action
Murmansk
St Petersburg
GMT+3 hours
Kaluga
Tula
Orel
Saransk
Khanty-Mansiysk
Engels
Chelyabinsk
Stavropol
Magnitogorsk
Improving
Understanding our customers’ changing
preferences enables us to tailor our ranges and
promotions to give them more of what they want.
Expanding
What we did in 2015
We extended Lenta’s presence across Russia, bringing
the total number of cities in which we have a presence
to 69. We exceeded our year’s opening target with
32 new hypermarkets – more than in any single year
in the Company’s history, bringing the total to 140 – and
are now Russia’s leading hypermarket chain in terms of
selling space.
Driving our strategy
We continued to accelerate the pace of our store roll-out
programme in both new and existing locations – and were
Russia’s fastest growing large retailer for the third year
running. We remain on track to exceed our ambition of
doubling selling space in the three years to December 2016.
+
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+
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Lenta Annual Report and Accounts 2015
05
11
Eleven new cities
Our expansion plans accelerated in
2015 and we opened Lenta stores
in 11 new cities across Russia.
From Murmansk in the Arctic Circle
to Irkutsk near Lake Baikal, we are
successfully growing our presence
in new and challenging geographies.
4
New supermarkets in
St. Petersburg – and beyond
In 2015 we opened our first four
supermarkets in our home city of
St. Petersburg – with more to come.
This successful format provides
us with excellent growth potential
and high returns on our investment.
We therefore plan to roll it out further
in St. Petersburg, Moscow and other
regions over time.
+29%
Lenta loyalty card –
+29% of cardholders
The Lenta loyalty card goes from
strength to strength. We now have
over 8.4 million active cardholders,
a rise of 29% on 2014. Our customers
recognise and appreciate the
generous benefits it brings in the form
of extra discounts, special promotions
and additional bonuses.
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Our rapid expansion meant
the total number of suppliers
increased to almost 3,000
in 2015. Local producers
supplied just under half of all
the products we sold – and are
now the principal providers of
fresh food to our stores.
+
Read more on pages 00
To see the report online go to:
www.lentainvestor.com/en/
investors/annual-reports
Highlights of the year
Financial highlights
Lenta Annual Report and Accounts 2015
01
Revenue (RUB)
252.8bn
+30.3%
56.3bn
+28.7%
Gross profit (RUB)
Adjusted EBITDA (RUB)
28.1bn
+31.4%
10.3bn
+13.4%
Net profit (RUB)
Operational highlights
Total sales were up almost a third on last year,
like-for-like sales grew 9.1% and we experienced
a 3.9% rise in customer traffic.
We opened stores in 11 new cities. At the year end Lenta
had a presence in 69 cities across Russia.
Total selling space across our store base grew to
882,383 sq.m. – an increase of 25.8% year-on-year.
At the end of the year we had over 8.4 million active loyalty
cardholders, an increase of 29% on the previous year.
Contents
Strategic report
Strategy in action
Chairman’s statement
At a glance
Where we are
Business model
CEO’s review
Market overview
Strategy
Operating review
Principal risks and uncertainties
Financial review
Corporate social responsibility
02
08
10
12
14
16
18
22
24
36
44
50
Corporate governance
Introduction from the Chairman
Board of Directors
Senior Management team
Our corporate governance
framework
Board of Directors
Board Committees
Responsibility statement
67
68
70
72
75
78
90
Financial statements
Statement of management’s
responsibilities for the preparation
and approval of the consolidated
financial statements
Independent auditors’ report
Consolidated statement
of financial position
Consolidated statement
of profit or loss and other
comprehensive income
Consolidated statement
of cash flows
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
Appendices
List of cities as of
31 December, 2016
Glossary
Further information
Cautionary statements
92
93
94
95
96
97
98
136
138
139
140
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Strategy in action
Strengthening
What we did in 2015
We reinforced our presence in key areas including Moscow
and St. Petersburg, and the North-West, Central, Volga,
South, Siberia and Ural regions – with Siberia being the
largest, accounting for 20% of total selling space at the year
end. New distribution centres in Togliatti, Rostov-on-Don
and Yekaterinburg provided us with additional capacity to
serve our network of stores efficiently and cost-effectively.
Supporting our business
Strengthening – and servicing – our presence in key
regions is fundamental to our strategy. We continued to
identify and take advantage of the numerous opportunities
for sustainable growth in the Russian market, building
the most appropriate store formats for each location and
supporting them through enhanced supply operations.
+
Read more on page 22
1st
Number one hypermarket
Lenta is the leading hypermarket
retailer in Russia by selling space.
In 2015 we added over 188,000 sq.m.
of new space – an increase of over
25% year-on-year. Our rapid growth
to date and future expansion plans
mean we remain on course to
exceed our aim of doubling our
selling space in the three-year
period to 2016.
+
Read more on page 24
Lenta Annual Report and Accounts 2015 03
3
69
New distribution operations
Two distribution centres had soft
openings in 2014 and came fully
on stream in 2015, with a third
undergoing commissioning. This
extra capacity enables us to increase
centralisation of our operations and
reduce our transportation costs –
and gives us the ability to serve over
250 hypermarkets.
Deepening our presence
We have continued to grow our market
share in areas where we already have
an established and loyal customer
base. With a sizeable land bank and
a healthy pipeline of projects, our
range of modern retail formats means
we can plan and build exactly the right
store for every location. At the year
end Lenta had a presence in 69 cities
across Russia.
We continued to support the
professional development of
all our people – from Senior
Management to our shop floor
staff. In 2015 over 24,000 of our
store colleagues benefited from
training courses to enhance
their skills.
+
Read more on page 32
+
Read more on page 25
+
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Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 04
Lenta Annual Report and Accounts 2015
Strategy in action
Murmansk
St. Petersburg
GMT+3 hours
Kaluga
Tula
Orel
Saransk
Khanty-Mansiysk
Engels
Chelyabinsk
Stavropol
Magnitogorsk
Expanding
What we did in 2015
We extended Lenta’s presence across Russia, bringing
the total number of cities in which we have a presence
to 69. We exceeded our year’s opening target with
32 new hypermarkets – more than in any single year
in the Company’s history, bringing the total to 140 –
and are now Russia’s leading hypermarket chain in
terms of selling space.
Driving our strategy
We continued to accelerate the pace of our store roll-out
programme in both new and existing locations – and were
Russia’s fastest growing large retailer for the third year
running. We remain on track to exceed our ambition of
doubling selling space in the three years to December 2016.
+
Read more on page 22
Lenta Annual Report and Accounts 2015
05
11
New cities
Our expansion plans accelerated in
2015 and we opened Lenta stores
in 11 new cities across Russia.
From Murmansk in the Arctic Circle
to Irkutsk near Lake Baikal, we are
successfully growing our presence
in new and challenging geographies.
4
New supermarkets in
St. Petersburg – and beyond
In 2015 we opened our first four
supermarkets in our home city of
St. Petersburg – with more to come.
This successful format provides us
with excellent growth potential and
high returns on our investment.
We therefore plan to roll it out further
in St. Petersburg, Moscow and other
regions over time.
+29%
Lenta loyalty cardholders
The Lenta loyalty card goes from
strength to strength. We now have
over 8.4 million active cardholders,
a rise of 29% on 2014. Our customers
recognise and appreciate the
generous benefits it brings in the
form of extra discounts, special
promotions and additional bonuses.
+
Read more on page 24
+
Read more on page 28
+
Read more on page 28
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Irkutsk
GMT+8 hours
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Our rapid expansion meant
the total number of suppliers
increased to almost 3,000
in 2015. Local and regional
producers supplied over 50%
of fresh products sold in 2015 –
and have now become the
principal channel of sourcing
for our stores.
+
Read more on page 58
06
Lenta Annual Report and Accounts 2015
Strategy in action
Improving
What we did in 2015
We tailored elements of our offering to reflect local
and regional tastes and used data from customer loyalty
cards to help us edit our ranges. Responding to the
difficult consumer environment, we also worked hard
to deliver great value; providing more choice in lower-
priced goods and enhancing our private label range
of affordable essentials.
Enhancing our offering
Understanding what our customers want, how their
preferences change and what they can afford is essential
if we are to continue to flourish. Our ongoing analysis
of our loyalty card data enables us to tailor our ranges
and promotions to give customers more of what they
appreciate – enhancing loyalty and driving profitable
growth for Lenta.
+
Read more on page 22
Lenta Annual Report and Accounts 2015
07
50.3%
250+
Fresh food from local suppliers
We enhanced the breadth of products
we sell – especially in our extensive
private label value-for-money range.
We also expanded the selection of
goods prepared or baked in-store
and sourced just over 50.3% of our
fresh food from local suppliers.
Improving our supply chain
Our supply chain benefits from
sophisticated technologies to maintain
its flexibility and efficiency. During
the year we grew our network
of distribution centres, expanded
our own fleet of delivery trucks
and increased the capacity of our
IT systems. These improvements
have given us the capacity to serve
over 250 hypermarkets.
For those most in need we
offer a Social Card, which
offers additional discounts on
essential food and household
items. Well over half a million
people joined the scheme in
2015, taking the total number
of cardholders to 1.2 million.
+
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+
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+
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33.4%
Improving our offer
With continued pressures on
household incomes, we worked
hard to deliver great value for
money and help customers live
within their budgets. Based on
customer feedback and identified
market opportunities we improved
our product offer with tailored
promotions designed to appeal to
local buying patterns and tastes.
Promotions accounted for 33.4%
of total sales.
+
Read more on page 29
08
Chairman’s statement
Another year of progress
John Oliver
Chairman
Lenta experienced another year of good
progress in 2015, delivering strong sales,
profit and operating cash flow growth,
whilst continuing to expand rapidly. This is
a remarkable achievement when considered
in the context of Russia’s turbulent retail
climate – and is testimony to the strength
and adaptability of our business model,
the clarity of our strategy, our rigorous
attention to execution and the skills and
dedication of our team.
225m
150m
USD primary capital increase
in March 2015
USD primary capital increase
in October 2015
Flourishing in a difficult environment
The difficult and uncertain environment
increased the pressure on our
customers – and hence on Lenta itself.
However, our strategy is fit for purpose –
and is key to our ability to cope with
the challenging market conditions.
Our proven low-price/low-cost business
model enabled us to adjust our offer
effectively in the face of continued
strong economic headwinds and intense
competition; as the market has changed,
so has Lenta.
In difficult times, it is more important
than ever to stay close to our customers.
Our loyalty card plays a crucial role
in helping us track and analyse their
shopping choices. We use this valuable
data to provide the products our
customers want at prices they can afford –
and run attractive, relevant and timely
promotions, because we have worked
hard to help customers spend less,
they have rewarded us with continued
strong sales and as a result, Lenta
was able to grow its share of the market
significantly in 2015.
Governance
We are fortunate to have a strong group
of talented individuals on our Board and
I am grateful to my fellow Directors for
their advice and support during the year.
Their unique blend of international
experience and complementary skills
enhances our discussions of Lenta’s
strategy and performance, and supports
effective decision-making.
Lenta Annual Report and Accounts 2015
09
Robust corporate governance underpins
Lenta’s effective operation and the
execution of our strategy. In 2015, we
continued to improve our governance
framework – including the remit of our
Board Committees – to support the
growth of the business. We enhanced
the scope of our policies and improved
reporting and disclosure during the year,
taking us closer to becoming a ‘best
practice’ example of governance among
Russian companies.
Non-executive Director Lindsay Forbes
resigned in July. Lindsay had served on
the Board for five years and I thank him
for his valuable contribution to our
discussions during this time.
Driving sustainable growth and
building shareholder value
Strategically, the underserved Russian
market remains very attractive. The
current environment is challenging for
all retailers of course, but it also creates
attractive opportunities for strong,
well-financed businesses such as Lenta.
Many competitors have slowed down or
stopped their expansion, including most
hypermarket operators and most of the
regional and smaller players. Lenta’s
robust business model enables us to
continue to open high-returning new
stores despite the difficult economy.
Lenta opened more hypermarkets in
2015 than in any previous year and
increased selling space by over 25%.
We are committed to maintaining
rapid growth, but also to ensuring
that our expansion creates value for
shareholders by delivering returns on
investment well above the cost of capital.
As part of this drive for growth – and in
the wake of our successful IPO in 2014 –
the Board launched two capital increases
last year. We completed primary capital
increases of US$225 million in March
2015 and US$150 million in October.
The proceeds of these placings have
strengthened our balance sheet and
provided us with the financial resources
we need to accelerate and sustain our
planned expansion in 2016 and beyond.
Lenta’s standing in the credit markets
also improved during 2015 – S&P and
Moody’s upgraded Lenta’s credit ratings
and Fitch initiated coverage with a BB-
rating. This was in large part driven by
our ability to deliver strong growth whilst
maintaining prudent financial policies and
a consistently healthy financial profile.
Socially responsible business
Notwithstanding the turbulent economic
background, increasing pressures on
retailers and our own ambitious growth
plans, we remain faithful to our simple
stated aim of providing our customers
with high quality, affordable products.
As a public company and a high profile
retailer, we recognise that we have
multiple obligations and responsibilities:
to our customers, our employees,
our suppliers and the wider communities
in which we operate. At Lenta, ‘doing the
right thing’ is integral to the way we do
business. Delivering on our commitment
to act responsibly – whether socially,
environmentally or ethically – is
fundamental to Lenta’s sustainable
long-term success.
Accelerating our growth
Lenta confirms its 2016 expansion target
to open at least 40 new hypermarkets,
significantly more than it has ever
opened in a single calendar year.
The number of supermarket openings –
a format that now has the potential to
open up significant market opportunities
alongside the considerable scope that
exists for us to expand our hypermarket
coverage – is also expected to increase
in 2016. Looking ahead, we expect to
maintain a similar or higher rate of
growth in 2017 and beyond.
We expect that as a result of our
successful expansion in 2014 and 2015,
combined with further acceleration of
growth in 2016, we will significantly
exceed our previously communicated
goal of doubling selling space over the
three years to December 2016.
Executing this planned rate of expansion
requires exceptional dedication and hard
work from colleagues at all levels across
the Company. Wherever I go in the
business: to our offices, distribution
centres or stores, I am always impressed
by the enthusiasm and energy of our
valued employees, who are the real
driving force behind Lenta. I thank
them for their efforts this year and look
forward to our continued shared success.
John Oliver
Chairman
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 10
At a glance
Lenta at a glance
Lenta is Russia’s largest
hypermarket operator by selling
space and the fifth largest food
retailer by total sales. In 2015
we were the country’s fastest
growing food retailer.
What we do
We sell high quality products at affordable prices, providing
great value for money for our customers and aiming
to provide the best promotional offers in the market.
We have more than 8.4 million active loyalty cardholders,
who account for over 90% of all sales.
Our strategy
Our growth strategy is to expand our store network rapidly
whilst maintaining high like-for-like sales. We combine
this with high levels of operating efficiency to generate
the returns to finance our growth.
+
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More highlights of 2015
Hypermarkets
140
We operate 140 hypermarkets across
Russia. Located primarily in urban
areas for ease of access, they are
usually open 24 hours a day, seven
days a week. We operate three
store formats: standard, compact
and supercompact, ranging in size
from 7,000 sq.m. to 3,000 sq.m.
This flexibility allows us to adapt
to a variety of different locations,
whilst offering customers the most
appropriate products for their needs.
+
Read more on page 26
Lenta private label
12.3%
Lenta private label sales increased
to 12.3% of total sales
32
4
9
Opened 32 new hypermarkets
Opened our first four supermarkets
in St. Petersburg
Commenced centralised
bakery and culinary operations
in nine ‘mother’ stores
Lenta Annual Report and Accounts 2015
11
Supermarkets
Our supply chain
Our product range
32
We operate 32 supermarkets in Moscow
and St. Petersburg. Launched in 2013
and designed for frequent shopper visits,
these smaller stores are typically located
in urban areas within a 20-minute walk
for customers. Delivering high sales
densities and strong like-for-like growth,
our supermarkets are now established
as a core Lenta format.
110
Our sophisticated, national supply
network comprises our distribution
centres and our fleet of 110 delivery
trucks. It operates with low costs and
short lead times – a key advantage
given Russia’s size, time zones and
climatic variation. Our supply chain
enables high and reliable on-shelf
product availability for customers.
We now have sufficient capacity
to service over 250 hypermarkets.
24,000
We offer a broad range of products
in our stores, with an emphasis on high
quality and great value for money.
Our largest hypermarket format stocks
an average of 24,000 SKUs. Our core
product range is centrally controlled to
ensure a degree of standardisation, but
we tailor certain elements of our offering
to reflect local preferences. We also have
two major private label variants that
comprise the most affordable products
in their categories.
+
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+
Read more on page 32
+
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3+4
40%
30.6
Three new stores and four land
plots purchased from O’KEY Group
New LED lighting delivered
a 40% saving in energy usage
Delivered an average of
30.6 hours of training per employee
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
12
Where we are
Expanding our reach
In 2015 Lenta consolidated
its position as a genuinely
federal chain.
During the year we extended our reach across Russia,
opening 32 new hypermarkets and eight supermarkets.
These included our most geographically distant store
in Irkutsk, some 5,700 km from our home city of
St. Petersburg. At the year end we had 140 hypermarkets
in 69 cities across Russia and 32 supermarkets in
Moscow and St. Petersburg.
During the year we enhanced our regional supply
operations with the opening of new distribution centres
in Togliatti and Rostov-on-Don and with a further
distribution centre in Yekaterinburg being commissioned.
We continue to identify new sites for our stores –
both in areas where we already have a presence
and in brand new locations. We are stepping up
the rate of new openings in 2016, and have 40 new
hypermarkets planned for the year ahead.
+
Read more on page 24
New openings in 2015
Hypermarkets
10 Chelyabinsk
13 Engels
15 Irkutsk
17 Kaluga
18 Kemerovo
19 Khanty-Mansiysk
21 Krasnoyarsk
23 Magnitogorsk
24 Moscow
3
1
1
1
2
1
1
1
3
25 Murmansk
27 Nizhny Novgorod
29 Nizhny Tagil
31 Novokuznetsk
35 Orel
36 Orenburg
37 Penza
44 Saransk
47 Stavropol
1
1
1
1
1
1
1
1
1
48 St. Petersburg
49 Surgut
54 Tyumen
56 Tula
58 Veliky Novgorod
60 Volgograd
64 Ufa
3
1
1
1
1
1
1
Supermarkets
24 Moscow
48 St. Petersburg
Distribution centres
42 Rostov-on-Don
53 Togliatti
67 Yekaterinburg
4
4
1
1
1
5734126891011141712132016191518242728222629232521303736323834314033353948464345414744494250595758562553516054525561666368656270646769Lenta Annual Report and Accounts 2015 13
1st
Largest hypermarket operator
by selling space
69
Cities where we operate
140
Hypermarkets
38,414
Employees1
1 Average FTE for 2015 was 31,307 employees
2014 locations
Hypermarkets
Supermarkets
Distribution
centres
+
For full list of cities
see page 136 of Appendices.
5734126891011141712132016191518242728222629232521303736323834314033353948464345414744494250595758562553516054525561666368656270646769Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
14
Business model
How we create value
Value proposition for customers
Price-led hypermarket model
Our differentiated value proposition
Helping our customers live a better
life by spending less
Key customer demographic
Families and women
Low cost execution
Standardised store layouts
Simple to navigate/low cost
+ 81% ownership of property vs. 19% leased
+ Plan to double selling space by the end of 2016
vs. year end 2013
Formats
Supply chain
Standard
Hypermarket
Integrated
supply chain
underpinned
by a network
of distribution
centres
Compact
Hypermarket
250+
Current capacity
to serve 250+
hypermarkets
Supercompact
Hypermarket
Our fleet
110 owned trucks
Multi-product
provision
Low price
leadership
Broad customer
appeal
Low price
leadership
+ Dry food
+ Fresh food
+ Non-food
+ Loyalty card – 5% discount
on typical basket
+ Deep, frequent and inspiring
promotions
+ Frequent price comparisons
Product offering for broad
family needs
+ Store of choice for select
authoritative ranges
+ Relevant SKUs
+ Focus on new/local products
Neighbourhood shopping
Supermarket
SKUs
24,000
+ Easily accessible
one-stop shop
+ Value-added features
Underpinned by significant investment
Underpinned by our corporate social responsibility
Six owned
distribution
centres + one
planned for 2016
Strong IT
Lenta Annual Report and Accounts 2015
15
Lenta loyalty card
Driving our strategy
for growth
Creating value
Captures information
Captures information about every
customer at every point of contact.
This enables us to build highly
personalised profiles of customer types
which we define across ten segments –
allowing us to meet the needs of all
our customers in a personalised way.
Lenta loyalty card
+ Active cardholders
+ Price advantage
for customers
+ Spend penetration
8.4m
5%
92%
Driving Lenta forward
We remain focused on driving the
business forward in pursuit of our
long-term goals. Our proven strategy
enables us to confidently manage and
grow Lenta – even in challenging times.
Delivering profitable
like-for-like growth
Strengthening our
existing presence
Exploiting white
space potential
Insight drives
+ Direct marketing promotions
+ Pricing
+ Category management
+ Strong relationships with suppliers
Format evolution
+
Read more on page 22
Enhances like-for-like sales
Earnings per share
RUB ’000
+6.7%
2015
2014
2013
0.112
0.105
0.83
Adjusted EBITDA
RUB bn
+31.4%
2015
2014
2013
28.1
21.4
16.5
Total sales growth
RUB bn
+30.3%
2015
2014
2013
252.8
194.0
144.3
Number of stores
2015
2014
2013
87
+30.3%
172
132
Number of employees +9.5%
2015
2014
2013
38,414
35,100
27,800
+
Read more on page 50
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
16
CEO’s review
Successful expansion
and sustainable profitability
Jan Dunning
Chief Executive Officer
Since our IPO two years ago, Lenta has risen
to fifth in the Russian food retail sector, ranked
by sales. Our proven low-price/low-cost business
model and clear growth strategy enabled us
to deliver another strong performance in 2015,
leaving us well positioned to sustain this
momentum in the year ahead – and beyond.
8.4m
Loyalty cardholders
Like-for-like sales up
9.1%
25.8%
Selling space up
A strong performance
2015 was a challenging year, but Lenta
delivered a strong performance. Full year
sales rose 30.3% to RUB 252.8 billion
(2014: RUB 194.0 billion), including
a 9.1% increase in like-for-like sales.
For the third year running, we achieved
the highest total sales growth amongst
publicly quoted Russian retailers. This
demonstrates the strength of our offer,
the adaptability of our business concept
to our customers’ requirements and the
quality and experience of our team.
In a contracting economy and weakening
consumer environment, we surpassed
our expansion targets with the opening
of 32 hypermarkets – more than
any other year in our history – and
eight supermarkets. At the year end
we operated 140 hypermarkets and
32 supermarkets, with a total selling
space of 882,383 sq.m., up 25.8%
compared with 2014.
Success in a difficult market
Unsurprisingly, the food retail sector
remained extremely competitive in 2015.
Feeling the pressures of high inflation
and declining real household incomes,
Russian customers adjusted their
shopping habits accordingly: comparing
prices between retailers, buying fewer
items, substituting with cheaper goods
and making fewer impulse purchases.
At the year end 8.4 million of our
customers were active Lenta loyalty
cardholders. Analysis of data gained
through this programme provided us
with valuable insights into our customers’
shopping habits. Our knowledge of
customer preferences enabled us to
adapt and refine our marketing strategy,
aligning our product mix, pricing and
promotional activity more closely to
what they were seeking.
Lenta Annual Report and Accounts 2015
17
Our industry-leading sales growth
demonstrated that customers
recognised and appreciated these
initiatives; returning frequently to our
stores – with more occasional Lenta
shoppers becoming regular customers.
We also invested in pricing throughout
the year to reduce the impact of inflation
on our customers. The strong growth
experienced across our private label
ranges showed that they responded
positively to our ongoing efforts to
provide high quality products at low
prices. Our pricing and offering
proposition, including tailored
promotions, continued to be attractive
to consumers and resulted in strong
like-for-like traffic growth of 3.9%.
Positioned for further growth
Strong cash flow generation from our
operations and the two 2015 primary
equity issues funded most of our capital
expenditure in 2015. At the year end,
our financial position was stronger
than ever – and our reduced leverage
and strong investment returns mean
we are well positioned to grasp the
strategic opportunities we see in the
Russian market.
The foundations of our strong 2015
performance lie in our robust and
adaptable low-price/low-cost business
model, which in turn enables us to
pursue our strategy for sustainable
growth. In line with our strategy, we
strengthened our presence in all our key
regions, the largest of which is now
Siberia, with some 20% of our total
selling space.
Last year we opened our most
geographically distant store in Irkutsk,
close to Lake Baikal, some 1,850 km
from our Novosibirsk distribution centre
and 5,700 km from our headquarters in
St. Petersburg. With stores as far north
as Murmansk in the Arctic Circle and –
in February 2016 – a newly-opened
hypermarket in Grozny, the Chechen
Republic, we have confirmed our
position as a truly federal chain.
We also opened a new distribution
centre in Yekaterinburg – our first in
the Ural federal district.
Towards the end of the year we
opened our first four supermarkets
in St. Petersburg. We plan to further
extend our footprint in this format,
as well as continuing to roll
out supermarkets in Moscow.
Our suppliers faced their own
challenges in 2015 and our negotiations
with them were conducted in a spirit
of fairness and mutual respect. They
remain eager to work with Lenta as
they recognise the speed of our growth
and the value our customer insight can
bring to their own businesses.
Outlook
Our 2015 results demonstrate that
Lenta’s low-price/low-cost business
model is robust, resilient and well
suited to the prevailing challenging
environment. That we have excelled
in such difficult circumstances is
testimony to the strength, skills and
experience of our inspirational
management team. We met our full
year sales guidance last year – and
have sustained solid momentum into
2016 with continued good growth.
In the year ahead, we plan to accelerate
our store-opening programme with a
target of 40 new hypermarkets in 2016.
We are identifying more opportunities
than ever, both in cities where we
already have a presence and in new
ones, including the three remaining
Russian cities with more than one
million inhabitants where Lenta is
not yet established.
While our growth plans are ambitious
and exciting, we never forget that
our principal focus is on delivering
shareholder value through looking after
our customers. Hence our accelerating
expansion will be delivered without
sacrificing either quality or healthy
investment returns.
Despite the recession, our newly
opened stores are delivering returns
in line with our expectations and we
continue to work with our suppliers
to provide the best offers to our
customers. The ongoing volatility of
the macroeconomic and consumer
environments makes it difficult to
predict exactly how the market will
develop in 2016. However, our robust
business model, growing new store
pipeline and strong balance sheet
mean we look forward with confidence
to the year ahead.
Jan Dunning
Chief Executive Officer
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 18
Market overview
Market with growth potential
The macroeconomic and
consumer environments in Russia
deteriorated sharply during 2015,
with high inflation and increasing
pressure on customer incomes.
Consequently the intensely
competitive conditions in the food
retail market also persisted. Price-
sensitive consumers continued
to trade down, seeking to spend
less by focusing on lower volume
purchases, becoming more
promotion-driven and shopping
around more actively.
A challenging economic and consumer environment
From 2010 to 2013, economic growth resulted in a significant
increase in average wages, disposable income levels and
a more even distribution of wealth. The rate of growth slowed
in 2014, with plunging oil prices, economic sanctions and
counter-sanctions leading to further slowing in the second half
of 2014. By early 2015 the Russian economy had fallen into
recession, with GDP falling by 3.7% over the year as a whole.
Inevitably, there was a major deterioration in the consumer
environment, with a step up in inflation significantly outpacing
growth in disposable incomes as well as a further deterioration
in already weak levels of consumer confidence. Growth rates
in food sales declined throughout the year and consumer
confidence fell back to 2009 levels.
Inflation monthly evolution
y-o-y CPI, %
19%
17%
15%
13%
11%
9%
7%
5%
Jan-14
Jun-14
Dec-14
Jun-15
Dec-15
Source: Rosstat
Consumer confidence index
y-o-y CPI, %
5%
0
(5%)
(10%)
(15%)
(20%)
(25%)
(30%)
(35%)
(40%)
Q1’08 Q1’09 Q1’10
Q1’11
Q1’12
Q1’13
Q1’14
Q1’15
Source: Rosstat
Lenta Annual Report and Accounts 2015 19
Compared with more developed
economies, the market share
of the largest grocery retailers
is much lower in Russia.
A strategically important and attractive market
Despite the current difficult trading conditions, the Russian
food retail market remains strategically attractive. With a
population of 146.3 million, almost three quarters of whom
live in urban areas, Russia is the most populous country in
Europe. The market is both fragmented and under-penetrated
by modern retail formats relative to other European and many
emerging markets.
The food retail market is characterised by its high but shrinking
share of ‘traditional’ formats, with many consumer transactions
still conducted over the counter, in covered markets or via
pavilions and kiosks. The share of ‘modern’ formats has been
increasing for many years and this trend has accelerated as a
result of the recent economic downturn, with modern retailers’
share reaching 65% in 2015.
Industry sources indicate that the growth of modern retail
formats is expected to continue. This is largely due to their
consumer appeal and new selling space additions, but also
as a result of government initiatives aimed at promoting
quality control and the population’s well-being.
Among modern retailers, the five largest players (including
Lenta in 2015) have a presence in most regions and are
considered ‘federal’ chains. The market share of this group
increased from 17% in 2014 to 20% in 2015. The share of
the top five nonetheless remains very low by international
standards.
Modern food retail penetration
700
600
500
400
300
200
100
0
85.0% 85.0%
80.3%
88.8%
78.8%
65.6%
65.9%
52.7%
40.4%
572
A
S
U
453
y
n
a
m
r
e
G
395
e
c
n
a
r
F
299
d
n
a
o
P
l
290
K
U
i
192
a
s
s
u
R
168
y
e
k
r
u
T
153
a
n
h
C
i
34
l
i
z
a
r
B
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Modern grocery retail selling space (sq.m. per 1,000 people)
Share of modern grocery retail sales 2015
Source: Euromonitor
Share of top-5 food retailers
69.7%
Metro 3.6%
Rewe
Group 12.0%
Aldi
13.5%
Schwarz
Group 16.2%
Edeka
24.4%
60.3%
59.8%
46.5%
32.0%
19.5%
17.8%
9.3%
Co-operative
Group 4.5%
Morrison
8.6%
Wal-Mart
12.0%
Sainsbury
12.9%
Tesco
21.8%
Leclerc 8.6%
Auchan 8.6%
Casino 12.4%
ITM 12.6%
Carrefour
18.1%
Auchan 5.3%
Tesco 5.5%
Eurocash 5.7%
Schwarz
Group 11.1%
Jerónimo
Martins
18.9%
Alimentación
2.3%
Cencosud 4.4%
Carrefour 6.3%
Wal-Mart 9.1%
Casino
Group 9.9%
Lenta 1.9%
Dixy Group
2.0%
Auchan Group
2.5%
Yildiz Holding
1.8%
Carrefour
2.2%
A101 Yeni
2.2%
Migros
3.6%
X5 Retail 6.0%
Magnit 7.1%
BIM 8.0%
Yonghui Group
0.9%
Bailian Group
1.1%
Wal-Mart
1.5%
Auchan
2.2%
China
Resources
3.6%
Germany
Source: Euromonitor
France
UK
Poland
Brazil
Russia
Turkey
China
Most market commentators expect the large federal chains
to continue to increase their share of the food retail market
relative to smaller and more traditional players. This trend
is expected to be driven by their higher selling space growth,
which is in turn enabled by the substantial economies of scale
of the federal retail chains, their higher levels of technological
sophistication and their ability to procure goods at lower
prices, leading to more competitive prices to the consumer.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 20
Market overview continued
Russian food retail market structure 2014
Russian food retail market structure 2015
05
01
04
03
Source: Infoline
02
01
Top-7
20%
02
Other modern retail
(chains)
26%
03
Other modern retail
(stand-alone)
15%
04
Traditional retail
31%
05
Open markets
8%
05
01
04
03
02
01
Top-7
22%
02
Other modern retail
(chains)
26%
03
Other modern retail
(stand-alone)
17%
04
Traditional retail
28%
05
Open markets
7%
Historically, Moscow and St. Petersburg were viewed as
distinct from the rest of Russia due to their size, consumer
sophistication and relatively high levels of disposable income.
Although they still account for a significant proportion of sales
volumes, their share has been declining steadily over the past
decade as that of other regions has grown. According to
Infoline, other regions accounted for 48.9% of sales in 2015
compared with 44.7% in 2003.
In 2015 Lenta was the fastest growing federal grocery retailer
for the third consecutive year and overtook Metro to become
the fifth largest retailer nationally in terms of sales.
Top Russian food retailers by sales, RUB bn
y-o-y sales growth, %
2015
2014
2013
25%
32%
29%
951
763
580
632
533
27%
19%
9%
804
8%
14%
21%
19%
27%
23%
30%
34%
31%
7%
14%
11%
7%
9%
19%
373
403
327
272
229
181
194
144
253
183
210
225
138
150
160
Magnit
X5
Auchan
Dixy
Lenta
Metro C&C
O’KEY
2013
2014
2015
Source: Infoline and public data for listed food retailers
Lenta Annual Report and Accounts 2015 21
Lenta was the fastest growing
retailer in Russia in 2015 with
sales growth well ahead of the
average growth of other ‘federal’
retailers and the market.
Hypermarket selling space increase by Top-150 retailers
Share of selling space added, %
475
14%
19%
39%
23%
19%
460
12%
27%
24%
23%
26%
500
12%
20%
30%
13%
36%
500
11%
20%
23%
23%
35%
2012
2013
2014
2015
XX Hypermarket selling space added, ’000 sq.m.
XX% Hypermarket selling space growth, %
Lenta
Listed Big 3 includes Magnit, X5 and Dixy
Other Big 3 includes Metro, Auchan and O’KEY
Others includes retailers ranked #8–150 for 2015 and #8–130 for 2012–2014
According to Infoline data monitoring of the 130 largest Russian FMCG retail chains
in 2012–2014 and the 150 largest Russian FMCG retail chains in 2015.
Source: Infoline
Although some federal chains slowed their rate of expansion
in 2015, most market commentators nonetheless expect
the large federal chains to continue to increase their share
of the hypermarket segment relative to smaller players.
Hypermarkets – an attractive segment in which
Lenta is a major player
The hypermarket is now established as a popular format
and the last ten years have seen an extensive roll-out of
hypermarkets across Russia. Their penetration varies widely
however, with large and relatively affluent cities often having
low penetration ratios.
Two main groups of hypermarket players operate in Russia:
six federal chains (including Lenta) and a large number of
much smaller regional/local retail operators.
In common with the overall food retail market, the share of
the federal operators in the hypermarket segment has been
growing over time, largely as a result of their faster selling
space expansion relative to smaller operators. In 2014 and
2015 the six federal chains with large hypermarket businesses
added approximately 80% of all new hypermarket selling space.
Top Russian hypermarket players by selling space
as at 31 December 2015, ’000 sq.m.
27%
849
7%
836
7%
14%
3%
9%
661
639
2015 Nominal sales growth
518
390
30.3%
19.5%
Lenta
Auchan
Metro
Magnit
OKEY
X5
XX% y-o-y selling space growth, %
Source: Infoline and public data for listed food retailers
4.6%
4.6%
1.4%
Among the federal hypermarket operators, Lenta has grown
fastest in terms of selling space in recent years, with a share
of around 35% of all new hypermarket selling space in 2014
and 2015. Lenta overtook Auchan to become the number one
hypermarket operator in Russia by selling space in 2015.
Total retail
sales
Food retail
sales
Non-food retail
sales
Big-6* sales
Lenta sales
*Big 6 includes Magnit, X5, Dixy, O’KEY, Metro and Auchan.
Source: Rosstat and public data for listed food retailers
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
22
Strategy
Driving Lenta forward
Strategic priorities
Overview
Progress in 2015
Plans for 2016
Trading conditions in 2015
continued to be difficult.
However, we remained focused
on driving the business forward
in pursuit of our long-term goals.
Our proven strategy enables
us to confidently manage
and grow Lenta – even in
challenging times.
Delivering profitable
like-for-like growth
Strengthening our
existing presence
Exploring white
space potential
Format evolution
Continued focus on investment in our
low-price/low-cost business model
We adapted well to the year’s challenging
We will continue to provide more of what
economic conditions, adjusting our ranges
our customers want. Careful editing of our
ensures that increasing numbers of loyal
and tailoring our promotions to help
customers drive sales in our existing
our customers’ budgets stretch further.
stores. We maintain our price leadership
Shoppers appreciated our efforts and
through a variety of mechanisms including
like-for-like customer traffic in our stores
category assortment using data derived
from loyalty card use will help us refine
the ranges we offer and create appealing
promotions that cater to local conditions
tailored and seasonal promotions, focused
rose by almost 4%, with like-for-like sales
and tastes. Ongoing rigorous control of
up just over 9%. The average like-for-like
our cost base will help us retain our price
ticket increased by 5%.
leadership position.
category management and analysis of
customer preferences through our Big
Data Customer Insight Programme.
With our substantial land bank and
We reinforced our position in all the
healthy project pipeline, we see numerous
key regions across Russia in 2015.
opportunities for us to strengthen our
We grew our market share in areas
position in areas where we already have
where we already have an established
With our stable and loyal customer
base, we continue to see excellent
opportunities for our store opening
programme across Lenta’s existing cities.
The year ahead will also see us develop
stores. Consolidating our presence in
this way enables us to take advantage
of existing high brand awareness and
presence, proving that – with careful
planning – good opportunities still exist
hypermarkets on four plots of land
for Lenta in highly developed urban areas,
acquired from O’KEY Group in
established infrastructure – as well as our
without cannibalising sales from our
Chelyabinsk, Omsk, Taganrog and Tomsk.
strong relationships with local suppliers,
neighbouring stores.
contractors and the wider community.
Despite the economic downturn, the
potential for Lenta to expand across
Russia’s large and fragmented market
represents a significant strategic
opportunity. In many towns and cities
there is little penetration by modern
Despite the difficult economic environment,
We will continue to identify new
we accelerated the expansion of our
operations across Russia. We opened
stores in 11 new cities, taking the total
opportunities for expansion. These
include the remaining three cities of over
one million people where we have yet to
number of cities where we have a presence
open a store. With growth accelerating,
to 69. We were Russia’s fastest growing
we remain on track to exceed our target
retail formats – particularly hypermarkets.
hypermarket operator.
of doubling selling space in the three
years to December 2016.
We work collaboratively with local
authorities, which are generally supportive
of the investment and employment we
bring to the area.
highly cost-effective. They enable us to
rapidly plan and build precisely the right
store for the available site and expected
customer traffic. Our complementary
supermarket formats provide us with
an additional growth option, designed
for frequent visits from local residents,
urban areas.
Developed to meet a variety of local needs,
We created two new lower capital
our standardised hypermarket formats are
expenditure cost variations of our
We will continue to develop and refine
our store formats, enabling us to take
compact hypermarket formats and a new
advantage of new opportunities as they
supermarket format, which will enable us
arise. We are aiming to open at least
40 hypermarkets in 2016, with a particular
focus on the compact format.
to deliver the most appropriate size and
type of store for every location. We also
redesigned some aspects of our sales
areas and display layouts to draw
customers’ attention to promotions and
commuters and passers-by in high-density
our great value private label ranges.
Lenta Annual Report and Accounts 2015 23
Strategic priorities
Overview
Progress in 2015
Plans for 2016
Trading conditions in 2015
continued to be difficult.
However, we remained focused
on driving the business forward
in pursuit of our long-term goals.
Our proven strategy enables
us to confidently manage
and grow Lenta – even in
challenging times.
Delivering profitable
like-for-like growth
Strengthening our
existing presence
Exploring white
space potential
Format evolution
Continued focus on investment in our
low-price/low-cost business model
ensures that increasing numbers of loyal
customers drive sales in our existing
stores. We maintain our price leadership
through a variety of mechanisms including
tailored and seasonal promotions, focused
category management and analysis of
customer preferences through our Big
Data Customer Insight Programme.
We adapted well to the year’s challenging
economic conditions, adjusting our ranges
and tailoring our promotions to help
our customers’ budgets stretch further.
Shoppers appreciated our efforts and
like-for-like customer traffic in our stores
rose by almost 4%, with like-for-like sales
up just over 9%. The average like-for-like
ticket increased by 5%.
We will continue to provide more of what
our customers want. Careful editing of our
category assortment using data derived
from loyalty card use will help us refine
the ranges we offer and create appealing
promotions that cater to local conditions
and tastes. Ongoing rigorous control of
our cost base will help us retain our price
leadership position.
+
Read more on page 31
With our substantial land bank and
healthy project pipeline, we see numerous
opportunities for us to strengthen our
position in areas where we already have
stores. Consolidating our presence in
this way enables us to take advantage
of existing high brand awareness and
established infrastructure – as well as our
strong relationships with local suppliers,
contractors and the wider community.
We reinforced our position in all the
key regions across Russia in 2015.
We grew our market share in areas
where we already have an established
presence, proving that – with careful
planning – good opportunities still exist
for Lenta in highly developed urban areas,
without cannibalising sales from our
neighbouring stores.
With our stable and loyal customer
base, we continue to see excellent
opportunities for our store opening
programme across Lenta’s existing cities.
The year ahead will also see us develop
hypermarkets on four plots of land
acquired from O’KEY Group in
Chelyabinsk, Omsk, Taganrog and Tomsk.
+
Read more on page 25
Despite the economic downturn, the
potential for Lenta to expand across
Russia’s large and fragmented market
represents a significant strategic
opportunity. In many towns and cities
there is little penetration by modern
retail formats – particularly hypermarkets.
We work collaboratively with local
authorities, which are generally supportive
of the investment and employment we
bring to the area.
Despite the difficult economic environment,
we accelerated the expansion of our
operations across Russia. We opened
stores in 11 new cities, taking the total
number of cities where we have a presence
to 69. We were Russia’s fastest growing
hypermarket operator.
We will continue to identify new
opportunities for expansion. These
include the remaining three cities of over
one million people where we have yet to
open a store. With growth accelerating,
we remain on track to exceed our target
of doubling selling space in the three
years to December 2016.
+
Read more on page 24
Developed to meet a variety of local needs,
our standardised hypermarket formats are
highly cost-effective. They enable us to
rapidly plan and build precisely the right
store for the available site and expected
customer traffic. Our complementary
supermarket formats provide us with
an additional growth option, designed
for frequent visits from local residents,
commuters and passers-by in high-density
urban areas.
We created two new lower capital
expenditure cost variations of our
compact hypermarket formats and a new
supermarket format, which will enable us
to deliver the most appropriate size and
type of store for every location. We also
redesigned some aspects of our sales
areas and display layouts to draw
customers’ attention to promotions and
our great value private label ranges.
+
Read more on page 26
We will continue to develop and refine
our store formats, enabling us to take
advantage of new opportunities as they
arise. We are aiming to open at least
40 hypermarkets in 2016, with a particular
focus on the compact format.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 24
Operating review
Another strong performance
Lenta strengthened its position
in all key Russian regions in
2015 and was Russia’s fastest
growing food retailer for the third
year running. The year was
noteworthy for the continued
success of our accelerated store
opening programme, coupled
with a strong operational and
financial performance.
11
New cities taking the total to 69
188,100
188,100 sq.m. of new selling space
2015 sales were up almost a third on the
previous year, growth which was in line
with our own guidance. Total sales for
the year were up 30.3% to RUB 252.8
billion (2014: RUB 194.0 billion).
Like-for-like sales grew 9.1% and we
experienced a 3.9% rise in customer
traffic across our store base. The
average like-for-like ticket grew by 5.0%.
Lenta was not immune to 2015’s
difficult trading environment. However,
our operations were able to adapt
early and well to the effects of these
challenging conditions on our
customers, helping them spend less
as the pressure on household budgets
intensified. Our results demonstrate
the strength of our customer proposition
and our ability to perform well in all
economic conditions. Our resilient,
adaptable and efficient business model
underpins this; consequently we remain
confident in our ability to adjust, trade
and win in the Russian market –
however strong the headwinds.
Lenta Annual Report and Accounts 2015
25
We continued to push on with our
expansion strategy and opened stores
in 11 new cities. At the year end Lenta
had a presence in 69 cities across
Russia. We added a total 188,1001 sq.m.
of new selling space, and now have total
selling space amounting to 882,383
sq.m. – an increase of 25.8% year-on-
year. As a result of our 2015 expansion
and further acceleration of growth, we
will significantly exceed our previously
stated goal of doubling selling space
over the three years to the end of 2016.
Lenta’s strategy is to own most of its
stores, thus shielding the business
from fluctuations in rental pricing and
the potential loss of store leases. We
do take leasehold stores where such
opportunities meet our requirements
and, for our supermarket format in
particular, this is an effective means
of accessing suitable locations for
expansion. As at 31 December 2015
we owned 81% of our selling space
compared with 85% at 31 December
2014. We apply rigorous and proven
investment criteria when evaluating
new store openings, with a disciplined
approach to the selection of locations
and returns on investment.
Strengthening our existing presence
We continued to increase our market
share in areas where we are already
established. Our low-price/low-cost
business model generates considerable
customer loyalty, which boosts profitable
like-for-like growth. With a substantial
land bank and project pipeline, continued
consolidation of our share in existing
markets remains a core element of our
strategy. Most newly opened stores do
not significantly cannibalise sales from
existing stores, highlighting the fact that
considerable opportunities exist even
in developed urban areas. Moreover,
our range of proven store formats
provides us with the flexibility to provide
any location with the most appropriate
size and type of store.
1 Adjustments to reported selling space
Lenta made some adjustments to the selling space of its operating hypermarkets and supermarkets
across the country. This resulted in a reduction of 6,824 sq.m. of selling space (-0.8%), giving a total
of 882,383 sq.m. as of 31 December 2015. These adjustments were related to store reconstruction,
refurbishment, renting out excess selling space to third parties or conversion into production areas
to support the centralisation of own in-store produced food. As a result, selling space was reduced
at some stores, but increased at others. The most significant change was related to the standard
format hypermarket in Vladimir (acquired in December 2014) where selling space was brought in line
with Lenta’s business concept – from 9,058 sq.m. to 6,252 sq.m. All the changes are reflected on the
Company’s website at http://www.lentainvestor.com/en/about/lentas-geography/our-hypermarkets
and http://www.lentainvestor.com/en/about/lentas-geography/our-supermarkets.
As % of
total selling
space at
31 Dec
2015
-0.8%
-0.8%
0.6%
As at
31 Dec
2015
-6,824
-7,039
215
Selling space adjustments
(sq.m.)
Hypermarkets
Supermarkets
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 26
Operating review continued
Hypermarkets
Our hypermarkets are typically located
in easily accessible, high-traffic urban
locations in residential areas – and are
usually open 24 hours a day, seven days
a week. In many cities, we were the first
retailer to introduce a modern format
hypermarket, which has facilitated our
access to prime store locations and
helped us establish a stable and loyal
customer base.
Lenta operates three hypermarket
formats. Our standard format typically
has 7,000 sq.m. of selling space, our
compact format has an average of
5,000 sq.m. and our supercompact,
3,000 sq.m. The largest of these
stocks an average of 24,000 SKUs
while the supercompact carries around
15,000 SKUs.
inhabitants. Eighteen stores were opened
in the last quarter alone: four standard
stores in Chelyabinsk, Kemerovo,
St. Petersburg and Surgut, one leased
standard store in Nizhny Novgorod
and eight owned compact stores
in Chelyabinsk, Moscow, Krasnoyarsk,
Kaluga, Orenburg, St. Petersburg, Ufa
and Khanty-Mansiysk. We also opened
four leased compact stores in Saransk,
Tula, Stavropol and Irkutsk, as well as
a leased supercompact store in Penza.
Encouragingly – and despite the
recession – our new hypermarkets
are already delivering returns in line
with expectations, with greater
efficiencies offsetting any impact
on sales attributable to the difficult
overall market environment.
We opened 32 hypermarkets in 2015,
exceeding our own guidance, and
establishing a record for the number
of hypermarkets opened by Lenta in
a single year. Of these, 13 were opened
in seven cities with more than one million
In September we announced the
acquisition of three new stores – two
in Chelyabinsk and one in Volgograd –
and four land plots from O’KEY Group,
further strengthening Lenta’s presence
in these cities where we are already
established.
At the end of the year, the total number
of Lenta hypermarkets stood at 140
and we became the number one
hypermarket retailer by selling space
in Russia. Despite the ongoing economic
uncertainty, we continue to see
considerable potential for expansion.
Russia is a large and fragmented
market, with a widespread scarcity
of modern retail formats. Our healthy
pipeline of store development and
flexibility of formats, combined with
our strong balance sheet and industry-
leading performance ratios, mean that
we are well positioned to take advantage
of the opportunities ahead.
We believe that the medium- to long-
term prospects for the Russian
modern food retail sector remain
positive. We therefore aim to continue
to expand, bringing the advantages of
the Lenta offer to more customers by
opening at least 40 new hypermarkets
in 2016, with a greater focus on compact
format stores.
Lenta Annual Report and Accounts 2015 27
Increasing customer
loyalty
In December 2015 Lenta and
Masha and the Bear Company,
creator of one of Russia’s most
popular cartoons, ran a nationwide
promotion aimed at increasing
customers’ loyalty. Attended by
popular actors, the launch event
took place in Rostov-on-Don and
featured a large number of gifts and
prizes. Throughout the promotion,
for each RUB 1,200 spent at any
Lenta hypermarket, customers
received a pack of Masha and the
Bear stickers at the cash desk
and were able to obtain a calendar
for collecting the stickers. The
promotion proved very popular
in all of our stores.
Total sq.m. of selling space
Number of hypermarkets
Selling space/store (sq.m.)
Total space/store (sq.m.)
Number of parking spaces
Plot size (ha)
SKUs
Non-food space (sq.m.)
Non-food space share (%)
Non-food sales share (%)
Capex/owned store1 (RUB m)
Capex/rental store1 (RUB m)
Standard
590,493
83
7,000
13,200
500
4
23,800
2,000
29
13
1,000-1,100
250-350
Compact
215,577
44
5,000
8,900
400
2.5-3
20,300
1,300
28
12
850-1,000
200-270
Supercompact
42,802
13
3,000
5,600
150-200
1.2
15,000
700
19
6
600-700
230-260
1 Excludes cost of land (estimated at RUB 20-60m/ha).
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 28
Operating review continued
Supermarkets
Launched in Moscow in 2013, our
supermarkets are now firmly established
as a core Lenta format and delivered
high sales densities and strong like-for-
like growth in 2015. Designed for frequent
shopper visits, typically within a 20-minute
walk for customers, our supermarket
operations experienced robust like-for-
like sales growth of 15.1% last year,
and an increase in like-for-like customer
traffic of 7.7%, with the average like-for-
like ticket increasing by 6.8%.
We opened eight supermarkets in 2015,
bringing the total to 32. We opened
our first four leased supermarkets in
St. Petersburg – and will continue our
expansion here in the year ahead.
We will also continue to roll out this
format in Moscow. We are also looking
at expanding into other regions, given
the potential for growth with high returns
on investment that Lenta’s format offers.
We will open a new owned distribution
centre for our supermarket operations
in Moscow in 2016 and expect to open
significantly more supermarkets this
year than we did in 2015.
During 2015 we integrated our
supermarket organisation more fully
with our hypermarket business, enabling
us to derive more long-term synergies
with our hypermarkets.
Lenta loyalty card
We operate a very popular and
effective loyalty card programme for
our customers. At the end of the
year we had over 8.4 million active
cardholders, an increase of 29% on
the previous year. Customers benefit
from a 5% minimum discount on their
purchases and have exclusive access
to special and seasonal promotions with
discounts up to 50%. They are also able
to accrue virtual bonuses, which can be
applied to future purchases.
Independent research shows that the
Lenta loyalty card is highly valued by
shoppers. In November 2015, O&K
Research’s Retail Market Advertising
Tracking found that Lenta was the
market leader amongst food retailer
discount cardholders, with over half
of respondents having a Lenta card.
Some 40% of cardholders always carry
it in their wallet, with 39% asserting that
the card delivers a significant saving
whenever they use it. Lenta was the
loyalty card leader across all indicators
in the North West, and in the Volga and
Siberia-Ural regions. In regions where
the share of cardholders was lower
than a competitor, Lenta’s card was
nevertheless recognised as the one
that delivered better value.
Approximately 92% of customer spend
is linked to loyalty cardholders. During
the year we conducted three ‘thank you’
mailshots, comprising a total of 476
product offers sent to 2.3 million
customers. These offers are tailored so
that for example, new parents can obtain
discounts on baby food or nappies.
Lenta Annual Report and Accounts 2015 29
Big Data Customer Insight
Programme
We are able to track the purchases
each customer makes using their loyalty
card. This has enabled us to assess
the development of our substantial
customer base and develop an
excellent understanding of customers’
shopping habits.
In 2013 Lenta became the first Russian
food retailer to use technology to analyse
customer preferences based on the
purchases made via loyalty cards.
Today our Big Data Customer Insight
Programme uses information from
loyalty card transactions to help us plan
our development and strategy, manage
our sales and marketing and make
better, more informed decisions about
our business. Our ability to analyse
customer profiles gives us valuable
information about their product
preferences. This in turn helps us refine
and tailor our approach to all aspects
of our offer: from product development,
pricing and promotions to in-store
displays and staff training.
With continued pressure on already
squeezed household budgets, our
customer insights helped us maintain
our competitive edge in 2015, enabling
Lenta to provide customers with a wide
range of timely, relevant, attractive
benefits and promotions aligned to their
immediate needs. Depending on their
preferences, the frequency of their
purchases and average spend, Lenta
customers fall into one of ten categories.
We use this segmentation to adapt our
product range, merchandising and
advertising. For example, the Big Data
Customer Insight Programme showed
us that whereas customers used to
respond well to ‘three for two’ offers,
they were now looking for ‘two for one’
discounts, so we adjusted our
promotional emphasis accordingly.
Personalised discounts are provided by
scanning the loyalty card and providing
coupons for previously purchased
products. We can then track detailed
buying patterns to see how a customer’s
habits are changing – and provide
tailored promotions based around
their lifestyle and preferences.
Product range
We offer a broad range of products
in our stores, with an emphasis on high
quality and great value for money.
While our core product range is centrally
controlled to ensure a degree of
standardisation across our network, we
tailor certain elements of our offering to
reflect local preferences – and detailed
analysis of loyalty card use enables us
to edit our category assortment. Given
Russia’s size and the variations in taste
across the country, this not only makes
good business sense for Lenta, it also
sets us apart from our competitors.
Lenta’s standard hypermarket carries
around 24,000 SKUs, which is 30-40%
fewer than some of our competitors in
a hypermarket format. This enables us
to benefit from supply chain and in-store
efficiencies and helps our customers
quickly find the products they really need.
We place particular emphasis on lines
that are attractive to families and
women. Certain product categories are
designated as ‘destination’ categories,
characterised by especially attractive
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 30
Operating review continued
assortments and pricing to draw
customers to our stores. Examples
include fresh and ultra-fresh foods,
dry groceries, baby care and toys.
In 2015 just over 40% of sales from
both store formats were of fresh food,
with dry groceries comprising 47%
and non-food items just over 12%.
The proportion of non-food items sold
in hypermarkets was 12.7% compared
with 2.7% through our supermarkets.
Food sales (fresh food and dry food)
grew by 32.1% in 2015. Our non-food
range, which includes household goods,
basic clothing, seasonal goods and
a smaller-scale offer of kitchen aids
and home appliances comprised 12.3%
of sales and grew by 19.2% in 2015.
In contrast to many of our competitors,
our business model emphasises regional
and local sourcing. We obtain products
from a variety of local and federal
suppliers and increasingly prepare much
of our fresh food – such as own-baked
bread and cakes, salads and prepared
meals – either through centralised
production or in-store facilities.
Sales from our own production
amounted to RUB 31.8 billion, which
accounted for 13.1% of our total sales.
Centralised production has enabled
us to optimise several of our processes
and significantly reduce our staffing
and equipment costs. In 2015 we
commenced centralised bakery and
culinary operations in nine ‘mother’
stores, which in turn supplied a further
12 ‘daughter’ stores and we now have
centralised production of bread products
in 38 stores across Russia.
In December we opened an automated
vegetable peeling line at one of our
hypermarkets in St. Petersburg. This
facility currently serves several stores
locally, but we are planning to deliver
peeled vegetables to all our stores in
the North West region in future. Peeled
vegetables are used in the production
of our own prepared foods and we also
plan to sell them as a separate product.
The coming year will also see us expand
our own production capabilities further
with additional categories such as
Korean salads, pickled and fermented
foods and the introduction of in-store
express ‘bake-off’ technologies.
Taking control of production and
sourcing raw materials directly enables
us to maintain consistently high levels
of quality control and on-shelf availability,
while keeping our costs down and our
pricing competitive.
Our customers continued to appreciate
the benefits of our low-price/low-cost
business model. Our extensive private
label range reinforces our value-for-
money proposition and provides quality
everyday products at cheaper prices
than brand-name alternatives. We strive
for a position of local price leadership,
aiming to be at least 5% cheaper than
the next competitor.
We have two major FMCG private label
variants: our ‘365 days’ range, which
comprises approximately 800 of the
most affordable food and non-food
products in their categories and the
‘Lenta’ range of around 500 mid-range
products, comparable in quality to –
but priced at least 15% below – their
branded equivalents. Launched in 2014,
our ‘Bigga’ toys brand and ‘Actico’ sports/
leisure brands performed well during the
Lenta Annual Report and Accounts 2015 31
year and we upgraded our ‘Home Club’
household goods private label.
During 2015 we took a variety of
steps to respond to the difficult
macroeconomic environment, including
selectively adding to our SKU count
in lower-priced goods, enhancing our
private label range and emphasising
our offering of non-food essentials.
Recognising the quality of our own
ranges, customers have become
increasingly loyal to our private label
brands and sales of these products rose
to 12.3% of total sales, compared with
11.7% in 2014.
Price leadership and promotions
Lenta’s core proposition is delivering
value for money. In partnership with
our suppliers we work towards lower
on-shelf inflation, passing the benefits
to our customers. Our strong profit
performance derives not from high
margins, but from high store traffic,
high sales density and a low cost base.
Our private label range of everyday
essentials offers affordable quality
and our loyalty cardholders benefit from
a 5% discount on their purchases,
as well as from attractive, tailored
promotions.
During 2015, we continued to adhere
to our price leadership strategy, despite
the tough macroeconomic environment.
As retailers fought hard to win
consumers’ spend, we continued to
monitor the pricing strategies of our
competitors – both national and local –
on an ongoing basis to ensure
we maintained a leading position.
We maintain a long-term promotional
calendar, which is continuously updated
in the light of sales feedback and market
opportunities. Promotional activity
is tailored to local tastes and buying
patterns, which attracts new customers,
builds loyalty and heightens brand
awareness. Promotions accounted for
33.4% of total sales in 2015 compared
with 27.6% in 2014 – and reached an
all-time high of 41.5% in December 2015.
We advertise weekly promotional
deals – especially on fresh foods –
across a wide variety of media including
store façade signage, billboards and
local TV, radio and the internet.
We publish a fortnightly summary of all
our offers for distribution in stores and
in local neighbourhoods. Seasonal
and event-driven discounts also occur
throughout the year. For example,
we reduce the prices of our flowers in
the period leading up to International
Women’s Day on 8 March and run
substantial promotions around Easter
with significant discounts on eggs.
Every September features a month’s
worth of discounts as part of Lenta’s
birthday celebrations, with discounts
for certain products as high as 50%.
We also run targeted promotions
to reconnect with customers whose
patronage has declined and use
a range of marketing tools to preserve
our customer base in the event of
a competitor store opening nearby.
In 2015 we continued to improve our
pricing and promotions communications
through both conventional and digital
channels.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 32
Operating review continued
Winning
collaboration
Lenta was awarded ‘Best case
in the area of supply chain
optimisation’ in the annual ECR
Awards for a collaborative project
with Unilever, which resulted in
savings in warehouse processing
time and logistics costs. The
awards support and promote
the best examples of successful
cooperation between suppliers
and retail chains.
ahead, we plan to further expand our
capacity, focus on efficiency gains and
increase our own truck fleet share to
50%, which will improve reliability and
reduce costs.
Purchasing and supplier
partnerships
Lenta maintains strong relationships
with its key suppliers, whilst at the
same time employing a highly diversified
regional and local supplier base.
In 2015, we continued to work with
our suppliers to minimise inflation for
our customers, leveraging the scale
of our buying into lower costs. Every
Lenta supplier must meet stringent
safety and quality standards, with legally
compliant packaging and all necessary
consumer information.
Our store opening programme across
the country introduces Lenta to
numerous local suppliers and we
Distribution
Russia’s size presents federal food
retailers with considerable logistical
challenges, particularly with regard to
travel distances, time zones and climate
variations. Our rapid growth therefore
depends on a robust, flexible and
efficient supply chain. We seek to
achieve a balance between deliveries
shipped via our own distribution centres
and direct deliveries from suppliers to
our stores.
Our distribution centres incorporate
highly efficient pick-by-line, cross-
docking and central storage processes,
which reduce operating costs and
increase in-store availability.
During the year, we enhanced our supply
operations with new distribution centres
in Rostov-on-Don and Togliatti coming
fully on-stream and the opening of a new
distribution centre in Yekaterinburg,
giving us the capacity to serve over
250 hypermarkets. This regional
expansion has facilitated increased
centralisation of our operations, leading
to economies of scale and lower net
distribution costs. We also optimised
the return journeys of our trucks back
to distribution centres, basing them
on real need and benefiting from the
consequent cost savings.
The centralisation ratio for our
hypermarket format increased to
45% in 2015 and at the year end the
centralisation ratio for our supermarkets
stood at 68%. The average distance for
goods transported was 635 km per pallet
compared with 896 km per pallet in
2014, a decrease of 29%. Although
our new stores in the Siberia and Ural
regions necessitated transportation of
goods over longer distances, this was
offset by the positive impact from
a higher share of stores in cities where
we already have a presence and the
new Yekaterinburg distribution centre.
We continued to build up our truck
fleet during the year, aimed at giving
us greater control of the supply chain.
At the end of 2015, our fleet comprised
110 owned delivery trucks. Our owned
fleet handled 39.3% of all deliveries
to our stores (2014: 35%). In the year
Lenta Annual Report and Accounts 2015 33
Our high growth rate offers a very
efficient and flexible channel to market
for our suppliers. Since they benefit
from our fast growth and flexibility,
many of them reward us for these
benefits with improved purchasing
terms and conditions.
These in turn increase our
competitiveness for customers and
also support our margins. Potential
suppliers can also approach Lenta
directly, accessing our commercial
departments or via our website.
Suppliers total
Direct import
Sourced in Russia:
Federal suppliers
Regional/local suppliers
2015
2,816
233
2,583
1,114
1,439
2014
2,524
259
2,265
1,128
1,137
Change
+292
-26
+318
+16
+302
work hard at cultivating and nurturing
relationships with them – especially
those offering local/regional or specialist
products with local customer appeal.
The overall number of suppliers
increased in 2015 to almost 3,000 due
to Lenta’s rapid expansion across
Russia and the higher number of local
and regional providers. During 2015,
over 96% of all product purchases were
sourced in Russia including over 22%
from local suppliers within the region
where we operate. Over 50.3% of our
fresh food was obtained from local
suppliers. Not only do such relationships
benefit local and regional economies,
they often provide more competitive
pricing than federal suppliers.
We analyse our regions and consider
new suppliers on a quarterly basis.
We also participate in regional
exhibitions to extend our ranges
of those products that appeal to
particular local tastes. The number
of direct import suppliers declined in
2015 as a result of the import embargo
and devaluation of the Rouble.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 34
Operating review continued
Gold award in the CIS Innovation
Gold award in the CIS Innovation
Category at the SAP Quality Awards
Category at the SAP Quality Awards
2015.
2015.
IT
Lenta’s IT strategy is based upon a suite
of fully integrated best-in-class business
applications, including applications from
SAP, Oracle and JDA. These support
all key aspects of our business including
supply chain operations, cash and
inventory management, centralised
purchasing and pricing and in-store
systems, as well as HR, finance and
other administrative functions.
In 2015 Lenta was declared the
Excellence Winner of the SAP Quality
Awards 2014 in the SAP HANA category
for the CIS. We were the regional Silver
Winner for the entire SAP EMEA region
in the HANA Innovation category;
a recognition of our application of quality
principles to ensure the successful
implementation of the SAP project.
Lenta was also acknowledged as a
technology leader by Oracle, winning
its ‘Best Innovation Project 2015’ award.
Our clear IT strategy encompasses
state-of-the-art in-memory solutions
including SAP HANA and Oracle
Exadata. Lenta’s advanced systems
are therefore designed for scalability
as well as reliability and performance;
our system in its current form could
potentially support a network of over
500 stores, without the need to replace
core applications. During the year
we increased the capacity of these
performance-enhancing systems
to ensure they remain capable of
supporting our ongoing rapid expansion.
We also automated several processes
in our hypermarkets and supermarkets
with the introduction of Personal Digital
Assistant (PDA) devices. These included
a Mobile Stock Management system,
which is based on the SAP Mobile
Platform, integrates seamlessly with
Enterprise Resource Planning (ERP)
and increases our in-store operations’
performance in the applicable areas
by between 30-60%. By the end of the
year, functionality was installed in all
27 supermarkets and 17 hypermarkets
in our Moscow and North West regions.
In 2015 we upgraded our point of sale
system, which is now based on state-of-
the-art technologies and supports our
growing business requirements. We
rolled it out across our stores during the
year and by December it was operational
in 118 stores, with 4,000 employees
having been trained on the system.
We continued the roll-out of JDA
Demand and Fulfilment software,
which now operates in all our distribution
centres and stores and covers all our
ranges except fresh food and non-food.
We also implemented the EGAIS
system, which enables the transparent
management of alcohol turnover
in our distribution centres and stores,
as required by Federal Law.
Lenta Annual Report and Accounts 2015 35
Merchandising
We developed a new supermarket
format, based around the concepts
of ‘focus on fresh – low prices – easy
to shop’. Three planning sizes from
350-1,200 sq.m. have been evaluated
with corresponding product ranges,
enabling us to retain flexibility to adjust
to prevailing site availability and rental
conditions.
Store layouts are specifically designed
to draw attention to fresh food products
with centrally located, visually attractive
fruit and vegetable displays and a
prominently placed promotions aisle
for weekly and special offers. The
‘Children’s World’ area is typically placed
near the entrance, emphasising Lenta’s
‘family first’ ethos to customers as they
enter the store.
In 2015 we redesigned elements
of the sales area in our hypermarkets,
reducing the space allocated for
consumer electronics, clothing and
shoes in favour of seasonal goods
and promotions. Responding to the
economic crisis in the first half of the
year, we adjusted our display layouts
to focus customers’ attention on our
great value ‘365’ private label range.
We have developed clear standard
designs for our stores. Each has a
logical and easy-to-navigate layout that
provides customers with a convenient,
efficient and pleasant shopping
experience. Our hypermarkets feature
high-rack storage that visually reinforces
our value-for-money proposition and
maximises the sales area by reducing
storage space.
We use sophisticated technology that
combines store-specific data with
Company-wide presentation principles
to create planograms. These help us
present our products to customers in the
most appealing way whilst maximising
our stores’ performance.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 36
Principal risks and uncertainties
Risk management
All businesses are subject to varying degrees of risk.
Recognising the effects and potential origins of uncertainty
on our business helps us make sound, risk-informed decisions
that put us in a better position to achieve our objectives,
respond to future challenges and create new opportunities.
The Board continuously monitors and reviews all material risks
to the business and takes appropriate actions to safeguard
all aspects of our operations.
The success of Lenta’s growth ambitions relies on careful
assessment of the principal risks to the Company and their
potential impact on our operations so that we can manage
them effectively.
Every manager within Lenta deals with risk every day.
During 2015 we engaged an external consultant to further
professionalise our risk management and embed a more
formal process of recognising, reporting and classifying risk
deeper within the organisation. This will also closely align our
managers’ approach with Senior Management’s views of risk
appetite and Lenta’s strategic goals.
Our strategic priorities:
Delivering profitable like-for-like growth
Strengthening our existing presence
Exploiting white space potential
Format evolution
* Residual risk level
High risk
Medium risk
Low risk
*
Risk and
description
Impact
Strategic priorities
that would be affected
Change in 2015
General
economic
Rouble devaluation and
GDP decline, resulting
in high inflation over
a period of more than
two years, pressure on
wages development
and savings behaviour.
Food retail sales and customer
behaviour are influenced
considerably by a decrease
in real disposable income,
lack of financial reserves among
customers, an increase in
unemployment and decisions
by consumers to save rather
than spend.
Pressures on purchasing power
lead to lower customer loyalty
as they ‘cherry pick’ promotions
across various retailers.
Consumers also drastically reduce
the number of articles in their
basket and buy cheaper products,
resulting in slow growth – or even
decline – of the average basket.
This puts pressure on the goal to
maintain healthy LFL sales growth
to generate cash to further grow
the business.
l
a
n
r
e
t
x
E
l
a
n
r
e
t
x
E
Market
Increase in competition.
Competitors alter their
commercial approach,
potentially resulting in
shifting store loyalties
and a decline in sales.
Increased competitor success
will result in lower growth for
Lenta, both LFL and in new stores,
which will result in slower growth
to support expansion.
Food inflation reached 14% after
inflation of 15.4% in 2014.
The Rouble declined significantly
and became much more volatile
in 2015 compared to 2014 – but
the direct effect on the P&L was
low and not material.
The volatility of the oil price
and the Rouble in early 2016
combined with other economic
developments may lead to a longer
period of high inflation and decline
in purchasing power.
With the outlook for slower growth,
Lenta decided to accelerate
multiple business improvements
resulting in substantial cost savings
without loss of attractiveness for
the customer. This has helped
Lenta improve its Adjusted EBITDA
margin from 2014 to 2015, despite
the lower LFL sales growth.
Competitors have become more
active in promotions. However for
some, these margin investments
are leading to steep declines in
results and high leverage, thus
posing a threat to their future growth
potential. As a result, more smaller
players are exiting the market and
the speed of consolidation of the
market is likely to increase.
Low-price/low-cost business model
provides value for money for customers.
Everyday products through own private
label at lower prices than similar brand-
Urban, inner-city locations can easily
be reached on foot and by public transport
name products.
as well as by car.
Our everyday low price offer is supported
by strong promotional activities with deep
discounts. This is what customers require
in the current economic circumstances –
and is supporting a positive development
in store traffic.
Working with suppliers to achieve lower
on-shelf inflation and pass benefits on
to customers.
Customers using Lenta loyalty card receive
5% reduction on all purchases as well as
Additional focus on sourcing and supply
chain optimisation to ensure Lenta can
other promotions and discounts.
offer the best prices in the market.
Introduction of our Social Card with
additional 3%-8% discount on socially
Continuous focus on our cost efficiency
to maintain high returns in periods of
significant goods.
slower growth.
Constantly monitoring competitors’ pricing
so that Lenta maintains its position
as hypermarket price leader.
Monitoring customer trends using external
reports and analysis of individual customer
Monitoring changes in competitors’
commercial propositions.
Adapting assortment, price ranges and
promotion activities to remain attractive
to customer base.
behaviour provided through Lenta’s Big
Data Customer Insight Programme.
Lenta Annual Report and Accounts 2015
37
37
The risk landscape altered in 2015, with falling real purchasing
power of consumers resulting from low oil prices, the steep
devaluation of the Rouble, increased inflation and higher
interest rates. The import embargo on certain agricultural
products from the US, EU and several other countries also
played its part. We managed these changes by adapting
our commercial offer, helping customers save money by
offering attractive promotions and a wider choice of products
available in smaller quantities and at lower prices. We also took
steps to improve the efficiency of our business, lowering our
operational cost (excluding depreciation and rental expenses)
as a percentage of sales.
The risk management process is closely aligned to our
strategic objectives. The principal risks that could have
a negative impact on our ability to deliver on our goals
are set out below, along with their potential impacts and
the mitigating actions taken in each case. Each risk is
categorised as ‘high’, ‘medium’ or ‘low’ depending on how
the possible impact would affect the achievement of our
strategic objectives.
*
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General
economic
Rouble devaluation and
GDP decline, resulting
in high inflation over
a period of more than
two years, pressure on
wages development
and savings behaviour.
Food retail sales and customer
behaviour are influenced
considerably by a decrease
in real disposable income,
lack of financial reserves among
customers, an increase in
unemployment and decisions
by consumers to save rather
than spend.
Pressures on purchasing power
Food inflation reached 14% after
lead to lower customer loyalty
as they ‘cherry pick’ promotions
across various retailers.
inflation of 15.4% in 2014.
The Rouble declined significantly
Consumers also drastically reduce
and became much more volatile
the number of articles in their
in 2015 compared to 2014 – but
basket and buy cheaper products,
the direct effect on the P&L was
resulting in slow growth – or even
low and not material.
decline – of the average basket.
This puts pressure on the goal to
The volatility of the oil price
maintain healthy LFL sales growth
and the Rouble in early 2016
to generate cash to further grow
combined with other economic
the business.
How we manage it
Low-price/low-cost business model
provides value for money for customers.
Our everyday low price offer is supported
by strong promotional activities with deep
discounts. This is what customers require
in the current economic circumstances –
and is supporting a positive development
in store traffic.
Working with suppliers to achieve lower
on-shelf inflation and pass benefits on
to customers.
Everyday products through own private
label at lower prices than similar brand-
name products.
Urban, inner-city locations can easily
be reached on foot and by public transport
as well as by car.
Customers using Lenta loyalty card receive
5% reduction on all purchases as well as
other promotions and discounts.
Additional focus on sourcing and supply
chain optimisation to ensure Lenta can
offer the best prices in the market.
Introduction of our Social Card with
additional 3%-8% discount on socially
significant goods.
Continuous focus on our cost efficiency
to maintain high returns in periods of
slower growth.
Constantly monitoring competitors’ pricing
so that Lenta maintains its position
as hypermarket price leader.
Market
Increase in competition.
Competitors alter their
commercial approach,
potentially resulting in
shifting store loyalties
and a decline in sales.
Increased competitor success
will result in lower growth for
Lenta, both LFL and in new stores,
which will result in slower growth
to support expansion.
Competitors have become more
active in promotions. However for
some, these margin investments
are leading to steep declines in
results and high leverage, thus
Monitoring customer trends using external
reports and analysis of individual customer
behaviour provided through Lenta’s Big
Data Customer Insight Programme.
Monitoring changes in competitors’
commercial propositions.
Adapting assortment, price ranges and
promotion activities to remain attractive
to customer base.
developments may lead to a longer
period of high inflation and decline
in purchasing power.
With the outlook for slower growth,
Lenta decided to accelerate
multiple business improvements
resulting in substantial cost savings
without loss of attractiveness for
the customer. This has helped
Lenta improve its Adjusted EBITDA
margin from 2014 to 2015, despite
the lower LFL sales growth.
posing a threat to their future growth
potential. As a result, more smaller
players are exiting the market and
the speed of consolidation of the
market is likely to increase.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
38
Principal risks and uncertainties continued
Our strategic priorities:
Delivering profitable like-for-like growth
Strengthening our existing presence
Exploiting white space potential
Format evolution
* Residual risk level
High risk
Medium risk
Low risk
*
Risk and
description
Impact
Strategic priorities
that would be affected
Change in 2015
Regulatory
Laws and regulations
governing food retail are
subject to change and
are particularly open
to scrutiny in periods of
high inflation.
Laws and regulations
are passed that increase
operating costs of retail
businesses and
can pose threats to
business continuity
because of potentially
complex adjustments
required to IT systems.
Tax
Frequent changes in
tax legislation and
the ambiguity of many
tax regulations.
Reduced retail margins
and a negative impact
on working capital.
Increases in operating
costs due to additional levies
or additional costs of
implementing and operating
complex new IT systems.
Increased risk of mistakes
in reporting to government
bodies due to the additional
requirements.
Acceleration of market
consolidation as smaller players
fail to cope with the changes.
Exposure to tax risks in some
circumstances; all tax risks
are set out in the Financial
statements.
These risks threaten our efficient
operating model and cost structure
as well our balance sheet and
returns. This may ultimately lead
to reduced cash flows available
to grow the business.
The outcome of discussions
on changing the trade law is still
unclear.
In 2015 a system was developed
allowing authorities to follow every
bottle of alcohol and its excise
mark from producers to the point
of sale to the consumer. System
requirements and operational
issues had to be defined and
Lenta had to integrate these
into its own IT systems.
A second example is the
introduction of a road tax for
trucks over 20 tonnes.
Closely monitoring all changes
in regulations affecting business.
Active participation in industry trade bodies
to contribute to the development of
Active participation in development
of requirements of new systems that
workable and well-balanced regulations.
retailers have to work with, thus ensuring
Lenta is well prepared and can develop the
requisite systems and operational changes
in time to ensure continuity of operations.
A high tax burden endangers
the returns that can be invested
in growing the business.
General economic circumstances
will most likely lead to a pressure
on total income from all types
of taxes. This may also result in
additional scrutiny by the authorities.
Analysing all existing practices and
court rulings in detail and adapting
our approach in accordance with court
practices or a robust interpretation
of the law.
Ensuring that our own tax practices
are fair and not overly aggressive.
Legal
As in all jurisdictions,
Russian law is subject
to change.
Financial:
capital structure
and covenants
Balancing projected
EBITDA, planned
capital expenditure
and expected interest
payments with
financial covenants.
Trade and import laws could
negatively influence day-to-day
business operations.
Changes in regional or federal
law may adversely affect Lenta’s
competitiveness and potentially
inhibit its growth strategy with
restrictions on opening new stores.
During 2015 there was no
significant change observed
in laws affecting Lenta or
their implementation.
Continuous monitoring of changes
in the law with expert support from
external professional advisors.
Relevant changes reflected in a timely
manner in all internal processes and
documentation.
Large deviations might lead
to breaches of covenants
with banks.
Lack of timely funding may
endanger the general growth
strategy because of a lack of
finance to build new stores.
Lenta raised capital twice in 2015.
Leverage is therefore very healthy
and Lenta has a higher flexibility
in defining its speed of growth.
Balancing commitments for new
investments with projected EBITDA,
projected interest and required
headroom on covenants.
Strict capital expenditure planning
on a conservative EBITDA forecast
to ensure that we retain comfortable
covenant headroom.
If necessary, proactively renegotiate
covenants to ensure prudent headroom
is maintained.
Issue share capital if equity markets are
receptive to enable sustained high growth
while keeping leverage at prudent levels.
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Lenta Annual Report and Accounts 2015
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How we manage it
Closely monitoring all changes
in regulations affecting business.
Active participation in industry trade bodies
to contribute to the development of
workable and well-balanced regulations.
Active participation in development
of requirements of new systems that
retailers have to work with, thus ensuring
Lenta is well prepared and can develop the
requisite systems and operational changes
in time to ensure continuity of operations.
A high tax burden endangers
General economic circumstances
the returns that can be invested
will most likely lead to a pressure
in growing the business.
on total income from all types
of taxes. This may also result in
additional scrutiny by the authorities.
Analysing all existing practices and
court rulings in detail and adapting
our approach in accordance with court
practices or a robust interpretation
of the law.
Ensuring that our own tax practices
are fair and not overly aggressive.
Legal
As in all jurisdictions,
Russian law is subject
to change.
Financial:
capital structure
and covenants
Balancing projected
EBITDA, planned
capital expenditure
and expected interest
payments with
financial covenants.
Trade and import laws could
negatively influence day-to-day
business operations.
Changes in regional or federal
During 2015 there was no
law may adversely affect Lenta’s
significant change observed
competitiveness and potentially
in laws affecting Lenta or
inhibit its growth strategy with
their implementation.
restrictions on opening new stores.
Continuous monitoring of changes
in the law with expert support from
external professional advisors.
Relevant changes reflected in a timely
manner in all internal processes and
documentation.
Large deviations might lead
to breaches of covenants
with banks.
Lack of timely funding may
endanger the general growth
strategy because of a lack of
finance to build new stores.
Lenta raised capital twice in 2015.
Leverage is therefore very healthy
and Lenta has a higher flexibility
in defining its speed of growth.
Balancing commitments for new
investments with projected EBITDA,
projected interest and required
headroom on covenants.
Strict capital expenditure planning
on a conservative EBITDA forecast
to ensure that we retain comfortable
covenant headroom.
If necessary, proactively renegotiate
covenants to ensure prudent headroom
is maintained.
Issue share capital if equity markets are
receptive to enable sustained high growth
while keeping leverage at prudent levels.
Regulatory
Laws and regulations
governing food retail are
subject to change and
are particularly open
to scrutiny in periods of
high inflation.
Laws and regulations
are passed that increase
operating costs of retail
businesses and
can pose threats to
business continuity
because of potentially
complex adjustments
required to IT systems.
Tax
Frequent changes in
tax legislation and
the ambiguity of many
tax regulations.
Reduced retail margins
and a negative impact
on working capital.
Increases in operating
costs due to additional levies
or additional costs of
implementing and operating
complex new IT systems.
Increased risk of mistakes
in reporting to government
bodies due to the additional
requirements.
Acceleration of market
consolidation as smaller players
fail to cope with the changes.
Exposure to tax risks in some
circumstances; all tax risks
are set out in the Financial
statements.
These risks threaten our efficient
The outcome of discussions
operating model and cost structure
on changing the trade law is still
as well our balance sheet and
unclear.
returns. This may ultimately lead
to reduced cash flows available
In 2015 a system was developed
to grow the business.
allowing authorities to follow every
bottle of alcohol and its excise
mark from producers to the point
of sale to the consumer. System
requirements and operational
issues had to be defined and
Lenta had to integrate these
into its own IT systems.
A second example is the
introduction of a road tax for
trucks over 20 tonnes.
*
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Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
40
Principal risks and uncertainties continued
Our strategic priorities:
Delivering profitable like-for-like growth
Strengthening our existing presence
Exploiting white space potential
Format evolution
* Residual risk level
High risk
Medium risk
Low risk
*
Risk and
description
Impact
Strategic priorities
that would be affected
Change in 2015
Financial:
interest rates
Significant changes
in interest rates.
Would affect liquidity as well
as ability to maintain prudent
covenant headroom.
Lack of timely funding may
endanger the general growth
strategy because of a lack of
finance to build new stores.
Financial:
credit
Large amounts
of receivables.
Subject to collection risk,
especially in more economically
turbulent times.
The inability to collect receivables
may result in lower than expected
cash flows, which may in turn
endanger the ability to grow
the business through new store
openings.
2015 saw a continuous decline in
interest rates from close to 25%
(3 months MosPrime) in January
to just below 12% at the end of
December. However, ongoing
low oil prices and resulting volatility
of the Rouble have resulted in
increased uncertainty about further
decline in rates with some risk
of increases.
No change compared to
previous year.
Various instruments are employed such
as fixed rate loans, interest rate swaps and
Derivative instruments clearly linked
to existing debt positions with variable
At year-end 73% of Lenta’s debt was fixed,
hedged into a fixed rate or capped against
caps so that interest paid is less influenced
interest rates and not used for speculation.
significant increases in interest rates.
by rate volatility.
Payables to and receivables from
individual suppliers are managed
in tandem.
Well-developed systems and payment
processes track development of trade
receivables on a weekly basis.
Borrowings in Roubles only,
so no exposure to currency risk.
Imports (about 4% and mainly non-food
items) paid partly in advance and currency
risks not generally hedged.
Store and other rental agreements
denominated in Roubles (only 0.6%
of space has lease terms in uncapped
foreign currency and this is being
renegotiated).
Short- and long-term cash flow forecasting
processes implemented to ensure
Diversified portfolio of lenders reduces
the risks should any lender be unable
appropriate understanding of liquidity
to disburse already-agreed loans.
requirements.
Treasury policies ensure large buffers
of available debt to finance a full
Comprehensive investment planning
process ensures that commitments to new
investments are in line with both projected
development programme for 12-18 months.
cash flows and required headroom on
covenants in the short and mid term.
Large supplier base of local, regional
and federal suppliers ensures that the
Cooperating with smaller local and regional
suppliers and offering support to improve
loss of any one supplier would not result
production and quality standards.
Ensuring fair terms for smaller suppliers
will allow them to grow their business
with Lenta and ensures a stable supply
in major issues.
to Lenta.
Inflation (see General
economic risk section) and the
price of imported materials.
An increase in imports will
increase investments and
may threaten our goal to
deliver market-leading returns.
The Rouble became much more
volatile in 2015 compared to 2014
but direct effect on the P&L is low
and not material.
10-15% of investment in new stores
involves imported equipment, with local
sourcing used wherever possible.
Financial:
foreign currency
Changes in foreign
currency exchange rates.
Financial:
liquidity
Unexpected changes
in cash flows and lack
of available financing.
Unable to fulfil financial
obligations.
Lack of timely funding may
endanger the general growth
strategy because of a lack of
finance to build new stores.
Sourcing
Inability to source
the right products
in the right place
for the right price.
Sales development below
expectations.
Margin development below
expectations.
Lower like-for-like and total
sales growth and/or lower margins
impact cash flow available to fund
further growth.
After some uncertainties in the
banking system in early 2015,
the situation stabilised. Lenta’s
continued growth, combined with
healthy profitability and decreased
leverage – as a result of healthy
cash flow generation and two
equity increases – resulted in an
improved credit rating, making
Lenta an attractive prospect for
banks when it comes to lending.
Lenta is in a significantly better
position than at the end of 2014.
The self-imposed food import
ban required rapid adaptation
to sourcing many fresh food items
at the end of 2014. At that time,
Turkey was open for imports of
fruits and vegetables, but the
recent strained relationship
between Russia and Turkey
has closed this option. As a result,
new sources must be found.
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Lenta Annual Report and Accounts 2015
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Financial:
credit
Large amounts
of receivables.
Financial:
foreign currency
Changes in foreign
currency exchange rates.
Financial:
liquidity
Unexpected changes
in cash flows and lack
of available financing.
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Financial:
interest rates
Significant changes
in interest rates.
Would affect liquidity as well
as ability to maintain prudent
covenant headroom.
Lack of timely funding may
endanger the general growth
strategy because of a lack of
finance to build new stores.
Various instruments are employed such
as fixed rate loans, interest rate swaps and
caps so that interest paid is less influenced
by rate volatility.
Derivative instruments clearly linked
to existing debt positions with variable
interest rates and not used for speculation.
At year-end 73% of Lenta’s debt was fixed,
hedged into a fixed rate or capped against
significant increases in interest rates.
How we manage it
Subject to collection risk,
especially in more economically
The inability to collect receivables
No change compared to
may result in lower than expected
previous year.
turbulent times.
Payables to and receivables from
individual suppliers are managed
in tandem.
Well-developed systems and payment
processes track development of trade
receivables on a weekly basis.
cash flows, which may in turn
endanger the ability to grow
the business through new store
openings.
Inflation (see General
economic risk section) and the
price of imported materials.
An increase in imports will
increase investments and
may threaten our goal to
The Rouble became much more
volatile in 2015 compared to 2014
but direct effect on the P&L is low
deliver market-leading returns.
and not material.
Unable to fulfil financial
obligations.
Lack of timely funding may
endanger the general growth
strategy because of a lack of
finance to build new stores.
10-15% of investment in new stores
involves imported equipment, with local
sourcing used wherever possible.
Borrowings in Roubles only,
so no exposure to currency risk.
Imports (about 4% and mainly non-food
items) paid partly in advance and currency
risks not generally hedged.
Short- and long-term cash flow forecasting
processes implemented to ensure
appropriate understanding of liquidity
requirements.
Treasury policies ensure large buffers
of available debt to finance a full
development programme for 12-18 months.
Store and other rental agreements
denominated in Roubles (only 0.6%
of space has lease terms in uncapped
foreign currency and this is being
renegotiated).
Diversified portfolio of lenders reduces
the risks should any lender be unable
to disburse already-agreed loans.
Comprehensive investment planning
process ensures that commitments to new
investments are in line with both projected
cash flows and required headroom on
covenants in the short and mid term.
Sourcing
Inability to source
the right products
in the right place
for the right price.
Sales development below
expectations.
Margin development below
expectations.
Lower like-for-like and total
The self-imposed food import
sales growth and/or lower margins
ban required rapid adaptation
impact cash flow available to fund
to sourcing many fresh food items
further growth.
Large supplier base of local, regional
and federal suppliers ensures that the
loss of any one supplier would not result
in major issues.
Cooperating with smaller local and regional
suppliers and offering support to improve
production and quality standards.
Ensuring fair terms for smaller suppliers
will allow them to grow their business
with Lenta and ensures a stable supply
to Lenta.
2015 saw a continuous decline in
interest rates from close to 25%
(3 months MosPrime) in January
to just below 12% at the end of
December. However, ongoing
low oil prices and resulting volatility
of the Rouble have resulted in
increased uncertainty about further
decline in rates with some risk
of increases.
After some uncertainties in the
banking system in early 2015,
the situation stabilised. Lenta’s
continued growth, combined with
healthy profitability and decreased
leverage – as a result of healthy
cash flow generation and two
equity increases – resulted in an
improved credit rating, making
Lenta an attractive prospect for
banks when it comes to lending.
Lenta is in a significantly better
position than at the end of 2014.
at the end of 2014. At that time,
Turkey was open for imports of
fruits and vegetables, but the
recent strained relationship
between Russia and Turkey
has closed this option. As a result,
new sources must be found.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
42
Principal risks and uncertainties continued
Our strategic priorities:
Delivering profitable like-for-like growth
Strengthening our existing presence
Exploiting white space potential
Format evolution
* Residual risk level
High risk
Medium risk
Low risk
*
Risk and
description
Impact
Strategic priorities
that would be affected
Change in 2015
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Logistics and
supply chain
Disruption of an efficient
supply chain.
Lack of goods for customers
and sales developments below
expectations.
Lower LFL and total sales growth
impact the cash flow available to
fund further growth.
Construction and
development
Exposure to risks related
to cost, quality and timing
of development projects.
Future returns could be
negatively influenced by budget
overruns, late commissioning
of stores, excessive
maintenance costs or the
inability to use constructed
property.
Higher investment and delayed
openings put pressure on
Lenta’s aim to deliver market-
leading returns.
Operational control
Growing selling space
at 25-40% per year
and adding new stores
and suppliers.
Lack of control in new
operations, leading to
a performance that is
below expectations.
Lower operational control will lead
to higher costs. Lower service
levels will affect sales, which will
reduce the funds available to
finance further growth.
Non-compliance would
risk Lenta’s reputation
and customer loyalty, with
a resulting negative impact
on sales.
Non-compliance would run the
risk of Lenta no longer receiving
approvals for new store
construction – and not achieving
its growth strategy.
Environmental
health and safety
Strict compliance
with health and safety
standards for customers
and employees.
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Compliance with
environmental pollution
guidelines.
Product liability
Selling goods that do
not meet health and
safety regulations.
Legal liability claims from
customers, with Lenta liable
for financial compensation
and damage to its reputation.
No change.
Direct impact is very limited.
A persistent problem may create
reputational issues that could
lead to lower sales as customers
shop elsewhere. This could result
in lower potential for growth.
Development of strict quality assurance
measures to ensure that products meet
Audit of suppliers’ production processes,
particularly for fresh produce and raw
Regular audits of production process
of Lenta-produced food.
or exceed legal requirements.
materials.
Implementation of a new system to
levy road tax, starting November
2015, created some disruption in
the transport market, leading to
a lack of available trucks. Working
with own transport and high quality
providers on long-term agreements
ensured this had a very limited
effect on Lenta’s operations in the
crucial month of December.
Despite the high inflation in
general, construction inflation has
been modest. The lack of other
companies investing in real estate
also ensures there is a wide choice
of contractors available at keen
prices.
Lenta’s high growth rate makes
it an attractive employer for
ambitious people wanting to work
in retail. The fact that Lenta
continues to pay variable income
also increases trust from existing
and future employees and will
help it attract the best people
in the market.
No change.
Effective supply chain solution with a good
balance of own resources and external
Employing a mix of owned and third-party
transport to optimise cost and mitigate risk
service providers.
of non-availability of transport.
Ownership of all but one distribution centre
and all processes utilising Company-
Broad base of transport providers
with long-term agreements to ensure
owned systems.
continuity of high-level services.
Strong base of experienced construction
companies with a proven track record on
Own site managers oversee construction
activities on a day-to-day basis and control
similar projects.
progress and quality.
Detailed budget planning and control,
as well as strict controls on contractor
Third-party specialists employed to monitor
the quality of construction materials used
spending.
and techniques deployed.
Clear and scalable organisational structure
ensures that Lenta has proper control
Established assessment and development
process for future managerial positions
All new employees undergo structured
training and development.
procedures to manage the business
efficiently, whatever its size.
ensures that new operations are supported
by experienced people who fully understand
Lenta’s systems and processes.
Highest quality standards maintained
across the business as well as
safeguarding the comfort and safety of
customers and employees at all times.
Strict adherence to all legal requirements
for health and safety within stores.
Operations conducted with respect
towards the environment.
Cooperation with local and regional
authorities to complete and maintain
all necessary approvals and regulatory
requirements for new stores.
Lenta Annual Report and Accounts 2015
43
Product liability
Selling goods that do
not meet health and
safety regulations.
Legal liability claims from
customers, with Lenta liable
for financial compensation
and damage to its reputation.
Direct impact is very limited.
No change.
A persistent problem may create
reputational issues that could
lead to lower sales as customers
shop elsewhere. This could result
in lower potential for growth.
How we manage it
Development of strict quality assurance
measures to ensure that products meet
or exceed legal requirements.
Audit of suppliers’ production processes,
particularly for fresh produce and raw
materials.
Regular audits of production process
of Lenta-produced food.
Lack of goods for customers
and sales developments below
Lower LFL and total sales growth
Implementation of a new system to
impact the cash flow available to
levy road tax, starting November
expectations.
fund further growth.
Effective supply chain solution with a good
balance of own resources and external
service providers.
Employing a mix of owned and third-party
transport to optimise cost and mitigate risk
of non-availability of transport.
Ownership of all but one distribution centre
and all processes utilising Company-
owned systems.
Broad base of transport providers
with long-term agreements to ensure
continuity of high-level services.
Strong base of experienced construction
companies with a proven track record on
similar projects.
Own site managers oversee construction
activities on a day-to-day basis and control
progress and quality.
Detailed budget planning and control,
as well as strict controls on contractor
spending.
Third-party specialists employed to monitor
the quality of construction materials used
and techniques deployed.
Clear and scalable organisational structure
ensures that Lenta has proper control
procedures to manage the business
efficiently, whatever its size.
Established assessment and development
process for future managerial positions
ensures that new operations are supported
by experienced people who fully understand
Lenta’s systems and processes.
Highest quality standards maintained
across the business as well as
safeguarding the comfort and safety of
customers and employees at all times.
Strict adherence to all legal requirements
for health and safety within stores.
Operations conducted with respect
towards the environment.
Cooperation with local and regional
authorities to complete and maintain
all necessary approvals and regulatory
requirements for new stores.
All new employees undergo structured
training and development.
*
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Logistics and
supply chain
Disruption of an efficient
supply chain.
Construction and
development
Exposure to risks related
to cost, quality and timing
of development projects.
Operational control
Growing selling space
at 25-40% per year
and adding new stores
and suppliers.
Environmental
health and safety
Strict compliance
with health and safety
standards for customers
and employees.
Compliance with
environmental pollution
guidelines.
2015, created some disruption in
the transport market, leading to
a lack of available trucks. Working
with own transport and high quality
providers on long-term agreements
ensured this had a very limited
effect on Lenta’s operations in the
crucial month of December.
general, construction inflation has
been modest. The lack of other
companies investing in real estate
also ensures there is a wide choice
of contractors available at keen
prices.
Future returns could be
Higher investment and delayed
Despite the high inflation in
negatively influenced by budget
openings put pressure on
overruns, late commissioning
Lenta’s aim to deliver market-
leading returns.
of stores, excessive
maintenance costs or the
inability to use constructed
property.
Lack of control in new
operations, leading to
a performance that is
below expectations.
Lower operational control will lead
Lenta’s high growth rate makes
to higher costs. Lower service
it an attractive employer for
levels will affect sales, which will
ambitious people wanting to work
reduce the funds available to
in retail. The fact that Lenta
finance further growth.
continues to pay variable income
also increases trust from existing
and future employees and will
help it attract the best people
in the market.
No change.
Non-compliance would
risk Lenta’s reputation
and customer loyalty, with
a resulting negative impact
on sales.
Non-compliance would run the
risk of Lenta no longer receiving
approvals for new store
construction – and not achieving
its growth strategy.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
44
Financial review
A year of increasing profitability
Jago Lemmens
Chief Financial Officer
With sales growth of over 30%, we were
the fastest growing publicly-traded food
retailer for the third year running and became
No. 5 by total sales.
252.8bn
RUB Total sales
56.3bn
22.3bn
RUB Gross profit
RUB Operating profit
Dear Shareholders
Despite ongoing turbulent economic
conditions, Lenta delivered a strong
overall performance in 2015, with
industry-leading sales growth. Our
customers continued to face challenges,
but our low-price/low-cost model
ensured that we were able to help them
manage their budgets and still deliver
a strong financial performance.
We increased our profitability, despite
making additional price investments
to reduce the impact of inflation on our
customers. It was particularly pleasing
that our improved profitability was driven
by enhancing our operational processes
in stores, distribution centres and head
office, and as a result of the investments
in supply chain infrastructure we made
in 2014 and 2015.
Our total sales grew 30.3%, in line
with our guidance, and we increased
selling space during the year by 25.8%.
We delivered a gross margin of 22.3%,
a reduction of 0.2pp compared to 2014.
The slight decrease was due to the
additional investments in pricing and
promotions throughout the year,
which more than offset the benefits
from improved supplier terms, increasing
supply chain efficiency and reduced
shrinkage.
Our supply chain costs fell to 1.3% of
sales from 1.6% in 2014 as we reaped
the benefits of our investments over the
last five years in distribution centres,
trucks and IT. Transportation costs
remain the largest element, but the
average distance for goods transported
fell by 29.1% to 635 km per pallet, as we
benefited from our three new distribution
centres in Togliatti, Rostov and
Yekaterinburg.
Lenta Annual Report and Accounts 2015
45
Productivity improvements and volume
leverage meant that sales per full-time
employee (FTE) grew by 13.3%, whilst
our cost per FTE only grew by 4.2%.
We worked hard to ensure our new
stores became profitable quickly;
shrinkage fell 10bps and pre-opening
costs of new stores reduced by the
same amount. Costs as a percentage
of sales fell across many other areas
of the business including marketing,
cleaning and security.
Our Adjusted EBITDA rose by 31.4% to
RUB 28.1 billion, with margin up 0.1pp
to 11.1% (2014: 11.0%).
Net profit was RUB 10.3 billion, an
increase of 13.4% on 2014. This was
driven by EBITDA growth partly offset
by increased interest expenses and
higher depreciation. The net profit
margin fell 0.6pp to 4.1%.
The effective tax rate increased from
17.0% in 2014 to 20.1%, due to a large
one-off effect in 2014 when Lenta
started to deduct a larger part of its
shrinkage for profit tax purposes. The
Company resubmitted tax declarations
for the years 2011-2013, resulting in a
one-off benefit of around RUB 0.5 billion
recognised in 2014.
Since the year end, the trading
environment has remained challenging
for retailers and customers alike. Food
inflation slowed at the start of 2016, but
with wages and incomes barely growing,
customers remain under pressure. They
are buying fewer products and trading
down to cheaper alternatives, with price
sensitivity and promotion-orientation
remaining high.
Our growing profitability and the equity
issues of 2015 have strengthened our
balance sheet. Lenta’s financial position
remains very healthy, with falling
leverage, and stable costs of debt
coupled with long maturity profiles.
Liquidity and availability of debt is high,
with RUB 45.3 billion of undrawn
borrowing facilities. We have the
necessary resources in place to
succeed in this environment; returns
on our new stores remain well above
the cost of capital, we see room for
greater efficiency and the momentum
from 2015 means we are well placed
to accelerate our expansion.
Gross profit
RUB bn
2015
2014
2013
Net profit
RUB bn
2015
2014
2013
31.5
+28.7%
56.3
43.7
+13.4%
10.3
9.1
7.1
Summary income statement
RUB (millions)
Total sales
Gross profit
Gross margin
SG&A, % of sales
Adjusted SG&A1, % of sales
Adjusted EBITDAR2
Adjusted EBITDAR margin
Rental expenses, % of sales
Adjusted EBITDA
Adjusted EBITDA margin
Operating profit
Profit before income tax
Net profit
Net profit margin
2015
252,763
56,305
22.3%
14.3%
10.9%
30,752
12.2%
1.1%
28,080
11.1%
22,332
12,872
10,288
4.1%
2014
193,988
43,736
22.5%
14.4%
11.6%
22,781
11.7%
0.7%
21,372
11.0%
17,659
10,928
9,075
4.7%
% Change
2015-2014
30.3%
28.7%
-0.2pp
-0.1pp
-0.7pp
35.0%
0.5pp
0.4pp
31.4%
0.1pp
26.5%
17.8%
13.4%
-0.6pp
1 Adjusted SG&A is SG&A before rent paid on land, equipment and premises leases, depreciation and
one-off non-operating costs.
2 Adjusted EBITDAR is Adjusted EBITDA before rent paid on land, equipment and premises leases.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 46
Financial review continued
Our success springs
from staying true to
our successful low-
price/low-cost business
model. In 2015 we
further improved
profitability thanks to
effective control of
operational costs and
further development
of our supply chain
infrastructure.
Sales
In 2015 our sales were RUB 252.8
billion, an increase of 30.3% compared
to 34.5% growth in 2014. The growth
was supported by a significant increase
in selling space in 2014 and 2015,
with increases of 38.7% and 25.8%
respectively. LFL sales rose by 9.1%,
which included a 3.9% increase in
LFL traffic and 5.0% LFL average
ticket growth.
y-o-y growth
Total sales
LFL sales
LFL traffic
LFL ticket
1H 2015
33.8%
11.5%
4.7%
6.5%
We opened 32 new hypermarkets
and eight new supermarkets in 2015.
The number of active loyalty
cardholders increased by 29%
year-on-year to 8.4 million at the
year end.
Selling space
’000 sq.m.
2015
2014
2013
2H 2015
27.5%
7.2%
3.2%
3.9%
505.7
2015
30.3%
9.1%
3.9%
5.0%
+25.8%
882.4
701.2
2014
34.5%
10.6%
4.4%
6.0%
Selling, general and administrative
expenses (SG&A)
SG&A decreased to 14.3% of sales,
0.1pp lower than 2014. We managed
a reduction in SG&A expenses thanks
to ongoing operational improvements
throughout the business, productivity
improvements and a more efficient use
of our marketing resources. These more
than offset an increase in the share of
leased stores with their associated rental
expenses and increased depreciation
expenses driven by our investment
in new stores and supply chain
infrastructure. Lenta’s rent expenses
increased by 0.4pp to 1.1%.
Professional expenses reduced in
2015, mainly thanks to fewer one-off
corporate costs related to the IPO
in 2014 and lower fees to payment
systems due to better tariffs.
Operational improvements, cost
saving measures and increasing scale
contributed to a fall in Adjusted SG&A
to sales ratio of 0.7pp to 10.9%. LFL
stores opened prior to 2015 delivered
an even more impressive reduction
of 1.5pp in SG&A as a percentage
of sales. The reduction in SG&A more
than offset slightly lower gross margin
to give a 0.5pp rise in EBITDAR to
12.2% of sales.
Lenta Annual Report and Accounts 2015 47
EBITDA
Adjusted EBITDA for 2015 grew faster
than sales in 2015, reaching RUB
28.1 billion (+31.4% compared to 2014)
with an Adjusted EBITDA margin of
11.1%. This was due largely to lower
costs as a percentage of sales.
RUB (millions)
Adjusted EBITDA
One-off expenses and income1
Reported EBITDA2
2015
28,080
(62)
28,018
2014
21,372
(54)
21,318
% Change
2015-2014
31.4%
15.1%
31.4%
1 One-off expenses and income in 2015 and 2014 were professional services fees primarily incurred
in connection with the optimisation of the group corporate legal structure, development of employee
incentive plans and cost and income related to Lenta’s public offerings carried out in March 2014,
March 2015 and October 2015.
2 Reported EBITDA (as set out in Note 6 of the IFRS financial statements) includes all operating income
and expenses excluding interest, tax, depreciation and amortisation as well as certain other expenses.
Interest
Net interest expenses were
RUB 9.3 billion, an increase of 36.2%
from RUB 6.8 billion in 2014. This rise
was due primarily to higher market
rates in the first half of the year and
a slightly higher average level of
borrowing, which was used to fund
our store opening programme and
supply chain development.
We reduced the cost of our debt over
the year, from 17.5% in the first three
months to 12.3% in the last quarter.
This was due principally to the combined
effects of ongoing reductions in
MosPrime rates, improvements in the
terms and conditions of our major
long-term loan facilities and repayment
of our most expensive debt following
the primary capital increase in March.
Lenta’s weighted average cost of debt in
2015 increased by 152bps vs. 2014, to
13.7%, while the average MosPrime rate
increased 328bps over the same period.
Capital expenditure
Lenta’s capital expenditure reduced
by 10.7% in 2015 to RUB 31.4 billion
(from RUB 35.1 billion in 2014). This
was chiefly because we made fewer
investments in land acquisitions
compared to previous years, but was
partially offset by slightly higher
investments in future store openings.
Much of our capital expenditure in 2015
was funded by our strong operating
cash flow – and to a lesser extent by
the proceeds from our primary capital
increases in March and October.
We increased our capital expenditure
cover ratio (after taxes and before
interest paid) to 80%.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 48
Financial review continued
Cash flow
Net cash generated from operating
activities before net interest and income
taxes paid rose 10.2% to RUB 25.9
billion compared to RUB 23.5 billion
in 2014. This was primarily driven by
the growth in EBITDA, partly offset
by an increase in working capital.
We finished 2015
with a stronger balance
sheet than ever. Our
leverage fell to 1.9x –
thanks to strong
profitability and cash
generation combined
with our two successful
primary equity issues.
Summary cash flow
RUB (millions)
Profit before income tax
Cash from operating activities
before movements in working
capital
Movements in working capital
Cash from operating activities
Net interest
Income tax
Net cash generated from
operating activities
Net cash used in investing
activities
Net cash generated from
financing activities1
Net increase/(decrease) in
cash and cash equivalents
Cash and cash equivalents
at the end of the period
Year ended
31 December 2015
12,872
Year ended
31 December 2014
10,928
y-o-y growth
17.8%
28,288
(2,378)
25,911
(9,090)
(896)
21,894
1,625
23,519
(6,583)
(956)
29.2%
–
10.2%
38.1%
(6.3%)
15,924
15,979
(0.3%)
(31,370)
(35,111)
(10.7%)
25,865
10,420
22,456
24,955
3.6%
5,824
78.9%
12,036
86.6%
1 Net cash generated from financing activities includes RUB 21.8bn of proceeds from issue of new
shares in 2015.
Lenta Annual Report and Accounts 2015 49
Net debt
As of 31 December 2015, Lenta’s
net debt was RUB 53.5 billion.
A combination of rapidly rising EBITDA,
strong operating cash flows and the
primary equity issues enabled us to
end the year with a Net debt to Adjusted
EBITDA leverage of 1.9x, down from
2.8x at the end of 2014. Our leverage
covenants are 4x, so our headroom
is very healthy. Adjusted EBITDA to
net interest was 3.0x. Our financial
ratios remain fully compliant with all
the covenants in our loan agreements,
with prudent levels of headroom.
All of our drawn debt portfolio is
denominated in Russian Roubles and
as at 31 December 2015 100% of it was
borrowed under long-term bank facilities
or in the form of bonds with an average
maturity of 3.0 years. Some 73% of our
debt is at fixed rates or hedged, with the
remaining 27% exposed to increases in
MosPrime.
At the year end, Lenta had drawn
debt of RUB 76.1 billion compared to
RUB 71.4 billion in 2014. In addition,
the Company had RUB 45.3 billion of
undrawn short- and long-term facilities
and a cash balance of RUB 22.5 billion
at 31 December 2015.
Since the year end, we have signed
a RUB 7 billion three-year fixed rate
unsecured loan facility with Rosbank,
increasing the proportion of long-term
fixed-rate debt in our portfolio. This loan
was fully drawn down in January 2016.
We also repurchased RUB 3 billion
of bonds and re-set the coupon on
RUB 7 billion of bonds, with a further
coupon re-set on these bonds due
in August and September 2018.
Summary balance sheet
RUB (millions)
Property, plant and equipment
Other non-current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Advances paid
Other current assets
Total assets
31 December 2015
104,016
11,023
22,782
13,647
22,456
2,265
2,203
178,392
31 December 2014
(restated)
81,218
9,688
19,629
11,371
12,036
2,751
4,552
141,245
Jago Lemmens
Chief Financial Officer
Equity
Long-term borrowings
Other long-term liabilities
Trade and other payables
Short-term borrowings and short-term portion
of long-term borrowings
Other short-term liabilities
Total liabilities and equity
47,130
65,149
5,254
48,820
10,773
1,265
178,392
16,730
58,520
3,814
48,373
12,695
1,112
141,245
Net debt/Adjusted EBITDA
1.9x
2.8x
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
50
Corporate social responsibility
Enduring values
For Lenta, corporate social
responsibility is not an ‘add-on’;
it is embedded in the way we
do business and is a long-term
commitment. We believe it
is possible to create value
for all our stakeholders whilst
behaving ethically, contributing
to economic development,
looking after our employees and
improving the local communities
in which we operate.
We made good progress against
our stated CSR goals for 2015 –
and we are continuing our
efforts during the year ahead
(see page 65). For 2016 we
added a new goal that focuses
on educating and strengthening
ties with our suppliers. Our CSR
agenda is built on six pillars that
influence our daily interactions
with our stakeholders.
Lenta Annual Report and Accounts 2015 51
Our pillars
We worked hard throughout 2015 to extend and
enhance our activities across all six pillars.
Recruiting, training and
retaining great staff
+
Read more on page 53
Pricing and customer
satisfaction
+
Read more on page 56
Local sourcing
+
Read more on page 58
Caring for the environment
+
Read more on page 60
Making a positive contribution
to local communities
+
Read more on page 62
Promoting health
and safety
+
Read more on page 64
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 52
Corporate social responsibility continued
The Lenta Way
Our established core principles underpin our business. Our commitment to these – and our ethics policy – informs our CSR
agenda, strengthens our business and supports our ambitions for long-term growth.
Customer satisfaction
We work every day to provide the
best possible service for our
customers, by constantly taking into
account the products they want and
the services they demand. Our
customers are the key to our
development and improvement.
Providing customers with
low prices every day
Lenta is the leader in terms of price.
We have always been the price leader
and we are committed to bringing
our customers more goods at lower
prices than the competition. We ensure
that our costs are kept to a minimum
so that we can pass savings on to
our customers.
Selling goods of only
the highest quality
Our stores only stock fully licensed
goods that have been handled
under the most hygienic conditions.
Our employees
We know that if we want to have
satisfied customers, we must retain
employees who are well trained
and motivated.
Maintaining the highest level
of respect for everyone
We pride ourselves on respecting the
opinions of our customers, suppliers
and employees, encouraging positive
criticism and friendly relations.
Teamwork in everything we do
Only by everyone working together
will we be able to satisfy our
customers. By encouraging an open
environment based on mutual trust,
everyone can feel comfortable about
asking assistance from another
employee and they can be confident
that their voice will be heard.
Innovation and the constant
generation of new ideas
The key to our long-term survival is
a continuous flow of innovative ideas.
Many of these come from our own
staff. We believe that in order to
stay ahead of the competition we
must continuously implement these
new ideas.
Our Ethics Policy
We are committed to ensuring high standards of behaviour across all aspects of our business. Our Ethics Policy sets out the
obligations of all employees to behave ethically and comply with corporate standards. These include:
• no improper payments to the
authorities and business partners;
• upholding the integrity and good
name of the Company in developing
long-term relationships with
customers, communities and
suppliers;
• the unacceptability of directly or
indirectly offering, paying, soliciting
or accepting bribes or kickbacks
in any form;
• no conflicts between personal
interests and those of the Company.
Any non-compliance by employees is
reviewed and may lead to disciplinary
action including dismissal.
Lenta’s Ethics Committee was
established in 2011 to review all
complaints about the Company, and
the Ethics Policy forms the basis of
the standards and rules applied to
each case. The Committee’s work
is regularly reviewed, both by the
Audit Committee and by the Board.
Anyone – including customers,
employees and suppliers – can contact
the Ethics Committee. This can be done
directly and anonymously via the Lenta
website or via our in-store information
desks. In 2015, 404 calls to the Company
hotline were received and reviewed;
a marginal increase on last year.
However, the number of complaints
per store significantly decreased
given the large number of new Lenta
stores. The number of anonymous calls
also declined, indicating an increased
level of trust in the hotline on the part
of employees and customers alike.
Lenta Annual Report and Accounts 2015 53
1. Recruiting, training and
retaining great staff
Our motivated, friendly and
knowledgeable workforce is the heart
of our business and the key to our
long-term success. By recruiting and
training the right individuals with the
right skills, we seek to offer an enhanced
level of service to our customers.
We encourage a collegiate culture that
fosters teamwork, innovation and trust.
Training and development
We believe that investing in our people
improves employee retention and
increases our productivity. Lenta
operates a programme of ongoing
internal promotions and job rotations,
which – combined with individual
career plans and recognition initiatives –
contribute to reducing staff turnover.
Lenta has an above-average retention
rate for the food retail sector;
5,873 employees have been with
the Company for more than five years
and 849 employees have worked
for us for more than a decade.
We offer a range of training programmes
to our managers, taking into account
their experience and knowledge.
In 2015, approximately 60 managers
participated in a Lenta Leader
programme providing development
for managers with high potential.
Some 780 colleagues, mostly in stores,
participated in our Effective Management
programme. This is targeted at the
development of managerial skills and
covers such areas as goal setting,
planning, analysis and decision-making,
methodology of control and motivation.
The programme is run by in-house
business trainers and Lenta store
directors who share their experience
and best practice.
During the year, 13 experienced
managers benefited from external
pre-MBA programmes administered
via two business schools. The
programmes are focused on systemic
thinking, holistic business understanding
and the increase of personal
effectiveness.
Whilst management training is important,
our principal focus is our store
employees, who are responsible for
ensuring the high levels of service
to our customers that we expect.
Each of our stores runs an orientation
programme for new recruits, ensuring
that they quickly acquire the necessary
knowledge and skills to fully integrate
into the store teams.
Recruitment and career development
In 2015, Lenta created 7,610 new jobs –
and a total of 15,000 employees
were recruited to new positions.
The recruitment process is centralised
for several elements such as job posting,
advertising, candidate attraction and
phone interviews via Lenta’s Centralised
Employment Centre. However, the final
selection of candidates is decentralised
and conducted in each store. This
combination optimises the efficiency
of the process and focuses the attention
on local staffing requirements.
In 2015, we delivered a total of over
900,000 man-hours of training, with
an average of 30.6 hours per person.
This was provided through a
combination of in-house and remote
training. We believe remote courses
provide a stimulating learning
environment, with theory reinforced
through a combination of practical
work and mentoring. In 2015, we
doubled the amount of remote training
delivered by the Company. Some 85%
of our training uses internal resources,
enabling us to keep the cost of one
learning hour per employee at RUB 30.
A key activity in 2015 focused on
supporting change across Lenta’s
business processes, such as the
introduction of new point of sale
software, implementation of the EGAIS
system for the processing of alcohol
product registration based on new legal
requirements and the introduction
of Personal Digital Assistant (PDA)
devices. These business process
changes necessitated the creation of
tailored educational programmes and
the instruction of internal trainers to
communicate these to large numbers
of employees. Over 6,500 employees
undertook such courses, which have
enabled them to quickly and effectively
apply their new knowledge in their
own positions.
Our rapid growth requires continuous
improvement of our hiring processes and
consistent succession planning. There
are numerous opportunities for career
advancement and we actively encourage
the professional development of our
people. Succession planning at Lenta
is a dynamic process across all divisions
of the Company and we aim to fill as
many positions as possible with internal
candidates. Succession planning has
a powerful influence in motivating
employees to develop their skills and
capabilities. In 2015, 48% of vacancies
were filled internally, and 75% of the
directors of our newly opened stores
were internal candidates. 3,025 people
were promoted and 4,636 employees
benefited from horizontal moves.
Employee mobility and readiness to
relocate to another Russian region
is essential for effective succession
planning and vital for the success of
Lenta’s expansion programme. In 2015
we implemented a new relocation policy,
which formalises the relocation rules for
employees to all of Lenta’s existing and
planned regions of presence. The policy
supports the Company’s rapid and
effective growth by offering internal
candidates a transparent and fair
relocation package.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 54
Corporate social responsibility continued
To evaluate the achievements of
individual employees and identify
potential, Lenta has an established
performance management process.
Office employees and management of
stores and distribution centres already
participate in this process and in 2016
we will extend it to all employees.
To ensure successful implementation,
we have prepared almost 450 internal
trainers amongst our store managers –
and with their help we have trained over
24,000 of our store employees.
We will continue further development of
distance learning programmes and our
approach to training based on the use
of internal experts to share knowledge
and act as mentors. We will also roll
out our performance management
process in stores to further enhance
our customer focus and service levels.
Crystal Pyramid – 2015 winner in
The Best HR Team of the Year award
HR brand strengthening
During the year we continued to
strengthen the HR team within Lenta.
As part of this effort, we attracted
17 students and graduates as trainees
to the Company’s head office, four
of whom now work for Lenta. Through
increasing the effectiveness and
reputation of the HR department, the
Company again featured in the top 100
most attractive employers in Russia
(ranked 56th in 2015 compared with
60th in 2014).
Salaries and benefits
We provide a range of attractive local
employment opportunities and careers –
with competitive pay and health benefits,
uniforms and all necessary protective
equipment.
Despite the increasing cost pressures
in the food retail labour market,
Lenta maintained its social benefits
for employees. Salaries for certain
in-store positions were increased and
we introduced an additional bonus to
support the basic income of employees
whose stores achieve their planned
targets of reducing operating expenses.
While maintaining the level of benefits,
we reduced expenses for medical
checks and voluntary medical insurance
through optimising our supplier services
and more effective planning.
We continued to provide financial
support for employees in accordance
with a set of established principles.
When staff find themselves in difficult
circumstances, we offer help above
set limits. For example, after the severe
hailstorms in Zheleznovodsk we
provided support for those employees
whose homes and cars were damaged.
Diversity
We value diversity and encourage
all our people to fulfil their potential.
Our key recruitment and promotion
considerations are based around
professional knowledge and
competence and we offer employment
opportunities to all able candidates.
In every store we provide a minimum
of five job opportunities for people with
special needs. In 2015, 78 vacancies
were filled by candidates from this group.
Employee engagement
There is a strong connection between
employee engagement, business
performance and customer satisfaction.
Keeping employees up to date with our
progress and plans is therefore vital to
our success. In 2015 we piloted several
initiatives based on store employees’
suggestions including ‘gamification’
projects to motivate colleagues to
actively participate in store life –
Lenta Annual Report and Accounts 2015 55
In October, 48 employees represented
Lenta in the annual Trade and Industry
‘Best in Profession’ awards held
in St. Petersburg. Our colleagues
included eight food shop assistants,
two non-food shop assistants and
38 cashiers. Elena Kozlova from
Lenta-8 was named Best Cashier-
Controller and Igor Gololobov from
Lenta-11 took third place in the Best
Shop Assistant in Food category.
for example through helping their
colleagues and conducting training
sessions or identifying safety hazards.
Commitment to Lenta’s success enables
employees to earn ‘Lenta points’ and
exchange them for prizes, with rewards
ranging from caps and T-shirts to
household appliances and TVs.
These initiatives provide valuable
feedback, which we use to help us refine
our development strategy and
operational procedures.
Our Penza store launched a series of
motivational initiatives in 2015 including
the ‘I’m a Professional’ game played for
Lenta points, professional photographic
portraits of the best store employees and
stories about colleagues’ lives featured
on Lenta TV. Staff also marked the
70th anniversary of the Great Victory by
enhancing the store’s car parking area.
The best corporate magazine at the
Best Corporate Media awards 2015
During the year we conducted Strategic
Communication Sessions at our
Regional Forums in St. Petersburg,
Moscow and Novosibirsk. These events
enable Senior Management to review
the previous year’s achievements with
approximately 400 Lenta managers
and share the broader strategic outlook.
Our award-winning staff magazine
‘Nasha Lenta’ (‘Our Lenta’) is distributed
to all employees every quarter and aims
to strengthen team spirit and broaden
awareness of the Company’s activities.
It keeps colleagues informed on a wide
range of topics from developments in
the retail sector, company performance
and management interviews to store
openings, ethics policy and dress code.
In 2015 the magazine won the Internal
Corporate Magazines category in
the AKMR (Russian Association
of Communication Directors and
Corporate Publishing) ‘Best Corporate
Media 2015’ awards.
Looking ahead
In 2016 we will launch an updated Lenta
Leader Programme in collaboration
with an acclaimed business school.
This will provide a deeper understanding
of all aspects of the business, based
upon MBA principles.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 56
Corporate social responsibility continued
2. Pricing and customer
satisfaction
Lenta’s core pricing proposition to its
customers is ‘value for money’. We offer
a wide range of products at attractive
prices and seek to provide a competitive
offer for our customers across the key
product attributes of quality, availability,
service and shopping environment. We
believe that the service provided by our
staff contributes significantly to customer
satisfaction – and our in-store colleagues
are continuously trained to engage with
our customers and deliver the highest
standards of service.
During 2015 we introduced a number of
new promotional activities in our stores
as well as new pack sizes. In the past,
‘three for two’ offers were popular with
customers, but with tighter budgets
having to stretch further, ‘two for one’
offers have become the preferred option.
The most effective promotion remains
a direct discount.
Lenta has a broad customer base,
and we monitor purchasing patterns to
assess changing tastes. Together with
information gathered through our loyalty
programme and customer surveys, we
use this data to inform our decisions on
product ranges and prices and to help
tailor our offering to align closely with
the needs of our customers, both regular
and occasional.
Lenta’s Loyalty Card guarantees
a discount of 5% on all purchases.
As at 31 December 2015, there were
8.4 million active cardholders, an
increase of 29% on the previous year.
During the year, some 92% of all sales
were made using the card. Members
of the scheme also benefit from access
to additional discounts for special
offers and seasonal promotions, which
generate significant customer and brand
loyalty. Independent surveys indicate
that the Loyalty Card programme
is highly appreciated by shoppers.
We also offer a Social Card, which
is available in all Lenta stores across
Russia. This gives vulnerable and
needy citizens an additional discount
of between 3% and 8% on basic food
products and selected household items.
By the end of the year there were over
1.2 million holders benefiting from
the scheme, enabling them to make
substantial savings on essential
purchases. Over 527,000 customers
joined the scheme in 2015.
In September 2015, Lenta enabled its
Social Cardholders in the Moscow
region to participate in a local social
programme. By showing a Moscow
Region resident’s social card at a Lenta
store information desk, individuals
can obtain a free Lenta Social Card
with a special sticker. When shown at a
checkout, the cashier gives an additional
discount for goods from a list of over
90 SKUs including essential food and
household products.
30,000
Severstal employees
enrolled into Lenta Social
Card scheme
In December 2015, we signed
a partnership agreement with
the steel and mining company
Severstal, enrolling their 30,000
Cherepovets-based employees
into our Social Card scheme.
As well as providing support to the
workforce of one of the city’s largest
employers, the partnership will
contribute to the socio-economic
development of the area.
Lenta Annual Report and Accounts 2015
57
Looking ahead
We are constantly seeking new ways
to improve our customers’ shopping
experience. For example, in the coming
year we intend to explore the viability
of launching shuttle bus services to
improve accessibility to some of our
stores and establishing bus stations
adjacent to our stores where needed.
Lenta topped Delovoy Peterburg’s
rating of hypermarkets for the
cheapest pricing for basic food and
non-food goods in St. Petersburg.
The newspaper’s journalists
monitored prices across 44
categories of products from
ten hypermarkets calculated
on an index of minimum prices.
The rankings highlighted which
retailers had managed to negotiate
the best prices with suppliers
and were most successful with
their private label range.
In November 2015, Lenta signed an
agreement with the administration
of Vologda to participate in the city’s
‘Zabota’ (‘Care’) project, which helps
those sections of the population on
low incomes. Lenta’s participation
means that holders of Vologda’s City
Discount Card can receive an
additional discount of up to 13% on
90 ‘socially significant’ essential items,
including fruit, vegetables, meat and
dairy products.
Our stores stock a wide range of high
quality and fresh foods that support
our customers in their healthy eating
choices. Much of our food is produced
in store, including a variety of meat and
fish products, freshly made salads and
bread. We also cater for customers with
special dietary requirements including
those with lactose intolerance, diabetes
and coeliac disease.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 58
Corporate social responsibility continued
3. Local sourcing
The number of direct import suppliers
to Lenta reduced in 2015, partly as
a result of the import embargo and
devaluation of the Rouble. However,
we grew our overall number of suppliers
due to increased local sourcing.
Locally sourced products are at the
heart of the Lenta shopping experience
and, unlike many of our retail
competitors, our strategy acknowledges
the importance of local and regional
sourcing. During the year over 96%
of all product purchases were sourced
from suppliers in Russia, including
increasing numbers of products sourced
locally, which included 22.2% of our
product range and just over 50.3%
of our fresh food (as measured by
purchase price paid). Not only do these
relationships benefit the local economies,
they often provide more competitive
pricing than federal suppliers.
We improved communication and
strengthened our ties with our suppliers
across the country to enhance the
effectiveness of our supply chain,
enabling us to further expand our
offer and reduce our logistics costs.
All products must meet the necessary
safety, quality, packaging and consumer
information standards before they
reach Lenta’s shelves. During 2015
we launched a series of programmes
aimed at educating our suppliers and
improving the quality of their products.
We have supported Hazard Analysis
and Critical Control Point System
(‘HACCP’) implementation at the
production premises of our suppliers.
We made significant improvements
to our product quality audit process –
including that of our private label
products – focusing particularly on
producers with whom we have started
working relatively recently. We also
introduced a detailed quality
questionnaire that suppliers must
complete to enable their products
to be sold in our stores.
Our Quality Department carried out
a total of 199 audits; 23 audits for
branded goods suppliers and 176 for
private label local suppliers in 2015.
The results of such audits enable us
to identify areas of potential quality
improvement in the production process
and provide the relevant advice and
support to address these.
Lenta is a member of the Retail
Companies Association (ACORT),
which represents the interests of some
of Russia’s largest retail networks.
During 2015, self-regulation in the retail
industry developed significantly.
ACORT members including Lenta
collaborated with the Inter-industry
Expert Council, which brings together
key retail chains and suppliers of
consumer goods. A Memorandum
establishing a self-regulating
organisation in the consumer market
was signed and a Centre of Public
Procedures was formed, which will
mediate in disputes between market
participants. Other joint achievements
included the amendments to the
Code of Good Relationship Practices,
reducing the price change approval
period from 45 to 30 days.
Lenta Annual Report and Accounts 2015 59
Looking ahead
We are planning a number of initiatives
over the coming year to improve our
relationships with suppliers. These
include an online information portal
for suppliers, which will standardise
requests to Lenta and enhance our
response mechanism. We will also
publish a profile of Lenta’s ‘optimum
supplier’, containing complete and
up-to-date lists of our requirements of
suppliers, along with a detailed manual
setting out our business processes.
2016 will also see the implementation
of new IT systems to ensure quality
analysis of suppliers and support
the application of HACCP food safety
principles.
We will also increase the visibility
of local produce on our shelves with
distinctive ‘local produce’ branding
and plan to offer temporary in-store
placements to potential suppliers,
with contracts awarded on a ‘best sales’
basis. We also plan to run a pilot
scheme in conjunction with the EBRD
to educate local suppliers.
In addition, we will continue holding
Regional Partnership Forums on a
regular basis to keep suppliers informed
about Lenta’s performance, enabling
us to negotiate with potential contractors
and facilitate constructive dialogue.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 60
Corporate social responsibility continued
4. Caring for the environment
With Lenta stores at the heart of local
communities, we recognise our
responsibility towards the community
and the environment in which we
operate. Moreover, we are committed
to minimising any adverse impact –
whether caused by use of materials,
energy, transportation or disposal
of waste.
We aim to comply with national and
regional legislation relating to our
operations – and work in close
collaboration with local authorities and
communities when planning new store
sites. Prior to constructing new stores
or distribution centres, we conduct
environmental reviews of the proposed
locations. We believe we comply in all
material respects with the environmental
standards applicable to us under
Russian law and regulations.
Waste
Lenta produces various types of
waste that are removed by third-party
contractors. During the year we reduced
the quantity of waste we produced from
0.0265 kg per sq.m. of selling space
in 2014 to 0.0177 kg per sq.m. We also
made considerable improvements in
the amount of cardboard we recycle,
with volumes rising from 0.0025 t/sq.m.
to 0.0059 t/sq.m., and dramatically
increased the amount of recycled PVC
from 0.0002 t/sq.m. to 0.0016 t/sq.m.
We also worked closely with suppliers to
reduce the amount of packaging waste.
We continued to invest in systems
to ensure we comply with local
regulations with regard to our sewage
and waste water treatment, including
the installation of fat absorbers and
rainwater cleaning equipment. We spent
RUB 120 million in 2015 on 13 stores,
with RUB 150 million budgeted for an
additional 17 stores in 2016.
Energy
During the year we conducted a
comprehensive energy audit of 20
stores, which resulted in a series of
measures to improve our overall
energy efficiency and performance.
These included the introduction of
motion detectors for lighting, an energy
management system, temperature
isolation for cooling chambers and the
renewal of cooling equipment. As a
result of these actions, it is estimated
that our gas consumption will decline
by up to 113,554 m3 per year and our
CO2 waste by up to 642 tonnes per year.
This will deliver a cost saving to the
Company while reducing the negative
impact of these gases on the
environment at the same time.
greenhouse gas impact than
conventionally used gases. We installed
four more energy-efficient ovens in our
in-store bakeries and fitted sliding glass
doors to chiller cabinets in 15 stores,
with a further 25 planned for 2016
as part of our ongoing improvement
programme.
We undertook the refurbishment
of 21 different store features across
Lenta including lighting. We completely
replaced the sales area lighting in
11 stores. The energy efficient LED
strip lights that were installed in 2015
delivered a 40% saving in energy usage.
This allows an average of 55,000 kWh
to be saved annually, with an estimated
cost saving of RUB 3 million.
We continued to focus on emissions
reduction through the implementation
of further efficiencies in logistics and
in-store facilities, including our cooling
systems. At two stores we switched
our commercial refrigeration systems
to natural refrigerants such as carbon
dioxide, which have a much lower
In addition to the store lighting
replacement, we undertook the upgrade
of façade and car park lighting at a
number of sites. These actions helped
us reduce average power consumption
in stores by 500 kWh per year –
or a total of 5,260 kWh of annual
consumption.
Lenta Annual Report and Accounts 2015 61
Looking ahead
Our support for the six pillars of our CSR
agenda is an ongoing process – and one
that we are committed to over the long
term. Our budget for environmental
initiatives in 2016 is RUB 459 million.
We will continue to improve our recycling
efforts and drive our energy efficiency
initiatives. In addition to new sewerage
facilities, we are also considering the
feasibility of acquiring or building our
own local water treatment facilities
adjacent to our stores.
We plan to upgrade our energy supply
systems through additional automation
to reduce the likelihood of human error
and plan to switch those stores still using
diesel energy to more eco-friendly fuel
sources if they cannot be connected to
the electricity network.
During the year we recycled more than 43,075 tonnes of paper –
the equivalent of 29,187 pine trees when measured according
to WWF standards.
43,075
= 29,187
Tonnes of paper recycled
Pine trees saved
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015
62
Corporate social responsibility continued
5. Making a positive contribution
to local communities
We are committed to playing an active
part in the communities in which we
operate, not just through the provision
of employment and local contracts, but
through financial and ‘in kind’ support to
local charities and educational, health,
leisure and cultural institutions.
We maintain an active investment
programme in local infrastructure, driven
by local government. We also operate a
number of partnership agreements with
regional authorities aimed at enhancing
socio-economic cooperation. In 2015,
some 15 partnership agreements were
signed with local authorities including
Kemerovo, Ivanovo, Orel, Chelyabinsk
and Samara, aimed at developing and
improving retail in the regions. These
include increasing the number of local
producers present in stores, and liaising
closely with local suppliers as well as
working with other retail chains to help
those customers in most need.
In February 2015, Lenta and several
other members of the Retail Companies
Association (ACORT) agreed to freeze
prices for a basket of at least 20 ‘socially
significant’ essential goods for at least
two months. The initiative was approved
by the Federal Antimonopoly Service of
Russia and aimed to stabilise the food
market to help customers whilst
highlighting the retail community’s
commitment to social responsibility.
In 2015, Lenta was acknowledged as
the best retail enterprise by several local
administrations including Izhevsk, Veliky
Novgorod, Kemerovo, Ufa, Volzhsky,
St. Petersburg, Ulyanovsk and Krasnodar.
Local committees checked a variety of
criteria including product displays and
expiry dates, in-store hygiene conditions
and friendliness of staff, as well as
comparing prices with competitors.
For the third year running, Lenta
presented a gift of Dutch tulip bulbs
to the city of St. Petersburg. These
were planted by hand in Kirov Park
on Elagin Island. Visited by 500,000
people in 2015, the Tulip Festival
now extends to 2,100 sq.m. with
95 varieties and over 120,000 bulbs.
Lenta’s gift included 550 rare-variety
bulbs, often only seen in specialist
collections.
We continued to enhance our reputation
as a committed supporter of community
initiatives and played an active part in
a variety of locally based environmental
activities in all cities where we have
a presence. In 2015 we supported –
independently and with local
administrations – a wide range of
campaigns and initiatives. These
included the Green Wave waste paper
collection in Petrozavodsk, tree planting
in the Moscow Region and Omsk,
riverbank clean-up in the Leningrad
Region and numerous cleaning initiatives
in the areas adjacent to our stores.
Other social initiatives include presenting
baskets of products to veterans on
Victory Day in many Russian cities and
a range of activities to address specific
local issues, such as sports ground
improvements in two schools in
Volgograd, bicycles for schoolchildren
in Kemerovo and reconstruction of the
Znamenskaya boarding school in Orel.
Lenta Annual Report and Accounts 2015 63
Looking ahead
The year ahead will see us continue
our support of socially vulnerable
citizens including children. A renewed
focus on youth will see us continue
running masterclasses for children
in stores to educate them about
opportunities in the retail sector.
Increasing environmental awareness
amongst our customers and employees
is also a priority. Next year, we plan
to launch a number of initiatives around
waste handling and separation, energy
saving and increased awareness of
health-related issues.
We routinely conduct excursions
around our stores for children
from local schools, orphanages
and kindergartens. The scheme
educates young people about retail
and promotes the image of the
sector in general. In 2015, Lenta
conducted several store tours in
cities including St. Petersburg,
Cherepovets and Novorossiysk.
In Cherepovets, for example,
children were able to see a range
of individual professions at work
including a cook, baker, packer,
cashier, salesperson and
warehouseman – and were shown
how to bake a variety of muffins.
In 2015 we also helped to build a
children’s playground in Belgorod,
acted as a sponsor of the Festival
associated with the Children’s Protection
Day celebrations in Krasnoyarsk and the
children’s Ice Cream Festival in Ivanovo.
We also sponsored the ice sculpture
competition in Tomsk, which attracts
many visitors. For several years in a row
Lenta has sponsored the Safe Wheel
Zone in Kazan, where young people
learn how to drive safely.
We conducted charity campaigns for
orphans in Cherepovets and Vologda.
Our in-store Christmas trees featured
letters containing the Christmas gift
wishes of children in the care of the
cities’ orphanages. Customers were
invited to buy presents, which were
collected in stores and then given to
the orphans. We also supported the
‘Diary of the Governor’ competition
for schoolchildren in Krasnoyarsk, with
the winner given the opportunity to have
tea with the governor of the region.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 64
Corporate social responsibility continued
6. Promoting health and safety
P
C
C
A
H
We are committed to creating and
maintaining a safe environment for
our employees and customers. Lenta’s
Active Safety programme aims to
identify and prevent risks that may lead
to accidents. As part of the programme,
managers conduct daily and monthly
‘safety walks’ within stores. These help
to identify any potential risks to staff
and customers, ensure the staff’s
hazard awareness and confirm the
integrity of the store’s safety equipment.
Colleagues are encouraged to report
every incident, no matter how small,
so that we can identify the cause and
prevent any recurrence.
In 2015 we introduced a new system of
injury rate reporting (per 100,000 hours
worked) for employees. In 2015, Lenta’s
injury rate declined by 11% against the
previous year and the total number of
employee accidents fell by 2%.
Quality and safety are also central to
our sourcing strategy, and we regularly
conduct audits not just of our own
operations, but those of our suppliers.
In 2015 we continued to implement
the HACCP system, which is an
internationally recognised method
of managing food safety. The system
is now operating in every one of our
stores across Russia.
Looking ahead
In 2016 we will continue the roll out
of our Active Safety programme,
extending safety walks to all parts
of the Company and conducting formal
risk check procedures in every store
and distribution centre at least annually.
We will also look to build on and expand
our successful safety ‘gamification’ pilot
schemes whereby employees earn
points for identifying risks and actively
participating in our safety programme.
Employees earning a certain number
of points become eligible for prizes.
Through the automated learning
platform we monitor the legal health
and safety training requirements for
each employee. We developed our
own first aid programme that will be
delivered by internal experts and in
2016 some 90% of our employees
will be trained within this programme.
Lenta Annual Report and Accounts 2015 Our goals for 2016
In addition to our ongoing
CSR programmes we are
focusing closely on a specific
set of goals for 2016:
65
1. We will continue to invest in our
value-for-money proposition to provide
the best offers for our customers.
2. We will expand our social programmes
aimed at vulnerable citizens.
Alongside our own initiatives, we are
open to cooperation with suppliers and
other retailers to achieve this.
3. We will develop partnerships with local
government to strengthen social and
economic cooperation.
4. We will further increase local sourcing
opportunities for suppliers in a range
of industries.
5. We will pursue the development
of programmes in the fields of
environmental care and social
activities.
6. We are committed to continued
investment in the training and
development of our employees to
ensure that they are the best-in-class
in the retail sector.
7. We will work with our suppliers to
ensure their commitment to quality
and safety aligns with our own.
8. We will look to actively increase
employee involvement in working
towards all our CSR goals.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 66
Corporate
governance
Contents
Introduction from the Chairman
Board of Directors
Senior Management team
Our corporate governance
framework
Board of Directors
Board Committees
Responsibility statement
67
68
70
72
75
78
90
Lenta Annual Report and Accounts 2015 Introduction from the Chairman
John Oliver
Chairman
Lenta Annual Report and Accounts 2015
67
Dear Shareholders
One of my key responsibilities as Chairman is the promotion
of good governance. The way in which we conduct ourselves
affects every aspect of our business; and is vital to ensuring
that we remain successful and sustainable over the long term.
I am delighted, therefore, to present this overview of the
Company’s corporate governance framework.
Towards best practice
Although we are not required to comply with the UK Corporate
Governance Code (‘the Code’), we believe that following
the provisions of the Code to the extent appropriate and
practicable is in the best interests of all our stakeholders.
With the revision of the Code by the UK Financial Reporting
Council in September 2014, we took the opportunity to
review our governance framework. This is necessarily
an evolutionary process. During 2015, we worked hard to
implement new systems, protocols and processes that will
take us closer to becoming a ‘best practice’ model in corporate
governance for a Russian operating company. These included
reviewing the membership of our Board Committees,
ensuring the terms of reference of the Board Committees
were consistent with the updated Code provisions and
commissioning a review of our risk management function.
We are committed to demonstrating that Lenta operates with
the highest levels of integrity and transparency.
Objectives and responsibilities
The chief objective of the Board is to ensure the long-term
success of the Company and sustained returns for
shareholders. This requires the setting of strategic goals,
overseeing our financial and human resource structures,
reviewing management performance and setting the Company’s
risk appetite. The Board ensures that the risk management
measures and internal controls are appropriate and effective.
As a result of the sale by EBRD of part of its stake in July 2015,
EBRD now has the right to nominate one Director rather
than two. The size of the Board has been reduced accordingly
to nine Directors, from ten Directors previously.
Lindsay Forbes, an EBRD nominated Director, stepped down
as a non-executive Director on 25 July 2015. Lindsay had served
on the Board since 2009 and provided valuable insight and
guidance to his fellow Board members and the executive team.
There were no other changes in Board membership during 2015.
The Company is exposed to financial, operational and
compliance risks. Responsibility for risk management lies
with the Board, with the Audit Committee having delegated
responsibility for overseeing the Company’s risk
management framework.
Engaging with shareholders is a key aspect of good corporate
governance. Throughout the year, the CEO and CFO,
supported by the Company’s investor relations team, and
where appropriate by members of the Board and Senior
Management, regularly meet with institutional shareholders
and sell-side analysts. The Board also receives regular reports
from the Head of Investor Relations on the team’s activities –
and in particular on shareholder sentiment and feedback.
Our corporate governance framework combines leadership
with collaboration and underpins our robust decision-making
process. The Board delegates certain responsibilities to four
principal Committees – Audit, Remuneration, Nomination
and Capital Expenditure. Information on their roles,
responsibilities and activities during the year is set out
in their respective sections.
Looking forward
The macroeconomic situation in Russia is likely to remain
challenging and its effects will continue to impact the way
our customers shop and the choices they make. We will
continue to work to maintain and improve Lenta’s performance
during the coming year for the benefit of all: our customers,
employees, shareholders, suppliers and the wider
communities in which we operate.
As a Board, we are of course responsible to our shareholders.
We are also driven by our advisory role; complementing and
supporting the executive team as it executes our strategy.
I have every confidence in the leadership of Lenta’s CEO
and our experienced Senior Management. Last year’s results
proved that they have the skills to deliver excellent results,
with record store openings and a strong financial performance.
As they strive to maintain this success in difficult times,
they can be assured of the Lenta Board’s continued support
and guidance.
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68
Board of Directors
John Oliver
Jan Dunning
Jago Lemmens
Michael Lynch-Bell
Stephen Johnson
Stephen Peel
Dmitry Shvets
Martin Elling
Anton Artemyev
The Board believes that it has the
necessary skills and experience
to provide effective leadership and
control of the Company.
Jan Dunning (56)
Chief Executive Officer (CEO)
Jan Dunning joined Lenta as CEO in 2009 and
was appointed a Director of Lenta Ltd in 2013.
John Oliver (57)
Chairman
John Oliver was appointed a non-executive
Director of the Company in October 2009 and
has been Chairman of the Board since 2011.
Board Committees
Audit, Nomination, Remuneration,
Capital Expenditure
Experience
John is a former TPG partner and led TPG’s
European Operating Group until December
2013. Prior to joining TPG in 2006, John spent
15 years with General Electric. His roles at
GE included CEO of GE Equipment Services
Europe, a diverse portfolio of businesses
operating in 20 countries, and CEO of GE
IT Solutions Europe, an IT infrastructure
and services provider, which was turned
around and sold under his leadership. Prior
to this, he held various roles at GE Medical
Systems including GM EMEA Services, VP
Global Radiation Therapy and VP Global
Vascular Systems. He started his career in
1981 with Schlumberger oilfield services,
holding various technical and country general
management roles in Africa and Asia-Pacific,
then worked for Boston Consulting Group
before joining GE.
Other roles
Senior Advisor to TPG.
Qualifications
John graduated with a BSc in Chemical
Engineering from Imperial College in 1981,
and with an MBA from INSEAD in 1987.
Experience
Prior to joining Lenta, Jan was Operations
Director of Metro Cash & Carry Russia and
then General Manager of Metro Cash & Carry
Ukraine. During his six years with Metro in
Russia, the business expanded from four to
48 stores. Jan’s previous experience also
includes three years as General Manager
of the Lukas Klamer wholesale business,
a subsidiary of the Metro Group in the
Netherlands, and over ten years with Aldi
North. Over the last 25 years, he has worked
in a broad range of retail functions including
leadership roles in operations, development,
sales, marketing, purchasing and finance.
Qualifications
Jan has a History degree from the University
of Groningen and an Economics degree
from the University of Amsterdam. He
also attended management development
programmes at INSEAD and the London
Business School.
Jago Lemmens (47)
Chief Financial Officer (CFO)
Jago Lemmens joined Lenta in 2010 as
Accounting and Reporting Director, becoming
CFO in 2011. He was appointed a Director of
Lenta Ltd in 2013.
Experience
Prior to joining Lenta, Jago served as Finance
Director of OBI Ukraine and, before this,
as Finance Director of Metro Cash & Carry
Ukraine. During his 25 years in the retail
industry, he has held senior positions in
finance, accounting and controlling with
several major retailers in the Netherlands,
including Makro and Lukas Klamer (both part
of Metro Cash & Carry) and Vomar.
Qualifications
Jago holds a degree in Finance and Auditing
from the VU University Amsterdam and
completed postgraduate courses in Auditing
and Financial Management at the University
of Amsterdam. He is a member of the
Association of Chartered Auditors and the
Association of Registered Controllers, both
in the Netherlands.
Michael Lynch-Bell (62)
Director
Michael Lynch-Bell was appointed an
independent non-executive Director of Lenta
Ltd in 2013.
Board Committees
Audit (Chairman), Nomination, Remuneration
Experience
Michael retired from Ernst & Young as Senior
Partner in 2012 after a 38-year career with
the firm. He was a member of Ernst & Young’s
audit practice from 1974 to 1997, becoming
a partner in 1985. During this period, as well
as supervising and being involved in the
audit of a number of multinational groups,
he advised a wide range of companies on
systems and controls, corporate governance,
risk management and accounting issues.
In 1997, Michael moved to Ernst & Young’s
Transaction Advisory practice, where he
founded and led its UK IPO and Global
Natural Resources transaction teams.
He has been involved with the CIS since
1991 and has advised many CIS companies
on fundraising, reorganisations, transactions,
corporate governance and IPOs.
Lenta Annual Report and Accounts 2015 Other roles
Michael is also Senior Independent
Director and Audit Committee Chair of Kaz
Minerals Plc, a non-executive Director,
Audit Committee Chair and Compensation
Committee Chair at Transocean Partners
LLC, a non-executive Director and Audit
Committee Chair of Gem Diamonds Limited
and a non-executive Director and Audit
Committee Chair at Seven Energy Ltd.
He is also active with the charities Action Aid
International and 21st Century Legacy.
Qualifications
Michael graduated from Sheffield University
with a BA in Economics and Accounting
in 1974, qualified as an English Chartered
Accountant in 1977, and was awarded an
Honorary Doctorate of Humane Letters by
Schiller International University in 2006.
Stephen Johnson (52)
Senior Independent Director
Stephen Johnson has been an independent
non-executive Director of Lenta Ltd since
2010. He was appointed as Lenta’s Senior
Independent Director in 2013.
Board Committees
Nomination (Chairman), Remuneration
(Chairman), Audit, Capital Expenditure
Experience
Stephen has over 20 years’ experience in the
retail industry, having been part of the team
that turned around and successfully sold
Asda to Walmart. Whilst at Asda, Stephen
held several senior positions including Trading
Director, Commercial Finance Director and
Marketing Director. Following his time at
Asda, he was CEO of Focus DIY Ltd and of
Woolworths Plc, as well as Sales & Marketing
Director at GUS Plc. He started his career
in management consultancy with Bain & Co.
Other roles
Stephen is currently a non-executive Director
of Big Yellow Group Plc and Chairman of
Pocketwatch since 2015. He also works with
a number of private equity firms primarily
focused on Southern and Eastern Europe.
Qualifications
Stephen graduated from Cambridge University
with an Engineering degree.
Stephen Peel (49)
Director
Stephen Peel has been a non-executive
Director of Lenta Ltd since 2011.
Experience
Stephen is the founder of SMP Policy
Innovation, a not for profit organisation
focused on promoting better public policy.
He is also a visiting fellow at the Blavatnik
School of Government at the University of
Oxford. Prior to this, he spent some 27 years’
in finance and private equity. From 1989 to
1997 Stephen was in the corporate finance
and principal investment areas at Goldman
Sachs. From 1997 to 2014, he was a
Managing Partner at TPG Capital initially
founding and leading its European office
and latterly leading its Asian business based
in Hong Kong.
Other roles
Stephen serves as a member of the Trilateral
Commission, is on the board of Global
Witness, on the Global Partners Council
of the Institute of New Economic Thinking,
and on the advisory boards of the Institute
of State Effectiveness, the Open Contracting
Partnership, and the Jackson Institute of
Global Affairs at Yale University.
Qualifications
Stephen graduated from the University of
Cambridge, Downing College with an MA
in 1987 and received a Masters of Advanced
Studies from Yale University in 2015.
Dmitry Shvets (43)
Director
Dmitry Shvets was appointed a non-executive
Director of Lenta Ltd in 2009.
Board Committees
Capital Expenditure (Chairman), Nomination,
Remuneration
Experience
Prior to joining TPG Capital in 2008, Dmitry
was Operating Director in the mining and
metallurgical company Norilsk Nickel,
where he was in charge of optimisation of
the company’s key production assets and
was also responsible for the integration of
newly acquired assets. From 1998 to 2004
Dmitry worked for McKinsey & Company,
where he led projects in industries including
consumer goods, retail, transportation, metals
and mining, and oil extraction in the areas
of strategy, organisation and operational
effectiveness. He also worked for the Coca-
Cola Company in various marketing roles.
Other roles
Dmitry is the Head of TPG Capital Russia and
is a Director at Fesco Transportation Group.
Qualifications
Dmitry holds an MBA from Emory University
and graduated with honours from the Moscow
State Institute of International Relations
(‘MGIMO’).
Martin Elling (62)
Director
Martin Elling joined Lenta Ltd as a non-
executive Director in 2011.
Board Committees
Capital Expenditure
Experience
Martin started his career with the UN Food
and Agriculture Organization where he
worked for 11 years as a financial analyst
and economist mostly on World Bank
agribusiness and infrastructure. He then
69
joined the European Bank for Reconstruction
and Development (‘EBRD’), where he was
responsible for agribusiness, financial
services and energy investments in Ukraine,
Romania and Russia. In 1997, Martin left
the EBRD to concentrate on investment
opportunities in agribusiness, leasing
and B2B services in Ukraine and Russia,
achieving two successful exits in Ukraine
and one in Russia.
Other roles
Martin advises a number of companies
on restructuring and corporate governance.
He also occasionally advises the African
Parks Foundation on the operational strategy
of individual national parks.
Qualifications
Martin holds an Economics degree from the
University of Amsterdam and a postgraduate
degree from the University of Wageningen.
Anton Artemyev (55)
Director
Anton Artemyev was appointed an
independent non-executive Director
of Lenta Ltd in 2013.
Board Committees
Audit, Nomination, Remuneration
Experience
Anton has extensive FMCG experience
in Russia and Eastern Europe including
12 years in the brewing industry, where his
roles included Executive Vice-President
of Baltic Beverages Holding, the largest
Eastern European brewing group at the time;
President of Baltika Breweries; and Senior
Vice-President responsible for Eastern
Europe and a Member of the Executive
Committee of Carlsberg Group. Prior to this
Anton worked in a variety of consulting roles
including Partner in Bossard Consultants and
Principal in Gemini Consulting/CAP Gemini,
where as head of Russian operations he
focused on strategy work in various sectors,
primarily consumer goods.
Other roles
Anton is currently Chairman of Fortrent OY,
which provides construction equipment rental
services in Russia and Ukraine. Fortrent
is a 50/50 joint venture between Cramo
and Ramirent, who are among the European
leaders in this field.
Qualifications
Anton holds a Diploma with honours and a
Doctorate in Geography from Leningrad State
University. He also studied Management
and Economics at Bocconi University and
at Henley Management College.
Director who served but resigned during
the period
Lindsay Forbes, non-executive Director,
resigned on 25 June 2015.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 70
Senior Management team
Jan Dunning
Jago Lemmens
Edward Doeffinger
Anna Meleshina
Herman Tinga
Tatiana Yurkevich
Pavel Remezov
Sergey Prokofiev
Joern Arnhold
Edward Doeffinger (59)
Chief Operational Officer (COO)
Edward Doeffinger joined Lenta in 2011
as Chief Operational Officer.
Experience
Prior to joining Lenta, Edward served as
Deputy General Director of Metro Cash &
Carry Kazakhstan. Before starting his career
in 1991 at Metro Cash & Carry (Germany),
Edward held several positions in wholesale
companies and worked as Head of the dry
food department at the Trade Ministry of the
German Democratic Republic. During his 30
years’ experience in the retail industry he has
held senior positions in various countries.
In 1994 he obtained his first assignment
outside Germany as a board advisor to Metro
Cash & Carry in Hungary. After a year in
Hungary, Edward became a member of the
Metro Jinjiang team (China) and worked as
a Store General Director and later as Head
of Store Development for several years in
China before moving to Russia in 2001.
In Russia Edward was responsible for the
business operations of Metro Cash & Carry
in the Privolzhsky, Ural and Siberian regions.
He was also responsible for the Metro Cash
& Carry Kazakhstan business operations as
a Deputy CEO.
Qualifications
Edward has a degree in Economics from the
Hochschule fuer Oekonomie Berlin.
Maxim Shchegolev
Under the chairmanship of the CEO,
our highly skilled Senior Management
team implements the strategies set by
the Board. With a breadth of experience
across the food retail sector, both on
the domestic and international front,
their leadership is vital to the success
of Lenta’s day-to-day operations.
Jan Dunning (56)
Chief Executive Officer (CEO)
Jan Dunning joined Lenta as CEO in 2009
and was appointed a Director of Lenta Ltd
in 2013. Jan’s biography appears on page 68
of this report.
Jago Lemmens (47)
Chief Financial Officer (CFO)
Jago Lemmens joined Lenta in 2010 as
Accounting and Reporting Director, becoming
CFO in 2011. He was appointed a Director of
Lenta Ltd in 2013. Jago’s biography appears
on page 68 of this report.
Anna Meleshina (38)
Public Relations and Government
Affairs Director
Anna Meleshina joined Lenta in 2013 as Public
Relations and Government Affairs Director.
Experience
Prior to joining Lenta, Anna served as
Corporate Relations Director for Heineken
in Russia and served as a member of
the global corporate relations leadership
team. In addition to her 13-year career in
the brewing sector, Anna has held senior
positions in non-commercial organisations,
including an advisory role at the Honorary
Consul of Iceland in St. Petersburg, and as
a board member and Deputy Chairman of
the Russian Breweries’ Association.
Qualifications
Anna graduated from the Scandinavian
linguistics faculty of the St. Petersburg State
University with a diploma cum laude. She
also holds an MBA from Henley Management
College in the UK.
Lenta Annual Report and Accounts 2015 Herman Tinga (58)
Commercial Director
Herman Tinga joined Lenta in 2013 as
Commercial Director.
Pavel Remezov (41)
Format Development Director
Pavel Remezov joined Lenta in 2013
as Format Development Director.
Maxim Shchegolev (49)
Integration and Format Development Director
Maxim Shchegolev joined Lenta in 2012 as
Integration and Format Development Director.
71
Experience
Prior to joining Lenta, Maxim held a number
of executive positions with O’KEY Group.
During his 16 years’ experience in the retail
industry, Maxim has held senior positions
in business development. In 2008 he was
appointed Director of Expansion for O’KEY
and was responsible for various aspects
of business development, including expert
assessment of the competitive environment,
and the purchase and lease of real estate
for the construction of stores. In 2012,
he took a similar position with Lenta.
He is responsible for finding and acquiring
plots of land, managing the construction
and redevelopment of shopping centres,
letting out premises owned by the Company,
and the development of new stores in
leased premises.
Qualifications
Maxim graduated from St. Petersburg
University of Economics and Finance,
the Russian-Dutch School of Marketing
and the Higher School of the Ministry
of Economic Development and Trade of
the Russian Federation.
Senior Management team member who
served but resigned during the period
Victor Solodnikov, Development &
Construction Director, resigned on
17 June 2015.
Experience
Prior to joining Lenta, Herman served as
Non-Food Global Category Management
& Sourcing Director at Metro AG. With
a background in marketing, category
management, buying and merchandising,
Herman has extensive experience as a senior
manager and board member in retail and
cash & carry spanning 33 years. For four
years, Herman was a board member of Metro
Cash & Carry in Russia.
Qualifications
Herman has a bachelor’s degree from the
Netherlands Institute of Marketing.
Tatiana Yurkevich (43)
HR Director
Tatiana Yurkevich joined Lenta in 2012 as
Human Resources Director.
Experience
Prior to joining Lenta, Tatiana served as
Human Resources Director at Fazer Bakeries
& Confectionery, Russia. During her 18
years in HR management, she has held
senior positions in HR including Head of
HR at United Heavy Machinery Group and
Izhora Plants, and HR Director of Caterpillar
European Fabrications and Caterpillar Tosno.
Tatiana has experience in leading Six Sigma
Program implementation as a Deployment
Champion in Caterpillar.
Qualifications
Tatiana has a master’s degree in International
Economics from St. Petersburg State
University as well as English and German
language degrees from Novosibirsk State
Pedagogical University.
Experience
Prior to joining Lenta, Pavel worked as
Investments Director with NCH Capital
Russia. He has over 18 years’ experience in
the expansion and investments field. He has
previously worked as Real Estate Director for
BV Development (a project of Baring Vostok
Capital Partners), as Senior Real Estate
Project Manager with Metro Cash & Carry,
and as Retail Real Estate Broker with Colliers.
He is responsible for finding and acquiring
plots of land, the construction of shopping
centres, and managing projects to acquire
retail chains and stores.
Qualifications
Pavel holds a BA in Economics magna cum
laude from St. Lawrence University.
Sergey Prokofiev (47)
Legal Director
Sergey Prokofiev joined Lenta as Legal and
Government Relations Director in 2012.
Experience
Prior to joining Lenta, Sergey worked for
Metro Cash & Carry for 11 years in different
positions including Legal and Compliance
Director. He started his career as expert-
interpreter and later worked as a lawyer in
a major Russian law firm and as a defending
attorney at the Moscow City Bar.
Qualifications
Sergey graduated from the Military Institute
of Foreign Languages (‘VKIMO’) and the
Institute of Law. He holds a PhD in Law from
the Institute of Legislation and Comparative
Law under the Government of the Russian
Federation and an MBA in Strategic
Management from California State University.
Joern Arnhold (45)
Supply Chain Director
Joern Arnhold joined Lenta in 2011 as
Supply Chain Director.
Experience
Prior to joining Lenta, Joern had 13 years’
experience with Metro Group Logistics
(‘MGL’) where he held various key positions
in Germany, Turkey and Russia. As Managing
Director of MGL in Russia, Joern was
responsible for developing and running
logistics operations for the Metro Group
sales divisions in Russia.
Qualifications
Joern holds a degree in Business
Administration from the Georg August
University Goettingen.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 72
Corporate governance
Promoting strong governance
Our corporate
governance framework
Compliance with UK Corporate
Governance Code
The UK Corporate Governance Code
(‘the Code’) sets out principles and
specific provisions on how a company
should be directed and controlled to
achieve good standards of corporate
governance. As a company incorporated
in the British Virgin Islands (‘BVI’)
with GDRs admitted to the Official List,
we are not required to comply with the
provisions of the Code. However, we
have chosen to comply with the Code
to an appropriate and practicable extent.
As of the date of this report, the Board
considers that Lenta fully complies in all
material respects with the Code, with the
exception of the following provisions:
While BVI law imposes certain general
duties on company directors (including
the duty to act in the best interests
of the company), there is no specific
corporate governance code or corporate
governance regime in the BVI.
Leadership
The Chairman leads the Board, ensuring
its effectiveness while taking account
of the interest of the Group’s various
stakeholders and promoting high
standards of corporate governance.
There is a clear delineation between
the role of Chairman and CEO. Updated
descriptions of the roles were agreed by
the Board in 2015 and are summarised
as follows:
The Chairman’s responsibilities include:
• the Chairman of the Board was not
independent on his appointment;
• ensuring the Directors receive
accurate, timely and clear information;
The Chairman holds one-to-one and
group meetings with the non-executive
Directors – without the executive
Directors being present – four times
a year.
The Chairman was not independent
upon his appointment to the Board
since, at that time, he was a partner
in TPG Capital, one of the Company’s
major shareholders.
The CEO’s responsibilities include:
• leading the development of the
Company’s strategic direction and
implementing the agreed strategy;
• identifying and executing new
business opportunities;
• managing the Group’s risk profile
and implementing and maintaining
an effective framework of internal
controls;
• building and maintaining an effective
management team;
• ensuring effective communication with
shareholders and regularly updating
institutional shareholders on business
strategy and performance.
• there is not a majority of independent
directors on the Board;
• the Company’s risk management
process and function is currently
under review. It is intended to
implement the recommendations
of the review during 2016;
• the Directors have not provided
a statement as to the prospects
of the Company. This provision
will be complied with as part of
our 2016 reporting;
• the whole Board is available to attend
the AGM but it is not a requirement
that each member attends.
• facilitating the effective contribution
of non-executive Directors and
engagement between executive
and non-executive Directors;
• building an effective Board;
• the induction of new Directors
and further training for all Directors
as required;
• communicating effectively with
shareholders and other stakeholders
and ensuring the Board develops
an understanding of the view of
stakeholders;
• ensuring an annual evaluation of the
Board is conducted and leading the
performance evaluation of the CEO
and non-executive Directors.
Lenta Annual Report and Accounts 2015 73
Stephen Johnson was the Senior
Independent Director (‘SID’) throughout
the year ending 31 December 2015.
He was selected for the role because
of his experience and expertise, both as
an executive and non-executive Director
with retail and international experience.
The key roles and responsibilities of the
SID include the following:
• acting as a sounding board for the
Chairman;
• serving as an intermediary for the
other Directors when necessary;
• being available to assist in resolving
shareholder concerns, should
alternative channels be exhausted;
• holding at least one meeting each
year with the non-executive Directors
without the Chairman present;
• monitoring the training and
development requirements
of Directors;
• overseeing the Chairman’s appraisal
and succession, and
• ensuring that Committee chairmen
conduct performance evaluations
of their Committees.
Non-executive Directors
The non-executive Directors provide
a strong independent element to the
Board and a solid foundation for good
corporate governance. Although all
Directors are equally accountable
under BVI law, the non-executive
Directors fulfil a vital role in corporate
accountability. They have responsibility
for constructively challenging the
strategies proposed by the executive
Directors and scrutinising the
performance of management in
achieving agreed goals and objectives.
They also play a key role in the
functioning of the Board and its
Committees. Between them, the
current non-executive Directors have an
appropriate balance of skills, experience,
knowledge and independent judgement
to undertake their roles effectively.
Audit
Committee
Nomination
Committee
Shareholders’
meeting
Board of
Directors
Senior
Management
Remuneration
Committee
Capital
Expenditure
Committee
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 74
Corporate governance continued
Matters specifically reserved
for the decision of the Lenta Ltd
Board of Directors
Management, strategy and planning
The Board has responsibility for the
overall management of the Group.
This includes approval of the strategy,
business plans and budgets as well as
approval of any material restructuring
or reorganisation and establishment of
new material areas of business. The
Board also reviews performance in light
of the strategy, objectives, business
plans and budgets, ensuring that any
necessary corrective action is taken.
Operations and transactions
This includes approval of significant
capital and non-capital expenditure
as well as approval of significant asset
disposals and any other transactions
that could have a material effect
on the strategic or financial plans
of the Company, including making
or responding to takeover bids.
Capital structure
The Board approves changes relating
to capital structure including allotment
of shares, reduction of capital (except
under employee share plans) and
share buy-backs. It also approves
major changes to the Group’s corporate
structure and the Company’s listings or
its status as a company limited by shares.
Corporate governance
The Board reviews its own performance
and that of its Committees and individual
Directors. It is responsible for
determining the risk appetite of the
Group and ensuring maintenance of
an effective system of internal control
and risk management. It also approves
and revises policies, including health,
safety and environment policies, share
dealing rules, code of conduct, anti-
bribery and corruption policy and
corporate governance arrangements.
The Board also calls any general
meetings and approves documents
sent to shareholders. It also
recommends any changes to the
Company’s Memorandum and Articles
of Association and considers material
litigation or regulatory investigations
affecting the Lenta Group. It is
responsible for the approval of political
donations and the appointment of key
corporate advisors.
Other
The Board also considers other matters
of strategic or reputational importance
likely to have a significant impact
on the Company. When, exceptionally,
decisions on matters specifically
reserved for the Board are required
to be taken urgently between Board
meetings, such decisions shall be
taken by a Directors’ written resolution
pursuant to Article 12.9 of the Articles
of Association of the Company.
Loans and dividends
This includes approval of any substantial
new loan or similar facility (including
financial leases) from third parties
or material amendment to any such
facilities including material loans or
similar facilities made available to third
parties. The Board also oversees the
Company’s dividend policy, declaration
of interim and recommendation of
final dividends and approval of other
distributions to shareholders, as well as
any new pension schemes or significant
changes to existing pension schemes.
Public reporting and controls
The Board approves the preliminary
trading and half-yearly results
announcements as well as the Annual
Report and Accounts. It also approves
appropriate press releases, material
changes in principal accounting policies
and practices, treasury policies and
related risk management strategy
and framework. On recommendation
of the Audit Committee, the Board also
appoints or removes the external auditor.
Board and Directors
The Board of Directors manages,
directs and supervises the business
of the Company. The Board oversees
the officers of the Company and
succession planning. The Board, in some
circumstances, may elect a Director
to fill an empty seat on the Board. The
Board may also establish committees
and set their responsibilities.
Remuneration
This includes approving the Directors’
and Officers’ insurance cover and
establishing policies and rules relating
to share-based incentive schemes. The
Board also determines remuneration
policy for executive Directors and certain
senior executives and approves the
remuneration of non-executive Directors.
Lenta Annual Report and Accounts 2015 75
Director since Nomination
Audit Remuneration Capex
Committees
C
C
C
Nomination Committee (five Directors)
+
Read more on page 78
Audit Committee (three Directors)
C
+
Read more on page 81
Remuneration Committee (five Directors)
+
Read more on page 84
Capex Committee (four Directors)
+
Read more on page 89
Board of Directors
Position
Name
Chairman
John Oliver1
Cat.
TPG
Sen. INED
Stephen Johnson
INED
Director
Michael Lynch-Bell
INED
Director
Anton Artemyev
INED
Director
Dmitry Shvets
Director
Stephen Peel
Director
Martin Elling
Director
Jan Dunning
Director
Jago Lemmens
TPG
TPG
EBRD
CEO
CFO
2009
2010
2013
2013
2009
2011
2011
2013
2013
Committee member
C Chairman of Committee
1 Effective 31 December 2015, John Oliver resigned as a member of the Audit Committee and was appointed a member of the Capex Committee.
The Board is responsible for managing
our business and may exercise all of the
business’s powers in doing so, except
to the extent that any such power must
be exercised by the shareholders in
accordance with applicable BVI law
or the Company’s Memorandum and
Articles (‘M&A’). The Board also, by
virtue of direct or indirect shareholdings
in our consolidated subsidiaries,
provides strategic management of
our affairs and those of our consolidated
subsidiaries. The day-to-day operations
of our operating company, Lenta LLC,
are managed by Senior Management
as described below.
The Board currently consists of nine
Directors, of which three: Michael
Lynch-Bell, Anton Artemyev and
Stephen Johnson are judged by the
Board to be independent Directors
according to the provisions of the
UK Corporate Governance Code.
None of the factors or circumstances
set out in the Code as potential
indicators of non-independence apply
to Mr Lynch-Bell or Mr Artemyev.
While Mr Johnson carried out
remunerated consultancy work for
Lenta and one of its Major Shareholders,
TPG Capital, prior to 2014, is
remunerated as Chairman of another
TPG Capital investee company and
holds 80,000 Shares in Lenta Ltd
subject to secured arrangements in
favour of our pre-2014 Offering, the
Board is satisfied that these have no
effect on his independence. This is
primarily because of his extensive
experience in retail and the fact that his
shareholding is subject to staggered
release starting in 2014 and ending in
2018 – and is subject to his continued
service on Lenta’s Board.
Our CEO and CFO, who are also the
General Director and Chief Financial
Officer of Lenta LLC, are Directors,
but are ineligible to serve on Board
Committees. The remaining four
Directors – including the Chairman –
were elected by the shareholders
pursuant to the nomination rights of
the Major Shareholders.
As provided under the M&A:
• the CEO and CFO hold office by virtue
of their positions, and are appointed,
and may be removed by the Board.
• the Major Shareholders may nominate
Major Shareholder-nominated
Directors (and remove such Directors),
and shareholders are obliged to vote
to approve the appointment or removal
of such candidates, as follows:
• TPG Capital: three Directors
including the Chairman whilst it
holds directly or indirectly an interest
in 22.5% or more of the shares; two
Directors including the Chairman
whilst it holds directly or indirectly
an interest in 15% or more of the
shares; one Director whilst it holds
directly or indirectly an interest in
5% or more of the shares;
• EBRD: two Directors whilst it
holds an interest in 15% or more
of the shares; one Director whilst
it holds an interest in 5% or more
of the shares;
• VTB Capital Private Equity:
one Director whilst it holds directly
or indirectly an interest in 5%
or more of the shares, although
VTB has chosen not to nominate
a Director since June 2014.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 76
Corporate governance continued
On each of the first two occasions where
a Major Shareholder’s holding falls
below a threshold listed above, one of
the Directors nominated by that Major
Shareholder must resign, and the
number of Directors on the Board shall
be reduced by one. However, the Major
Shareholder retains the right to appoint
a Director if its shareholding should go
back up above the thresholds. On each
subsequent occasion when a Major
Shareholder’s shareholding falls below
a threshold listed above, one of the
Directors nominated by that Major
Shareholder must resign no later than
the next general meeting, but may be
re-nominated and re-elected by a simple
majority resolution of the shareholders.
These Directors may otherwise only
be removed by their nominating Major
Shareholder. The Major Shareholders
may not assign or transfer these
nomination rights to third parties. During
2015, the shareholding of the EBRD fell
from 15.3% to 7.4% and as a result one
of its two nominated Directors, Lindsay
Forbes, stepped down from the Board.
As at the date of this report there are
four Major Shareholder-nominated
Directors on the Board. The Major
Shareholder-nominated Directors have
a fiduciary duty under the laws of the
BVI to act in the best interests of our
business. Under the M&A, a Director
who has an interest in a transaction likely
to give rise to a conflict of interest may
not vote on any resolution relating to
the transaction, unless fewer than three
Directors are entitled to vote on such a
resolution, in which case each interested
Director may vote provided his interest
is duly disclosed or certain other
exceptions apply.
There should be at least three
independent Directors at all times.
Independent Directors are elected
by a majority resolution of the Board
from a list of candidates proposed by
the Board and considered by the Board
to be independent, taking into account
the criteria for independence set forth
in the Code. Each independent Director
shall be deemed to resign at the first
general meeting following their election
by the Board, at which general meeting
they shall be put forward for re-election.
These Directors may be removed by
a majority resolution of the Board or
by a simple majority resolution of the
shareholders upon a proposal made
by shareholders holding more than
15% of the shares.
Each of the other Directors (if any)
shall be elected by a simple majority
resolution of the shareholders from
a list of candidates. This will include
those candidates proposed by the
Board, retiring Directors consenting to
being put forward for re-election and
any candidates put forward for election
by shareholders holding at least 15%
of the shares within the timeframe
stipulated in the M&A. These Directors
may be removed in the same way as
the independent Directors.
The Board may appoint a Director to
fill a vacancy (subject to the rights of
the Major Shareholders). In this case,
that Director shall resign at the next
general meeting and be put forward
for re-election.
While the Board has overall
accountability, in order to operate more
effectively, responsibility for specific
functions is delegated to four specialist
Board Committees: Nomination, Audit,
Remuneration and Capital Expenditure.
The responsibility for formulating and,
after approval, implementing strategic
plans and the management of day-to-
day operations is delegated to the
Chief Executive Officer and the Senior
Management team.
Board focus during
the year
In 2015, the Board spent its time
considering a wide range of
matters. These included:
• individual business and overall
Group performance and future
capital expenditures
• budgets and long-term plans
for the Company
• review of estimates of future
cash flows, financing
arrangements and fundraising
• preparing and authorising two
equity fundraisings
• maintaining and increasing
efficiency of the Company’s
increasingly rapid development
• development of the Company’s
corporate governance
• responding to the changing
dynamics of the Russian
economy
• strategy
• financial statements and
announcements
• reviewing reports from its
Committees
• shareholder feedback and reports
from brokers and analysts
• risk management and risk
oversight
• the industry and competitive
environment.
Lenta Annual Report and Accounts 2015 77
Board and Committee attendance during the year
Normally the Board holds at least four meetings in person and a number of ad hoc meetings in person or via teleconference.
We consider that any Director, participating via teleconference, videoconference or other electronic means shall be considered
to be physically present, provided each Director is able to hear all other Directors and, in turn, be heard by all other Directors.
Member
John Oliver
(Major Shareholder nominee) Chairman
Jan Dunning (CEO)
Stephen Johnson (Independent)
Michael Lynch-Bell (Independent)
Jago Lemmens (CFO)
Lindsay Forbes
(Major Shareholder nominee)
Anton Artemyev (Independent)
Dmitry Shvets
(Major Shareholder nominee)
Stephen Peel
(Major Shareholder nominee)
Martin Elling
(Major Shareholder nominee)
Board
(6 meetings)
Audit
Committee
(7 meetings)
Capex
Committee
(21 meetings)
Nomination
Committee
(1 meeting)
Remuneration
Committee
(3 meetings)
6
6
6
6
6
1
6
6
5
6
7
n/a
7
7
n/a
3
7
n/a
n/a
n/a
n/a
n/a
21
n/a
n/a
n/a
n/a
21
n/a
21
1
n/a
1
1
n/a
n/a
1
1
n/a
n/a
3
n/a
3
3
n/a
n/a
3
3
n/a
n/a
A quorum for Board meetings consists of a minimum of five members of the Board.
Changes to the Board in 2015
Lindsay Forbes
EBRD Director
Resigned from the Board with effect from 25 July 2015
Length of service and independence of non-executive Directors
Stephen Johnson
Michael Lynch-Bell
Anton Artemyev
Since 2010
Since 2013
Since 2013
Considered to be independent by the Board
Considered to be independent by the Board
Considered to be independent by the Board
There are five Board meetings scheduled for 2016.
The terms of reference for Lenta’s Board Committees were revised and updated in November 2015.
Details are set out in the Corporate Governance section of the Company website:
www.lentainvestor.com/en/about/corporate-governance/internal-policies
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 78
Lenta Annual Report and Accounts 2015
Corporate governance continued
Board Committees
Effectiveness
The appointment of new Directors
is led by the Nomination Committee,
the majority of whose members are
independent non-executive Directors.
Details of the appointments process
can be found on page 75.
All new Directors receive a personalised
induction programme, tailored to their
experience, background and particular
area of focus. This is designed to
develop their knowledge and
understanding of the Company’s
culture and operations. The programme
incorporates a wide-ranging schedule
of meetings with Senior Management
across the Company, comprehensive
briefing materials and opportunities to
visit the Company’s operations, including
spending time at new store openings,
in-store and in our distribution network.
All Directors have the opportunity
to increase their knowledge of the
Company through visits to the Company’s
operations and meetings with senior
executives across the business.
The Board makes a careful assessment
of the time commitments required
from the Chairman and non-executive
Directors to discharge their roles
properly. This is discussed with
candidates as part of the recruitment
process and a commitment to the
appropriate time requirements is
included in engagement letters.
Directors are expected to attend
every Board meeting and every meeting
of any Committee of which they are
a member, unless there are exceptional
circumstances preventing their
attendance. Scheduled Board and
Committee meetings are arranged
at least a year in advance to allow
Directors to manage other commitments.
The Chairman reviews each Director’s
development needs as part of the annual
performance evaluation process and
puts appropriate arrangements in place
for specific training. The Nomination
Committee reviews the Directors’ skills
and experience as a group against those
needed to oversee and support the
Company’s future operations, and
identifies any gaps. Training is arranged
to develop the knowledge and skills
of the Directors in a variety of areas
relevant to Lenta’s business.
Board papers are circulated a week
before each meeting to give the Directors
and Committee members sufficient time
to fully consider the information. All
Directors have access to the Company
Secretary and may take independent
professional advice at the Company’s
expense in conducting their duties.
Conflicts of interest
Directors have a statutory duty to avoid
situations in which they have or could
have a direct or indirect interest that
conflicts or may conflict with the interests
of the Company. A Director has a duty
to disclose to the Board any transaction
or arrangement under consideration by
the Company in which he has a personal
interest. The Board has a procedure for
authorising conflicts or potential conflicts
of interest. Under this procedure,
Directors are required to declare all
directorships or other appointments
outside the Company that could give
rise to a conflict or potential conflict
of interest.
Following completion of the year end,
the Board conducted an internal review
of its performance and that of its
Committees and individual Directors.
Nomination Committee
Report
Committee members
Stephen Johnson
(Independent, Chairman)
Michael Lynch-Bell
(Independent)
Anton Artemyev
(Independent)
John Oliver
(Major Shareholder nominee)
Dmitry Shvets
(Major Shareholder nominee)
The key roles of the Nomination
Committee are to:
• ensure that proper procedures are
established for the nomination,
selection and training of the Company’s
Directors and Senior Management;
• keep under review the balance of
skills, experience, independence,
knowledge and general diversity
on the Board to ensure the balance
and composition of the Board and
its Committees remains appropriate;
• make recommendations to the Board
on Directors’ conflicts of interest for
authorisation, where appropriate;
• make recommendations to the Board
of Directors regarding the appointment
of new Directors (aside from Major
Shareholder nominees, the CEO
and the CFO), and identify, interview,
select, and determine the independence
of candidates with suitable industry or
key competency experience;
• review Senior Management
appointments and Company-wide
succession planning and other human
resources-related matters.
Lenta Annual Report and Accounts 2015
79
Board Committee review
After noting the requirements
of the Code, we made a number
of recommendations to the Board
on the composition of our Audit and
Capital Expenditure Committees.
Effective 31 December 2015, our
Chairman, John Oliver, stepped down
as a member of the Audit Committee,
making the membership of that
Committee fully Code compliant.
As of the same date John joined
the Capital Expenditure Committee.
Stephen Johnson
Chairman
Nomination Committee
The Human Resources Director may
be invited to attend any meeting of the
Committee, except for portions of the
meetings where their presence would
be inappropriate, as determined by the
Committee Chairman.
Dear Shareholders
2015 continued to be a challenging
and exciting year for all our colleagues
at Lenta. The Company’s substantial
growth during the year and the ambitious
expansion objectives we have for the
future inevitably place great demands
on the organisation – and particularly
the Senior Management team. With this
in mind, the focus of the Nomination
Committee’s activities during the year
has been on ensuring that the Company
has the appropriate framework and
processes in place to ensure that it
is best placed to support the business
strategy, whilst continuing to focus on
productivity improvements that do not
sacrifice our customer service ethos.
As part of our Governance Framework
review we took the opportunity to review
and make recommendations to the
Board on the membership of our Board
Committees.
We reviewed the Committee’s own
performance, constitution and terms
of reference; and reported to the Board
on how the Committee had discharged
its responsibilities.
A copy of the Committee’s
terms of reference is available
on the Company’s website:
www.lentainvestor.com/en/about/
corporate-governance/internal-policies
Looking forward to 2016, the Committee
intends to continue its focus on the
performance appraisal programme and
the succession planning programme.
We will also support Management in the
identification and recruitment of suitable
candidates to support the Company’s
growth plans.
Activities during the year
Performance appraisal programme
Over the last few years, Lenta has
developed and implemented a
Company-wide performance appraisal
programme. This process is used
to assess the performance of every
employee in the business, including the
executive Directors. The findings from
this programme are used to identify
training and development needs, to
pinpoint areas where investment in
human resources is required and to
identify high performance individuals
at all levels. The Nomination Committee
receives regular reports on the results
and operation of the performance
appraisal programme.
Succession planning programme
The Company also operates an active
succession planning programme. This is
designed to identify possible successors
for all management positions in the
Company, to identify development
needs for any potential successors,
and to address any succession gaps.
The performance appraisal programme
is one of the key inputs in the succession
planning process. During the year the
Committee regularly reviewed the
succession plan and worked with
Company management to refine and
develop it. Inevitably, this is an ongoing
process. The Company has at least one
named successor for 80% of the
managers in the business.
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80
Corporate governance continued
Accountability
The Board considers the Annual Report
and Accounts, taken as a whole, to be
fair, balanced and understandable and
provide the necessary information
required for shareholders to assess
the Company’s performance, business
model and strategy – and that the
business continues to operate as
a going concern.
The Board has overall responsibility for
ensuring the Company has appropriate
risk management and internal controls
in place – and that they continue to work
effectively. Successful management
of risk is supported by controls,
management oversight and sources
of assurance.
The Company maintains a
comprehensive framework of internal
controls addressing the key strategic,
financial, legal, reputational and
operational risks to the business.
The accountability for operating these
controls rests with Senior Management
as a first line of defence.
Key elements of the Company’s system
of internal controls that operated
throughout the year were:
• monitoring by the Board of a
comprehensive reporting system
including detailed monthly results,
periodic short- and medium-term
forecasts, annual budgets and
medium-term plans;
• monitoring by the Board of the
Company’s liquidity, financing and
borrowing requirements;
• well-defined procedures for
assessment, approval, control and
monitoring of major investment
projects;
• a centrally coordinated internal audit
programme to verify that policies and
internal control procedures are being
correctly implemented and identify
any risks and potential areas for
improvement at an early stage;
• financial, treasury, operating,
compliance and administrative policies
and procedures that incorporate
statements of required behaviour;
• reviewing the speak-up policy and
monitoring the operation of whistle-
blowing facilities in place to allow staff
and customers to raise concerns; and
• a remuneration policy for executives
that motivates them appropriately,
without encouraging excessive
risk taking.
No significant internal control failings
were identified during the year. The
Group’s approach to risk management,
the risks identified and how it profiles
these risks is set out on pages 36 to 43.
The Board commissioned a review
of the effectiveness of the Company’s
risk management and internal controls
in late 2015, assisted by external
consultants. Recommendations resulting
from that review will be considered and
implemented during 2016.
Colleagues are required to confirm
annually that they complied with the
Code of Business Conduct, which
sets out individual obligations and
responsibilities for everyone working
at Lenta.
Internal audit
Internal audit advises management on
the extent to which systems of internal
control are adequate and effective to
manage business risk, safeguard the
Company’s resources and ensure
compliance with the Company’s policies
and legal and regulatory requirements.
It also advises on ways in which areas
of risk can be addressed and provides
objective assurance on risk and controls
to Senior Management, the Audit
Committee and the Board.
The mandate and programme of work
of the internal audit department is
considered and approved by the Audit
Committee. Based on the approved
internal audit plan, a number of internal
audits took place across the Company’s
operations and functions to facilitate
improvement of the Company’s internal
controls, with findings reported to the
relevant operational management.
Internal audit follows up on the
implementation of recommendations
and reports on progress to Senior
Management and to the Audit
Committee.
Lenta Annual Report and Accounts 2015 81
We recruited a new Head of Internal
Audit during 2015. He reports regularly
to the Chair of the Audit Committee
and attends Audit Committee meetings
to present the internal control findings
from the internal audits performed.
The Audit Committee reviews and
discusses the effectiveness of internal
audits on an annual basis with the Head
of Internal Audit.
The Audit Committee plays a role in
monitoring compliance with internal
controls. In addition to receiving reports
from Internal Audit, the Committee
is responsible for monitoring legal
compliance across the Company,
including receiving reports from the
Chief Legal Director. The Committee
reports each year on its assessment
of the effectiveness of the risk
management and internal control
systems. Throughout the year the
Committee receives regular reports
from the external auditor covering topics
such as quality of earnings and technical
accounting developments.
Whilst an internal control system cannot
guarantee that losses will not occur,
the Board is satisfied that management
has remained diligent in its efforts to
ensure an appropriate level of control
remains in place. All Directors are
covered by the Group’s Directors’ and
Officers’ insurance policy.
Audit Committee Report
Committee members
Michael Lynch-Bell
(Independent, Chairman)
Anton Artemyev
(Independent)
Stephen Johnson
(Independent)
In 2015 the Audit Committee consisted
initially of five Directors, three of whom
were independent (including the Chair),
and the Company Chairman. Lindsay
Forbes resigned with effect from 25 July
2015 and the Company Chairman
resigned from the Committee effective
31 December 2015. As a result, the
membership of the Committee is now
fully Code compliant.
The Audit Committee supports the
Board in its responsibilities with regard
to corporate reporting and risk
management and internal controls,
and with maintaining a relationship with
the Company’s auditor. The Committee’s
activities include the review of internal
control systems, compliance with
financial reporting requirements and
the scope, results and cost effectiveness
of the external audit.
There are seven Committee meetings
scheduled for 2016.
Dear Shareholders
At the heart of the Audit Committee’s
remit is the need to provide confidence
in the integrity of the Company’s
processes and procedures in relation
to internal control, risk management
and corporate reporting. In keeping
with our commitment to good corporate
governance, we seek to do this in line
with international best practice.
During 2015, the Committee reviewed
the Company’s financial results,
including significant financial reporting
estimates and judgements, as well as
the financial disclosures in the interim
management statements. It also
monitored the Company’s system
of internal control and management of
the Company’s risks and oversaw the
relationship with the external auditor
and with the internal audit function.
We are very grateful for the assistance
of the Company’s external auditor
Ernst & Young (‘EY’) in this capacity.
EY contributes a further independent
perspective on certain aspects of the
Company’s financial control systems
and reports both to the Audit Committee
and directly to the Board.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 82
Corporate governance continued
Responsibilities
The primary responsibilities of the
Audit Committee encompass overseeing,
monitoring and reviewing the Company’s
financial reporting, internal control
and assurance processes. Whilst the
Committee has very specific duties
set out in its terms of reference, it serves
a much greater purpose in reassuring
shareholders that their interests are
properly protected in respect of the
Company’s financial management
and reporting. The Committee regularly
reports to the Board on matters
discussed at its meetings. The Board
has delegated responsibility to the
Committee for reviewing the Company’s
procedures and system of internal
control in relation to risk management,
with a focus on the methodology used
by Senior Management. It also oversees
the internal and external audit processes
that report to it.
The Chairman of the Board, CEO, CFO,
Company Secretary, Head of Internal
Audit, Chief Legal Counsel and the
external auditor are normally invited
to attend Committee meetings. Other
members of Senior Management are
invited to attend to discuss any matters
relevant to them.
External auditor
The Committee approved the terms
of engagement of the external auditor,
the fees paid to it and the scope of work
carried out by it, and reviewed the
performance and effectiveness of the
external auditor in respect of the year
ended 31 December 2014. Consideration
was given to the performance, objectivity,
independence, resources and relevant
experience of the external auditor. In this
process, it reviewed a report from the
external auditor on all relationships that
might reasonably have a bearing on its
independence and the audit partner
and staff’s objectivity, and the related
safeguards and procedures. It also
performed an annual review of the
policies on the independence and
objectivity of the external auditor,
the use of the auditor for non-audit
services and the employment of former
employees of the external auditor.
Following this review, the Committee
recommended to the Board the
re-appointment of EY as the Company’s
external auditor.
To safeguard auditor objectivity and
independence, the Committee oversees
the process for the approval of all
non-audit services provided by EY.
Consideration is given to whether it
is in the best interests of the Company
that the non-audit services are
purchased from EY.
The Committee received reports on
the findings of the external auditor during
its half yearly review and annual audit.
It reviewed the recommendations made
to management by the external auditor
and management’s responses as well
as the letters of representation to the
external auditor.
Ernst & Young LLC was appointed as
our external auditor in 2011. It is our
policy to review its appointment annually
and to re-tender the audit contract every
seven years.
Role of the Audit Committee
Key roles and responsibilities of the
Audit Committee included:
• monitoring and challenging, where
necessary, the integrity of the financial
statements and half yearly results,
interim management statements and
any other formal announcement
relating to financial performance;
• reviewing and challenging, where
necessary, the actions and
judgements of management, taking
into account the views of the external
auditor, in relation to the Company’s
financial statements, strategic review,
financial review, governance
statement and half-yearly reports,
including the going concern
assumption;
• reviewing the Company’s internal
controls, including financial controls
and risk management systems;
• reviewing the Company’s insurance
arrangements;
• reviewing the Company’s treasury
policy;
• reviewing the Company’s compliance
with the updated UK Corporate
Governance Code;
• approving Internal Audit’s annual
operational plan and reviewing reports
received from Internal Audit;
• reviewing the Company’s speak-up
policy and receiving reports on matters
raised via the speak-up facilities;
• overseeing the Company’s
relationship with the external auditor;
Lenta Annual Report and Accounts 2015 83
• agreeing the scope of the external
auditor’s annual audit plan and
reviewing the output;
• reviewing and amending as necessary
the policy on the provision of non-audit
services by the external auditor;
• reviewing annually the Committee’s
own performance, constitution and
terms of reference; and
• reporting to the Board on how the
Committee has discharged its
responsibilities.
A copy of the Committee’s
terms of reference is available
on the Company’s website:
www.lentainvestor.com/en/about/
corporate-governance/internal-policies
The Audit Committee considered
a number of issues during the year,
taking into account the views of the
Company’s management, its tax
advisors and the external auditor.
Significant issues considered by
the Audit Committee
The significant issues – and how they
were addressed – are set out below.
Suppliers’ allowances
The Committee reviewed the accounting
for and recognition of suppliers’
allowances received for the provision
of services. The review included
consideration of the types of allowances
received, the period of coverage and
the timing of receipt. Based on this
review, the Committee is satisfied that
the allowances are recognised in the
period in which they are earned and that
appropriate disclosure has been made
in the financial statements.
Inventories and inventory allowances
The Committee reviewed the accounting
for inventories and the recognition
of write-downs during the period.
The review took into consideration the
calculation of the cost of inventories, the
identification of slow-moving inventories
and the reasons why shrinkage had
occurred. Based on this review, the
Committee agreed with the accounting
treatment and disclosures adopted by
management.
The Committee considered the position
taken by management and, taking into
account the external auditor’s review,
concluded that management’s
recommendation to prepare the financial
statements on a going concern basis
was appropriate.
It is the Directors’ intention to include
a viability statement concerning the
prospects of the Company, commencing
with the 2016 annual report.
Share-based payments
The Committee reviewed the
considerations made by management
in relation to the accounting for
remuneration received by certain
employees in the form of share-based
payments. In addition, management
had evaluated the required disclosures
for inclusion in the financial statements.
Having challenged the appropriateness
of key assumptions used by
management, the Committee agreed
with management’s assessment and
disclosures.
Michael Lynch-Bell
Chairman
Audit Committee
Capital construction
The Committee examined the
accounting for capital construction
including the recognition of direct costs
incurred, the allocation of directly
attributable overheads and land lease
expense. The review included a
consideration of potential fraud risk,
the construction tender process and
the acquisition or leasing of land. The
Committee agreed with the accounting
treatment and disclosures adopted by
management.
Taxation
The Committee received regular
updates on tax developments in
Russia from management and the
Company’s advisors, together with
management’s interpretation of the
impact of current tax legislation on the
Company. The Committee concurred
with management’s judgement on the
positions adopted and the related
disclosures.
Going concern
The Committee reviewed management’s
adoption of the going concern basis
of accounting. Management had taken
into account the Company’s financial
position, available borrowing facilities,
loan covenant compliance, planned
store opening programme and the
anticipated cash flows and related
expenditures from our retail stores.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 84
Corporate governance continued
Remuneration
The work of the Remuneration
Committee, the interests in the
Company’s share capital held
by Senior Management and the
remuneration received by the
Chairman and the non-executive
Directors are set out on pages 84 to 88.
The Directors’ interests in the Company’s
share capital are set out on page 88.
Remuneration Committee
Report
Committee members
Stephen Johnson
(Independent, Chairman)
Michael Lynch-Bell
(Independent)
Anton Artemyev
(Independent)
John Oliver
(Major Shareholder nominee)
Dmitry Shvets
(Major Shareholder nominee)
The Remuneration Committee held four
meetings in 2015 and has four meetings
scheduled for 2016.
The Remuneration Committee assists
the Board of Directors in discharging
its responsibilities in relation to
remuneration, including:
• reviewing Lenta’s overall
compensation policy;
• making proposals to the Board of
Directors about the remuneration
of the Directors of the Company;
• making proposals to the Board of
Directors about the remuneration
of Lenta’s Senior Management team;
• advising on and administering Lenta’s
management incentive plans.
• reviewing annually the Committee’s
own performance, constitution and
terms of reference; and
• reporting to the Board on how
the Committee has discharged
its responsibilities.
A copy of the Committee’s
terms of reference is available
on the Company’s website:
www.lentainvestor.com/en/about/
corporate-governance/internal-policies
Dear Shareholders
Lenta continues to be a very high growth
business, setting itself and achieving
ambitious targets. Over the last few
years it has been one of the fastest
growing and best run retail businesses
in Russia – and indeed across Europe.
Enabling the business to attract, retain
and incentivise the best people remains
central to our continuing ability to
achieve our goals. The Remuneration
Committee’s primary focus is to ensure
that Lenta has a remuneration
framework that is highly competitive
in the markets where we compete for
talent, designed to support the long-term
strategy of the business and aligned
with the interests of our shareholders.
We also strive to get the right balance
between maintaining a consistent
approach to remuneration, whilst at the
same time recognising that we operate
in a fast changing and, in recent times,
volatile retail and macroeconomic
environment in Russia. The Committee
is mindful of the need to be both active
and flexible in keeping all aspects of
the business’s remuneration policies
under review.
Most members of the Committee and
the Board have long experience of and
involvement in remuneration matters.
However, the Committee is also aware
that, from time to time, it is important
to gather external views and advice.
During the year the Committee has been
advised by both Mercer and PwC on
various matters as well as making use
of external labour market data from Hay.
Lenta Annual Report and Accounts 2015 85
Key activities of the
Committee in 2015
Job evaluation
The overall pay system in Lenta is based
on a job evaluation methodology
conducted by Mercer, global experts
in pay evaluation and labour market
analysis. The original job evaluation was
carried out in 2012, establishing a pay
and benefits hierarchy. The remuneration
system in Lenta consists of base salary
that is set according to the job grade and
location, and different types of bonuses
that are linked to team performance and
depend on job grade. All other benefits
also depend on job grade. Such an
approach assures internal equity of pay
and proper benchmarking of salaries
with the external labour market,
including specific cities where we have
a presence. Mercer and Hay salary
surveys are used as the main sources
of labour market data.
In 2015 full job regrading was carried
out, again using Mercer, to reflect the
doubling in size of our business. Change
of job grade did not result in automatic
pay rises. However, Lenta management
was conscious that some key positions
were behind our market target, based
on salary surveys of the Russian labour
market.
The Committee reviewed the salary data
analysis and approved salary increases –
both for specific positions in head office
and stores. Thus, in November 2015,
head office personnel received pay rises
that depended on individual performance
evaluation results for 2014 and the
competitive position of their actual salary
compared to the target salary for the
grade. This represented a total head
office payroll increase of 5%. This was
affordable due to the fact that there was
very strong control over headcount
growth in head office, which grew only
by 1.7% vs. 2014.
The store personnel pay review
indicated that there were certain
positions with pay below our market
target and availability of personnel for
these positions was low. The pay for
these positions (covering 10,500
employees in 59 cities) was increased,
increasing total store payroll by 3.4%.
Again, this was affordable due to
strong productivity improvements
achieved in 2015.
Annual bonus for 2014
In April 2015, the 2014 annual bonus
award was completed, with an overall
award across the Company for those
participating in the scheme of 62% of
the maximum. Stretch targets to reach
maximum bonus level were quite
challenging; even though the Company
performed extremely well, the impact
of a deteriorating economy, import ban
and Rouble depreciation was significant
enough that stretch targets were not
achieved and the bonus payout
coefficient was less than in 2013.
The Committee and the Board felt that
this accurately reflected the significant
progress that the business made
during 2014.
Within this overall award, the Senior
Management team was awarded annual
bonuses of 68% of the maximum, with
the CEO achieving 66%. The Committee
also agreed the annual bonus targets for
2016, providing for similarly stretching
performance.
Management remuneration
Lenta’s overall philosophy on
remuneration is to ensure that, whilst
base salary levels remain competitive,
the Senior Management team is
substantially incentivised through both
variable pay (the annual bonus plan)
and the long-term incentive plan
(‘LTIP’) to share in the value created
for shareholders. Lenta’s Senior
Management team includes heads
of business functions reporting
directly to the CEO. The Company’s
Management Incentive Programme
(‘MIP’) is described in more detail
on page 87 of this report.
The MIP was put in place during 2012
and 2013. Much has changed in the
Russian macroeconomic environment
since that time and it has lost most of
its retention value. In 2014 the
Committee decided to implement
changes to the MIP and to postpone
any MIP shares vesting until the
change is finalised. In 2015 the Senior
Management team remuneration
package was reviewed with the
participation of PwC, using not only
Russian but European retail salary
data. As a result of this review,
recommendations were made to
address both the base pay and the
long-term incentive programme.
The Remuneration Committee
approved an increase of 28% in the
Rouble base salaries of individual
Senior Management team members.
The Committee also approved the
change in the MIP from the USD share
price to the RUB price and a change
of vesting schedule. The new vesting
schedule separates the Management
team from any sale of shares by major
shareholders and establishes fixed
vesting periods that assure retention
of the team until 2018. New long-term
incentives have also been agreed in
principle by the Committee to ensure
retention of Management after 2018;
details of the new LTIP will be further
developed in 2016.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 86
Corporate governance continued
A manager’s eligibility to receive shares
in the circumstances described above
is conditional on his or her compliance
with certain covenants, including
confidentiality, non-competition and
non-solicitation covenants. Where a
Settlement Event occurs in relation to
which the 8% per annum hurdle is not
cleared, participating managers lose
rights in relation to the Settlement
Event Proportion of their phantom
shares. Where a participating manager
voluntarily terminates his employment
with us, has such employment
terminated for cause, or otherwise
breaches the terms of the MIP, he loses
rights in respect of his remaining
phantom (non-vested) shares. To the
extent his phantom shares have not
otherwise vested by such time, half a
manager’s original allocation vests on
the fifth anniversary of that manager’s
vesting period commencement date,
and the remainder on the seventh
anniversary.
Management Incentive Programme
We have instituted a share-settled
management incentive programme
(‘the MIP’). Under the MIP, participating
managers are allocated a specified
number of phantom shares, in relation
to which their entitlement under the MIP
is calculated. Upon (i) an initial public
offering (ie the 2014 Offering) and
(ii) fixed vesting dates, provided the
per-share price of that Settlement Event
is greater than that manager’s hurdle
reference price plus 8% per annum from
that manager’s hurdle reference date,
that manager receives a number of
shares (to be issued by us) equal to
the number of their phantom shares
multiplied by the proportion of shares
linked with this vesting date, multiplied
by the share price of the Settlement
Event (as determined under the terms
of the MIP) minus that manager’s base
price, divided by the Settlement Event
share price, and (unless the per-share
Settlement Event price is greater than
that manager’s hurdle reference price
plus 16% per annum from that manager’s
hurdle reference date) divided by two.
Since 2015, all the share prices: base,
hurdle and settlement event price are
defined in Roubles.
Key management (top 60) remuneration
In 2015, the Remuneration Committee
also focused its activities on retention
of the top 60 management positions
within Lenta. These positions represent
two levels below the CEO in the
company and they received an
11% basic pay increase in 2015. The
Committee also approved a new annual
long-term incentive plan with a vesting
period of three years for these positions.
The total value of this award is 24,700
shares and represents around 20% of
this group’s annual salary. The allocation
of the LTIP is linked to overall Company
performance in the previous year and
individual performance evaluation.
International experts
Given the turbulent external
environment, particularly relating
to Rouble/Euro exchange rates,
the Remuneration Committee was
conscious of the need to ensure that pay
rates for Senior Management and other
international experts Lenta employs
remained competitive, not only within
Russia but also in the context of the
wider European market for talent.
The combination of the weakening
Rouble and rising inflation had a
significant impact, particularly on the
expatriate members of the team. To
address this, since 2014 there has been
a cost of living adjustment (‘COLA’)
established for international members of
the Senior Management team and other
expatriates working in Lenta. This is a
non-contractual arrangement that does
not create a permanent increase in basic
pay, but reflects the difference in Rouble
salaries and Euro salaries on a monthly
basis. This mechanism was continued
during 2015 and we intend to continue
applying it until such time as it is
considered appropriate to reassess
permanent salary levels.
Lenta Annual Report and Accounts 2015 87
The key terms of each member of Senior Management’s participation in the MIP are set out below:
Manager
Jan Dunning
Jago Lemmens
Herman Tinga1
1st grant
2nd grant
Edward Doeffinger
Joern Arnold
Sergey Prokofiev
Maxim Shchegolev
Tatiana Yurkevich
Number of
phantom shares
205,646
102,823
Base price (RUB)
1,516
1,516
Hurdle reference
price (RUB)
764
764
Hurdle reference
date
23/9/2011
23/9/2011
102,823
35,000
102,823
85,686
35,988
35,988
35,988
1,516
1,516
1,516
1,516
1,516
1,516
1,516
1,375
1,375
764
764
1,375
1,375
1,375
1/4/2013
1/4/2013
23/9/2011
23/9/2011
1/4/2013
1/4/2013
1/4/2013
Vesting period
commencement
date
1/4/2012
1/4/2012
1/4/2013
1/4/2013
1/4/2012
1/4/2012
1/4/2013
1/4/2013
1/4/2013
1 Herman Tinga has received two allocations under the MIP.
On 22 April 2014, as a result of the Settlement Event upon the 2014 Offering, we granted 399 new shares, (some in the form
of GDRs), to Senior Management under the MIP. The details of the MIP issuance, the holdings of the recipients immediately
following the issuance, and holdings of Senior Management as of 31 December 2015 are summarised below:
Name of recipient
Jan Dunning1
Jago Lemmens2
Edward Doeffinger
Joern Arnold
Herman Tinga
Sergey Prokofiev
Maxim Shchegolev
Tatiana Yurkevich
Number of
shares issued
(including as GDRs)
132
66
66
55
44
12
12
12
Total holding
after issuance
(interests in shares)
549,538
104,697
93,397
86,497
7,044
12
12
12
Total holding
as of Dec 31 2015
(interest in shares)
549,538
105,737
93,397
86,497
7,044
12
12
12
Approximate
holding
as of Dec 31 2015
(% of share capital)
0.56%
0.11%
0.10%
0.09%
0.01%
Less than 0.0001%
Less than 0.0001%
Less than 0.0001%
1 Including through his vehicle Golden Healer Investments Limited.
2 Including through his vehicle Ergo United Limited.
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 88
Corporate governance continued
Remuneration of the Chairman and non-executive Directors
The Chairman and other non-executive Directors of Lenta LLC each have a letter of appointment; they do not have service
contracts. There is no notice period for termination.
Fees for the Chairman and the other non-executive Directors are determined by the Board as a whole, upon the
recommendation of the Remuneration Committee. Fees are set at a level sufficient to attract, motivate and retain the world-class
talent necessary to contribute to a high-performing board – and are paid monthly in cash. The Chairman and the other non-
executive Directors do not participate in any of our employee incentive arrangements, nor do they receive any pension provision.
The Chairman and the other non-executive Directors receive a base fee, with additional fees payable for the chairmanship
and membership of our key Committees, and for performing the Chairman and Senior Independent Director roles. The fee levels
are reviewed on a periodic basis with reference to the time commitment and responsibilities of the role and to companies of
comparable size and complexity.
The fees applicable for the services of Major Shareholder nominated Directors are paid either directly to the relevant Director
or to the nominating shareholder, as determined by the nominating shareholder.
There has been no increase in the level of fees paid to the Chairman and the non-executive directors since the company’s IPO
in February 2014. The Committee and Board have agreed that no increase will be payable for the coming year.
The table below sets out fee levels applicable as at 1 January 2015:
Base fee for non-executive Directors
Additional fees:
Chairman
Senior Independent Director
Chair of the Audit Committee
Chair of the Capital Expenditure Committee
Chair of the Nomination and Remuneration Committees
Members of the Audit and Capital Expenditure Committees
Members of the Nomination and Remuneration Committees
Interest of Directors in Lenta shares are summarised in the table below:
Name of Director
John Oliver
Stephen Johnson
Martin Elling
Michael Lynch-Bell
Stephen Johnson
Chairman
Remuneration Committee
Amount payable
(USD)
165,000
285,000
25,000
40,000
30,000
17,500
15,000
10,000
Total holding
as of Dec 31 2015
(interest in shares)
125,000
80,000
10,000
3,200
Approximate holding
as of Dec 31 2015
(% of share capital)
0.13%
0.08%
0.01%
less than 0.001%
Lenta Annual Report and Accounts 2015 89
Capital Expenditure
Committee Report
Committee members
Dmitry Shvets
(Major Shareholder nominee,
Chairman)
Stephen Johnson
(Independent)
Martin Elling
(Major Shareholder nominee)
John Oliver
(Major Shareholder nominee)
There are ten Committee meetings
scheduled for 2016; this number may be
increased as necessary.
Working within the framework of
guidance provided by the Board
of Directors regarding strategic,
budgetary and return requirements,
the Capital Expenditure Committee
has the power to:
• review, modify and approve proposals
relating to significant capital
expenditure, i.e. where the amount to
be expended exceeds RUB 150 million
including expenditures for new
construction, major improvements
to existing property and merger &
acquisition transactions;
• advise the Board when proposed
projects do not comply with its
framework; these are accordingly
referred to the full Board of Directors;
• endeavour to ensure that improvement
programmes relating to the design,
construction and operation of new
stores are defined and implemented
in cooperation with management;
• monitor the implementation of
the capital expenditure programme,
including, where appropriate,
a comparison of actual performance
with the financial and implementation
projections of the approved
submissions.
A copy of the Committee’s
terms of reference is available
on the Company’s website:
www.lentainvestor.com/en/about/
corporate-governance/internal-policies
Dear Shareholders
2015 was another eventful year for Lenta
as it further accelerated its expansion –
opening 32 hypermarkets and eight
supermarkets in Russia, reaching further
east to Irkutsk. This obviously meant
another eventful year for the Capital
Expenditure Committee. In a growing
economy, with the environment providing
tailwinds for the business, our job would
have been a very busy one. But with
Russia’s current financial uncertainties,
a more stringent focus on how these
could impact the business – and
consequently any future capital
expenditure planning – was required.
In a more challenging economic
environment, the Committee applied
a particularly keen focus on balancing
the need to approve expenditure for
land purchases and the construction
and fitting-out of stores that will continue
to feed Lenta’s future growth plans
with our commitment to deliver value
for shareholders.
We will, as usual, be reviewing all
opportunities as they present themselves.
However, the Board and Senior
Management agree that, in the present
circumstances, it is particularly important
to maintain an appropriate balance of
prudent leverage levels, whilst also
pursuing high growth and high investment
project returns. We are confident of being
able to continue to do so.
Activities during the year
During 2015, the Capital Expenditure
Committee focused on a number
of issues on behalf of the Board.
We considered more than 150 new
investment proposals including new
store projects, acquisitions, and supply
chain and vertical integration projects.
We considered, reviewed and made
recommendations to the Board on the
Company’s investment strategy, policy
and risk management. We continued
to improve the new form of investment
proposal (‘IP’) with even higher standards
to ensure the best overview and
forecasts against the backdrop of the
very large number of promising new
store IPs that the expansion teams
developed in 2015. We also worked
together with management on improving
the efficiency of the existing stores and
maintaining their strict compliance with
all applicable regulations.
The Capital Expenditure Committee
also worked closely with management
in reviewing potential acquisition
opportunities, including the acquisition
of stores and land plots from O’KEY
in September 2015. This cooperation
enabled the smooth acquisition and
integration of the new assets.
We continued to refine the post-IP
evaluation procedures to make sure that
the capital expenditure process is in line
with the Company strategy – and that
the results are in line with our return
requirements and high corporate
standards. Post-IP evaluation continues
to be refined to ensure future outcomes
remain in line with our expectations.
We also ensure that any lessons learned
are applied in future store and other
investment projects.
Dmitry Shvets
Chairman
Capital Expenditure Committee
Corporate governanceFinancial statementsAppendicesStrategic report Lenta Annual Report and Accounts 2015 90
Corporate governance continued
Relations with
shareholders
We are committed to conducting
constructive dialogue with shareholders
to ensure that we understand what
is important to them and enable clear
communication of our position. The
Chairman, CEO and CFO hold regular
meetings with shareholders and update
the Board on the outcomes of those
meetings. Investor Relations keeps
the Board informed of broker and
analyst views, and reports and presents
formally to the Board at each scheduled
Board meeting.
We support engagement with
institutional shareholders as envisaged
by the Stewardship Code and have
a dedicated investor relations website.
Schedule of investor calls in 2015
29
January
12
March
23
April
21
July
27
August
16
October
Thursday
Thursday
Thursday
Tuesday
Thursday
Friday
Thursday
Thursday
Schedule of investor calls for 2016
January
February
April
July
August
October
28
18
27 Wednesday
21
18
20
Thursday
Thursday
Thursday
To encourage shareholder participation
in the upcoming 2016 AGM, we offer
electronic proxy voting and voting
through the CREST electronic proxy
appointment service. At our AGM,
all resolutions are proposed and voted
upon individually by shareholders or
their proxies. All votes taken during the
AGM are by way of a poll. This follows
best practice guidelines and allows
the Company to count all votes, not
just those of shareholders attending
the meeting.
Responsibility
statement
We, members of the Board, confirm that,
to the best of our knowledge:
The consolidated financial statements,
prepared in accordance with IFRS,
give a true and fair view of the assets,
liabilities, financial position and profit
and loss of Lenta Ltd and its subsidiaries
taken as a whole. This annual report
includes a fair review of the development
and performance of the business
and the position of Lenta Ltd and its
subsidiaries, taken as a whole, together
with a description of the principal risks
and uncertainties that they face.
By order of the Board.
John Oliver
Chairman, Lenta Ltd
21 April 2016
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Lenta Annual Report and Accounts 2015 Lenta Annual Report and Accounts 2015
91
Financial
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Contents
Statement of management’s
responsibilities for the preparation
and approval of the consolidated
financial statements
92
Independent auditors’ report
Consolidated statement
of financial position
Consolidated statement
of profit or loss and other
comprehensive income
Consolidated statement
of cash flows
Consolidated statement
of changes in equity
Notes to the consolidated
financial statements
93
94
95
96
97
98
92
Statement of management’s responsibilities for the preparation
and approval of the consolidated financial statements
for the year ended 31 December 2015
The following statement is made with a view to the respective
responsibilities of management in relation to the consolidated
financial statements of Lenta Limited and its subsidiaries
(“the Group”).
The consolidated financial statements of the Group for
the year ended 31 December 2015 were approved by
management on 15 February 2016.
Management is responsible for the preparation of these
consolidated financial statements that present fairly the
financial position of Lenta Limited and its subsidiaries
(“the Group”) as at 31 December 2015 and the results of its
operations, cash flows and changes in shareholders’ equity
for the year then ended, in compliance with International
Financial Reporting Standards (“IFRS”).
On behalf of the Management as authorized by the
Board of Directors.
In preparing the consolidated financial statements,
management is responsible for:
• selecting and applying accounting policies;
Jan Dunning
CEO of Lenta Ltd
Jago Lemmens
CFO of Lenta Ltd
• presenting information, including accounting policies,
in a manner that provides relevant, reliable, comparable
and understandable information;
• providing additional disclosures when compliance with the
specific requirements of IFRSs are insufficient to enable
users to understand the impact of particular transactions,
other events and conditions on the Group’s consolidated
financial position and financial performance;
• making an assessment of the Group’s ability to continue
as a going concern.
Management is also responsible for:
• designing, implementing and maintaining an effective and
sound system of internal controls throughout the Group;
• maintaining adequate accounting records that are sufficient
to show and explain the Group’s transactions and disclose
with reasonable accuracy at any time the consolidated
financial position of the Group, and which enable them to
ensure that the consolidated financial statements of the
Group comply with IFRS;
• maintaining statutory accounting records in compliance
with local legislation and accounting standards in the
respective jurisdictions in which the Group operates;
• taking such steps as are reasonably available to them
to safeguard the assets of the Group; and
• preventing and detecting fraud and other irregularities.
Lenta Annual Report and Accounts 2015
93
Opinion
In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position
of the Group as at 31 December 2015, and its financial
performance and cash flows for the year then ended in
accordance with International Financial Reporting Standards.
15 February 2016
Saint Petersburg, Russia
Ernst & Young LLC
St. Petersburg Branch
White Nights House Business Center
Malaya Morskaya Street, 23
St. Petersburg 190000 Russia
Tel: +7 (812) 703 7800
Fax: +7 (812) 703 7810
www.ey.com/ru
ООО «Эрнст энд Янг»
Филиал в Санкт-Петербурге
Россия, 190000, Санкт-Петербург
ул. Малая Морская, 23
Бизнес Центр «Белые ночи»
Тел.: +7 (812) 703 7800
Факс: +7 (812) 703 7810
ОКПО: 71457074
Independent auditors’ report
To the Shareholders of Lenta Limited
We have audited the accompanying consolidated financial
statements of Lenta Limited and its subsidiaries (“the Group”),
which comprise the consolidated statement of financial
position as at 31 December 2015, and the consolidated
statement of profit or loss and other comprehensive income,
consolidated statement of changes in equity and consolidated
statement of cash flows for the year then ended, and
a summary of significant accounting policies and other
explanatory information.
Management’s responsibility for the consolidated
financial statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements in
accordance with International Financial Reporting Standards,
and for such internal control as management determines is
necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether
due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we
comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit
evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected
depend on the auditors’ judgment, including the assessment
of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making
those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used
and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation
of the consolidated financial statements.
We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our
audit opinion.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 94
Consolidated statement of financial position
as at 31 December 2015 (in thousands of Russian Roubles)
Assets
Non-current assets:
Property, plant and equipment
Prepayments for construction
Leasehold rights
Intangible assets other than leasehold rights
Long-term portion of cash flow hedging instruments
Total non-current assets
Current assets:
Inventories
Trade and other receivable
Advances paid
Taxes recoverable
Advance payments for income tax
Prepaid expenses
Short-term portion of cash flow hedging instruments
Cash and cash equivalents
Total current assets
Total assets
Equity and liabilities
Equity
Share capital
Additional paid-in capital
Share options
Hedging reserve
Retained earnings
Total equity
Liabilities
Non-current liabilities:
Long-term borrowings
Deferred tax liabilities
Long-term portion of cash flow hedging instruments
Long-term obligations under finance leases
Total non-current liabilities
Current liabilities:
Trade and other payables
Advances received
Other taxes payable
Short-term portion of cash flow hedging instruments
Short-term borrowings and short-term portion of long term borrowings
Short-term obligations under finance leases
Total current liabilities
Total liabilities
Total equity and liabilities
Notes
31 December
2015
31 December
2014
8
9
10
11
30
12
13
14
15
30
16
104,016,458
6,528,355
3,047,168
1,092,329
355,414
115,039,724
22,781,732
13,646,894
2,264,911
1,257,764
288,119
217,711
439,050
22,455,945
63,352,126
178,391,850
81,218,207
4,780,350
3,271,544
870,531
765,257
90,905,889
19,629,381
11,371,248
2,750,726
2,416,605
30,858
134,863
1,969,920
12,035,785
50,339,386
141,245,275
17, 19
17
27
17
284
26,216,147
338,016
724,642
19,850,882
47,129,971
284
4,427,554
153,892
2,585,857
9,562,789
16,730,376
20
21
30
22
23
30
20
65,149,097
5,229,804
24,564
−
70,403,465
58,519,948
3,750,189
28,357
35,465
62,333,959
48,820,207
219,705
927,084
99,564
10,773,277
18,577
60,858,414
131,261,879
178,391,850
48,373,389
213,951
898,178
−
12,695,422
−
62,180,940
124,514,899
141,245,275
The accompanying notes on pages 98 to 134 are an integral part of these financial statements.
Lenta Annual Report and Accounts 2015
Consolidated statement of profit or loss and other comprehensive income
for the year ended 31 December 2015 (in thousands of Russian Roubles)
95
Sales
Cost of goods sold
Gross profit
Selling, general and administrative expenses
Other operating income
Other operating expense
Operating profit
Interest expense
Interest income
Ineffective portion of change in fair value of cash flow hedging instruments
Other expenses
Foreign exchange (losses)/gains
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income
Other comprehensive income to be reclassified to profit or loss
in subsequent periods
Net movement of cash flow hedges
Income tax relating to the components of OCI
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income for the year, net of tax
Note
24
25
26
26
30
21
18
21
Year ended
31 December 2015
252,763,075
(196,457,910)
56,305,165
Year ended
31 December 2014
reclassified*
193,988,240
(150,251,966)
43,736,274
(36,044,771)
2,584,310
(512,533)
22,332,171
(10,044,858)
767,905
6,308
−
(189,423)
12,872,103
(27,985,607)
2,267,130
(358,593)
17,659,204
(6,910,890)
99,821
(19,488)
(41,165)
140,166
10,927,648
(2,584,010)
10,288,093
(1,852,541)
9,075,107
(2,326,519)
465,304
(1,861,215)
8,426,878
3,286,020
(657,204)
2,628,816
11,703,923
Earnings per share (in thousands of Russian roubles per share) (Note 19)
– basic and diluted, for profit for the year attributable to equity holders of the parent
0.112
0.105
* Certain amounts shown here do not correspond to the financial statements for the year ended 31 December 2014 and reflect adjustments made
as detailed in Note 2.4.
The accompanying notes on pages 98 to 134 are an integral part of these financial statements.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015
96
Consolidated statement of cash flows
for the year ended 31 December 2015 (in thousands of Russian Roubles)
Cash flows from operating activities
Profit before income tax
Adjustments for:
Loss on disposal of property, plant and equipment
Loss on disposal of intangible assets
Loss on disposal of leasehold rights
Interest expense
Interest income
Inventory (reversal of write-down)/write-down to NRV
Change in bad debt allowance
Depreciation and amortization
Share options expense
Ineffective portion of change in fair value of cash flow hedging instruments
Movements in working capital:
Increase in trade and other receivables
Decrease/(increase) in advances paid
(Increase)/decrease in prepaid expenses
Increase in inventories
Increase in trade and other payables
Increase in advances received
Increase/(decrease) in net other taxes payable
Cash from operating activities
Income taxes paid
Interest received
Interest paid
Net cash generated from operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Purchases of intangible assets other than leasehold rights
Purchases of leasehold rights
Proceeds from sale of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayments of borrowings
Repayments of obligations under financial lease
Proceeds from issue of new shares
Payment of loan commission
Net cash generated from financing activities
Year ended
31 December 2015
Year ended
31 December 2014
Note
12,872,103
10,927,648
8, 25
27
30
14
12
22
15, 23
53,596
6,486
59,235
10,044,858
(767,905)
(38,710)
194,665
5,686,264
184,124
(6,308)
28,288,408
(2,120,455)
486,213
(52,232)
(3,113,641)
1,228,784
5,754
1,187,747
25,910,578
(896,352)
656,052
(9,745,887)
15,924,391
93,704
840
−
6,910,890
(99,821)
255,357
15,073
3,658,953
111,795
19,488
21,893,927
(2,896,891)
(1,347,140)
60,067
(6,890,550)
13,129,614
89,149
(519,117)
23,519,059
(956,191)
86,566
(6,670,052)
15,979,382
(30,434,839)
(486,224)
(557,827)
109,264
(31,369,626)
(33,594,055)
(419,367)
(1,101,724)
4,412
(35,110,734)
89,717,940
(85,565,000)
(16,888)
21,788,593
(59,250)
25,865,395
80,336,800
(55,330,000)
(14,964)
−
(36,664)
24,955,172
17
Net increase in cash and cash equivalents
10,420,160
5,823,820
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
16
16
12,035,785
22,455,945
6,211,965
12,035,785
The accompanying notes on pages 98 to 134 are an integral part of these financial statements.
Lenta Annual Report and Accounts 2015
Consolidated statement of changes in equity
for the year ended 31 December 2015 (in thousands of Russian Roubles)
97
Balance at 1 January 2015
Profit for the period
Other comprehensive income/(loss)
Total comprehensive income/(loss)
Share
capital
284
−
−
−
Additional
paid-in capital
4,427,554
−
−
−
Hedging
reserve
2,585,857
−
(1,861,215)
(1,861,215)
Share options
reserve
153,892
−
−
−
Retained
earnings
9,562,789
10,288,093
−
10,288,093
Total
equity
16,730,376
10,288,093
(1,861,215)
8,426,878
Share-based payments (Note 27)
Issue of shares (Note 17, 27)
Balance at 31 December 2015
−
−
284
−
21,788,593
26,216,147
−
−
724,642
184,124
−
338,016
−
−
19,850,882
184,124
21,788,593
47,129,971
Balance at 1 January 2014
284
4,407,154
(42,959)
65,510
484,669
4,914,658
Profit for the period
Other comprehensive income
Total comprehensive income
Share option expired worthless (Note 27)
Share-based payments (Note 27)
Issue of shares (Note 17, 27)
Balance at 31 December 2014
−
−
−
−
−
−
284
−
−
−
−
2,628,816
2,628,816
−
−
−
9,075,107
−
9,075,107
9,075,107
2,628,816
11,703,923
−
−
20,400
4,427,554
−
−
−
2,585,857
(3,013)
111,795
(20,400)
153,892
3,013
−
−
9,562,789
−
111,795
−
16,730,376
Notes
Additional paid-in capital: Additional paid-in capital is the difference between the fair value of consideration received and
nominal value of the issued shares.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015
98
Notes to the consolidated financial statements
for the year ended 31 December 2015 (in thousands of Russian Roubles)
1. The Lenta Group and its operations
The Lenta Group (the “Group”) comprises Lenta Limited
(“the Company”) and its subsidiaries. The Group’s principal
business activity is the development and operation of
hypermarket and supermarket stores in Russia.
The Company was incorporated as a company limited by
shares under the laws of the British Virgin Islands (BVI) on
16 July 2003. The Company’s registered address is at Road
Town, Tortola, BVI. The registered office of the Group’s main
operating entity, Lenta LLC, is located at 112, Savushkina
Street, 197374, Saint Petersburg, Russia.
Starting from March 2014 the Company’s shares were listed
on the London Stock Exchange and Moscow Stock Exchange
in the form of Global Depositary Receipts (GDR). In 2015
two more public offerings took place at the London Stock
Exchange and Moscow Stock Exchange in the form of GDRs.
At 31 December 2014 and 2015 the Group had one main
operational fully owned subsidiary, Lenta LLC, a legal entity
registered under the laws of the Russian Federation. The
principal activity of Lenta LLC is retail trade.
2. Basis of preparation and significant accounting
policies
Statement of compliance
These consolidated financial statements have been prepared
in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards
Board (IASB).
2.1 Basis of preparation
The consolidated financial statements have been prepared
on a historical cost basis, except for as described in
accounting policies below. The consolidated financial
statements are presented in Russian roubles and all values
are rounded to the nearest thousand (RUB 000), except
when otherwise indicated.
The principal accounting policies applied in the preparation
of these consolidated financial statements are set out below.
These policies have been consistently applied to all the
periods presented unless otherwise stated.
Management has considered the Group’s cash flow forecasts
for the period ending 31 December 2016 which takes into
account the current and expected economic situation in
Russia, the Group’s financial position, available borrowing
facilities, loan covenant compliance, planned store opening
program and the anticipated cash flows and related
expenditures from retail stores.
Accordingly, management is satisfied that it is appropriate
to adopt the going concern basis of accounting in preparing
the consolidated financial information for these consolidated
financial statements.
At 31 December 2015, the Group had net current assets
of RUB 2,493,712 thousand (net current liabilities at
31 December 2014: RUB 11,841,554 thousand).
Unused credit facilities available as of 31 December 2015
were RUB 45,300,000 thousand. Management believes
that operating cash flows and available borrowing capacity
will provide it adequate resources to fund its liabilities for
the next year.
2.2 Basis of consolidation
The consolidated financial statements incorporate the
financial statements of the Company and other entities
controlled by the Company (its subsidiaries) as at
31 December 2015. Control is achieved when the Group
is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect
those returns through its power over the investee.
Specifically, the Group controls an investee if and only if the
Group has:
• power over the investee (i.e. existing rights that give it the
current ability to direct the relevant activities of the
investee);
• exposure, or rights, to variable returns from its involvement
with the investee; and
• the ability to use its power over the investee to affect
its returns.
Generally, there is a presumption that a majority of voting
rights result in control. To support this presumption and when
the Group has less than a majority of the voting or similar
rights of an investee, the Group considers all relevant facts
and circumstances in assessing whether it has power over
an investee, including:
• the contractual arrangement with the other vote holders
of the investee;
• rights arising from other contractual arrangements;
• the Group’s voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee
if facts and circumstances indicate that there are changes
to one or more of the three elements of control. Consolidation
of a subsidiary begins when the Group obtains control over
the subsidiary and ceases when the Group loses control of
the subsidiary. Assets, liabilities, income and expenses of
a subsidiary acquired or disposed of during the year are
included in the statement of comprehensive income from the
date the Group gains control until the date the Group ceases
to control the subsidiary.
Lenta Annual Report and Accounts 2015 99
Any contingent consideration to be transferred by the
acquirer will be recognised at fair value at the acquisition
date. Subsequently contingent consideration classified as
an asset or liability is measured at fair value with changes
in fair value recognised either in profit or loss. Contingent
consideration that is classified as equity is not remeasured
and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess
of the aggregate of the consideration transferred and the
amount recognised for non-controlling interest over the
net identifiable assets acquired and liabilities assumed.
If the fair value of the net assets acquired is in excess of the
aggregate consideration transferred, the gain is recognised
in profit or loss.
After initial recognition, goodwill is measured at cost less
any accumulated impairment losses. For the purpose
of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each of
the Group’s cash-generating units that are expected to benefit
from the combination, irrespective of whether other assets
or liabilities of the acquiree are assigned to those units.
Where goodwill has been allocated to a cash-generating
unit and part of the operation within that unit is disposed of,
the goodwill associated with the disposed operation is
included in the carrying amount of the operation when
determining the gain or loss on disposal. Goodwill disposed
in these circumstances is measured based on the relative
values of the disposed operation and the portion of the
cash-generating unit retained.
Current versus non-current classification
The Group presents assets and liabilities in statement of
financial position based on current/non-current classification.
An asset is current when it is:
• expected to be realised or intended to sold or consumed
in normal operating cycle;
• held primarily for the purpose of trading;
• expected to be realised within twelve months after the
reporting period; or
• cash or cash equivalent unless restricted from being
exchanged or used to settle a liability for at least twelve
months after the reporting period.
2. Basis of preparation and significant accounting
policies (continued)
2.2 Basis of consolidation (continued)
Profit or loss and each component of other comprehensive
income (OCI) are attributed to the equity holders of the parent
of the Group and to the non-controlling interests, even if this
results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies
into line with the Group’s accounting policies. All intra-group
assets and liabilities, equity, income, expenses and cash
flows relating to transactions between members of the Group
are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without
a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises
the related assets (including goodwill), liabilities, non-
controlling interest and other components of equity while
any resultant gain or loss is recognised in profit or loss.
Any investment retained is recognised at fair value.
Subsidiaries are those companies (including special purpose
entities) in which the Group, directly or indirectly, has an
interest of more than one half of the voting rights or otherwise
has power to govern the financial and operating policies
so as to obtain economic benefits and which are neither
associates nor joint ventures. The existence and effect of
potential voting rights that are presently exercisable or
presently convertible are considered when assessing
whether the Group controls another entity. Subsidiaries are
consolidated from the date on which control is transferred
to the Group (acquisition date) and are de-consolidated from
the date that control ceases.
2.3 Summary of significant accounting policies
Business combinations and goodwill
Business combinations are accounted for using the
acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred measured
at acquisition date fair value and the amount of any non-
controlling interest in the acquiree. For each business
combination, the Group elects whether to measure the
non-controlling interest in the acquiree at fair value or at the
proportionate share of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred and
included in administrative expenses.
When the Group acquires a business, it assesses the
financial assets and liabilities assumed for appropriate
classification and designation in accordance with the
contractual terms, economic circumstances and pertinent
conditions as at the acquisition date. This includes the
separation of embedded derivatives in host contracts
by the acquiree.
If the business combination is achieved in stages, the
previously held equity interest is remeasured at its acquisition
date fair value and any resulting gain or loss is recognised
in profit or loss.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 100
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
2. Basis of preparation and significant accounting
policies (continued)
2.3 Summary of significant accounting policies
(continued)
All other assets are classified as non-current. A liability
is current when:
• it is expected to be settled in normal operating cycle;
• it is held primarily for the purpose of trading;
• it is due to be settled within twelve months after the
reporting period; or
the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value
measurement as a whole:
• Level 1 − Quoted (unadjusted) market prices in active
markets for identical assets or liabilities.
• Level 2 − Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
directly or indirectly observable.
• Level 3 − Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable.
• there is no unconditional right to defer the settlement of the
liability for at least twelve months after the reporting period.
The Group classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-
current assets and liabilities.
Fair value measurement
The Group measures financial instruments, such as,
derivatives at fair value at each balance sheet date. Also,
fair values of financial instruments measured at amortised
cost are disclosed in Note 29.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction
to sell the asset or transfer the liability takes place either:
• in the principal market for the asset or liability; or
• in the absence of a principal market, in the most
advantageous market for the asset or liability.
The principal or the most advantageous market must
be accessible to by the Group.
The fair value of an asset or a liability is measured using the
assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act
in their economic best interest.
A fair value measurement of a non-financial asset takes into
account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the
asset in its highest and best use.
The Group uses valuation techniques that are appropriate in
the circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or
disclosed in the financial statements are categorized within
For assets and liabilities that are recognised in the financial
statements on a recurring basis, the Group determines
whether transfers have occurred between Levels in the
hierarchy by re assessing categorization (based on the lowest
level input that is significant to the fair value measurement
as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has
determined classes of assets and liabilities on the basis of
the nature, characteristics and risks of the asset or liability
and the level of the fair value hierarchy as explained above.
Functional and presentation currency
The presentation and functional currency of all Group entities
is the Russian rouble (“RUB”), the national currency of the
Russian Federation, the primary economic environment
in which operating entities function.
Transactions in foreign currencies are initially recorded
by the Group’s entities at the functional currency spot rates
at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates
of exchange at the reporting date. Differences arising on
settlement or translation of monetary items are recognised
in profit or loss.
Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions. Non-monetary
items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair
value is determined. The gain or loss arising on translation
of non-monetary items measured at fair value is treated in
line with the recognition of gain or loss on change in fair value
of the item.
Property, plant and equipment
Property, plant and equipment are initially recorded at
purchase or construction cost. Cost of replacing major parts
or components of property, plant and equipment items is
capitalized and the replaced part is retired. All other repair
and maintenance costs are expensed as incurred.
Lenta Annual Report and Accounts 2015 101
2. Basis of preparation and significant accounting
policies (continued)
The corresponding liability to the lessor is included in the
statement of financial position as a finance lease obligation.
2.3 Summary of significant accounting policies
(continued)
Property, plant and equipment are stated at cost, net of
accumulated depreciation and accumulated impairment
losses, if any.
Gains and losses on disposals determined by comparing net
proceeds with the respective carrying amount are recognised
in profit or loss.
Construction in progress comprises costs directly related
to the construction of property, plant and equipment including
an appropriate allocation of directly attributable variable
overheads that are incurred in construction. Depreciation
of an asset begins when it is available for use, i.e. when it
is in the location and condition necessary for it to be capable
of operating in the manner intended by management.
Construction in progress is reviewed regularly to determine
whether its carrying value is recoverable and whether
appropriate impairment loss has been recognised.
Properties in the course of construction for production,
rental or administrative purposes, or for purposes not yet
determined, are carried at cost, less any recognised
impairment loss. Depreciation of these assets, on the same
basis as other property assets, commences when the assets
are ready for their intended use.
Depreciation
Depreciation of property, plant and equipment is calculated
using the straight-line method to write off their cost to their
residual values over their estimated useful lives:
Buildings
Land improvements
Machinery and equipment
Other
Useful lives in years
30
30
5 to 15
3 to 5
Leasehold rights
Leasehold rights acquired as part of hypermarket development
projects are separately reported at cost less accumulated
amortisation and accumulated impairment losses. These
leasehold rights are amortized to profit or loss over the term
of the lease, which is 49 years. If the Group further purchases
the land plot previously leased, the carrying amount of the
related leasehold right as of the date of purchase transaction
is reclassified to the cost of land plot purchased.
Finance leases
Leases are classified as finance leases whenever the terms
of the lease transfer substantially all the risks and rewards
of ownership to the lessee. All other leases are classified as
operating leases.
Assets held under finance leases are recognised as assets
at their fair value at the inception of the lease or, if lower,
at the present value of the minimum lease payments.
Lease payments are apportioned between finance charges
and reduction of the lease obligation so as to achieve a
constant rate of interest on the remaining balance of the
liability. Finance charges are charged directly to the profit and
loss, unless they are directly attributable to qualifying assets,
in which case they are capitalised in accordance with the
Group’s general policy on borrowing costs.
Operating lease payments are recognised as an expense
on a straight-line basis over the lease term, except where
another systematic basis is more representative of the time
pattern in which economic benefits from the leased asset
are consumed.
Intangible assets
Intangible assets acquired separately are measured on initial
recognition at cost. The cost of intangible assets acquired
in a business combination is their fair value at the date of
acquisition. Following initial recognition, intangible assets
are carried at cost less any accumulated amortisation and
accumulated impairment losses.
Internally generated intangible assets, excluding capitalised
development costs, are not capitalised and expenditure
is reflected in profit and loss in the period in which the
expenditure is incurred.
The useful lives of intangible assets are assessed as either
finite or indefinite.
Intangible assets with finite lives are amortised over the
useful economic life (which is from 3 to 7 years) using a
straight-line method to write off their cost to their residual
values and assessed for impairment whenever there is an
indication that the intangible asset may be impaired. The
amortisation period and the amortisation method for an
intangible asset with a finite useful life are reviewed at least
at the end of each reporting period. Changes in the expected
useful life or the expected pattern of consumption of future
economic benefits embodied in the asset are considered
to modify the amortisation period or method, as appropriate,
and are treated as changes in accounting estimates. The
amortisation expense on intangible assets with finite lives
is recognised in the statement of profit or loss and other
comprehensive income as the expense category that is
consistent with the function of the intangible assets or
included into the carrying amount of an asset as appropriate.
Intangible assets with indefinite useful lives are not amortised,
but are tested for impairment annually, either individually or at
the cash-generating unit level. The assessment of indefinite
life is reviewed annually to determine whether the indefinite life
continues to be supportable. If not, the change in useful life
from indefinite to finite is made on a prospective basis.
Gains or losses arising from derecognition of an intangible
asset are measured as the difference between the net
disposal proceeds and the carrying amount of the asset
and are recognised in the profit or loss when the asset
is derecognised.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 102
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
2. Basis of preparation and significant accounting
policies (continued)
2.3 Summary of significant accounting policies
(continued)
Impairment of non-financial assets
At each reporting date, the Group reviews the carrying
amounts of its non-financial assets to determine whether
there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where it is not possible
to estimate the recoverable amount of an individual asset,
the Group estimates the recoverable amount of the cash-
generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be
identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to
the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified.
The recoverable amount of an asset or a cash-generating unit
is the higher of its fair value less costs to sell and value in use.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value
of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or a cash-generating
unit) is estimated to be less than its carrying amount, the
carrying amount of the asset (the cash-generating unit)
is reduced to its recoverable amount. An impairment loss
is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the
carrying amount of the asset (the cash generating unit) is
increased to the revised estimate of its recoverable amount,
but so that the increased carrying amount does not exceed
the carrying amount that would have been determined
had no impairment loss been recognised for the asset
(the cash-generating unit) in prior years. A reversal of an
impairment loss is recognised immediately in profit or loss.
Income taxes
Income taxes have been provided for in the consolidated
financial statements in accordance with management’s
interpretation of the relevant legislation enacted or
substantively enacted as at the reporting date. The income
tax charge comprises current tax and deferred tax and is
recognised in the consolidated statement of profit or loss and
other comprehensive income unless it relates to transactions
that are recognised, in the same or a different period, directly
in equity. In the case of a business combination, the tax
effect is taken into account in calculating goodwill or
determining the excess of the acquirer’s interest in the net
fair value of the acquiree’s identifiable assets, liabilities
and contingent liabilities over cost of consideration paid.
Current tax is the amount expected to be paid to or recovered
from the taxation authorities in respect of taxable profits or
losses for the current and prior periods. Deferred income
tax is recorded using the balance sheet liability method for
tax loss carry-forwards and temporary differences arising
between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred tax balances are measured at tax rates enacted
or substantively enacted at the reporting date which are
expected to apply to the period when the temporary
differences will reverse or the tax loss carry-forwards will
be utilized. Deferred tax assets and liabilities are netted only
within the individual companies of the Group. Deferred tax
assets for deductible temporary differences and tax loss
carry-forwards are recorded only to the extent that it is
probable that future taxable profit will be available against
which the deductions can be utilized.
Deferred tax liabilities are recognised for all taxable
temporary differences, except:
• When the deferred tax liability arises from the initial
recognition of goodwill or an asset or liability in a transaction
that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor
taxable profit or loss.
• In respect of taxable temporary differences associated
with investments in subsidiaries, associates and interests
in joint ventures, when the timing of the reversal of the
temporary differences can be controlled and it is probable
that the temporary differences will not reverse in the
foreseeable future.
Deferred tax assets are recognised for all deductible
temporary differences, the carry-forward of unused tax credits
and any unused tax losses to the extent that it is probable that
taxable profit will be available against which the deductible
temporary differences, and the carry-forward of unused tax
credits and unused tax losses can be utilised, except:
• When the deferred tax asset relating to the deductible
temporary difference arises from the initial recognition of
an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss.
• In respect of deductible temporary differences associated
with investments in subsidiaries, associates and interests
in joint ventures, deferred tax assets are recognised only to
the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit will
be available against which the temporary differences can
be utilized.
The carrying amount of deferred tax assets is reviewed at
each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.
Lenta Annual Report and Accounts 2015 103
2. Basis of preparation and significant accounting
policies (continued)
2.3 Summary of significant accounting policies
(continued)
The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner
in which the Group expects, at the reporting date, to recover
or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes
levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
Inventories
Inventories are stated at the lower of cost and net realizable
value. Cost of inventory is determined on the weighted
average basis. Net realizable value is the estimated selling
price in the ordinary course of business, less the cost of
completion and selling expenses. Cost comprises the direct
cost of goods, transportation and handling costs. Cost of
sales comprises only cost of inventories sold through retail
stores and inventory write-downs made during the period.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets are capitalized
as part of the cost of that asset, other borrowing costs are
recognised in profit or loss in the period in which they are
incurred. A qualifying asset is an asset that necessarily takes
a substantial period of time to get ready for its intended use
or sale. For the purposes of borrowing costs recognition,
a substantial period of time is considered to be a period
of twelve months or more.
To the extent that the Group borrows funds generally and
uses them for the purpose of obtaining a qualifying asset,
the Group determines the amount of borrowing costs eligible
for capitalisation by applying a capitalisation rate to the
expenditures on that asset. The capitalisation rate is the
weighted average of the borrowing costs applicable to the
borrowings of the Group that are outstanding during the
period, other than borrowings made specifically for the
purpose of obtaining a qualifying asset.
Revenue recognition
The sole source of revenue is retail sales. Revenue from the
sale of goods is recognised at the point of sale.
The Group generates and recognizes sales to retail
customers in its stores at the point of sale. Retail sales are
in cash and through bank cards. Revenues are measured
at the fair value of the consideration received or receivable,
recognised net of value added tax and are reduced for
estimated customer returns. Historical information in relation
to the timing and frequency of customer returns is used to
estimate and provide for such returns at the time of sale.
Income generated from rental of spaces for small trading
outlets within the Group’s stores is recognised in the end
of each month on a straight-line basis over the period
of the lease, in accordance with the terms of the relevant
lease agreements.
Interest income is recognised on a time-proportion basis
using the effective interest rate method. Interest income
is included into the Interest income line in the statement
of comprehensive income.
Suppliers’ allowances
The Group receives various types of allowances from
vendors in the form of volume discounts and other forms of
payments that effectively reduce the cost of goods purchased
from the vendor. These allowances received from suppliers
are recorded as a reduction in the price paid for the products
and reduce cost of goods sold in the period the products are
sold. Where a rebate agreement with a supplier covers more
than one year, the rebates are recognised in the period in
which they are earned.
Employee benefits
The Group is subject to mandatory contributions to the
Russian Federation defined contribution state pension benefit
fund. Wages, salaries, contributions to the state pension
and social insurance funds, paid annual leave and sick leave,
bonuses, and non-monetary benefits are accrued in the
year in which the associated services are rendered by the
employees of the Group.
Share-based payments
Certain employees (including senior executives) of the Group
receive remuneration in the form of share-based payments,
whereby employees render services as consideration for
equity instruments (equity-settled transactions).
The cost of equity-settled transactions is determined
by the fair value at the date when the grant is made using
an appropriate valuation model.
That cost is recognised, together with a corresponding
increase in share options reserve in equity, over the period
in which the performance and/or service conditions are fulfilled
in employee benefits expense (Note 27). The cumulative
expense recognised for equity-settled transactions at each
reporting date until the vesting date reflects the extent to which
the vesting period has expired and the Group’s best estimate
of the number of equity instruments that will ultimately vest.
The statement of profit or loss expense or credit for a period
represents the movement in cumulative expense recognised
as at the beginning and end of that period and is recognised
in employee benefits expense (Note 27).
No expense is recognised for awards that do not ultimately
vest, except for equity-settled transactions for which vesting
is conditional upon a market or non-vesting condition. These
are treated as vested irrespective of whether or not the market
or non-vesting condition is satisfied, provided that all other
performance and/or service conditions are satisfied.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 104
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
2. Basis of preparation and significant accounting
policies (continued)
2.3 Summary of significant accounting policies
(continued)
When the terms of an equity-settled award are modified, the
minimum expense recognised is the expense had the terms
had not been modified, if the original terms of the award are
met. An additional expense is recognised for any modification
that increases the total fair value of the share-based payment
transaction, or is otherwise beneficial to the employee as
measured at the date of modification.
Pre-opening costs
Operating expenses incurred during the process of opening
of new stores were recorded in the Group’s consolidated
statement of profit or loss and other comprehensive income.
These expenses do not meet capitalisation criteria under IAS
16 Property, Plant and Equipment and include rent, utilities
and other operating expenses.
Segment reporting
The Group’s business operations are located in the Russian
Federation and relate primarily to retail sales of consumer
goods. Although the Group operates through different stores
and in various regions within the Russian Federation, the
Group’s chief operating decision maker reviews the Group’s
operations and allocates resources on an individual store-by-
store basis. The Group has assessed the economic
characteristics of the individual stores and determined that
the stores have similar margins, similar products, similar
types of customers and similar methods of distributing such
products. Therefore, the Group considers that it only has one
reportable segment under IFRS 8. Segment performance is
evaluated based on a measure of revenue and earnings
before interest, tax, depreciation and amortisation (EBITDA).
EBITDA is non-IFRS measure. Other information is
measured in a manner consistent with that in the
consolidated financial statements.
Seasonality
The Group’s business operations are stable during the year
with limited seasonal impact, except for a significant increase
of business activities in December.
Financial assets
General description
Financial assets are classified into the following specified
categories: at fair value through profit or loss (“FVTPL”);
held-to-maturity investments, “available-for-sale” (“AFS”)
financial assets and “loans and receivables”. The
classification depends on the nature and purpose of the
financial assets and is determined at the time of initial
recognition.
All financial assets are recognised initially at fair value plus,
in the case of financial assets not at fair value through profit
or loss, directly attributable transaction costs.
Loans and receivables
Trade receivables, loans, and other receivables that have
fixed or determinable payments that are not quoted in an
active market are classified as loans and receivables. Loans
and receivables are measured at amortised cost using the
effective interest rate method.
Cash and cash equivalents
Cash and short-term deposits in the statement of financial
position comprise cash at banks and on hand and short-term
deposits with a maturity of three months or less.
Impairment of financial assets
Financial assets are assessed for indicators of impairment
at each reporting date. Financial assets are impaired where
there is objective evidence that, as a result of one or more
events that occurred after the initial recognition of the
financial asset, the estimated future cash flows of the
financial asset have been impacted. For financial assets
carried at amortised cost, the amount of the impairment
is the difference between the asset’s carrying amount and
the present value of estimated future cash flows, discounted
at the original effective interest rate.
The carrying amount of the financial asset is reduced by
the impairment loss directly for all financial assets with the
exception of trade receivables where the carrying amount
is reduced through the use of an allowance account. When
a trade receivable is uncollectible, it is written off against
the allowance account. Subsequent recoveries of amounts
previously written off are credited against the allowance
account. Changes in the carrying amount of the allowance
account are recognised in profit or loss.
With the exception of AFS equity instruments, if, in a
subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised,
the previously recognised impairment loss is reversed
through profit or loss to the extent that the carrying amount
of the investment at the date the impairment is reversed
does not exceed what the amortised cost would have been
had the impairment not been recognised.
Derecognition of financial assets
A financial asset is derecognised when:
• the rights to receive cash flows from the asset have
expired;
• the Group has transferred its rights to receive cash flows
from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third
party under a “pass-through” arrangement; and either
(a) the Group has transferred substantially all the risks
and rewards of the asset, or (b) the Group has neither
transferred nor retained substantially all the risks
and rewards of the asset but has transferred control
of the asset.
Lenta Annual Report and Accounts 2015 105
2. Basis of preparation and significant accounting
policies (continued)
2.3 Summary of significant accounting policies
(continued)
When the Group has transferred its rights to receive cash
flows from an asset or has entered into a pass-through
arrangement, and has neither transferred nor retained
substantially all of the risks and rewards of the asset nor
transferred control of the asset, the asset is recognised to
the extent of the Group’s continuing involvement in the asset.
In that case, the Group also recognises an associated
liability. The transferred asset and the associated liability
are measured on a basis that reflects the rights and
obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over
the transferred asset is measured at the lower of the original
carrying amount of the asset and the maximum amount
of consideration that the Group could be required to repay.
Financial liabilities and equity instruments issued
by the Group
Treasury shares
Own equity instruments that are reacquired (treasury shares)
are recognised at cost and deducted from equity. No gain
or loss is recognised in the statement of profit or loss and
other comprehensive income on the purchase, sale, issue
or cancellation of the Group’s own equity instruments. Any
difference between the carrying amount and the consideration,
if reissued, is recognised in additional paid-in capital. Voting
rights related to treasury shares are nullified for the Group
and no dividends are allocated to them. Share options
exercised during the reporting period are satisfied with
treasury shares.
Share capital
Ordinary shares are classified as equity. Transaction costs
of a share issue are shown within equity as a deduction from
the equity.
Additional paid-in capital
Additional paid-in capital represents the difference between
the fair value of consideration received and the nominal value
of the issued shares.
Earnings per share
Basic earnings per share amounts are calculated by dividing
the net profit for the year attributable to ordinary equity
holders of the parent by the weighted average number
of ordinary shares outstanding during the year.
Diluted earnings per share amounts are calculated by
dividing the net profit attributable to ordinary equity holders
of the parent (after adjusting for interest on the convertible
preference shares) by the weighted average number of
ordinary shares outstanding during the year plus the
weighted average number of ordinary shares that would
be issued on conversion of all the dilutive potential ordinary
shares into ordinary shares.
Classification as debt or equity
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance
of the contractual arrangement. An equity instrument is any
contract that evidences a residual interest in the assets of an
entity after deducting all of its liabilities. Equity instruments are
recorded at the proceeds received, net of transaction costs.
Financial liabilities
Financial liabilities of the Group, including borrowings and
trade and other payables, are initially recognised at fair value,
net of transaction costs, and subsequently measured at
amortised cost using the effective interest rate method.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group’s obligations are discharged, cancelled or
they expire.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net
amount is reported in the consolidated statement of financial
position if there is a currently enforceable legal right to offset
the recognised amounts and there is an intention to settle
on a net basis, to realise the assets and settle the liabilities
simultaneously.
Derivative financial instruments and hedge accounting
Initial recognition and subsequent measurement
The Group uses derivative financial instruments, such as
interest rate swaps and caps, to hedge its interest rate risks.
Such derivative financial instruments are initially recognised
at fair value on the date on which a derivative contract is
entered into and are subsequently re-measured at fair value.
Derivatives are carried as financial assets when the fair
value is positive and as financial liabilities when the fair value
is negative.
Any gains or losses arising from changes in the fair value of
derivatives are taken directly to profit or loss, except for the
effective portion of cash flow hedges, which is recognised
in OCI and later reclassified to profit or loss when the hedge
item affects profit or loss.
At the inception of a hedge relationship, the Group formally
designates and documents the hedge relationship to which
the Group wishes to apply hedge accounting and the risk
management objective and strategy for undertaking the
hedge. The documentation includes identification of the
hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how the entity will assess
the effectiveness of changes in the hedging instrument’s fair
value in offsetting the exposure to changes in the hedged
item’s fair value or cash flows attributable to the hedged risk.
Such hedges are expected to be highly effective in achieving
offsetting changes in fair value or cash flows and are
assessed on an ongoing basis to determine that they actually
have been highly effective throughout the financial reporting
periods for which they were designated.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 106
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
2. Basis of preparation and significant accounting
policies (continued)
2.3 Summary of significant accounting policies
(continued)
Swaps and caps used by the Group that meet the strict
criteria for hedge accounting are accounted for as cash flow
hedges. The effective portion of the gain or loss on the
hedging instrument is recognized in other comprehensive
income in the cash flow hedge reserve, while any ineffective
portion is recognized immediately in profit or loss as other
operating expenses.
Designation of a hedge relationship takes effect prospectively
from the date all of the criteria are met. In particular, hedge
accounting can be applied only from the date all of the
necessary documentation is completed. Therefore, hedge
relationships cannot be designated retrospectively.
Amounts recognised as OCI are transferred to profit or loss
when the hedged transaction affects profit or loss, such as
when the hedged financial income or financial expense is
recognised or when a forecast sale occurs.
When the hedged item is the cost of a non-financial asset
or non-financial liability, the amounts recognised as OCI are
transferred to the initial carrying amount of the non-financial
asset or liability.
If the hedging instrument expires or is sold, terminated or
exercised without replacement or rollover (as part of the
hedging strategy), or if its designation as a hedge is revoked,
or when the hedge no longer meets the criteria for hedge
accounting, any cumulative gain or loss previously
recognised in OCI remains separately in equity until the
forecast transaction occurs or the foreign currency firm
commitment is met.
Current versus non-current classification
Derivative instruments are classified as current or non-
current or separated into current and non current portions
based on an assessment of the facts and circumstances
(i.e., the underlying contracted cash flows):
• when the Group expects to hold a derivative as an
economic hedge for a period beyond 12 months after the
reporting date, the derivative is classified as non-current
(or separated into current and non-current portions)
consistent with the classification of the underlying item.
2.4 Reclassifications in the consolidated statement
of profit or loss and other comprehensive income
The Group reassessed the presentation of labor cost of
temporary employees engaged in own production process
in butchery, bakery and culinary. These expenses had
previously been recognized within selling general and
administrative expenses in the consolidated statement
of profit or loss and other comprehensive income.
On 1 January 2015 the Group elected to present labor cost
of temporary employees engaged in own production within
cost of goods sold in the consolidated statement of profit or
loss and other comprehensive income.
Management believes that the change would result in the
financial statements providing more relevant and reliable
information about the effects of Group’s operations on the
entity’s financial performance.
The Group applied change in presentation retrospectively,
by adjusting comparative amounts disclosed for the prior
period presented.
Impact on consolidated statement of profit or loss and other
comprehensive income
Amount
previously
reported
Adjustments
Amount after
reclassification
Year ended
31 December 2014
Cost of
goods sold
Selling general and
administrative
expenses
Gross profit
(150,131,083)
(120,883) (150,251,966)
(28,106,490)
43,857,157
120,883
(27,985,607)
(120,883) 43,736,274
3. Significant accounting judgments,
estimates and assumptions
In the application of the Group’s accounting policies, which
are described in Note 2 above, management is required
to make judgments, estimates and assumptions about the
carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated
assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimate is revised if the revision
affects only that period or in the period of the revision and future
periods if the revision affects both current and future periods.
Judgments that have the most significant effect on the
amounts recognized in these consolidated financial
statements and estimates that can cause a significant
adjustment to the carrying amount of assets and liabilities
within the next financial year include:
Judgments
Operating lease commitments − Group as lessor
The Group has entered into premises leases. The Group
has determined, based on an evaluation of the terms and
conditions of the arrangements, such as the lease term not
constituting a substantial portion of the economic life of the
commercial property, that it retains all the significant risks
and rewards of ownership of these properties and accounts
for the contracts as operating leases.
Lenta Annual Report and Accounts 2015 107
3. Significant accounting judgments,
estimates and assumptions (continued)
Assets versus business acquisition
From time to time in the normal course of business the Group
acquires the companies that are a party to a lease contract,
own the land plot or store in which the Group is interested.
If at the date of acquisition by the Group, the company does
not constitute an integrated set of activities and assets that
is capable of being conducted and managed for the purpose
of providing a return in the form of dividends, lower costs or
other economic benefits directly to investor, the Group treats
such acquisitions as a purchase of assets (a leasehold right,
land plot or store) in the consolidated financial statements.
The exercise of judgment determines whether a particular
transaction is treated as a business combination or as a
purchase of assets.
Estimates and assumptions
The key assumptions concerning the future and other key
sources of estimation uncertainty at the reporting date, that
have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next
financial year, are described below. The Group based its
assumptions and estimates on parameters available when
the consolidated financial statements were prepared. Existing
circumstances and assumptions about future developments,
however, may change due to market changes or circumstances
arising beyond the control of the Group. Such changes are
reflected in the assumptions when they occur.
Leases renewal assumption
It is presumed that the initial land leases contracted for 3 years
will be renewed for 49 years at completion of construction
of department stores. Thus, any long-term prepayments at
the inception of the leases are presumed to have a 49-year
useful life. Should the Group fail to renew the land lease
contracts for a 49-year period, leasehold rights would have
to be written off at the end of the initial lease term.
Inventory valuation
Management reviews the inventory balances to determine
if inventories can be sold at amounts greater than or equal
to their carrying amounts plus costs to sell. This review also
includes the identification of slow moving inventories which
are written down based on inventories ageing and write down
rates. The write down rates are determined by management
following the experience of sales of such items.
Tax legislation
Russian tax, currency and customs legislation is subject to
frequent changes and varying interpretations. Management’s
interpretation of such legislation in applying it to business
transactions of the Group may be challenged by the relevant
regional and federal authorities enabled by law to impose
fines and penalties. Recent events in the Russian Federation
suggest that the tax authorities are taking a more assertive
position in their interpretation of the legislation and
assessments and as a result, it is possible that the
transactions that have not been challenged in the past may
be challenged. Fiscal periods remain open to review by
the tax authorities in respect of taxes for the three calendar
years preceding the year of tax review. Under certain
circumstances reviews may cover longer periods. While the
Group believes it has provided adequately for all tax liabilities
based on its understanding of the tax legislation, the above
facts may create additional financial risks for the Group.
Fair value measurement of financial instruments
When the fair value of financial assets and financial liabilities
recorded in the statement of financial position cannot be
derived from active markets, their fair value is determined
using valuation techniques including the discounted cash
flow model. The inputs to these models are taken from
observable markets where possible, but where this is not
feasible, a degree of judgment is required in establishing
fair values. The judgments include considerations of inputs
such as liquidity risk, credit risk and volatility. Changes in
assumptions about these factors could affect the reported
fair value of financial instruments. See Note 29 for further
discussion.
Impairment of non-financial assets
The Group reviews the carrying amounts of its assets to
determine whether there is any indication that those assets
are impaired. An impairment exists when the carrying value
of an asset or cash generating unit exceeds its recoverable
amount, which is the higher of its fair value less costs to sell
and its value in use.
The fair value less costs to sell calculation is based on
available data from binding sales transactions, conducted at
arm’s length, for similar assets or observable market prices
less incremental costs for disposing of the asset.
Due to their subjective nature, these estimates will likely
differ from future actual results of operations and cash flows,
and it is possible that these differences could be material.
The value in use calculation is based on a discounted cash
flow model. In determining the value in use calculation,
future cash flows are estimated from each store based on
cash flows projection utilising the latest budget information
available. The discounted cash flow model requires
numerous estimates and assumptions regarding the future
rates of market growth, market demand for the products
and the future profitability of products.
Share-based payments
The Group measures the cost of equity-settled transactions
by reference to the fair value of the equity instruments at the
date at which they are granted. Estimating fair value for
share-based payment transactions requires determination
of the most appropriate valuation model, which is dependent
on the terms and conditions of the grant. This estimate also
requires determination of the most appropriate inputs to the
valuation model including the expected life of the share
option, volatility and dividend yield and making assumptions
about them. The assumptions and models used for estimating
fair value for share-based payment transactions are
disclosed in Note 27.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 108
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
4. Adoption of new or revised standards
and interpretations
IFRS 8 Operating Segments
The amendments are applied retrospectively and clarify that:
The accounting policies adopted in the preparation of the
consolidated financial statements are consistent with those
followed in the preparation of the Group’s annual consolidated
financial statements for the year ended 31 December 2014,
except for the adoption of new or revised standards and
interpretations effective as of 1 January 2015.
The nature and the impact of each new standard and
amendment is described below:
Amendments to IAS 19 Defined Benefit Plans:
Employee Contributions
IAS 19 requires an entity to consider contributions from
employees or third parties when accounting for defined
benefit plans. Where the contributions are linked to service,
they should be attributed to periods of service as a negative
benefit. These amendments clarify that, if the amount of the
contributions is independent of the number of years of
service, an entity is permitted to recognise such contributions
as a reduction in the service cost in the period in which the
service is rendered, instead of allocating the contributions to
the periods of service. This amendment is effective for annual
periods beginning on or after 1 July 2014. This amendment is
not relevant to the Group, since none of the entities within the
Group has defined benefit plans with contributions from
employees or third parties.
Annual improvements 2010-2012 cycle
With the exception of the improvement relating to IFRS 2
Share-based Payment applied to share-based payment
transactions with a grant date on or after 1 July 2014, all
other improvements are effective for accounting periods
beginning on or after 1 July 2014. The Group has applied
these improvements for the first time in these consolidated
financial statements. They include:
IFRS 2 Share-based Payment
This improvement is applied prospectively and clarifies
various issues relating to the definitions of performance and
service conditions which are vesting conditions. The
clarifications are consistent with how the Group has identified
any performance and service conditions which are vesting
conditions in previous periods, and thus these amendments
do not impact the Group’s accounting policies.
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies that all
contingent consideration arrangements classified as liabilities
(or assets) arising from a business combination should be
subsequently measured at fair value through profit or loss
whether or not they fall within the scope of IAS 39. There
are no business combinations in 2015 and therefore this
amendment had no impact on these consolidated financial
statements.
• An entity must disclose the judgements made by
management in applying the aggregation criteria in
paragraph 12 of IFRS 8, including a brief description of
operating segments that have been aggregated and the
economic characteristics (e.g., sales and gross margins)
used to assess whether the segments are similar.
• The reconciliation of segment assets to total assets is only
required to be disclosed if the reconciliation is reported to
the chief operating decision maker, similar to the required
disclosure for segment liabilities.
This is consistent with how the Group has disclosed
the judgments made in applying the aggregation criteria,
and thus this amendment does not impact the Group’s
accounting policy.
IAS 16 Property, Plant and Equipment
and IAS 38 Intangible Assets
The amendment is applied retrospectively and clarifies
in IAS 16 and IAS 38 that the asset may be revalued by
reference to observable data by either adjusting the
gross carrying amount of the asset to market value or by
determining the market value of the carrying value and
adjusting the gross carrying amount proportionately so
that the resulting carrying amount equals the market value.
In addition, the accumulated depreciation or amortisation
is the difference between the gross and carrying amounts
of the asset. This amendment to IAS 16 has no impact on
the Group, as the revaluation model is not implemented.
IAS 24 Related Party Disclosures
The amendment is applied retrospectively and clarifies
that a management entity (an entity that provides key
management personnel services) is a related party subject to
the related party disclosures. In addition, an entity that uses
a management entity is required to disclose the expenses
incurred for management services. These amendments have
no impact on the Group’s financial statements.
Annual improvements 2011-2013 cycle
These improvements are effective from 1 July 2014 and
the Group has applied these amendments for the first time
in these consolidated financial statements. They include:
IFRS 3 Business Combinations
The amendment is applied prospectively and clarifies for
the scope exceptions within IFRS 3 that joint arrangements,
not just joint ventures, are outside the scope of IFRS 3.
This scope exception applies only to the accounting in
the financial statements of the joint arrangement itself,
the Company is not a joint arrangement, and thus this
amendment is not relevant for the Group.
Lenta Annual Report and Accounts 2015 109
4. Adoption of new or revised standards
and interpretations (continued)
IFRS 13 Fair Value Measurement
The amendment is applied prospectively and clarifies that
the portfolio exception in IFRS 13 can be applied not only
to financial assets and financial liabilities, but also to other
contracts within the scope of IFRS 9 (or IAS 39, as applicable).
The Group does not apply the portfolio exception in IFRS 13.
IAS 40 Investment Property
The description of ancillary services in IAS 40 differentiates
between investment property and owner-occupied property
(i.e., property, plant and equipment). The amendment is
applied prospectively and clarifies that IFRS 3, and not the
description of ancillary services in IAS 40, is used to
determine if the transaction is the purchase of an asset
or a business combination. In previous periods, the Group
has relied on IFRS 3, not IAS 40, in determining whether
an acquisition is of an asset or is a business acquisition.
Thus, this amendment does not impact the accounting
policy of the Group.
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but
is not yet effective.
5. Standards issued but not yet effective
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group’s financial
statements are disclosed below. The Group intends to adopt
these standards, if applicable, when they become effective.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments which reflects all phases of the financial
instruments project and replaces IAS 39 Financial Instruments:
Recognition and Measurement and all previous versions of
IFRS 9. The standard introduces new requirements for
classification and measurement, impairment, and hedge
accounting. IFRS 9 is effective for annual periods beginning
on or after 1 January 2018, with early application permitted.
Retrospective application is required, but comparative
information is not compulsory. For hedge accounting, the
requirements are generally applied prospectively, with some
limited exceptions. The Group plans to adopt the new standard
on the required effective date. During 2015, the Group has
performed a high-level impact assessment of all three aspects
of IFRS 9. This preliminary assessment is based on currently
available information and may be subject to changes arising
from further detailed analyses or additional reasonable and
supportable information being made available to the Group
in the future.
The Group does not expect a significant impact on its
balance sheet or equity on applying the classification and
measurement requirements of IFRS 9.
IFRS 9 requires the Group to record expected credit losses
on all of its debt securities, loans and trade receivables,
either on a 12-month or lifetime basis. The Group will need
to perform a more detailed analysis which considers all
reasonable and supportable information, including forward-
looking elements to determine the extent of the impact.
The Group believes that all existing hedge relationships that
are currently designated in effective hedging relationships
will still qualify for hedge accounting under IFRS 9. As IFRS 9
does not change the general principles of how an entity
accounts for effective hedges, the Group does not expect
a significant impact as a result of applying IFRS 9.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new
five-step model that will apply to revenue arising from
contracts with customers. Under IFRS 15 revenue is
recognised at an amount that reflects the consideration
to which an entity expects to be entitled in exchange for
transferring goods or services to a customer.
The new revenue standard will supersede all current
revenue recognition requirements under IFRS. Either a full
retrospective application or a modified retrospective
application is required for annual periods beginning on or
after 1 January 2018. Early adoption is permitted. The Group
is currently assessing the impact of IFRS 15 and plans to
adopt the new standard on the required effective date.
Amendments to IFRS 11 Joint Arrangements:
Accounting for Acquisitions of Interests
The amendments to IFRS 11 require that a joint operator
accounting for the acquisition of an interest in a joint
operation, in which the activity of the joint operation
constitutes a business must apply the relevant IFRS 3
principles for business combinations accounting. The
amendments also clarify that a previously held interest
in a joint operation is not remeasured on the acquisition of
an additional interest in the same joint operation while joint
control is retained. In addition, a scope exclusion has been
added to IFRS 11 to specify that the amendments do not
apply when the parties sharing joint control, including the
reporting entity, are under common control of the same
ultimate controlling party.
The amendments apply to both the acquisition of the initial
interest in a joint operation and the acquisition of any additional
interests in the same joint operation and are prospectively
effective for annual periods beginning on or after 1 January
2016, with early adoption permitted. These amendments are
not expected to have any impact to the Group.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 110
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
5. Standards issued but not yet effective (continued)
Amendments to IAS 16 and IAS 38 Clarification of
Acceptable Methods of Depreciation and Amortisation
The amendments clarify the principle in IAS 16 and IAS 38
that revenue reflects a pattern of economic benefits that are
generated from operating a business (of which the asset is
part) rather than the economic benefits that are consumed
through use of the asset. As a result, a revenue-based
method cannot be used to depreciate property, plant and
equipment and may only be used in very limited
circumstances to amortise intangible assets. The
amendments are effective prospectively for annual periods
beginning on or after 1 January 2016, with early adoption
permitted. These amendments are not expected to have any
impact to the Group given that the Group has not used a
revenue-based method to depreciate its non-current assets.
Annual improvements 2012-2014 cycle
These improvements are effective for annual periods
beginning on or after 1 January 2016. They include:
IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations
Assets (or disposal groups) are generally disposed of either
through sale or distribution to owners. The amendment
clarifies that changing from one of these disposal methods
to the other would not be considered a new plan of disposal,
rather it is a continuation of the original plan. There is,
therefore, no interruption of the application of the requirements
in IFRS 5. This amendment must be applied prospectively.
IFRS 7 Financial Instruments: Disclosures
(i) Servicing contracts
The amendment clarifies that a servicing contract that
includes a fee can constitute continuing involvement in
a financial asset. An entity must assess the nature of the
fee and the arrangement against the guidance for continuing
involvement in IFRS 7 in order to assess whether the
disclosures are required. The assessment of which servicing
contracts constitute continuing involvement must be done
retrospectively. However, the required disclosures would
not need to be provided for any period beginning before
the annual period in which the entity first applies the
amendments.
(ii) Applicability of the amendments to IFRS 7
to condensed interim financial statements
The amendment clarifies that the offsetting disclosure
requirements do not apply to condensed interim financial
statements, unless such disclosures provide a significant
update to the information reported in the most recent annual
report. This amendment must be applied retrospectively.
IAS 19 Employee Benefits
The amendment clarifies that market depth of high quality
corporate bonds is assessed based on the currency in which
the obligation is denominated, rather than the country where
the obligation is located. When there is no deep market for
high quality corporate bonds in that currency, government
bond rates must be used. This amendment must be applied
prospectively.
IAS 34 Interim Financial Reporting
The amendment clarifies that the required interim disclosures
must either be in the interim financial statements or
incorporated by cross-reference between the interim financial
statements and wherever they are included within the interim
financial report (e.g., in the management commentary or risk
report). The other information within the interim financial
report must be available to users on the same terms as
the interim financial statements and at the same time. This
amendment must be applied retrospectively.
These amendments are not expected to have any impact
on the Group.
Amendments to IAS 1 Disclosure Initiative
The amendments to IAS 1 Presentation of Financial
Statements clarify, rather than significantly change,
existing IAS 1 requirements. The amendments clarify:
• the materiality requirements in IAS 1;
• that specific line items in the statement of profit or loss
and OCI and the statement of financial position may be
disaggregated;
• that entities have flexibility as to the order in which they
present the notes to financial statements;
• that the share of OCI of associates and joint ventures
accounted for using the equity method must be presented
in aggregate as a single line item, and classified between
those items that will or will not be subsequently reclassified
to profit or loss.
Furthermore, the amendments clarify the requirements
that apply when additional subtotals are presented in the
statement of financial position and the statement of profit
or loss and OCI. These amendments are effective for annual
periods beginning on or after 1 January 2016, with early
adoption permitted. These amendments are not expected
to have any impact on the Group.
Amendments to IFRS 10, IFRS 12 and IAS 28 Investment
Entities: Applying the Consolidation Exception
The amendments address issues that have arisen in applying
the investment entities exception under IFRS 10. The
amendments to IFRS 10 clarify that the exemption from
presenting consolidated financial statements applies
to a parent entity that is a subsidiary of an investment entity,
when the investment entity measures all of its subsidiaries
at fair value.
Furthermore, the amendments to IFRS 10 clarify that only
a subsidiary of an investment entity that is not an investment
entity itself and that provides support services to the
investment entity is consolidated. All other subsidiaries
of an investment entity are measured at fair value. The
amendments to IAS 28 allow the investor, when applying
the equity method, to retain the fair value measurement
applied by the investment entity associate or joint venture
to its interests in subsidiaries.
Lenta Annual Report and Accounts 2015 111
5. Standards issued but not yet effective (continued)
These amendments must be applied retrospectively and are
effective for annual periods beginning on or after 1 January
2016, with early adoption permitted. These amendments are
not expected to have any impact on the Group.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and sets out the
principles that both parties to a contract, i.e. the customer
(“lessee”) and the supplier (“lessor”), apply to provide
relevant information about leases in a manner that faithfully
represents those transactions. Under IFRS 16 a lessee
is required to recognise assets and liabilities arising from
a lease. The new standard is applicable to all lease and
sublease contracts except for leases of certain types of
intangibles and some other specific assets and will
supersede all current requirements for lease recognition
and disclosure under IFRS. IFRS 16 is effective for annual
periods beginning on or after 1 January 2019. Earlier
application is permitted for entities that apply IFRS 15 at
or before the date of initial application of IFRS 16. The Group
is currently assessing the impact of IFRS 16 and plans to
adopt the new standard on the required effective date.
Amendments to IAS 12 Income Taxes: Recognition of
Deferred Tax Assets for Unrealized Losses
The amendments to IAS 12 clarify the accounting for
deferred tax assets for unrealised losses on debt instruments
measured at fair value. The clarifications refer to accounting
for deferred tax assets when an entity:
Amendments to IAS 7 Statement of Cash Flows
Amendments to IAS 7 Statement of Cash Flows were issued
on 29 January 2016 as a response to requests from investors
for information that helps them better understand changes in
a company’s debt. The amendments require companies to
provide information of changes in their financing liabilities will
help investors to evaluate changes in liabilities arising from
financing activities, including changes from cash flows and
non-cash changes (such as foreign exchange gains or
losses). The IAS 7 amendments become mandatory for
annual periods beginning on or after 1 January 2017 with
early application permitted. These amendments will result
in additional disclosures made by the Group.
6. Operating segments
The Group’s principal business activity is the development
and operation of food retail stores located in Russia. Risks
and returns are affected primarily by economic development
in Russia and by the development of Russian food retail
industry.
The Group has no significant assets outside the Russian
Federation (excluding investments in its foreign wholly owned
subsidiaries Lakatomo Holdings Ltd and Lenta Luxemburg
S.a.r.l., which are eliminated on consolidation). Due to the
similar economic characteristics of food retail stores, the
Group’s management has aggregated its operating segments
represented by stores into one reportable operating segment.
Within the segment all business components are similar in
respect of:
• has deductible temporary differences relating to unrealised
losses on debt instruments that are classified as available-
for-sale financials assets and measured at fair value;
• the products;
• the customers;
• is not allowed to deduct unrealised losses for tax purposes;
• centralized Group structure (commercial, operational,
logistic, finance, HR and IT functions are centralized).
• has the ability and intention to hold the debt instruments
until the unrealised loss reverses; and
• has insufficient taxable temporary differences and no other
probable taxable profits against which the entity can utilise
those deductible temporary differences.
The Group’s operations are regularly reviewed by the chief
operating decision maker, represented by the CEO, to
analyze performance and allocate resources within the
Group. The CEO assesses the performance of operating
segments based on the dynamics of revenue and earnings
before interest, tax, depreciation, amortization (EBITDA).
These amendments must be applied retrospectively and are
effective for annual periods beginning on or after 1 January
2017, with early adoption permitted. These amendments are
not expected to have any impact on the Group.
The accounting policies used for the operating segment are
the same as accounting policies applied for the consolidated
financial statements.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 112
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
6. Operating segments (continued)
The segment information for the year ended 31 December 2015 and 2014 is as follows:
Sales
EBITDA
Reconciliation of EBITDA to IFRS profit for the year is as follows:
EBITDA
Interest expense
Interest income
Income tax expense (see Note 21)
Depreciation/amortization (see Note 8, 10, 11, 25)
Ineffective portion of the change in fair value of cash flow hedging instruments (see Note 30)
Other expenses
Foreign exchange (loss)/gain
Profit for the year
Year ended
31 December 2015
252,763,075
28,018,435
Year ended
31 December 2014
193,988,240
21,318,157
Year ended
31 December 2015
28,018,435
(10,044,858)
767,905
(2,584,010)
(5,686,264)
6,308
−
(189,423)
10,288,093
Year ended
31 December 2014
21,318,157
(6,910,890)
99,821
(1,852,541)
(3,658,953)
(19,488)
(41,165)
140,166
9,075,107
7. Balances and transactions with related parties
The transactions with related parties are made on terms equivalent to those that prevail in arm’s length transactions.
The consolidated financial statements include the following balances with related parties:
Entities with significant influence over the Group:
EBRD
Long-term loans payable
Accrued liabilities
Interest accrued
TPG Capital
Accrued liabilities
31 December 2015 31 December 2014
4,520,527
6,559
1,691
4,519,663
5,063
3,325
13,848
4,644
Lenta Annual Report and Accounts 2015
7. Balances and transactions with related parties (continued)
The following transactions were carried out with related parties:
Entities with significant influence over the Group:
EBRD
Proceeds from borrowings
Interest expense
Directors fee
Business trip expenses
TPG Capital
Directors fee
Business trip expenses
Consulting services
Monitoring fee
VTB Capital*
Proceeds from borrowings
Repayment of borrowings
Interest expense and commission on loans
Finance leasing charge
Interest income on deposits
113
Year ended
31 December 2015
Year ended
31 December 2014
−
833,200
25,483
323
23,642
19,919
2,807
−
4,554,240
28,467
10,301
5,643
14,772
8,867
19,430
42,723
−
−
−
−
−
5,000,000
3,150,000
618,719
1,225
(3,511)
* Management of the Group concluded that starting from March 2014 year VTB Capital is not a related party due to lack of influence on operational activity
of the Group following the reduction of its share in equity capital as the result of sale of shares during IPO.
Remuneration to the members of the Board of Directors and key management personnel was as follows:
Short-term benefits
Long-term benefits (share-based payments, Note 27)
Total remuneration
Year ended
31 December 2015
682,421
158,645
841,066
Year ended
31 December 2014
397,442
83,411
480,853
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015
114
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
8. Property, plant and equipment
Cost
Balance at 1 January 2015
Additions
Transfers from construction
in progress
Transfers from
leasehold rights
Disposals
Balance at
Land
Land
improvements
Buildings
Machinery and
equipment
Assets under
construction
Total
9,971,338
–
5,488,814
–
54,610,275
87,269
21,331,730
611
4,542,748
27,642,190
95,944,905
27,730,070
2,035,686
1,650,598
16,510,017
8,370,416
(28,566,717)
−
655,359
(79,609)
−
(22,834)
−
(2,156)
−
(268,746)
−
(53,462)
655,359
(426,807)
31 December 2015
12,582,774
7,116,578
71,205,405
29,434,011
3,564,759
123,903,527
Accumulated depreciation
and impairment
Balance at 1 January 2015
Charge for the year
Disposals
Balance at
31 December 2015
Net book value
Balance at 1 January 2015
Balance at
31 December 2015
Cost
Balance at 1 January 2014
Additions
Transfers from construction
in progress
Transfers from
leasehold rights
Disposals
Balance at 31 December
2014
Accumulated depreciation
and impairment
Balance at 1 January 2014
Charge for the year
Disposals
Balance at
31 December 2014
Net book value
Balance at 1 January 2014
Balance at
31 December 2014
−
−
−
−
848,274
193,659
−
6,621,417
2,028,335
(1,821)
7,257,007
3,138,721
(198,523)
1,041,933
8,647,931
10,197,205
−
−
−
−
14,726,698
5,360,715
(200,344)
19,887,069
9,971,338
4,640,540
47,988,858
14,074,723
4,542,748
81,218,207
12,582,774
6,074,645
62,557,474
19,236,806
3,564,759
104,016,458
Land
Land
improvements
Buildings
Machinery and
equipment
Assets under
construction
Total
4,959,072
674,215
3,802,799
148,758
36,612,066
2,299,843
13,836,780
38,668
3,747,966
29,662,056
62,958,683
32,823,540
3,804,904
1,537,257
15,718,418
7,758,373
(28,818,952)
−
534,591
(1,444)
−
−
−
(20,052)
−
(302,091)
–
(48,322)
534,591
(371,909)
9,971,338
5,488,814
54,610,275
21,331,730
4,542,748
95,944,905
−
−
−
−
715,616
132,658
−
5,300,628
1,329,571
(8,782)
5,555,663
1,958,317
(256,973)
848,274
6,621,417
7,257,007
−
−
−
−
11,571,907
3,420,546
(265,755)
14,726,698
4,959,072
3,087,183
31,311,438
8,281,117
3,747,966
51,386,776
9,971,338
4,640,540
47,988,858
14,074,723
4,542,748
81,218,207
Lenta Annual Report and Accounts 2015
115
8. Property, plant and equipment (continued)
Land and buildings with a carrying amount of RUB 3,956,848 thousand (31 December 2014: RUB 26,015,987 thousand)
are pledged under secured loan agreements (see Note 20).
During the year ended 31 December 2015 and year ended 31 December 2014 the Group was not involved in acquisition
of any assets that would satisfy the definition of qualifying assets for the purposes of borrowing costs capitalization. Thus,
no borrowings costs were capitalized during those periods.
The carrying amount of property, plant and equipment held under finance leases at 31 December 2015 was RUB 37,532
thousand (31 December 2014: RUB 50,091 thousand). Leased assets are pledged as security for the related finance lease.
Additions during the year ended 31 December 2015 include no property, plant and equipment under finance leases.
Depreciation and amortization expense
The amount of depreciation charged during the year ended 31 December 2015 and year ended 31 December 2014 is
presented within depreciation and amortization in the Group’s consolidated statement of profit or loss and other
comprehensive income and statement of cash flows as follows:
Depreciation of property, plant and equipment (Note 8)
Amortization of intangible assets (Note 11)
Leasehold rights amortization (Note 10)
Total depreciation and amortization
See Note 28 for capital commitments.
Year ended
31 December 2015
5,360,715
257,940
67,609
5,686,264
Year ended
31 December 2014
3,420,546
171,154
67,253
3,658,953
9. Prepayments for construction
Prepayments for construction are represented by advances given to the constructors for the building of the stores and
to suppliers.
10. Leasehold rights
Leasehold rights as at 31 December 2015 consisted of the following:
Cost
At 1 January 2015
Additions
Disposals
Transfer to PPE
At 31 December 2015
Accumulated amortization and impairment
At 1 January 2015
Charge for the year
Disposals
Transfer to PPE
At 31 December 2015
Net book value
At 1 January 2015
At 31 December 2015
Leasehold rights
3,486,162
557,827
(63,559)
(724,775)
3,255,655
214,618
67,609
(4,324)
(69,416)
208,487
3,271,544
3,047,168
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 116
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
10. Leasehold rights (continued)
Leasehold rights as at 31 December 2014 consisted of the following:
Cost
At 1 January 2014
Additions
Transfer to PPE
At 31 December 2014
Accumulated amortization and impairment
At 1 January 2014
Charge for the year
Transfer to PPE
At 31 December 2014
Net book value
At 1 January 2014
At 31 December 2014
Amortization expense is included in selling, general and administrative expenses (Note 25).
11. Intangible assets other than leasehold rights
Intangible assets other than leasehold rights as at 31 December 2015 consisted of the following:
Leasehold rights
2,956,519
1,101,724
(572,081)
3,486,162
184,855
67,253
(37,490)
214,618
2,771,664
3,271,544
Cost
At 1 January 2015
Additions
Disposals
At 31 December 2015
Accumulated amortization
At 1 January 2015
Amortization for the period
Disposals
At 31 December 2015
Net book value
At 1 January 2015
At 31 December 2015
Software
Trade marks
Total
1,603,385
486,224
(10,922)
2,078,687
732,870
257,924
(4,436)
986,358
870,515
1,092,329
549
−
−
549
533
16
−
549
16
−
1,603,934
486,224
(10,922)
2,079,236
733,403
257,940
(4,436)
986,907
870,531
1,092,329
Lenta Annual Report and Accounts 2015
117
11. Intangible assets other than leasehold rights (continued)
Intangible assets other than leasehold rights as at 31 December 2014 consisted of the following:
Cost
At 1 January 2014
Additions
Disposals
At 31 December 2014
Accumulated amortization
At 1 January 2014
Amortization for the period
At 31 December 2014
Net book value
At 1 January 2014
At 31 December 2014
Software
Trade marks
Total
1,184,858
419,367
(840)
1,603,385
561,738
171,132
732,870
623,120
870,515
549
−
−
549
511
22
533
38
16
1,185,407
419,367
(840)
1,603,934
562,249
171,154
733,403
623,158
870,531
Amortization expense is included in selling, general and administrative expenses (Note 25).
12. Inventories
Goods for resale
Raw materials
Total inventories
31 December 2015 31 December 2014
18,729,075
900,306
19,629,381
21,809,738
971,994
22,781,732
Raw materials are represented by inventories used in own production process in butchery, bakery and culinary.
During the reporting period the Group accounted for reversal of write down of inventories to their net realizable value, which
resulted in recognition of reversal of expenses within cost of sales in the consolidated statement of profit or loss and other
comprehensive income for the year ended 31 December 2015 in the amount of RUB 38,710 thousand. During the year ended
31 December 2014 the Group wrote down inventories to their net realizable value, which resulted in recognition of expenses
within cost of sales in the amount of RUB 255,357 thousand.
13. Trade and other receivables
Accounts receivable on rental and other services and on suppliers’ advertising
Suppliers’ rebates receivable
Other receivables
Bad debt allowance
Total trade and other receivables
31 December 2015 31 December 2014
7,857,515
3,333,612
190,874
(10,753)
11,371,248
9,727,574
3,643,232
307,105
(31,017)
13,646,894
Receivables are due normally within 25 days according to the terms of standard contracts. Outstanding receivables are
regularly monitored. An impairment analysis is performed at each reporting date on an individual basis for counterparties.
A provision for impairment of receivables is established when there is objective evidence that the Group will not be able
to collect all amounts due according to the original terms of receivables. Usually for receivables over 365 days the allowance
for doubtful debts is 100%, unless there are strong indications from the nature of the agreement underlying the debt that
no allowance is needed as the long term of the receivable is in line with the agreement. Allowances for doubtful debts are
recognized against receivables of under 365 days based on estimated irrecoverable amounts determined by reference
to past default experience of each particular counterparty and an analysis of the counterparty’s current financial position.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015
118
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
13. Trade and other receivables (continued)
Amounts receivable from suppliers and accounts receivable on rental and other services disclosed above include amounts
(see below for ageing analysis) that are past due at the end of the reporting period for which the Group has not recognised
an allowance for doubtful debts because there has not been a significant change in credit quality and the amounts are still
considered recoverable. The Group does not hold any collateral or other credit enhancements over these balances.
Ageing of trade and other receivables that are past due but not impaired as at 31 December 2015:
Suppliers’ volume rebates receivable
Accounts receivable on rental and other
services
Other receivables
Total
0-60 days
overdue
87,469
60-120 days
overdue
8,326
120-365 days
overdue
30,827
Neither past due
nor impaired
3,513,960
1,206,134
80,450
1,374,053
45,621
4,157
58,104
43,801
1,376
76,004
8,406,211
218,562
12,138,733
Ageing of trade and other receivables that are past due but not impaired as at 31 December 2014:
0-60 days
overdue
120,015
60-120 days
overdue
13,431
120-365 days
overdue
11,185
Neither past due
nor impaired
3,186,987
1,092,350
68,035
1,280,400
93,732
1,777
108,940
35,057
88
46,330
6,627,620
120,971
9,935,578
Total
3,640,582
9,701,767
304,545
13,646,894
Total
3,331,618
7,848,759
190,871
11,371,248
31 December 2015 31 December 2014
821,958
1,607,285
321,483
2,750,726
788,124
1,066,570
410,217
2,264,911
Suppliers’ volume rebates receivable
Accounts receivable on rental and other
services
Other receivables
Total
14. Advances paid
Advances to suppliers of goods
Advances for services
Guarantee payments under lease contracts
Total advances paid
15. Taxes recoverable
Taxes recoverable as at 31 December 2015 are represented by a VAT receivable of RUB 417,114 thousand (31 December
2014: RUB 1,847,669 thousand) and input VAT that has not yet been claimed for reimbursement from tax authorities of
RUB 840,650 thousand (31 December 2014: RUB 568,936 thousand).
16. Cash and cash equivalents
Rouble short-term deposits
Rouble denominated cash in transit
Rouble denominated cash on hand and balances with banks
Foreign currency denominated cash on hand and balances with banks
Total cash and cash equivalents
31 December 2015 31 December 2014
8,954,088
1,802,739
1,258,676
20,282
12,035,785
16,612,228
2,258,241
3,556,009
29,467
22,455,945
Cash in transit represents cash receipts made during the last day of the reporting period (31 December), which were sent
to banks but not deposited into the respective bank accounts until the next reporting period.
Significant rouble denominated cash in transit result from the business seasonality, indicating higher levels of retail sales
in holiday periods such as the New Year eve as well as the closing day in relation to the official banking days in Russia.
If the closing day is on non-banking days, the amount of cash in transit increases.
Short-term deposits are made for varying periods of between one day and three months, depending on the immediate
cash requirements of the Group, and earn interest at the respective short-term deposit rates.
Lenta Annual Report and Accounts 2015 119
17. Issued capital and reserves
Issued capital
As at 31 December 2015 the Company’s share capital was comprised of 97,318,746 authorized and issued ordinary shares
(as at 31 December 2014: 86,053,394) with equal voting rights. The shares have no par value.
All outstanding ordinary shares are entitled to an equal share in any dividend declared by the Company. According to the BVI
Business Companies Act No. 16 of 2004, no dividends can be declared and paid unless the Board of Directors determines
that immediately after the payment of the dividend the Group will be able to satisfy its liabilities as they become due in the
ordinary course of its business and the realizable value of the assets of the Group will not be less than the sum of its total
liabilities, other than deferred taxes, as shown in the books of account, and its capital. In accordance with Russian legislation,
Lenta LLC, the Company’s primary operating subsidiary registered under the laws of the Russian Federation, may distribute
profits as dividends or transfer them to reserves (fund accounts) limited to the retained earnings recorded in its financial
statements prepared in accordance with Russian Accounting Rules. No dividends to holders of ordinary shares were declared
for the year ended 31 December 2015 and for the year ended 31 December 2014.
The movements in the number of shares the year ended 31 December 2015 and for the year ended 31 December 2014 were
as follows.
Authorized share capital (ordinary shares with no par value)
Issued and fully paid (no par value)
Balance of shares outstanding at beginning of financial year
Additional issue of shares
Balance of shares outstanding at the end of financial year
31 December 2015
No.
unlimited
31 December 2014
No.
unlimited
97,318,746
86,053,394
31 December 2015
No.
86,053,394
11,265,352
97,318,746
31 December 2014
No.
86,052,995
399
86,053,394
In year 2015 11,265,352 ordinary shares were issued by the Group for a cash consideration of RUB 21,788,593 thousand net
of directly attributable issuance costs. The whole amount of the consideration received was recorded as increase in additional
paid-in capital, as the shares have no par value.
During 2014 year 399 ordinary shares were issued by the Group within the share-based payment scheme.
Share options reserve
The share options reserve is used to recognise the value of equity-settled share-based payments provided to employees,
including key management personnel, as part of their remuneration. Refer to Note 27 for further details of these plans.
Hedging reserve
The hedging reserve is used to recognise the effective portion of the gain or loss on the hedging instrument and later
reclassified to profit or loss when the hedge item affects profit or loss.
18. Components of other comprehensive income (OCI)
Cash flow hedges
Reclassification during the year to profit or loss
Related tax effect
(Loss)/gain arising during the year
Related tax effect
Net (loss)/gain during the year, net of tax
Year ended
31 December 2015
Year ended
31 December 2014
(1,800,556)
360,111
(525,963)
105,193
(1,861,215)
(108,492)
21,698
3,394,512
(678,902)
2,628,816
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 120
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
19. Earnings per share
Earnings per share (in thousands of Russian roubles per share)
– basic and diluted, for profit for the period attributable to equity holders of the parent
0.112
0.105
The calculation of basic earnings per share for reporting periods was based on the profit attributable to shareholders (for the
year ended 31 December 2015: RUB 10,288,093 thousand for the year ended 31 December 2014: RUB 9,075,107 thousand)
and a weighted average number of ordinary shares outstanding during the respective periods, calculated as shown below.
Year ended
31 December 2015
Year ended
31 December 2014
Number of issued shares at the beginning of period
Number of shares issued in October 2015
Number of shares issued in March 2015
Number of shares issued in April 2014
Number of shares at the end of reporting period
Weighted average number of shares
Year ended
31 December 2015
86,053,394
4,225,352
7,040,000
−
97,318,746
92,252,707
Year ended
31 December 2014
86,052,995
−
−
399
86,053,394
86,053,244
The Group has issued share-based payments (Note 27) instruments that could potentially dilute basic earnings per share in
the future. These instruments have no material effect on dilution of earnings per share for the periods presented.
20. Borrowings
Short-term borrowings:
Fixed rate bonds (liability for interests)
Fixed rate long-term bank loans (liability for interests)
Floating rate long-term bank loans (liability for interests)
Short-term portion of fixed rate long-term bank loans
Fixed rate short-term bank loans
Fixed rate bonds
Total short-term borrowings and short-term portion of long-term borrowings
Long-term borrowings:
Fixed rate bonds
Fixed rate long-term bank loans
Floating rate long-term bank loans
Total long-term borrowings
Currency 31 December 2015 31 December 2014
317,351
760,097
30,069
30,138
33,128
14,575
5,798,205
–
6,516,669
–
–
9,968,467
12,695,422
10,773,277
RUB
RUB
RUB
RUB
RUB
RUB
Currency 31 December 2015 31 December 2014
9,962,655
9,973,156
9,915,884
9,951,940
38,641,409
45,224,001
58,519,948
65,149,097
RUB
RUB
RUB
The Groups’ borrowings as at 31 December 2015 and 31 December 2014 are denominated in Russian roubles.
In March 2015 the Group signed revolving credit line of RUB 15,000,000 thousand with VTB Bank OJSC. The credit line
has covenants with respect to the Net debt / EBITDA and EBITDA / Net interest expense ratios.
On 25 June 2015 the Group entered into 7 year loan agreement of RUB 37,300,000 thousand with VTB Bank OJSC. At the
reporting date the Group drew down RUB 30,000,000 thousand, these funds were utilized on early prepayment of loan from
VTB Capital Plc. The loan has covenants with respect to the Net debt / EBITDA and EBITDA / Net interest expense ratios.
On 6 August 2015 the placement of interest-bearing certified non-convertible bearer bonds with mandatory centralized
storage was completed in the amount of RUB 5,000,000 thousand with a nominal value of RUB 1 thousand each, a 12.4%
coupon rate, 3,640 days to maturity and put option right on early redemption after 2.5 years.
On 10 September 2015 the placement of interest-bearing certified non-convertible bearer bonds with mandatory centralized
storage was completed in the amount of RUB 5,000,000 thousand with a nominal value of RUB 1 thousand each, a 12.4%
coupon rate, 3,640 days to maturity and put option right on early redemption after 3 years.
The funds raised from the issue of the bonds are used on business expansion.
Lenta Annual Report and Accounts 2015 121
20. Borrowings (continued)
On 21 September 2015 the Group entered into revolving credit line of RUB 3,500,000 thousand with Bank Saint-Petersburg OJSC.
On 23 October 2015 the Group signed revolving credit line of RUB 5,000,000 thousand with Russian Agricultural Bank.
The credit line has covenants with respect to the Net debt / EBITDA, EBITDA / Net interest expense ratios and net assets.
During the year ended 31 December 2015 the Group received RUB 44,200,000 thousand under credit agreements concluded
before 1 January 2015 and repaid RUB 79,515,000 thousand.
As at 31 December 2015 the Group had RUB 45,300,000 thousand of unused credit facilities (as at 31 December 2014:
RUB 36,260,000 thousand).
As at 31 December 2015 the Group was in compliance with all financial covenants of loan agreements.
21. Income taxes
The Group’s income tax expense for the year ended 31 December 2015 and 31 December 2014 is as follows:
Current tax expense
Deferred tax expense
Adjustments in respect of current income tax of previous year
Income tax expense recognized in profit for the year
Tax effect related to effective portion of change in the fair value of cash flow hedging
instruments
Income tax (benefit)/expense recognized in OCI
Profit before tax
Theoretical tax charge at 20%
Difference in tax rates for foreign companies
Add tax effect of non-deductible expenses
– share option expenses
– others
Adjustments in respect of current income tax of previous years
Income tax expense
Year ended
31 December 2015
632,900
1,944,919
6,191
2,584,010
Year ended
31 December 2014
948,213
1,408,690
(504,362)
1,852,541
Year ended
31 December 2015
Year ended
31 December 2014
(465,304)
(465,304)
657,204
657,204
Year ended
31 December 2015
12,872,103
(2,574,421)
157,125
(160,523)
(36,825)
(123,698)
(6,191)
2,584,010
Year ended
31 December 2014
10,927,648
(2,185,530)
(49,202)
(122,171)
(22,359)
(99,812)
504,362
1,852,541
Differences between IFRS and Russian statutory tax regulations give rise to temporary differences between the carrying
amount of assets and liabilities for financial reporting purposes and their tax bases. The tax effect of the movements in these
temporary differences, recorded at the rate of 20% is detailed below.
In 2014 the Company re-submitted income tax declarations for 2011-2013 years and deducted expenses on stock losses
in full that resulted in recognition of an adjustment in respect of current income tax related to previous years.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 122
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
21. Income taxes (continued)
Tax effect of (taxable)/deductible temporary
differences
Property, plant and equipment
Leasehold rights
Unused vacation and employee bonuses accrual
Suppliers’ bonuses
Borrowings
Intangible assets other than leasehold rights
Inventory
Bad debt allowance
Finance leasing
Consulting and other accruals
Customs duty payable
Cash flow hedging instruments
Other
Total deferred tax (liabilities)/assets
Tax effect of (taxable)/deductible temporary
differences
Property, plant and equipment
Leasehold rights
Unused vacation and employee bonuses accrual
Suppliers’ bonuses
Borrowings
Intangible assets other than leasehold rights
Inventory
Bad debt allowance
Finance leasing
Consulting and other accruals
Customs duty payable
Cash flow hedging instruments
Other
Total deferred tax (liabilities)/assets
Differences in
recognition
and reversals
recognised in
profit or loss
(1,875,521)
21,911
112,389
86,625
(115,291)
(3,383)
(171,014)
34,823
(3,529)
19,151
6,941
(58,007)
(14)
(1,944,919)
Differences in
recognition
and reversals
recognised in
profit or loss
(1,419,688)
(125,880)
30,850
91,739
5,621
(11,236)
69,436
2,701
(3,680)
(52,185)
−
3,897
(265)
(1,408,690)
1 January 2015
(3,241,091)
(450,356)
144,820
(157,358)
(79,040)
(17,386)
586,189
13,236
6,947
46,769
30,677
(634,903)
1,307
(3,750,189)
1 January 2014
(1,821,403)
(324,476)
113,970
(249,097)
(84,661)
(6,150)
516,753
10,535
10,627
98,954
30,677
18,404
1,572
(1,684,295)
Differences in
recognition
and reversals
recognised in other
comprehensive income 31 December 2015
−
−
−
−
−
−
−
−
−
−
−
465,304
−
465,304
(5,116,612)
(428,445)
257,209
(70,733)
(194,331)
(20,769)
415,175
48,059
3,418
65,920
37,618
(227,606)
1,293
(5,229,804)
Differences in
recognition
and reversals
recognised in other
comprehensive income 31 December 2014
−
−
−
−
−
−
−
−
−
−
−
(657,204)
−
(657,204)
(3,241,091)
(450,356)
144,820
(157,358)
(79,040)
(17,386)
586,189
13,236
6,947
46,769
30,677
(634,903)
1,307
(3,750,189)
The temporary taxable differences associated with undistributed earnings of subsidiaries amount to RUB 54,229,761
thousand and RUB 27,207,916 thousand as of 31 December 2015 and 2014, respectively. A deferred tax liability on these
temporary differences was not recognized, because management believed that it was in a position to control the timing
of reversal of such differences and has no intention to reverse them in the foreseeable future.
Lenta Annual Report and Accounts 2015 22. Trade and other payables
Trade payables
Accrued liabilities and other creditors
Payables for purchases of property, plant and equipment
Total trade and other payables
The trade and other payables were denominated in:
Russian roubles
USD
EUR
GBP
Total trade and other payables
23. Other taxes payable
Social taxes
Property tax
Personal income tax
Other taxes
Total other taxes payable
123
31 December 2015 31 December 2014
41,081,087
3,138,048
4,154,254
48,373,389
42,002,004
3,586,669
3,231,534
48,820,207
31 December 2015 31 December 2014
48,171,738
137,556
60,848
3,247
48,373,389
48,601,870
122,582
94,991
764
48,820,207
31 December 2015 31 December 2014
332,956
241,299
120,691
203,232
898,178
490,231
270,774
134,089
31,990
927,084
24. Cost of sales
Cost of sales for the years ended 31 December 2015 and 31 December 2014 consisted of the following:
Cost of goods sold
Cost of own production
Supply chain cost
Losses due to inventory shortages and write down to net realisable value
Total cost of sales
Cost of goods sold is reduced by rebates and promotional bonuses received from suppliers.
The cost of own production consisted of the following:
Raw materials
Labour costs
Utilities
Repairs and maintenance
Total cost of own production
Year ended
31 December 2015
167,408,885
21,710,294
3,185,448
4,153,283
196,457,910
Year ended
31 December 2014
(reclassified)
126,742,396
17,048,666
3,136,580
3,324,324
150,251,966
Year ended
31 December 2015
17,925,511
2,947,684
752,180
84,919
21,710,294
Year ended
31 December 2014
13,880,282
2,533,421
576,911
58,052
17,048,666
Cost of sales for the year ended 31 December 2015 included employee benefits expense of RUB 4,092,406 thousand (year
ended 31 December 2014: RUB 3,465,640 thousand) of which contributions to state pension fund comprised RUB 609,388
thousand (year ended 31 December 2014: RUB 530,316 thousand).
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 124
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
25. Selling, general and administrative expenses
Employee benefits
Depreciation and amortization (Note 8, 10, 11)
Premises lease
Advertising
Utilities and communal payments
Professional fees
Cleaning
Repairs and maintenance
Taxes other than income tax
Security services
Land and equipment lease
Pre-opening costs
Other
Total selling, general and administrative expenses
Year ended
31 December 2015
14,558,823
5,671,219
2,349,035
2,313,536
1,964,640
1,822,108
1,432,304
1,264,894
1,096,846
973,180
323,045
640,596
1,634,545
36,044,771
Year ended
31 December 2014
(reclassified)
11,988,045
3,658,951
1,103,157
1,971,926
1,360,833
2,001,603
1,136,447
896,847
907,981
793,401
306,302
663,063
1,197,051
27,985,607
From 1 January 2015 the Group presents expenses on IT consumables and compensations for operational cost under
premises lease agreements as other expenses within selling, general and administrative expenses. Comparative amounts
disclosed for the year 2014 as repairs and maintenance expenses were respectively adjusted in the amount of RUB 267,387
thousands.
Employee benefits for the year ended 31 December 2015 included contributions to state pension fund of RUB 1,844,088
thousand (year ended 31 December 2014: RUB 1,572,217 thousand).
Pre-opening costs for the year ended 31 December 2015 included employee benefits of RUB 360,904 thousand (year ended
31 December 2015: RUB 415,108 thousand) of which contributions to state pension fund comprised RUB 39,742 thousand
(year ended 31 December 2014: RUB 49,391 thousand).
Pre-opening costs for the year ended 31 December 2015 included depreciation expense of RUB 15,045 thousand (for the
year ended 31 December 2014: RUB 2 thousand).
26. Other operating income and expenses
Penalties due by suppliers
Rental income
Income from IPO
Advertising income
Gain on property, plant and equipment disposal
Sale of secondary materials
Other
Total other operating income
Year ended
31 December 2015
904,528
752,755
−
422,002
62,250
295,743
147,032
2,584,310
Year ended
31 December 2014
789,557
482,455
420,111
387,297
1,801
125,433
60,476
2,267,130
IPO income is represented by the Group’s share of stabilization profit made by the Stabilizing Manager on buying back
shares subject to overallotment option and a one off payment to the Group as an income share in Depositary’s fees charged
to GDR holders.
Lenta Annual Report and Accounts 2015 26. Other operating income and expenses (continued)
Other operating expenses comprised of the following:
Loss from fixed assets and leasehold rights disposal
Change in bad debt allowance
Penalties from government authorities
Penalties for breach of a contracts with suppliers
Other
Total other operating expenses
125
Year ended
31 December 2015
181,567
194,665
65,351
1,311
69,639
512,533
Year ended
31 December 2014
96,345
15,073
7,725
185,437
54,013
358,593
27. Share-based payments
Share value appreciation rights
During the 2014 year the Group granted share value appreciation rights (SVARs) to certain members of top management
as part of management long-term incentive plan. Each SVAR entitles the holder to a quantity of ordinary shares in Lenta Ltd
based on an increase in the share price over a predetermined exercise price subject to meeting the performance conditions.
Movements during the year
The following table illustrates the number and weighted average exercise prices (WAEP) of, and movements in, SVARs during
the year:
Outstanding at 1 January
Granted during the year
Forfeited during the year
Exercised during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
2015 Number
594,211
−
−
−
−
594,211
−
2015 WAEP
49.84 USD
−
−
−
−
1,516 RUB
−
2014 Number
742,765
−
−
(123,975)
(24,579)
594,211
−
2014 WAEP
49.84 USD
−
−
49.84 USD
49.84 USD
49.84 USD
−
During the year 2014 the Group issued 399 shares with respect to SVARs that were exercised during the period and credited
additional paid-in capital with the amount of RUB 20,400 thousand.
With respect to vested 24,579 SVARs that expired during the period ended 31 December 2014 the Group transferred amount
of RUB 3,013 thousand from share options reserve to retained earnings.
In March 2015 modifications to the SVARs were agreed including deferral of exercise date of SVARs that are to be vested
in April 2015 by one year. In consequence of modification weighted average fair value of options granted increased up to
RUB 0.40 thousand.
On 17 July 2015 the Remuneration Committee of Lenta Ltd agreed on certain changes in the management long-term
incentive plan, which is based on Share Value Appreciation Rights. Whereas the plan has been set up using financial
parameters denominated in USD, all financial parameters are now changed into Russian roubles using the exchange rate
on the date of the grant (1 April 2013). As a result, the Exercise price for the remaining outstanding options will be changed
from USD 49.84 to 1,516 Russian roubles per share. The vesting schedule has been revised and fixed, as a result of which
the remaining 80% of the initial grant will now vest in 2 stages: 30% on 1 April 2017 and the remaining 50% on 1 April 2018.
In consequence of modification weighted average fair value of options granted increased up to RUB 0.86 thousand.
The weighted average remaining contractual life for the SVARs outstanding as at 31 December 2015 was 2.3 years
(31 December 2014: 3.3 years).
The exercise price for options outstanding as at 31 December 2015 was RUB 1,516 thousand and as at 31 December 2014
was USD 49.84 (RUB 2.8 thousand).
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 126
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
27. Share-based payments (continued)
The expense recognized for the services received from the employees covered by SVARs plan during the year is shown in
the following table:
Expense arising from the equity-settled SVARs transaction
Year ended
31 December 2015
155,199
Year ended
31 December 2014
78,966
The fair value of the management SVARs is estimated at the grant date using the Black Scholes option pricing model,
taking into account the terms and conditions upon which the SVARs were granted.
Long-term incentive plan
During the year 2014 the Group approved a long-term incentive plan (LTIP) to certain members of middle management
(not including top management), whereunder the Company granted award shares on 1 April 2014 (Tranche 2014) and on
1 October 2015 (Tranche 2015) along with communication of the terms of award to participants.
The monetary amount of the award to be granted to the participants of the plan was calculated based on the annual base
salary on the grant date, target award interest, business results co-efficient and individual performance rating co-efficient.
To determine the number of ordinary shares subject to award the monetary amount of the award was divided by the
Company’s share price calculated based on the following:
• the price of GDR at IPO on LSE (10$) translated to RUB using exchange rate as at the date for offering, i.e. 27 February
2014 (Tranche 2014);
• the average price of GDR on LSE (6.6$) for the 1st quarter 2015 translated to RUB using average exchange rate
(Tranche 2015).
Under terms of Tranche 2014 the shares are to be released in phases:
• 1st 25% on the first anniversary of the award (1 April 2015);
• 2nd 25% on the second anniversary of the award (1 April 2016);
• 50% on the third anniversary of the award (1 April 2017), provided that employment conditions are met.
With respect to the first phase no shares were issued in April 2015, the Group plans to release shares in the first half of 2016.
The vesting date of Tranche 2015 is 1 April 2018.
The fair value of the award shares was estimated based on the GDR price on LSE on the award grant date.
The expense recognized for the services received from the employees covered by long-term incentive plan during the year
is shown in the following table:
Expense arising from the equity-settled long-term incentive plan payments
Year ended
31 December 2015
28,925
Year ended
31 December 2014
32,829
Lenta Annual Report and Accounts 2015 127
28. Commitments
Capital expenditure commitments
At 31 December 2015 the Group had contractual capital expenditure commitments in respect of property, plant and equipment
and intangible assets totaling RUB 19,370,442 thousand (31 December 2014: RUB 12,709,553 thousand).
Operating lease commitments
Where the Group is the lessee, the future minimum lease payments under non-cancellable operating leases were as follows:
Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total operating lease commitments
29. Financial instruments
Categories of financial instruments
Financial assets
Cash
Trade and other receivables
At fair value through OCI
Financial liabilities
At fair value through OCI
At amortised cost
Floating rate long-term borrowings
Fixed rate long-term borrowings
Fixed rate short-term borrowings and short-term portion of long term borrowings
Short term liability for interests
Trade and other payables
Long-term obligations under finance leases
Total financial liabilities at amortised cost
31 December 2015 31 December 2014
2,800,096
10,356,566
27,394,299
40,550,961
3,786,074
14,664,366
33,247,702
51,698,142
31 December 2015 31 December 2014
22,455,945
13,646,894
794,464
12,035,785
11,371,248
2,735,177
124,128
28,357
45,224,001
19,925,096
9,968,467
804,810
47,058,158
18,577
122,999,109
38,641,409
19,878,539
12,314,874
380,548
46,979,088
35,465
118,229,923
Fair values
The following table provides the fair value measurement hierarchy of the Group’s financial assets and liabilities. Quantitative
disclosures of fair value measurement hierarchy for financial assets and financial liabilities as at 31 December 2015:
31 December 2015
Level 1
Level 2
Level 3
Financial assets measured at fair value
Cash flow hedging instruments
Financial liabilities measured at fair value
Cash flow hedging instruments
794,464
124,128
−
−
794,464
124,128
Financial liabilities for which fair values are disclosed
Fixed rate bonds
Floating rate borrowings
Fixed rate borrowings
Obligations under finance leases
19,872,900
46,835,306
9,449,769
18,577
19,872,900
−
−
−
−
46,835,306
9,449,769
18,577
−
−
−
−
−
−
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015
128
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
−
−
−
−
−
−
29. Financial instruments (continued)
Financial assets measured at fair value
Cash flow hedging instruments
Financial liabilities measured at fair value
Cash flow hedging instruments
31 December 2014
Level 1
Level 2
Level 3
2,735,177
28,357
−
−
2,735,177
28,357
Financial liabilities for which fair values are disclosed
Fixed rate bonds
Floating rate borrowings
Fixed rate borrowings
Obligations under finance leases
10,322,951
54,122,762
21,310,270
35,465
10,322,951
−
−
−
−
54,122,762
21,310,270
35,465
During the year ending 31 December 2015, there were no transfers between Level 1, Level 2 and Level 3 fair value
measurements.
Set out below, is a comparison by class of the carrying amounts and fair value of the Group’s financial instruments, other than
those with carrying amounts are reasonable approximations of fair values:
Financial assets
Cash flow hedging instruments
Financial liabilities
Interest-bearing loans and borrowings
Obligations under finance leases
Floating rate borrowings
Fixed rate borrowings
Derivative liabilities
Cash flow hedging instruments
Total financial liabilities
31 December 2015
31 December 2014
Carrying amount
Fair value Carrying amount
Fair value
794,464
794,464
2,735,177
2,735,177
18,577
45,224,001
29,893,563
18,577
46,835,306
29,322,669
35,465
38,641,409
32,193,413
35,465
54,122,762
31,633,221
124,128
75,260,269
124,128
76,300,680
28,357
70,898,644
28,357
85,819,805
The management assessed that the carrying amounts of cash and short-term deposits, trade receivables, trade payables
and other current liabilities approximate their fair values largely due to the short-term maturities of these instruments.
The fair value of the financial assets and liabilities is included at the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used to estimate the fair values:
• Fair values of the Group’s interest-bearing borrowings and loans are determined by using DCF method using discount
rate that reflects the issuer’s borrowing rate as at the end of the reporting period.
• The fair value of bonds is based on the price quotations at the reporting date at Moscow exchange where transactions
with bonds take place with sufficient frequency and volume.
• The Group enters into derivative financial instruments with financial institution with investment grade credit ratings.
Derivatives valued using valuation techniques with market observable inputs are interest rate swaps and caps. The most
frequently applied valuation techniques include swap models, using present value calculations, and option pricing model
for caps. The models incorporate various inputs including the credit quality of counterparties and interest rate curves. As at
31 December 2015 and 31 December 2014, the marked-to-market value of derivative positions is net of a credit valuation
adjustment attributable to derivative counterparty default risk. The changes in counterparty credit risk had no material effect
on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments
recognised at fair value.
Lenta Annual Report and Accounts 2015
129
30. Hedge and hedging instruments
The Group entered into interest rate swaps and caps provided by VTB Bank OJSC to mitigate the risk of a rising MosPrime
interest rate. Caps provide security for 4 quarters during the full periods of the agreement, so the termination date would the
earlier of the expiry date or the fourth settlement date for the floating amounts paid by VTB to the Group.
As at period end the Group had the following interest rate financial instruments:
Type of instrument
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate swap
Interest rate cap
Interest rate cap
Notional amount
2015
−
−
−
12,500,000
900,000
1,000,000
10,000,000
900,000
Notional amount
2014
6,250,000
3,000,000
3,250,000
12,500,000
900,000
1,000,000
10,000,000
900,000
Fixed
interest rate
7.33%
8.00%
8.15%
7.64%
7.54%
15.35%
12.00%
12.00%
Fixed
commission
Effective
date
n/a 30 September 2011
n/a 30 September 2011
n/a 30 September 2011
n/a
31 March 2015
31 December 2013
n/a
31 December 2014
n/a
0.54% 31 December 2014
0.45% 31 December 2013
Expiry
date
31 March 2015
31 March 2015
31 March 2015
12 April 2018
12 November 2018
31 December 2016
12 April 2018
12 November 2018
Derivative financial instruments are classified in the statement of financial position as follows:
Non-current asset
Current assets
Non-current liability
Current liability
Net derivative asset
31 December 2015 31 December 2014
765,257
1,969,920
(28,357)
−
2,706,820
355,414
439,050
(24,564)
(99,564)
670,336
The Group performs fair value assessment of the fair values of swaps and caps at the reporting date:
Swaps
Caps
Net derivative asset
31 December 2015 31 December 2014
2,154,537
552,283
2,706,820
755,481
(85,145)
670,336
Starting 1 July 2013 the Group applied cash flow hedge accounting of swaps and caps that meet prescribed criteria, including
preparation of all necessary documentation. Hedge accounting was applied prospectively from designation.
Retrospective and prospective effectiveness of cash flow hedges (swaps and caps) was measured by the Group using the
“dollar offset” method. The effective portion of the gain or loss on the hedging instrument was recognized in other comprehensive
income in hedging reserve.
The effect from changes in fair value of financial instruments is recognized as follows:
Profit or loss
Ineffective portion of the change in the fair value of cash flow hedging instruments
Reclassification from hedge reserve into interest expense
Other comprehensive income
Effective portion of the change in the fair value of cash flow hedging instruments
Reclassification from hedge reserve into interest expense
Year ended
31 December 2015
Year ended
31 December 2014
6,308
1,800,556
1,806,864
(19,488)
108,492
89,004
(525,963)
(1,800,556)
(2,326,519)
3,394,512
(108,492)
3,286,020
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015
130
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
31. Financial risk management
The Group’s principal financial liabilities, other than derivatives, comprise of loans and borrowings, trade and other payables.
The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support
its operations. The Group’s principal financial assets include loans, trade and other receivables, and cash and short-term
deposits that derive directly from its operations. The Group also enters into derivative transactions.
The Group is exposed to market risk, credit risk and liquidity risk. The Group’s senior management oversees the management
of these risks. The Group’s financial risk activities are governed by appropriate policies and procedures and financial risks
are identified, measured and managed in accordance with the Group’s policies and risk objectives. All derivative activities for
risk management purposes are carried out by specialists that have the appropriate skills, experience and supervision. It is the
Group’s policy that no trading in derivatives for speculative purposes may be undertaken.
The Board of Directors reviews and agrees policies for managing each of these risks, which are summarized below.
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market prices. Market risk comprises the following types of risk: interest rate risk, currency risk, and other price risk, such as
equity price risk. Financial instruments affected by market risk include loans and borrowings, cash equivalents and derivative
financial instruments.
Foreign currency risk
Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates.
During the year ended 31 December 2015 and year ended 31 December 2014, the Group did not attract any amounts of
foreign currency denominated borrowings, and as a consequence is not materially exposed to foreign currency risk. The only
balances that are exposed to foreign currency risk are accounts payables to several foreign suppliers.
At 31 December 2015 and at 31 December 2014 there were no significant amounts in foreign currencies.
Whenever possible, the Group tries to mitigate the exposure to foreign currency risk by matching the statement of financial
position, and revenue and expense items in the relevant currency.
Foreign currency sensitivity
The following table demonstrates the sensitivity to a reasonably possible change in the US dollar exchange rate, with all other
variables held constant.
Year ended 2015
Year ended 2014
Change in USD rate
40.00%
-13.00%
28.54%
-28.54%
Effect on profit
before tax
(49,033)
15,936
(39,259)
39,259
The following table demonstrates the sensitivity to a reasonably possible change in the EUR exchange rate, with all other
variables held constant.
Year ended 2015
Year ended 2014
Change in EUR rate
43.00%
-15.00%
29.58%
-29.58%
Effect on profit
before tax
(40,846)
14,249
(17,999)
17,999
Foreign currency exchange rate reasonable possible change range was prepared for the purpose of market risk disclosures in
accordance with IFRS 7 and is derived from statistical data, in particular time series analysis.
Lenta Annual Report and Accounts 2015 131
31. Financial risk management (continued)
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of the financial instrument will fluctuate because of changes
in market interest rates.
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations
with floating interest rates. As at 31 December 2015 these obligations are represented with long-term borrowing (Note 20),
which bears interest of MosPrime 1-3m plus margin. In order to hedge the risk of rising MosPrime interest rate, the Group
entered into interest rate swaps and caps (Note 30).
Interest rate sensitivity
The following tables demonstrate the sensitivity to a reasonably possible change in MosPrime rates, on that portion of loans
and borrowings affected, after the impact of hedge accounting. With all other variables held constant, the Group’s profit before
tax and OCI are affected through the impact on floating rate borrowings, as follows:
2015
Variable rate instruments
Interest rate swaps and caps
Cash flow sensitivity (net)
2014
Variable rate instruments
Interest rate swaps and caps
Cash flow sensitivity (net)
Profit or loss
OCI
600 bp increase
500 bp decrease
600 bp increase
500 bp decrease
(2,647,200)
1,519,500
(1,127,700)
2,647,200
(855,009)
1,792,191
−
1,761,327
1,761,327
−
(1,358,130)
(1,358,130)
Profit or loss
OCI
932 bp increase
932 bp decrease
932 bp increase
932 bp decrease
(3,122,160)
1,948,129
(1,174,031)
3,122,160
(629,572)
2,492,588
−
3,801,430
3,801,430
−
(4,020,129)
(4,020,129)
The range of reasonable possible changes in MosPrime rate was prepared for the purpose of market risk disclosures in
accordance with IFRS 7 and is based on risk metrics that are derived from statistical data, in particular time series analysis.
The Group is exposed to cash flow interest rate risk as it borrows funds at floating interest rates. During the year ended
31 December 2015 all of the Group’s borrowings were denominated in Russian roubles. The Group evaluates its interest rate
exposure and hedging activities on a regular basis and acts accordingly in order to align with the defined risk limits set by the
executive board. To ensure optimal hedging strategies various scenarios are simulated taking into consideration refinancing,
renewal of existing positions, alternative financing and financial hedging instruments.
The Group manages its cash flow interest rate risk by the use of floating to fixed interest rate swaps and caps. Such financial
instruments have the economic benefit of converting borrowings issued at variable rates to fixed interest rates. The Group’s
hedging instruments as at the reporting date are detailed in Note 30 of these financial statements. The sensitivity analyses
below have been determined based on the net exposure of interest bearing borrowings. The net exposure of the Group to
interest rate fluctuations as at 31 December 2015 was as follows:
Total floating rate borrowings (gross of direct issue costs)
Less notional amount of interest rate financial instruments (Note 30)
Net exposure to interest rate fluctuations
% of floating rate borrowings exposed to interest rate fluctuations
31 December 2015
46,054,240
(25,300,000)
20,754,240
45%
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 132
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
31. Financial risk management (continued)
Credit risk
Credit risk is the risk that counterparty may default or not meet its obligations to the Group on a timely basis, leading to
financial loss to the Group. Financial assets, which are potentially subject to credit risk, consist principally of cash in bank
accounts and cash in transit, loans and receivables.
In determining the recoverability of receivables the Group performs a risk analysis considering the credit quality of the
counterparty, the ageing of the outstanding amount and any past default experience.
Trade receivables
The Group has no significant concentrations of credit risk. Concentration of credit risk with respect to receivables is limited
due to the Company’s customer and vendor base being large and unrelated. Credit is only extended to counterparties subject
to strict approval procedures. The Group trades only with recognized, creditworthy third parties who are registered in the
Russian Federation. It is the Group’s policy that all customers who are granted credit terms have a history of purchases from
the Group. The Group also requires these customers to provide certain documents such as incorporation documents and
financial statements. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s
exposure to bad debts is not significant. Sales to retail customers are made in cash, debit cards or via major credit cards.
Cash and cash equivalents
Credit risk from investing activities is managed by the Group’s treasury department in accordance with the Group’s policy.
Investments of surplus funds are made only with approved counterparties. Cash is placed in financial institutions, which are
considered at time of deposit to have minimal risk of default.
The maximum exposure to credit risk at the reporting date of trade receivables is the carrying value as presented in the
statement of financial position. The maximum exposure to credit risk at the reporting date of cash and cash equivalents
is RUB 22,317,167 thousand (31 December 2014: RUB 11,927,252 thousand).
Liquidity risk
The Group monitors its risk to a shortage of funds using a recurring liquidity planning tool. This tool considers the maturity
of its financial assets and liabilities and projected cash flows from operations. The Group objective is to maintain a continuity
of funding and flexibility through the use of bank overdrafts and bank loans. Each year the Group analyzes its funding needs
and anticipated cash flows, so that it can determine its funding needs.
The table below summarizes the maturity profile of the Group’s financial liabilities at 31 December 2015, 31 December 2014
based on contractual undiscounted cash flows of the financial liabilities based on the earliest date on which the Group is
required to pay. The table includes both interest and principal cash flows. When the amount payable is not fixed for the entire
term of the instrument, such as variable rate interest payments, the amount disclosed in the table is determined by reference
to the conditions (e.g. MosPrime index) existing at the reporting date:
31 December 2015
Borrowings
Trade and other payables
Amounts payable under swaps and caps
Finance leasing
Total
31 December 2014
Borrowings
Trade and other payables
Amounts payable under swaps and caps
Finance leasing
Total
Less than
12 months
19,945,156
47,058,158
100,216
19,850
67,123,380
Less than
12 months
26,241,580
46,979,088
−
21,136
73,241,804
1-5 years
72,189,546
−
74,344
−
72,263,890
Over 5 years
15,328,782
−
−
−
15,328,782
Total
107,463,484
47,058,158
174,560
19,850
154,716,052
1-5 years
85,765,949
−
30,753
19,850
85,816,552
Over 5 years
3,697,212
−
−
−
3,697,212
Total
115,704,741
46,979,088
30,753
40,986
162,755,568
Lenta Annual Report and Accounts 2015 133
31. Financial risk management (continued)
Capital management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while
maximizing the return to stakeholders through the optimization of the debt and equity balance.
The Group reviews its capital needs periodically to determine actions to balance its overall capital structure through
shareholders’ capital contributions or new share issues, return of capital to shareholders as well as the issue of new debt
or the redemption of existing debt. The Group is guided in its decisions by an established financing policy, which stipulates
leverage ratios, interest coverage, covenants compliance, appropriateness of balance between long-term and short-term
debt, requirements to diversification of funding sources. Dividends are to be declared based on the capital requirements
of the business and with reference to continuing compliance with the financial policy.
The capital structure of the Group consists of debt, which includes the borrowings disclosed in Note 20, obligations under
finance leases less cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued
capital, reserves and retained earnings as disclosed in Note 17.
Net debt of the Group is comprised of the following:
Borrowings
Obligations under finance leases
Cash and cash equivalents (Note 16)
Net debt
31 December 2015 31 December 2014
71,215,370
35,465
(12,035,785)
59,215,050
75,922,374
18,577
(22,455,945)
53,485,006
Net debt is a non-IFRS indicator and, therefore, its calculation may differ between companies, however it is one of the key
indicators that are commonly used by investors and other users of financial statements in order to evaluate financial condition
of the Group.
32. Contingencies
Operating environment of the Group
The Group sells products that are sensitive to changes in general economic conditions that impact consumer spending.
Future economic conditions and other factors, including sanctions imposed, consumer confidence, employment levels,
interest rates, consumer debt levels and availability of consumer credit could reduce consumer spending or change consumer
purchasing habits. A general slowdown in the Russian economy or in the global economy, or an uncertain economic outlook,
could adversely affect consumer spending habits and the Group’s operating results.
By the Executive Order of the President of Russia On Special Economic Measures to Protect the Russian Federation’s
Security signed on 6 August 2014 it was prohibited to import into the territory of the Russian Federation certain agricultural
products, raw materials and foodstuffs originating in countries, that have decided to impose economic sanctions on Russian
legal entities and (or) individuals, or have joined such decision. By the Executive Order of the President of Russia On Special
Economic Measures to Protect the Russian Federation’s and Russian citizens Security from the criminal and other illegal
actions and the application of special economic measures against Turkey signed on 28 November 2015 it was prohibited to
import into the territory of the Russian Federation certain products from Turkey. The following countries are under embargo:
EU countries, USA, Australia, Canada, Norway and Turkey. A specific list of goods in respect of which the restrictions are
imposed was determined by the Russian Government. The list includes meat and dairy products, fish, vegetables, fruits,
nuts and some other products. The Group’s Management believes that these measures do not have material impact on the
Group’s operation.
Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market
economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the
effectiveness of economic, financial and monetary measures undertaken by the government.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 134
Notes to the consolidated financial statements continued
for the year ended 31 December 2015 (in thousands of Russian Roubles)
32. Contingencies (continued)
In 2015, the Russian economy continued to be negatively impacted by a significant drop in crude oil prices and a significant
devaluation of the Russian rouble, as well as sanctions imposed on Russia by several countries in 2014. The rouble interest
rates remained high after the Central Bank of Russia raised its key rate in December 2014, with subsequent gradual decrease
in 2015.
The combination of the above resulted in reduced access to capital, a higher cost of capital, increased inflation and
uncertainty regarding economic growth, which could negatively affect the Group’s future financial position, results of
operations and business prospects. Management believes it is taking appropriate measures to support the sustainability
of the Group’s business in the current circumstances.
Legal contingencies
Group companies are involved in a number of lawsuits and disputes that arise in the normal course of business. Management
assesses the maximum exposure relating to such lawsuits and disputes to be RUB 6,449 thousand as at 31 December 2015
(31 December 2014: RUB 1,841 thousand). Management believes there is no exceptional event or litigation likely to affect
materially the business, financial performance, net assets or financial position of the Group which have not been disclosed
in these consolidated financial statements.
Russian Federation tax and regulatory environment
The government of the Russian Federation continues to reform the business and commercial infrastructure in its transition
to a market economy. As a result the laws and regulations affecting businesses continue to change rapidly. These changes
are characterized by poor drafting, different interpretations and arbitrary application by the authorities. In particular taxes are
subject to review and investigation by a number of authorities who are enabled by law to impose fines and penalties. While the
Group believes it has provided adequately for all tax liabilities based on its understanding of the tax legislation, the above facts
may create tax risks for the Group. Management also assesses the maximum exposure from possible tax risks to be RUB
126,793 thousand (31 December 2014: RUB 1,030,479 thousand). No tax provisions were recorded as at 31 December 2015
and 31 December 2014. Management continues to monitor closely any developments related to these risks and regularly
reassesses the risk and related liabilities, provisions and disclosures.
Land leases
Certain lease agreements for land plots contain a 3 year lease term. Some of the 3 year lease agreements expired prior to
the date of these financial statements. The Group initiated the process of renewal of the lease agreements for 49 years and
believes that the risks relating to the operations of the respective stores are insignificant. No provisions in this respect were
accrued as at 31 December 2015 and 31 December 2014.
Environmental matters
The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of
government authorities is continually being reconsidered. The Group periodically evaluates its obligations under
environmental regulations. As obligations are determined, they are recognized immediately. Potential liabilities, which might
arise as a result of changes in existing regulations, civil litigation or legislation, cannot be estimated but could be material.
In the current enforcement climate under existing legislation, management believes that there are no significant liabilities for
environmental damage.
33. Events occurring after the reporting period
On 27 January 2016 the Group received RUB 7,000,000 thousand under non-revolving credit line agreement of with
PJSC Rosbank with maturity period of 3 years. The loan bears covenants with respect to Net debt / EBITDA and EBITDA /
Net interest expense
Lenta Annual Report and Accounts 2015 Appendices
135
Contents
List of cities as of
31 December, 2016
Glossary
Further information
Cautionary statements
136
138
139
140
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 136
List of cities as of 31 December 2015
Number
on the map
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
Cities1
Almetyevsk
Armavir
Astrakhan
Balakovo
Barnaul
Belgorod
Biysk
Bryansk
Cheboksary
Chelyabinsk
Cherepovets
Dimitrovgrad
Engels
Ivanovo
Irkutsk
Izhevsk
Kaluga
Kemerovo
Khanty-Mansiysk
Krasnodar
Krasnoyarsk
Lipetsk
Magnitogorsk
Moscow
Murmansk
Naberezhnye Chelny
Nizhny Novgorod
Nizhnekamsk
Nizhny Tagil
Novocherkassk
Novokuznetsk
Novorossiysk
Novosibirsk
Omsk
Orel
Number
of hypermarkets
1
1
1
1
2
2
1
1
1
3
2
1
1
3
1
1
1
3
1
2
2
1
1
8
1
1
3
1
2
1
5
2
7
4
1
Number of
supermarkets
Number of
distribution
centres
28
1
1
1 From 1 May 2015, all stores located in Moscow city and the Moscow Region are shown as ‘Moscow’.
All stores located in the Leningrad Region and St. Petersburg are shown as ‘St. Petersburg’.
Lenta Annual Report and Accounts 2015 137
Number of
supermarkets
Number of
distribution
centres
4
1
2
1
1
Number
on the map
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
Cities
Orenburg
Penza
Perm
Petrozavodsk
Prokopyevsk
Pskov
Rostov-on-Don
Ryazan
Saransk
Saratov
Smolensk
Stavropol
St. Petersburg
Surgut
Syktyvkar
Taganrog
Tobolsk
Togliatti
Tyumen
Tomsk
Tula
Tver
Veliky Novgorod
Vladimir
Volgograd
Vologda
Volzhski
Voronezh
Ufa
Ulyanovsk
Yaroslavl
Yekaterinburg
Yoshkar-Ola
Yurga
Zheleznovodsk
Number
of hypermarkets
2
2
1
1
1
1
2
2
1
2
1
1
20
2
1
1
1
2
4
1
1
1
2
1
3
1
1
2
2
2
2
1
1
1
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 138
Glossary
Unless otherwise specified, the terms ‘we’, ‘us’, and ‘our’ refer to Lenta Ltd., or where the context allows,
to the Lenta business more generally.
the 2014 Offering
active cardholder
the initial public offering of our Shares, in the form of GDRs, admitted to trading on the
London Stock Exchange and the Moscow Stock Exchange on 5 March 2014
a customer who has purchased goods at one of our stores at least twice in the past
12 months using our loyalty card
average sales density
total sales during the relevant year divided by the average selling space for that year
average ticket
the figure calculated by dividing total sales, net of VAT, at all stores during the relevant
year by the number of tickets in that year
the Board
the board of directors of Lenta Ltd
BVI
Capex
EGAIS
FMCG
GDRs
the British Virgin Islands
capital expenditure
national automated information system for the control of alcohol production
and distribution
fast-moving consumer goods – products that are sold quickly and at relatively low cost
global depositary receipts
in-store availability
the number of SKUs in-store with a positive stock value as a proportion of the total
number of active SKUs for sale, calculated based on the average daily in-store
availability of all open stores
LFL
P&L
SG&A
Shares
SKU
sq.m.
ticket
total selling space
like-for-like
profit and loss statement
Selling, General and Administrative Expenses, which is a major non-production cost
presented in the Income statement
our ordinary shares
a ‘stock keeping unit’, or a number assigned to a particular product to identify the
price, product options and manufacturer of the merchandise
square metre(s)
the receipt issued to a customer for his/her basket (the amount spent by a customer
on a shopping trip)
the area inside our stores used to sell products, excluding areas rented out to third
parties, own-production areas, storage areas and the space between store entry and
the cash desk line
traffic
the number of tickets issued for the period under review
Lenta Annual Report and Accounts 2015 Further information
139
In this annual report, we present certain operating and financial information regarding our hypermarkets and supermarkets,
which we define as follows:
Adjusted EBITDA
EBITDA adjusted for non-recurring one-off items such as changes in accounting
estimates and one-off non-operating costs
Adjusted EBITDA margin
Adjusted EBITDA as a percentage of sales
Adjusted EBITDAR
Adjusted EBITDA before rent paid on land, equipment and premises leases
Adjusted EBITDAR margin
Adjusted EBITDAR as a percentage of sales
EBITDA
like-for-like sales
Other metrics
Profit for the period before foreign exchange gains/losses, revaluation of financial
instruments at fair value through profit
or loss, reversal of impairment of non-financial assets, other expenses, depreciation
and amortisation, interest and tax.
The reconciliation of EBITDA to IFRS profit is presented in tabular format in note 6
to the Consolidated Financial Statements.
We distinguish between sales attributable to new stores and sales attributable to
existing stores. We consider the sales generated by stores until the end of the
12th full calendar month of their operation to be sales attributable to new stores.
Accordingly, like-for-like sales begin with the comparison of the 13th full calendar
month of operations of a store to its first full calendar month of operations, assuming
the store has not subsequently closed, expanded or down sized. The number
of stores in our like-for-like panel as of 31 December 2015 and 2014 was 109
(91 hypermarkets and 18 supermarkets) and 74 (68 hypermarkets and 6 supermarkets)
respectively. ‘Like-for-like average ticket growth’, ‘like-for-like average price growth
per article’, ‘like-for-like traffic growth’, and ‘like-for-like average sales density’ are
calculated using the same methodology as like-for-like sales.
Net debt is calculated as the sum of short-term and long-term debt (including
borrowings and obligations under finance leases, capitalised fees and accrued
interest) minus cash and cash equivalents. The ratio of net debt to Adjusted EBITDA
is net debt divided by Adjusted EBITDA. The ratio of Adjusted EBITDA to net interest
expense is Adjusted EBITDA divided by net interest expense, which is calculated as
interest expense less interest income. The ratio of Adjusted EBITDAR to net interest
expense plus rental expense ratio is Adjusted EBITDAR divided by the sum of net
interest expense and rental expenses. CROCI is defined as Adjusted EBITDA over
average capital invested. Average capital invested is the average of the book value
of gross non-current assets plus net working capital as of the beginning of the year
and the book value of gross non-current assets plus net working capital as of the
end of the year. Adjusted SG&A/Sales is SG&A, excluding expenses on land and
equipment leases, premises leases, depreciation and amortisation and one-off
expenses as a proportion of sales.
We have included these measures because we believe that they enhance an investor’s understanding of our financial
performance. However, these measures should not be used instead of, or considered as alternatives to, our historical
financial results based on IFRS. In addition, certain of our loan agreements contain financial covenants that are based
on certain of these measures. Our use of these measures may vary from other companies in our industry.
Strategic reportCorporate governanceFinancial statementsAppendices Lenta Annual Report and Accounts 2015 140
Lenta Annual Report and Accounts 2015
Cautionary statements
Forward-looking statements
This document contains certain ‘forward-looking statements’ which include all statements other than those of historical facts
that relate to our plans, financial position, objectives, goals, strategies, future operations and performance, together with the
assumptions underlying such matters.
We generally use words such as ‘estimates’, ‘expects’, ‘believes’, ‘intends’, ‘plans’, ‘may’, ‘will’, ‘should’, ‘projects’, ‘anticipates’,
‘targets’, ‘aims’, ‘would’, ‘could’, ‘continues’ and other similar expressions to identify forward-looking statements. We have
based these forward-looking statements on the current views of our management with regard to future events and performance.
These views reflect management’s best judgement, but involve uncertainties and are subject to certain known and unknown
risks together with other important factors outside our control, the occurrence of which could cause actual results to differ
materially from those expressed in our forward-looking statements.
Market and industry data
Statements referring to our competitive position and the Russian retail food sector reflect our beliefs and, in some cases, private
and publicly available information and statistics, including annual reports, industry publications, market research, press releases,
filings under various securities laws, official data published by Russian governmental entities and data published by international
organisations and other third-party sources.
Rounding
Certain figures in this document have been subject to rounding adjustments. Accordingly, figures shown for the same
category presented in different tables may vary slightly, and figures shown as totals in certain tables may not be an arithmetic
aggregation of the figures that precede them.
Designed and produced by Instinctif Partners www.instinctif.com
Lenta Ltd
Registered Office
P.O. Box 3340
Road Town
Tortola
British Virgin Islands
Lenta Headquarters
112 Savushkina Street
St. Petersburg
Russia 197374
Phone: +7 (812) 363-28-53
Fax: +7 (812) 380-61-50
www.lentainvestor.com
To see the report online go to:
www.lentainvestor.com/en/
investors/annual-reports
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